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(1) Business and Organization
Antero Midstream Partners LP (the “Partnership”) is a growth-oriented master limited partnership formed by Antero Resources Corporation (“Antero Resources”) to own, operate and develop midstream energy infrastructure primarily to service Antero Resources’ rapidly increasing production and completion activity in the Appalachian Basin’s Marcellus Shale and Utica Shale located in West Virginia and Ohio. The Partnership’s assets consist of gathering pipelines, compressor stations, and water handling and treatment assets, through which the Partnership provides midstream services to Antero Resources under long-term, fixed-fee contracts. The Partnership’s condensed consolidated financial statements as of June 30, 2017, include the accounts of the Partnership and its 100% owned operating subsidiaries: Antero Midstream LLC, Antero Water LLC (“Antero Water”), and Antero Treatment LLC. The condensed consolidated financial statements also include the accounts of Antero Midstream Finance Corporation (“Finance Corp”), a wholly owned subsidiary and the co-issuer of the Partnership’s senior notes. The Partnership’s 100% owned operating subsidiaries fully and unconditionally guarantee the Partnership’s outstanding debt securities on a joint and several basis. The Partnership has no independent assets or operations and there are no restrictions on the ability of the Partnership to obtain funds from its 100% owned subsidiaries by dividend or loan.
The Partnership also has a 15% equity interest in the gathering system of Stonewall Gas Gathering LLC (“Stonewall”) and a 50% interest in a joint venture to develop processing and fractionation assets with MarkWest Energy Partners, L.P. (“MarkWest”). See Note 11 – Equity Method Investments.
The Partnership’s financial statements are consolidated with the financial statements of Antero Resources (NYSE: AR), our primary beneficiary, for financial reporting purposes.
On April 6, 2017, in connection with its initial public offering, Antero Resources Midstream Management LLC (“ARMM”) formed Antero Midstream Partners GP LLC (“AMP GP”), a Delaware limited liability company, as a wholly owned subsidiary, and, on April 11, 2017, assigned to AMP GP the general partner interest in us. Concurrent with the assignment, AMP GP was admitted as the Partnership’s sole general partner and ARMM ceased to be our general partner.
On May 9, 2017, ARMM closed its initial public offering. In connection with the offering, ARMM was converted into a Delaware limited partnership, and changed its name to Antero Midstream GP LP (“AMGP”).
|
|||
(2)Summary of Significant Accounting Policies
(a) Basis of Presentation
These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) applicable to interim financial information and should be read in the context of the December 31, 2016 combined consolidated financial statements and notes thereto for a more complete understanding of the Partnership’s operations, financial position, and accounting policies. The December 31, 2016 combined consolidated financial statements have been filed with the SEC in the Partnership’s 2016 Form 10-K.
These unaudited condensed consolidated financial statements of the Partnership have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, and, accordingly, do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary to present fairly the Partnership’s financial position as of December 31, 2016 and June 30, 2017, the results of its operations for the three and six months ended June 30, 2016 and 2017, and its cash flows for the six months ended June 30, 2016 and 2017. The Partnership has no items of other comprehensive income or loss; therefore, its net income or loss is identical to its comprehensive income or loss. The Partnership’s statement of cash flows for the six months ended June 30, 2016 includes reclassifications within current liabilities that were made to conform to the six months ended June 30, 2017 presentation. The Partnership’s statement of operations and comprehensive income for the three and six months ended June 30, 2016 includes reclassifications within operating expenses that were made to conform to the three and six months ended June 30, 2017 presentation.
Certain costs of doing business that are incurred by Antero Resources on our behalf have been reflected in the condensed consolidated financial statements. These costs include general and administrative expenses attributed to us by Antero Resources in exchange for:
|
· |
business services, such as payroll, accounts payable and facilities management; |
|
· |
corporate services, such as finance and accounting, legal, human resources, investor relations and public and regulatory policy; and |
|
· |
employee compensation, including equity‑based compensation. |
Transactions between us and Antero Resources have been identified in the condensed consolidated financial statements (see Note 3—Transactions with Affiliates).
As of the date these condensed consolidated financial statements were filed with the SEC, the Partnership completed its evaluation of potential subsequent events for disclosure and no items requiring disclosure were identified, except the declaration of a cash distribution to unitholders, as described in Note 7—Partnership Equity and Distributions.
(b)Revenue Recognition
We provide gathering and compression and water handling and treatment services under fee-based contracts based on throughput or cost plus a margin. Under these arrangements, we receive fees for gathering oil and gas products, compression services, and water handling and treatment services. We recognize revenue when all of the following criteria are met: (1) persuasive evidence of an agreement exists, (2) services have been rendered, (3) prices are fixed or determinable and (4) collectability is reasonably assured.
(c) Use of Estimates
The preparation of the condensed consolidated financial statements and notes in conformity with GAAP requires that management formulate estimates and assumptions that affect revenues, expenses, assets, liabilities and the disclosure of contingent assets and liabilities. Items subject to estimates and assumptions include the useful lives of property and equipment and valuation of accrued liabilities, among others. Although management believes these estimates are reasonable, actual results could differ from these estimates.
(d)Cash and Cash Equivalents
We consider all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments.
(e)Property and Equipment
Property and equipment primarily consists of gathering pipelines, compressor stations and fresh water delivery pipelines and facilities stated at historical cost less accumulated depreciation. We capitalize construction-related direct labor and material costs. We also capitalize interest on capital costs related to the water treatment facility currently under construction. Maintenance and repair costs are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated useful lives and salvage values of assets. The depreciation of fixed assets recorded under capital lease agreements is included in depreciation expense. Uncertainties that may impact these estimates of useful lives include, among others, changes in laws and regulations relating to environmental matters, including air and water quality, restoration and abandonment requirements, economic conditions, and supply and demand for our services in the areas in which we operate. When assets are placed into service, management makes estimates with respect to useful lives and salvage values that management believes are reasonable. However, subsequent events could cause a change in estimates, thereby impacting future depreciation amounts.
Our investment in property and equipment was as follows as of December 31, 2016 and June 30, 2017 (in thousands):
|
|
|
Estimated |
|
December 31, |
|
June 30, |
|
||
|
Land |
|
n/a |
|
$ |
11,338 |
|
|
14,274 |
|
|
Fresh water surface pipelines and equipment |
|
5 years |
|
|
39,562 |
|
|
40,914 |
|
|
Above ground storage tanks |
|
10 years |
|
|
4,301 |
|
|
4,301 |
|
|
Fresh water permanent buried pipelines and equipment |
|
20 years |
|
|
443,453 |
|
|
473,594 |
|
|
Gathering systems and facilities |
|
20 years |
|
|
1,551,771 |
|
|
1,673,139 |
|
|
Construction-in-progress |
|
n/a |
|
|
400,096 |
|
|
500,744 |
|
|
Total property and equipment |
|
|
|
|
2,450,521 |
|
|
2,706,966 |
|
|
Less accumulated depreciation |
|
|
|
|
(254,642) |
|
|
(312,690) |
|
|
Property and equipment, net |
|
|
|
$ |
2,195,879 |
|
|
2,394,276 |
|
(f)Equity‑Based Compensation
Our condensed consolidated financial statements reflect various equity-based compensation awards granted by Antero Resources, as well as equity-based compensation awards associated with our own plan. These awards include restricted stock, stock options, and phantom units. For purposes of these condensed consolidated financial statements, we recognized as expense in each period an amount allocated from Antero Resources, with the offset included in partners’ capital. See Note 3—Transactions with Affiliates for additional information regarding Antero Resources’ allocation of expenses to us.
AMGP, in its capacity as the sole member of AMP GP (our “general partner”), has adopted the Antero Midstream Partners LP Long-Term Incentive Plan (“Midstream LTIP”), pursuant to which certain non-employee directors of our general partner and certain officers, employees and consultants of our general partner and its affiliates are eligible to receive awards representing equity interests in the Partnership. An aggregate of 10,000,000 common units may be delivered pursuant to awards under the Midstream LTIP, subject to customary adjustments. For accounting purposes, these units are treated as if they are distributed from us to Antero Resources. Antero Resources recognizes compensation expense for the units awarded to its employees and a portion of that expense is allocated to us. See Note 6—Equity-Based Compensation.
(g)Income Taxes
Our condensed consolidated financial statements do not include a provision for income taxes as we are treated as a partnership for federal and state income tax purposes, with each partner being separately taxed on its share of taxable income.
(h)Fair Value Measures
The Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance also relates to all nonfinancial assets and liabilities that are not recognized or disclosed on a recurring basis (e.g., the initial recognition of asset retirement obligations and impairments of long‑lived assets). The fair value is the price that we estimate would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is used to prioritize inputs to valuation techniques used to estimate fair value. An asset or liability subject to the fair value requirements is categorized within the hierarchy based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The highest priority (Level 1) is given to unadjusted quoted market prices in active markets for identical assets or liabilities, and the lowest priority (Level 3) is given to unobservable inputs. Level 2 inputs are data, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly.
(i) Investment in Unconsolidated Affiliates
The Partnership uses the equity method to account for its investments in companies if the investment provides the Partnership with the ability to exercise significant influence over, but not control, the operating and financial policies of the investee. The Partnership’s consolidated net income includes the Partnership’s proportionate share of the net income or loss of such companies. The Partnership’s judgment regarding the level of influence over each equity method investee includes considering key factors such as the Partnership’s ownership interest, representation on the board of directors and participation in policy-making decisions of the investee and material intercompany transactions. See Note 11–Equity Method Investments.
|
|||
(3)Related Party Transactions
Certain of the Partnership’s shareholders, including members of its executive management group, own a significant interest in the Partnership and, either through their representatives or directly, serve as members of the Board of Directors for Antero Resources and the Boards of Directors for the general partners of the Partnership and AMGP. These same groups or individuals own common shares in Antero Resources and common shares and other interests in AMGP, which indirectly owns the incentive distribution rights in the Partnership. The Partnership’s executive management group also manages the operations and business affairs of Antero Resources and AMGP.
(a)Revenues
Substantially all revenues earned were earned from Antero Resources under various agreements for gathering and compression and water services.
(b)Accounts receivable—Antero Resources and Accounts payable—Antero Resources
Accounts receivable—Antero Resources represents amounts due from Antero Resources, primarily related to gathering and compression services and water handling and treatment services. Accounts payable—Antero Resources represents amounts due to Antero Resources for general and administrative expenses, seconded employees, and other costs.
(c)Allocation of Costs
The employees supporting our operations are employees of Antero Resources. Direct operating expense includes allocated costs of $1.0 million and $1.2 million during the three months ended June 30, 2016 and 2017, respectively, and $1.8 million and $2.4 million during the six months ended June 30, 2016 and 2017, respectively, related to labor charges for Antero Resources employees associated with the operation of our gathering lines, compressor stations, and water handling and treatment assets. General and administrative expense includes allocated costs of $12.4 million and $13.8 million during the three months ended June 30, 2016 and 2017, respectively, and $23.9 million and $26.8 million during the six months ended June 30, 2016 and 2017, respectively. These costs relate to: (i) various business services, including payroll processing, accounts payable processing and facilities management, (ii) various corporate services, including legal, accounting, treasury, information technology and human resources and (iii) compensation, including equity-based compensation (see Note 6—Equity-Based Compensation for more information). These expenses are charged or allocated to us based on the nature of the expenses and are allocated based on a combination of our proportionate share of gross property and equipment, capital expenditures and labor costs, as applicable.
|
|||
(4)Long-Term Debt
Long-term debt was as follows at December 31, 2016 and June 30, 2017 (in thousands):
|
|
|
|
|
|
||
|
|
|
December 31, 2016 |
|
June 30, 2017 |
||
|
Revolving credit facility (a) |
|
$ |
210,000 |
|
|
305,000 |
|
5.375% senior notes due 2024 (b) |
|
|
650,000 |
|
|
650,000 |
|
Net unamortized debt issuance costs |
|
|
(10,086) |
|
|
(9,551) |
|
|
|
$ |
849,914 |
|
|
945,449 |
(a) Revolving Credit Facility
We have a secured revolving credit facility with a syndicate of bank lenders. The revolving credit facility provides for lender commitments of $1.5 billion and a letter of credit sublimit of $150 million. The revolving credit facility matures on November 10, 2019.
The revolving credit facility is ratably secured by mortgages on substantially all of our properties, including the properties of our subsidiaries, and guarantees from our subsidiaries. The revolving credit facility contains certain covenants including restrictions on indebtedness, and requirements with respect to leverage and interest coverage ratios. The revolving credit facility permits distributions to the holders of our equity interests in accordance with the cash distribution policy adopted by the board of directors of our general partner in connection with the Partnership’s initial public offering, provided that no event of default exists or would be caused thereby, and only to the extent permitted by our organizational documents. The Partnership was in compliance with all of the financial covenants under the revolving credit facility as of December 31, 2016 and June 30, 2017.
Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable quarterly or, in the case of Eurodollar Rate Loans, at the end of the applicable interest period if shorter than six months. Interest is payable at a variable rate based on LIBOR or the base rate, determined by election at the time of borrowing. Commitment fees on the unused portion of the revolving credit facility are due quarterly at rates ranging from 0.25% to 0.375% of the unused facility based on utilization.
At December 31, 2016 and June 30, 2017, we had borrowings under the revolving credit facility of $210 million and $305 million, respectively, with a weighted average interest rate of 2.23% and 2.62%, respectively. No letters of credit were outstanding at December 31, 2016 or June 30, 2017.
(b) 5.375% Senior Notes Due 2024
On September 13, 2016, the Partnership and Finance Corp, as co-issuers, issued $650 million in aggregate principal amount of 5.375% senior notes due September 15, 2024 (the “2024 Notes”) at par. The 2024 Notes are unsecured and effectively subordinated to the revolving credit facility to the extent of the value of the collateral securing the revolving credit facility. The 2024 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by the Partnership’s wholly-owned subsidiaries (other than Finance Corp) and certain of its future restricted subsidiaries. Interest on the 2024 Notes is payable on March 15 and September 15 of each year. The Partnership may redeem all or part of the 2024 Notes at any time on or after September 15, 2019 at redemption prices ranging from 104.031% on or after September 15, 2019 to 100.00% on or after September 15, 2022. In addition, prior to September 15, 2019, the Partnership may redeem up to 35% of the aggregate principal amount of the 2024 Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 105.375% of the principal amount of the 2024 Notes, plus accrued and unpaid interest. At any time prior to September 15, 2019, the Partnership may also redeem the 2024 Notes, in whole or in part, at a price equal to 100% of the principal amount of the 2024 Notes plus a “make-whole” premium and accrued and unpaid interest. If the Partnership undergoes a change of control, the holders of the 2024 Notes will have the right to require the Partnership to repurchase all or a portion of the notes at a price equal to 101% of the principal amount of the 2024 Notes, plus accrued and unpaid interest.
|
|||
(5) Accrued Liabilities
Accrued liabilities as of December 31, 2016 and June 30, 2017 consisted of the following items (in thousands):
|
|
|
December 31, 2016 |
|
June 30, 2017 |
||
|
Capital expenditures |
|
$ |
35,608 |
|
|
42,610 |
|
Operating expenses |
|
|
14,582 |
|
|
22,862 |
|
Interest |
|
|
10,613 |
|
|
10,681 |
|
Other |
|
|
838 |
|
|
943 |
|
|
|
$ |
61,641 |
|
|
77,096 |
|
|||
(6)Equity-Based Compensation
Our general and administrative expenses include equity-based compensation costs allocated to us by Antero Resources for grants made pursuant to Antero Resources’ long‑term incentive plan and the Midstream LTIP. Equity‑based compensation expense allocated to us was $6.8 million and $7.0 million for the three months ended June 30, 2016 and 2017, respectively, and $12.8 million and $13.2 million for the six months ended June 30, 2016 and 2017, respectively. These expenses were allocated to us based on our proportionate share of Antero Resources’ labor costs. Antero Resources has unamortized expense totaling approximately $168.2 million as of June 30, 2017 related to its various equity-based compensation plans, which includes the Midstream LTIP. A portion of this will be allocated to us as it is amortized over the remaining service period of the related awards.
Midstream LTIP
Our general partner manages our operations and activities, and Antero Resources employs the personnel who provide support to our operations pursuant to a secondment agreement between us and Antero Resources. Our general partner has adopted the Midstream LTIP, pursuant to which non‑employee directors of our general partner and certain officers, employees and consultants of our general partner and its affiliates are eligible to receive awards representing equity interests in the Partnership. An aggregate of 10,000,000 common units may be delivered pursuant to awards under the Midstream LTIP, subject to customary adjustments. A total of 7,667,042 common units are available for future grant under the Midstream LTIP as of June 30, 2017. Phantom units granted under the Midstream LTIP vest subject to the satisfaction of service requirements, upon the completion of which common units in the Partnership and distribution equivalent rights are delivered to the holder of the phantom units. Compensation related to each phantom unit award is recognized on a straight-line basis over the requisite service period of the entire award. The grant date fair values of these awards are determined based on the closing price of the Partnership’s common units on the date of grant. These units are accounted for as if they are distributed by the Partnership to Antero Resources. Antero Resources recognizes compensation expense for the units awarded and a portion of that expense is allocated to the Partnership. Antero Resources allocates equity-based compensation expense to the Partnership based on our proportionate share of Antero Resources’ labor costs. The Partnership’s portion of the equity-based compensation expense is included in general and administrative expenses, and recorded as a credit to the applicable classes of partners’ capital.
A summary of phantom unit awards activity during the six months ended June 30, 2017 is as follows:
|
|
|
|
|
Weighted |
|
Aggregate |
|
||
|
|
|
Number of |
|
grant date |
|
intrinsic value |
|
||
|
Total awarded and unvested—December 31, 2016 |
1,331,961 |
$ |
27.31 |
$ |
41,131 |
||||
|
Granted |
|
340,773 |
|
$ |
32.45 |
|
|
|
|
|
Vested |
|
(73,080) |
|
$ |
21.34 |
|
|
|
|
|
Forfeited |
|
(48,760) |
|
$ |
28.85 |
|
|
|
|
|
Total awarded and unvested—June 30, 2017 |
1,550,894 |
$ |
28.68 |
$ |
51,459 |
||||
Intrinsic values are based on the closing price of the Partnership’s common units on the referenced dates. Midstream LTIP unamortized expense of $34.5 million at June 30, 2017, is expected to be recognized over a weighted average period of approximately 2.3 years and our proportionate share will be allocated to us as it is recognized.
|
|||
(7)Partnership Equity and Distributions
Our Minimum Quarterly Distribution
Our partnership agreement provides for a minimum quarterly distribution of $0.17 per unit for each quarter, or $0.68 per unit on an annualized basis.
If cash distributions to our unitholders exceed $0.1955 per common unit in any quarter, our unitholders and the holder of our incentive distribution rights (“IDRs”), will receive distributions according to the following percentage allocations:
|
|
|
Marginal Percentage |
|
||
|
|
|
Interest in Distributions |
|
||
|
Total Quarterly Distribution |
|
|
|
Holder of |
|
|
Target Amount |
|
Unitholders |
|
IDRs |
|
|
above $0.1955 up to $0.2125 |
|
85 |
% |
15 |
% |
|
above $0.2125 up to $0.2550 |
|
75 |
% |
25 |
% |
|
above $0.2550 |
|
50 |
% |
50 |
% |
General Partner Interest
Our general partner owns a non-economic general partner interest in us, which does not entitle it to receive cash distributions. However, AMGP, in its capacity as the sole member of our general partner, controls the holder of the IDRs and may in the future own common units or other equity interests in us and would be entitled to receive distributions on any such interests.
Upon payment of the February 8, 2017 distribution to unitholders, the requirements for the conversion of all subordinated units were satisfied under our partnership agreement. As a result, effective February 9, 2017, the 75,940,957 subordinated units owned by Antero Resources were converted into common units on a one-for-one basis and now participate on terms equal with all other common units in distributions of available cash. The conversion did not impact the amount of the cash distributions paid by the Partnership or the total units outstanding, as shown on the “Conversion of subordinated units to common units” line item on our condensed consolidated Statement of Partners’ Capital.
Cash Distributions
The board of directors of our general partner has declared a cash distribution of $0.32 per unit for the quarter ended June 30, 2017. The distribution will be payable on August 16, 2017 to unitholders of record as of August 3, 2017.
The following table details the amount of quarterly distributions the Partnership paid for each of its partnership interests, with respect to the quarter indicated (in thousands, except per unit data):
|
|
|
|
|
|
|
Distributions |
|
|
|
||||||||||
|
|
|
|
|
|
|
Limited Partners |
|
|
|
|
|
|
|
|
|
||||
|
Quarter |
|
Record Date |
|
Distribution Date |
|
Common |
|
Subordinated |
|
Holder of IDRs |
|
Total |
|
Distributions |
|||||
|
Q4 2015 |
|
February 15, 2016 |
|
February 29, 2016 |
|
$ |
22,048 |
|
|
16,708 |
|
|
969 |
|
|
39,725 |
|
$ |
0.2200 |
|
Q1 2016 |
|
May 11, 2016 |
|
May 25, 2016 |
|
|
23,556 |
|
|
17,846 |
|
|
1,850 |
|
|
43,252 |
|
$ |
0.2350 |
|
Q2 2016 |
|
August 10, 2016 |
|
August 24, 2016 |
|
|
25,059 |
|
|
18,985 |
|
|
2,731 |
|
|
46,775 |
|
$ |
0.2500 |
|
Q3 2016 |
|
November 10, 2016 |
|
November 24, 2016 |
|
|
26,901 |
|
|
20,124 |
|
|
4,820 |
|
|
51,845 |
|
$ |
0.2650 |
|
* |
|
November 12, 2016 |
|
November 18, 2016 |
|
|
849 |
|
|
— |
|
|
— |
|
|
849 |
|
$ |
* |
|
|
|
Total 2016 |
|
|
|
$ |
98,413 |
|
|
73,663 |
|
|
10,370 |
|
|
182,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q4 2016 |
|
February 1, 2017 |
|
February 8, 2017 |
|
$ |
28,827 |
|
|
21,263 |
|
|
7,543 |
|
|
57,633 |
|
$ |
0.2800 |
|
* |
|
April 21, 2017 |
|
April 30, 2017 |
|
|
75 |
|
|
— |
|
|
— |
|
|
75 |
|
$ |
* |
|
Q1 2017 |
|
May 3, 2017 |
|
May 10, 2017 |
|
|
55,753 |
|
|
— |
|
|
11,553 |
|
|
67,306 |
|
$ |
0.3000 |
|
|
|
Total 2017 |
|
|
|
$ |
84,655 |
|
|
21,263 |
|
|
19,096 |
|
|
125,014 |
|
|
|
* Distribution equivalent rights on units that vested under the Midstream LTIP
|
|||
(8)Net Income Per Limited Partner Unit
The Partnership’s net income is attributed to the limited partners, in accordance with their respective ownership percentages, and when applicable, giving effect to incentive distributions paid to the holders of the incentive distribution rights. Basic and diluted net income per limited partner unit is calculated by dividing limited partners’ interest in net income, less incentive distributions, by the weighted average number of outstanding limited partner units during the period.
We compute earnings per unit using the two-class method for master limited partnerships. Under the two-class method, earnings per unit is calculated as if all of the earnings for the period were distributed under the terms of the partnership agreement, regardless of whether the general partner has discretion over the amount of distributions to be made in any particular period, whether those earnings would actually be distributed during a particular period from an economic or practical perspective, or whether the general partner has other legal or contractual limitations on its ability to pay distributions that would prevent it from distributing all of the earnings for a particular period.
We calculate net income available to limited partners based on the distributions pertaining to the current period’s net income. After adjusting for the appropriate period’s distributions, the remaining undistributed earnings or excess distributions over earnings, if any, are attributed in accordance with the contractual terms of the partnership agreement under the two-class method.
Basic earnings per unit is computed by dividing net earnings attributable to unitholders by the weighted average number of units outstanding during each period. Diluted net income per limited partner unit reflects the potential dilution that could occur if agreements to issue common units, such as awards under long-term incentive plans, were exercised, settled or converted into common units. When it is determined that potential common units resulting from an award should be included in the diluted net income per limited partner unit calculation, the impact is reflected by applying the treasury stock method. Earnings per common unit assuming dilution for the three months ended June 30, 2017 was calculated based on the diluted weighted average number of units outstanding of 186,532,700, including 467,540 dilutive units attributable to non-vested phantom unit awards. Earnings per common unit assuming dilution for the six months ended June 30, 2017 was calculated based on the diluted weighted average number of units outstanding of 185,001,686, including 443,981 dilutive units attributable to non-vested phantom unit awards.
The Partnership’s calculation of net income per limited partner unit for the periods indicated is as follows (in thousands, except per unit data):
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|||||||||||||||||||
|
|
|
2016 |
|
2017 |
|
2016 |
|
2017 |
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net income |
|
$ |
49,912 |
|
|
87,175 |
|
$ |
92,829 |
|
|
162,267 |
|||||||||||
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net income attributable to incentive distribution rights |
|
|
(2,731) |
|
|
(15,328) |
|
|
(4,581) |
|
|
(26,881) |
|||||||||||
|
Limited partner interest in net income |
|
$ |
47,181 |
|
|
71,847 |
|
$ |
88,248 |
|
|
135,386 |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net income per limited partner unit - basic and diluted |
|
$ |
0.27 |
|
|
0.39 |
|
$ |
0.50 |
|
|
0.73 |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Weighted average limited partner units outstanding - basic |
|
|
176,172 |
|
|
186,065 |
|
|
176,167 |
|
|
184,558 |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Weighted average limited partner units outstanding - diluted |
|
|
176,226 |
|
|
186,533 |
|
|
176,203 |
|
|
185,002 |
|||||||||||
|
|||
(9) Sale of Common Units Under Equity Distribution Agreement
During the third quarter of 2016, the Partnership entered into an Equity Distribution Agreement and in first quarter of 2017 amended and restated the Equity Distribution Agreement (as amended and restated, the “Distribution Agreement”), pursuant to which the Partnership may sell, from time to time through brokers acting as its sales agents, common units representing limited partner interests having an aggregate offering price of up to $250 million. The offer and sale of common units under the program has been registered with the SEC on an effective registration statement on Form S-3. Sales of the common units may be made by means of ordinary brokers’ transactions on the New York Stock Exchange, at market prices, in block transactions, or as otherwise agreed to between the Partnership and the sales agents. Proceeds are expected to be used for general partnership purposes, which may include repayment of indebtedness and funding working capital or capital expenditures. The Partnership is under no obligation to offer and sell common units under the Distribution Agreement.
During the six months ended June 30, 2017, the Partnership issued and sold 700,031 common units under the Distribution Agreement, resulting in net proceeds of $23.1 million. As of June 30, 2017, the Partnership had the capacity to issue additional common units under the Distribution Agreement up to an aggregate sales price of $159.9 million.
|
|||
(10) Fair Value Measurement
In connection with Antero Resources’ contribution of Antero Water and certain wastewater treatment assets to the Partnership in September 2015 (“Water Acquisition”), we agreed to pay Antero Resources (a) $125 million in cash if the Partnership delivers 176,295,000 barrels or more of fresh water during the period between January 1, 2017 and December 31, 2019 and (b) an additional $125 million in cash if the Partnership delivers 219,200,000 barrels or more of fresh water during the period between January 1, 2018 and December 31, 2020. This contingent consideration liability is valued based on Level 3 inputs.
The following table provides a reconciliation of changes in Level 3 financial liabilities measured at fair value on a recurring basis (in thousands):
|
Beginning balance - December 31, 2016 |
$ |
194,538 |
|
Accretion |
|
7,116 |
|
Ending balance - June 30, 2017 |
$ |
201,654 |
We account for contingent consideration in accordance with applicable accounting guidance pertaining to business combinations. We are contractually obligated to pay Antero Resources contingent consideration in connection with the Water Acquisition, and therefore recorded this contingent consideration liability at the time of the Water Acquisition. We update our assumptions each reporting period based on new developments and adjust such amounts to fair value based on revised assumptions, if applicable, until such consideration is satisfied through payment upon achievement of the specified objectives or it is eliminated upon failure to achieve the specified objectives.
As of June 30, 2017, we expect to pay the entire amount of the contingent consideration amounts in 2019 and 2020. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future milestone payments was based on the risk adjusted present value of the contingent consideration payout.
The carrying values of accounts receivable and accounts payable at December 31, 2016 and June 30, 2017 approximated market value because of their short-term nature. The carrying value of the amounts under the revolving credit facility at December 31, 2016 and June 30, 2017 approximated fair value because the variable interest rates are reflective of current market conditions.
Based on Level 2 market data inputs, the fair value of the Partnership’s 2024 Notes was approximately $667.7 million at June 30, 2017.
|
|||
(11) Equity Method Investments
On February 6, 2017, we formed a joint venture to develop processing and fractionation assets in Appalachia (the “Joint Venture”) with MarkWest, a wholly owned subsidiary of MPLX, LP. We and MarkWest each own a 50% interest in the Joint Venture and MarkWest operates the Joint Venture assets. The Joint Venture assets consist of processing plants in West Virginia, and a one-third interest in a recently commissioned MarkWest fractionator in Ohio.
In conjunction with the Joint Venture, on February 10, 2017 we issued 6,900,000 common units, including common units issued pursuant to the underwriters’ option to purchase additional common units, resulting in net proceeds of approximately $223 million (the “Offering”). We used the proceeds from the Offering to repay outstanding borrowings under our revolving credit facility incurred to fund the investment in the Joint Venture, and for general partnership purposes.
In the second quarter of 2016, the Partnership exercised its option to purchase a 15% equity interest in Stonewall, which operates the 67-mile Stonewall pipeline on which Antero is an anchor shipper.
Our condensed consolidated net income includes the Partnership’s proportionate share of the net income of equity method investees. When the Partnership records its proportionate share of net income, it increases equity income in the condensed consolidated statements of operations and comprehensive income and the carrying value of that investment. The Partnership uses the equity method of accounting to account for its investments in Stonewall and the Joint Venture because the Partnership exercises significant influence over the entities. Our judgment regarding the level of influence over our equity investments includes considering key factors such as the Partnership’s ownership interest, representation on the board of directors and participation in policy-making decisions of Stonewall and the Joint Venture.
The following table is a reconciliation of our investments in unconsolidated affiliates as presented on our condensed consolidated balance sheets (in thousands):
|
|
|
|
|
MarkWest |
|
Total Investment in |
|
|
|
Stonewall |
|
Joint Venture |
|
Unconsolidated Affiliates |
|
Balance at December 31, 2016 |
$ |
68,299 |
|
— |
|
68,299 |
|
Initial investment |
|
— |
|
153,770 |
|
153,770 |
|
Additional investments |
|
— |
|
37,594 |
|
37,594 |
|
Equity in net income of unconsolidated affiliates |
|
5,085 |
|
769 |
|
5,854 |
|
Distributions from unconsolidated affiliates |
|
(5,820) |
|
— |
|
(5,820) |
|
Balance at June 30, 2017 |
$ |
67,564 |
|
192,133 |
|
259,697 |
|
|||
(12) Reporting Segments
The Partnership’s operations are located in the United States and are organized into two reporting segments: (1) gathering and processing and (2) water handling and treatment.
Gathering and Processing
The gathering and processing segment includes a network of gathering pipelines, compressor stations, and interests in processing and fractionation plants that collect and process natural gas, NGLs and oil from Antero Resources’ wells in West Virginia and Ohio.
Water Handling and Treatment
The Partnership’s water handling and treatment segment includes two independent systems that deliver fresh water from sources including the Ohio River, local reservoirs as well as several regional waterways. The water handling and treatment segment also includes other fluid handling services which includes high rate transfer, wastewater transportation, disposal and treatment.
These segments are monitored separately by management for performance and are consistent with internal financial reporting. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations. We evaluate the performance of the Partnership’s business segments based on operating income. Interest expense is primarily managed and evaluated on a consolidated basis.
Summarized financial information concerning the Partnership’s segments for the periods indicated is shown in the following table (in thousands):
|
|
|
|
|
|
Water |
|
|
|
|
|
|
|
Gathering and |
|
Handling and |
|
Consolidated |
|||
|
|
|
Processing |
|
Treatment |
|
Total |
|||
|
Three months ended June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
Revenue - Antero Resources |
|
$ |
71,715 |
|
|
64,893 |
|
|
136,608 |
|
Revenue - third-party |
|
|
202 |
|
|
— |
|
|
202 |
|
Total revenues |
|
|
71,917 |
|
|
64,893 |
|
|
136,810 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
7,447 |
|
|
35,150 |
|
|
42,597 |
|
General and administrative (before equity-based compensation) |
|
|
4,837 |
|
|
1,675 |
|
|
6,512 |
|
Equity-based compensation |
|
|
5,301 |
|
|
1,492 |
|
|
6,793 |
|
Depreciation |
|
|
16,964 |
|
|
7,176 |
|
|
24,140 |
|
Accretion of contingent acquisition consideration |
|
|
— |
|
|
3,461 |
|
|
3,461 |
|
Total expenses |
|
|
34,549 |
|
|
48,954 |
|
|
83,503 |
|
Operating income |
|
$ |
37,368 |
|
|
15,939 |
|
|
53,307 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates |
|
$ |
484 |
|
|
- |
|
|
484 |
|
Total assets |
|
$ |
1,583,246 |
|
|
569,624 |
|
|
2,152,870 |
|
Additions to property and equipment |
|
$ |
48,283 |
|
|
41,589 |
|
|
89,872 |
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
Revenue - Antero Resources |
|
$ |
98,633 |
|
|
95,004 |
|
|
193,637 |
|
Revenue - third-party |
|
|
129 |
|
|
— |
|
|
129 |
|
Total revenues |
|
|
98,762 |
|
|
95,004 |
|
|
193,766 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
9,922 |
|
|
42,386 |
|
|
52,308 |
|
General and administrative (before equity-based compensation) |
|
|
5,468 |
|
|
2,370 |
|
|
7,838 |
|
Equity-based compensation |
|
|
5,237 |
|
|
1,714 |
|
|
6,951 |
|
Depreciation |
|
|
22,271 |
|
|
8,241 |
|
|
30,512 |
|
Accretion of contingent acquisition consideration |
|
|
— |
|
|
3,590 |
|
|
3,590 |
|
Total expenses |
|
|
42,898 |
|
|
58,301 |
|
|
101,199 |
|
Operating income |
|
$ |
55,864 |
|
|
36,703 |
|
|
92,567 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates |
|
$ |
3,623 |
|
|
- |
|
|
3,623 |
|
Total assets |
|
$ |
2,050,202 |
|
|
711,735 |
|
|
2,761,937 |
|
Additions to property and equipment |
|
$ |
88,806 |
|
|
58,497 |
|
|
147,303 |
|
|
|
|
|
|
Water |
|
|
|
|
|
|
|
Gathering and |
|
Handling and |
|
Consolidated |
|||
|
|
|
Processing |
|
Treatment |
|
Total |
|||
|
Six months ended June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
Revenue - Antero Resources |
|
$ |
141,066 |
|
$ |
131,339 |
|
$ |
272,405 |
|
Revenue - third-party |
|
|
477 |
|
|
- |
|
|
477 |
|
Total revenues |
|
|
141,543 |
|
|
131,339 |
|
|
272,882 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
15,066 |
|
|
76,672 |
|
|
91,738 |
|
General and administrative (before equity-based compensation) |
|
|
9,785 |
|
|
3,846 |
|
|
13,631 |
|
Equity-based compensation |
|
|
9,688 |
|
|
3,078 |
|
|
12,766 |
|
Depreciation |
|
|
33,826 |
|
|
14,137 |
|
|
47,963 |
|
Accretion of contingent acquisition consideration |
|
|
- |
|
|
6,857 |
|
|
6,857 |
|
Total expenses |
|
|
68,365 |
|
|
104,590 |
|
|
172,955 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
73,178 |
|
$ |
26,749 |
|
$ |
99,927 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates |
|
$ |
484 |
|
$ |
- |
|
$ |
484 |
|
Total assets |
|
$ |
1,583,246 |
|
$ |
569,624 |
|
$ |
2,152,870 |
|
Additions to property and equipment |
|
$ |
96,969 |
|
$ |
78,625 |
|
$ |
175,594 |
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
Revenue - Antero Resources |
|
$ |
190,157 |
|
|
178,115 |
|
|
368,272 |
|
Revenue - third-party |
|
|
264 |
|
|
— |
|
|
264 |
|
Total revenues |
|
|
190,421 |
|
|
178,115 |
|
|
368,536 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
18,036 |
|
|
81,826 |
|
|
99,862 |
|
General and administrative (before equity-based compensation) |
|
|
11,017 |
|
|
4,992 |
|
|
16,009 |
|
Equity-based compensation |
|
|
9,826 |
|
|
3,411 |
|
|
13,237 |
|
Depreciation |
|
|
41,970 |
|
|
16,078 |
|
|
58,048 |
|
Accretion of contingent acquisition consideration |
|
|
— |
|
|
7,116 |
|
|
7,116 |
|
Total expenses |
|
|
80,849 |
|
|
113,423 |
|
|
194,272 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
109,572 |
|
|
64,692 |
|
|
174,264 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates |
|
$ |
5,854 |
|
|
— |
|
|
5,854 |
|
Total assets |
|
$ |
2,050,202 |
|
|
711,735 |
|
|
2,761,937 |
|
Additions to property and equipment |
|
$ |
155,365 |
|
|
95,451 |
|
|
250,816 |
|
|||
(a) Basis of Presentation
These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) applicable to interim financial information and should be read in the context of the December 31, 2016 combined consolidated financial statements and notes thereto for a more complete understanding of the Partnership’s operations, financial position, and accounting policies. The December 31, 2016 combined consolidated financial statements have been filed with the SEC in the Partnership’s 2016 Form 10-K.
These unaudited condensed consolidated financial statements of the Partnership have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, and, accordingly, do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary to present fairly the Partnership’s financial position as of December 31, 2016 and June 30, 2017, the results of its operations for the three and six months ended June 30, 2016 and 2017, and its cash flows for the six months ended June 30, 2016 and 2017. The Partnership has no items of other comprehensive income or loss; therefore, its net income or loss is identical to its comprehensive income or loss. The Partnership’s statement of cash flows for the six months ended June 30, 2016 includes reclassifications within current liabilities that were made to conform to the six months ended June 30, 2017 presentation. The Partnership’s statement of operations and comprehensive income for the three and six months ended June 30, 2016 includes reclassifications within operating expenses that were made to conform to the three and six months ended June 30, 2017 presentation.
Certain costs of doing business that are incurred by Antero Resources on our behalf have been reflected in the condensed consolidated financial statements. These costs include general and administrative expenses attributed to us by Antero Resources in exchange for:
|
· |
business services, such as payroll, accounts payable and facilities management; |
|
· |
corporate services, such as finance and accounting, legal, human resources, investor relations and public and regulatory policy; and |
|
· |
employee compensation, including equity‑based compensation. |
Transactions between us and Antero Resources have been identified in the condensed consolidated financial statements (see Note 3—Transactions with Affiliates).
As of the date these condensed consolidated financial statements were filed with the SEC, the Partnership completed its evaluation of potential subsequent events for disclosure and no items requiring disclosure were identified, except the declaration of a cash distribution to unitholders, as described in Note 7—Partnership Equity and Distributions.
(b)Revenue Recognition
We provide gathering and compression and water handling and treatment services under fee-based contracts based on throughput or cost plus a margin. Under these arrangements, we receive fees for gathering oil and gas products, compression services, and water handling and treatment services. We recognize revenue when all of the following criteria are met: (1) persuasive evidence of an agreement exists, (2) services have been rendered, (3) prices are fixed or determinable and (4) collectability is reasonably assured.
(c) Use of Estimates
The preparation of the condensed consolidated financial statements and notes in conformity with GAAP requires that management formulate estimates and assumptions that affect revenues, expenses, assets, liabilities and the disclosure of contingent assets and liabilities. Items subject to estimates and assumptions include the useful lives of property and equipment and valuation of accrued liabilities, among others. Although management believes these estimates are reasonable, actual results could differ from these estimates.
(d)Cash and Cash Equivalents
We consider all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments.
(e)Property and Equipment
Property and equipment primarily consists of gathering pipelines, compressor stations and fresh water delivery pipelines and facilities stated at historical cost less accumulated depreciation. We capitalize construction-related direct labor and material costs. We also capitalize interest on capital costs related to the water treatment facility currently under construction. Maintenance and repair costs are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated useful lives and salvage values of assets. The depreciation of fixed assets recorded under capital lease agreements is included in depreciation expense. Uncertainties that may impact these estimates of useful lives include, among others, changes in laws and regulations relating to environmental matters, including air and water quality, restoration and abandonment requirements, economic conditions, and supply and demand for our services in the areas in which we operate. When assets are placed into service, management makes estimates with respect to useful lives and salvage values that management believes are reasonable. However, subsequent events could cause a change in estimates, thereby impacting future depreciation amounts.
Our investment in property and equipment was as follows as of December 31, 2016 and June 30, 2017 (in thousands):
|
|
|
Estimated |
|
December 31, |
|
June 30, |
|
||
|
Land |
|
n/a |
|
$ |
11,338 |
|
|
14,274 |
|
|
Fresh water surface pipelines and equipment |
|
5 years |
|
|
39,562 |
|
|
40,914 |
|
|
Above ground storage tanks |
|
10 years |
|
|
4,301 |
|
|
4,301 |
|
|
Fresh water permanent buried pipelines and equipment |
|
20 years |
|
|
443,453 |
|
|
473,594 |
|
|
Gathering systems and facilities |
|
20 years |
|
|
1,551,771 |
|
|
1,673,139 |
|
|
Construction-in-progress |
|
n/a |
|
|
400,096 |
|
|
500,744 |
|
|
Total property and equipment |
|
|
|
|
2,450,521 |
|
|
2,706,966 |
|
|
Less accumulated depreciation |
|
|
|
|
(254,642) |
|
|
(312,690) |
|
|
Property and equipment, net |
|
|
|
$ |
2,195,879 |
|
|
2,394,276 |
|
(f)Equity‑Based Compensation
Our condensed consolidated financial statements reflect various equity-based compensation awards granted by Antero Resources, as well as equity-based compensation awards associated with our own plan. These awards include restricted stock, stock options, and phantom units. For purposes of these condensed consolidated financial statements, we recognized as expense in each period an amount allocated from Antero Resources, with the offset included in partners’ capital. See Note 3—Transactions with Affiliates for additional information regarding Antero Resources’ allocation of expenses to us.
AMGP, in its capacity as the sole member of AMP GP (our “general partner”), has adopted the Antero Midstream Partners LP Long-Term Incentive Plan (“Midstream LTIP”), pursuant to which certain non-employee directors of our general partner and certain officers, employees and consultants of our general partner and its affiliates are eligible to receive awards representing equity interests in the Partnership. An aggregate of 10,000,000 common units may be delivered pursuant to awards under the Midstream LTIP, subject to customary adjustments. For accounting purposes, these units are treated as if they are distributed from us to Antero Resources. Antero Resources recognizes compensation expense for the units awarded to its employees and a portion of that expense is allocated to us. See Note 6—Equity-Based Compensation.
(g)Income Taxes
Our condensed consolidated financial statements do not include a provision for income taxes as we are treated as a partnership for federal and state income tax purposes, with each partner being separately taxed on its share of taxable income.
(h)Fair Value Measures
The Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance also relates to all nonfinancial assets and liabilities that are not recognized or disclosed on a recurring basis (e.g., the initial recognition of asset retirement obligations and impairments of long‑lived assets). The fair value is the price that we estimate would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is used to prioritize inputs to valuation techniques used to estimate fair value. An asset or liability subject to the fair value requirements is categorized within the hierarchy based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The highest priority (Level 1) is given to unadjusted quoted market prices in active markets for identical assets or liabilities, and the lowest priority (Level 3) is given to unobservable inputs. Level 2 inputs are data, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly.
(i) Investment in Unconsolidated Affiliates
The Partnership uses the equity method to account for its investments in companies if the investment provides the Partnership with the ability to exercise significant influence over, but not control, the operating and financial policies of the investee. The Partnership’s consolidated net income includes the Partnership’s proportionate share of the net income or loss of such companies. The Partnership’s judgment regarding the level of influence over each equity method investee includes considering key factors such as the Partnership’s ownership interest, representation on the board of directors and participation in policy-making decisions of the investee and material intercompany transactions. See Note 11–Equity Method Investments.
|
|||
Our investment in property and equipment was as follows as of December 31, 2016 and June 30, 2017 (in thousands):
|
|
|
Estimated |
|
December 31, |
|
June 30, |
|
||
|
Land |
|
n/a |
|
$ |
11,338 |
|
|
14,274 |
|
|
Fresh water surface pipelines and equipment |
|
5 years |
|
|
39,562 |
|
|
40,914 |
|
|
Above ground storage tanks |
|
10 years |
|
|
4,301 |
|
|
4,301 |
|
|
Fresh water permanent buried pipelines and equipment |
|
20 years |
|
|
443,453 |
|
|
473,594 |
|
|
Gathering systems and facilities |
|
20 years |
|
|
1,551,771 |
|
|
1,673,139 |
|
|
Construction-in-progress |
|
n/a |
|
|
400,096 |
|
|
500,744 |
|
|
Total property and equipment |
|
|
|
|
2,450,521 |
|
|
2,706,966 |
|
|
Less accumulated depreciation |
|
|
|
|
(254,642) |
|
|
(312,690) |
|
|
Property and equipment, net |
|
|
|
$ |
2,195,879 |
|
|
2,394,276 |
|
|
|||
Long-term debt was as follows at December 31, 2016 and June 30, 2017 (in thousands):
|
|
|
|
|
|
||
|
|
|
December 31, 2016 |
|
June 30, 2017 |
||
|
Revolving credit facility (a) |
|
$ |
210,000 |
|
|
305,000 |
|
5.375% senior notes due 2024 (b) |
|
|
650,000 |
|
|
650,000 |
|
Net unamortized debt issuance costs |
|
|
(10,086) |
|
|
(9,551) |
|
|
|
$ |
849,914 |
|
|
945,449 |
|
|||
Accrued liabilities as of December 31, 2016 and June 30, 2017 consisted of the following items (in thousands):
|
|
|
December 31, 2016 |
|
June 30, 2017 |
||
|
Capital expenditures |
|
$ |
35,608 |
|
|
42,610 |
|
Operating expenses |
|
|
14,582 |
|
|
22,862 |
|
Interest |
|
|
10,613 |
|
|
10,681 |
|
Other |
|
|
838 |
|
|
943 |
|
|
|
$ |
61,641 |
|
|
77,096 |
|
|||
|
|
|
|
|
Weighted |
|
Aggregate |
|
||
|
|
|
Number of |
|
grant date |
|
intrinsic value |
|
||
|
Total awarded and unvested—December 31, 2016 |
1,331,961 |
$ |
27.31 |
$ |
41,131 |
||||
|
Granted |
|
340,773 |
|
$ |
32.45 |
|
|
|
|
|
Vested |
|
(73,080) |
|
$ |
21.34 |
|
|
|
|
|
Forfeited |
|
(48,760) |
|
$ |
28.85 |
|
|
|
|
|
Total awarded and unvested—June 30, 2017 |
1,550,894 |
$ |
28.68 |
$ |
51,459 |
||||
|
|||
|
|
|
Marginal Percentage |
|
||
|
|
|
Interest in Distributions |
|
||
|
Total Quarterly Distribution |
|
|
|
Holder of |
|
|
Target Amount |
|
Unitholders |
|
IDRs |
|
|
above $0.1955 up to $0.2125 |
|
85 |
% |
15 |
% |
|
above $0.2125 up to $0.2550 |
|
75 |
% |
25 |
% |
|
above $0.2550 |
|
50 |
% |
50 |
% |
The following table details the amount of quarterly distributions the Partnership paid for each of its partnership interests, with respect to the quarter indicated (in thousands, except per unit data):
|
|
|
|
|
|
|
Distributions |
|
|
|
||||||||||
|
|
|
|
|
|
|
Limited Partners |
|
|
|
|
|
|
|
|
|
||||
|
Quarter |
|
Record Date |
|
Distribution Date |
|
Common |
|
Subordinated |
|
Holder of IDRs |
|
Total |
|
Distributions |
|||||
|
Q4 2015 |
|
February 15, 2016 |
|
February 29, 2016 |
|
$ |
22,048 |
|
|
16,708 |
|
|
969 |
|
|
39,725 |
|
$ |
0.2200 |
|
Q1 2016 |
|
May 11, 2016 |
|
May 25, 2016 |
|
|
23,556 |
|
|
17,846 |
|
|
1,850 |
|
|
43,252 |
|
$ |
0.2350 |
|
Q2 2016 |
|
August 10, 2016 |
|
August 24, 2016 |
|
|
25,059 |
|
|
18,985 |
|
|
2,731 |
|
|
46,775 |
|
$ |
0.2500 |
|
Q3 2016 |
|
November 10, 2016 |
|
November 24, 2016 |
|
|
26,901 |
|
|
20,124 |
|
|
4,820 |
|
|
51,845 |
|
$ |
0.2650 |
|
* |
|
November 12, 2016 |
|
November 18, 2016 |
|
|
849 |
|
|
— |
|
|
— |
|
|
849 |
|
$ |
* |
|
|
|
Total 2016 |
|
|
|
$ |
98,413 |
|
|
73,663 |
|
|
10,370 |
|
|
182,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q4 2016 |
|
February 1, 2017 |
|
February 8, 2017 |
|
$ |
28,827 |
|
|
21,263 |
|
|
7,543 |
|
|
57,633 |
|
$ |
0.2800 |
|
* |
|
April 21, 2017 |
|
April 30, 2017 |
|
|
75 |
|
|
— |
|
|
— |
|
|
75 |
|
$ |
* |
|
Q1 2017 |
|
May 3, 2017 |
|
May 10, 2017 |
|
|
55,753 |
|
|
— |
|
|
11,553 |
|
|
67,306 |
|
$ |
0.3000 |
|
|
|
Total 2017 |
|
|
|
$ |
84,655 |
|
|
21,263 |
|
|
19,096 |
|
|
125,014 |
|
|
|
* Distribution equivalent rights on units that vested under the Midstream LTIP
|
|||
The Partnership’s calculation of net income per limited partner unit for the periods indicated is as follows (in thousands, except per unit data):
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|||||||||||||||||||
|
|
|
2016 |
|
2017 |
|
2016 |
|
2017 |
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net income |
|
$ |
49,912 |
|
|
87,175 |
|
$ |
92,829 |
|
|
162,267 |
|||||||||||
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net income attributable to incentive distribution rights |
|
|
(2,731) |
|
|
(15,328) |
|
|
(4,581) |
|
|
(26,881) |
|||||||||||
|
Limited partner interest in net income |
|
$ |
47,181 |
|
|
71,847 |
|
$ |
88,248 |
|
|
135,386 |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net income per limited partner unit - basic and diluted |
|
$ |
0.27 |
|
|
0.39 |
|
$ |
0.50 |
|
|
0.73 |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Weighted average limited partner units outstanding - basic |
|
|
176,172 |
|
|
186,065 |
|
|
176,167 |
|
|
184,558 |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Weighted average limited partner units outstanding - diluted |
|
|
176,226 |
|
|
186,533 |
|
|
176,203 |
|
|
185,002 |
|||||||||||
|
|||
The following table provides a reconciliation of changes in Level 3 financial liabilities measured at fair value on a recurring basis (in thousands):
|
Beginning balance - December 31, 2016 |
$ |
194,538 |
|
Accretion |
|
7,116 |
|
Ending balance - June 30, 2017 |
$ |
201,654 |
|
|||
The following table is a reconciliation of our investments in unconsolidated affiliates as presented on our condensed consolidated balance sheets (in thousands):
|
|
|
|
|
MarkWest |
|
Total Investment in |
|
|
|
Stonewall |
|
Joint Venture |
|
Unconsolidated Affiliates |
|
Balance at December 31, 2016 |
$ |
68,299 |
|
— |
|
68,299 |
|
Initial investment |
|
— |
|
153,770 |
|
153,770 |
|
Additional investments |
|
— |
|
37,594 |
|
37,594 |
|
Equity in net income of unconsolidated affiliates |
|
5,085 |
|
769 |
|
5,854 |
|
Distributions from unconsolidated affiliates |
|
(5,820) |
|
— |
|
(5,820) |
|
Balance at June 30, 2017 |
$ |
67,564 |
|
192,133 |
|
259,697 |
|
|||
Summarized financial information concerning the Partnership’s segments for the periods indicated is shown in the following table (in thousands):
|
|
|
|
|
|
Water |
|
|
|
|
|
|
|
Gathering and |
|
Handling and |
|
Consolidated |
|||
|
|
|
Processing |
|
Treatment |
|
Total |
|||
|
Three months ended June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
Revenue - Antero Resources |
|
$ |
71,715 |
|
|
64,893 |
|
|
136,608 |
|
Revenue - third-party |
|
|
202 |
|
|
— |
|
|
202 |
|
Total revenues |
|
|
71,917 |
|
|
64,893 |
|
|
136,810 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
7,447 |
|
|
35,150 |
|
|
42,597 |
|
General and administrative (before equity-based compensation) |
|
|
4,837 |
|
|
1,675 |
|
|
6,512 |
|
Equity-based compensation |
|
|
5,301 |
|
|
1,492 |
|
|
6,793 |
|
Depreciation |
|
|
16,964 |
|
|
7,176 |
|
|
24,140 |
|
Accretion of contingent acquisition consideration |
|
|
— |
|
|
3,461 |
|
|
3,461 |
|
Total expenses |
|
|
34,549 |
|
|
48,954 |
|
|
83,503 |
|
Operating income |
|
$ |
37,368 |
|
|
15,939 |
|
|
53,307 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates |
|
$ |
484 |
|
|
- |
|
|
484 |
|
Total assets |
|
$ |
1,583,246 |
|
|
569,624 |
|
|
2,152,870 |
|
Additions to property and equipment |
|
$ |
48,283 |
|
|
41,589 |
|
|
89,872 |
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
Revenue - Antero Resources |
|
$ |
98,633 |
|
|
95,004 |
|
|
193,637 |
|
Revenue - third-party |
|
|
129 |
|
|
— |
|
|
129 |
|
Total revenues |
|
|
98,762 |
|
|
95,004 |
|
|
193,766 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
9,922 |
|
|
42,386 |
|
|
52,308 |
|
General and administrative (before equity-based compensation) |
|
|
5,468 |
|
|
2,370 |
|
|
7,838 |
|
Equity-based compensation |
|
|
5,237 |
|
|
1,714 |
|
|
6,951 |
|
Depreciation |
|
|
22,271 |
|
|
8,241 |
|
|
30,512 |
|
Accretion of contingent acquisition consideration |
|
|
— |
|
|
3,590 |
|
|
3,590 |
|
Total expenses |
|
|
42,898 |
|
|
58,301 |
|
|
101,199 |
|
Operating income |
|
$ |
55,864 |
|
|
36,703 |
|
|
92,567 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates |
|
$ |
3,623 |
|
|
- |
|
|
3,623 |
|
Total assets |
|
$ |
2,050,202 |
|
|
711,735 |
|
|
2,761,937 |
|
Additions to property and equipment |
|
$ |
88,806 |
|
|
58,497 |
|
|
147,303 |
|
|
|
|
|
|
Water |
|
|
|
|
|
|
|
Gathering and |
|
Handling and |
|
Consolidated |
|||
|
|
|
Processing |
|
Treatment |
|
Total |
|||
|
Six months ended June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
Revenue - Antero Resources |
|
$ |
141,066 |
|
$ |
131,339 |
|
$ |
272,405 |
|
Revenue - third-party |
|
|
477 |
|
|
- |
|
|
477 |
|
Total revenues |
|
|
141,543 |
|
|
131,339 |
|
|
272,882 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
15,066 |
|
|
76,672 |
|
|
91,738 |
|
General and administrative (before equity-based compensation) |
|
|
9,785 |
|
|
3,846 |
|
|
13,631 |
|
Equity-based compensation |
|
|
9,688 |
|
|
3,078 |
|
|
12,766 |
|
Depreciation |
|
|
33,826 |
|
|
14,137 |
|
|
47,963 |
|
Accretion of contingent acquisition consideration |
|
|
- |
|
|
6,857 |
|
|
6,857 |
|
Total expenses |
|
|
68,365 |
|
|
104,590 |
|
|
172,955 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
73,178 |
|
$ |
26,749 |
|
$ |
99,927 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates |
|
$ |
484 |
|
$ |
- |
|
$ |
484 |
|
Total assets |
|
$ |
1,583,246 |
|
$ |
569,624 |
|
$ |
2,152,870 |
|
Additions to property and equipment |
|
$ |
96,969 |
|
$ |
78,625 |
|
$ |
175,594 |
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
Revenue - Antero Resources |
|
$ |
190,157 |
|
|
178,115 |
|
|
368,272 |
|
Revenue - third-party |
|
|
264 |
|
|
— |
|
|
264 |
|
Total revenues |
|
|
190,421 |
|
|
178,115 |
|
|
368,536 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Direct operating |
|
|
18,036 |
|
|
81,826 |
|
|
99,862 |
|
General and administrative (before equity-based compensation) |
|
|
11,017 |
|
|
4,992 |
|
|
16,009 |
|
Equity-based compensation |
|
|
9,826 |
|
|
3,411 |
|
|
13,237 |
|
Depreciation |
|
|
41,970 |
|
|
16,078 |
|
|
58,048 |
|
Accretion of contingent acquisition consideration |
|
|
— |
|
|
7,116 |
|
|
7,116 |
|
Total expenses |
|
|
80,849 |
|
|
113,423 |
|
|
194,272 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
109,572 |
|
|
64,692 |
|
|
174,264 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates |
|
$ |
5,854 |
|
|
— |
|
|
5,854 |
|
Total assets |
|
$ |
2,050,202 |
|
|
711,735 |
|
|
2,761,937 |
|
Additions to property and equipment |
|
$ |
155,365 |
|
|
95,451 |
|
|
250,816 |
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