ANTERO MIDSTREAM PARTNERS LP, 10-Q filed on 10/26/2016
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2016
Oct. 21, 2016
Common Units Outstanding
Oct. 21, 2016
Subordinated
Entity Registrant Name
Antero Midstream Partners LP 
 
 
Entity Central Index Key
0001598968 
 
 
Document Type
10-Q 
 
 
Document Period End Date
Sep. 30, 2016 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
101,358,290 
75,940,957 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
Q3 
 
 
Condensed Combined Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Current assets:
 
 
Cash and cash equivalents
$ 9,221 
$ 6,883 
Accounts receivable - Antero
58,398 
65,712 
Accounts receivable - third party
1,243 
2,707 
Prepaid expenses
53 
 
Total current assets
68,915 
75,302 
Property and equipment:
 
 
Gathering and compressions systems
1,638,748 
1,485,835 
Water handling and treatment systems
681,062 
565,616 
Property and equipment, gross
2,319,810 
2,051,451 
Less accumulated depreciation
(231,724)
(157,625)
Property and equipment, net
2,088,086 
1,893,826 
Investment in unconsolidated affiliate
47,071 
 
Other assets, net
12,215 
10,904 
Total assets
2,216,287 
1,980,032 
Current liabilities:
 
 
Accounts payable
19,203 
10,941 
Accounts payable - Antero
2,237 
2,138 
Accrued capital expenditures
21,256 
50,022 
Accrued ad valorem tax
3,272 
7,195 
Accrued liabilities
15,956 
28,168 
Other current liabilities
197 
150 
Total current liabilities
62,121 
98,614 
Long-term liabilities:
 
 
Long-term debt
809,766 
620,000 
Contingent acquisition consideration
188,433 
178,049 
Other
669 
624 
Total liabilities
1,060,989 
897,287 
Partners' capital:
 
 
General partner
4,807 
969 
Total partners' capital
1,155,298 
1,082,745 
Total liabilities and partners' capital
2,216,287 
1,980,032 
Common Unitholders Public
 
 
Partners' capital:
 
 
Common unitholders - (59,286 units and 68,071 units issued and outstanding, Antero 40,929 units and 32,929 units issued and outstanding)
1,394,727 
1,351,317 
Total partners' capital
1,394,727 
1,351,317 
Common Unitholder Antero
 
 
Partners' capital:
 
 
Common unitholders - (59,286 units and 68,071 units issued and outstanding, Antero 40,929 units and 32,929 units issued and outstanding)
36,086 
30,186 
Total partners' capital
36,086 
30,186 
Subordinated Unitholder
 
 
Partners' capital:
 
 
Subordinated unitholder - (75,941 units issued and outstanding)
(280,322)
(299,727)
Total partners' capital
$ (280,322)
$ (299,727)
Condensed Combined Consolidated Balance Sheets (Parenthetical)
Sep. 30, 2016
Dec. 31, 2015
Common unitholders units issued
764,739 
 
Common Unitholders Public
 
 
Common unitholders units issued
68,071,000 
59,286,000 
Common unitholders units outstanding
68,071,000 
59,286,000 
Common Unitholder Antero
 
 
Common unitholders units issued
32,929,000 
40,929,000 
Common unitholders units outstanding
32,929,000 
40,929,000 
Subordinated Unitholder
 
 
Subordinated unitholder units issued
75,941,000 
75,941,000 
Subordinated unitholder units outstanding
75,941,000 
75,941,000 
Condensed Combined Consolidated Statements of Operations and Comprehensive Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Revenue:
 
 
 
 
Gathering and compression-Antero
$ 77,871 
$ 59,220 
$ 669 
$ 38 
Water handling and treatment-Antero
72,411 
21,819 
203,750 
86,759 
Gathering and compression-third party
193 
38 
218,938 
168,056 
Water handling and treatment-third party
 
627 
 
778 
Total revenues
150,475 
81,704 
423,357 
255,631 
Operating expenses:
 
 
 
 
Direct operating
33,213 
1,609 
124,951 
38,830 
General and administrative (including $5,284 and $6,599 for three months ended, and $17,663 and $19,366 for nine months ended of equity-based compensation in 2015 and 2016, respectively)
13,316 
13,842 
39,712 
37,923 
Depreciation
26,136 
21,561 
74,100 
63,515 
Accretion of contingent acquisition consideration
3,527 
 
10,384 
 
Total operating expenses
76,192 
37,012 
249,147 
140,268 
Operating income
74,283 
44,692 
174,210 
115,363 
Interest expense, net
(5,303)
(2,044)
(12,885)
(5,266)
Equity in earnings of unconsolidated affiliate
1,544 
 
2,027 
 
Net income and comprehensive income
70,524 
42,648 
163,352 
110,097 
Pre-Water Acquisition net income attributed to parent
 
(7,841)
 
(40,193)
General partner's interest in net income attributable to incentive distribution rights
(4,807)
(295)
(9,387)
(295)
Limited partners' interest in net income
$ 65,717 
$ 34,512 
$ 153,965 
$ 69,609 
Basic
 
 
 
 
Common units (in dollars per unit)
$ 0.37 
$ 0.23 
$ 0.87 
$ 0.46 
Subordinated units (in dollars per unit)
$ 0.37 
$ 0.22 
$ 0.87 
$ 0.45 
Diluted
 
 
 
 
Common units (in dollars per unit)
$ 0.37 
$ 0.23 
$ 0.87 
$ 0.46 
Subordinated units (in dollars per unit)
$ 0.37 
$ 0.22 
$ 0.87 
$ 0.45 
Basic
 
 
 
 
Common units
100,454 
78,018 
100,302 
76,641 
Subordinated units
75,941 
75,941 
75,941 
75,941 
Diluted
 
 
 
 
Common units
100,825 
78,034 
100,365 
76,657 
Subordinated units
75,941 
75,941 
75,941 
75,941 
Condensed Combined Consolidated Statements of Operations and Comprehensive Income (Parenthetical) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Condensed Combined Consolidated Statements of Operations and Comprehensive Income
 
 
 
 
Equity-based compensation
$ 6,599 
$ 5,284 
$ 19,366 
$ 17,663 
Condensed Combined Consolidated Statements of Partners Capital (USD $)
In Thousands, unless otherwise specified
Common Unitholders Public
Common Unitholder Antero
Subordinated Unitholder
General Partner
Total
Balance at Dec. 31, 2015
$ 1,351,317 
$ 30,186 
$ (299,727)
$ 969 
$ 1,082,745 
Partner' Capital
 
 
 
 
 
Net income and comprehensive income
57,013 
30,602 
66,350 
9,387 
163,352 
Distribution to unitholders
(45,689)
(24,975)
(53,539)
(5,549)
(129,752)
Equity-based compensation
5,921 
6,851 
6,594 
 
19,366 
Issuance of common units upon vesting of equity-based compensation awards, net of units withheld for income tax withholdings
141 
(159)
 
 
(18)
Issuance of common units to public, net of offering costs
19,605 
 
 
 
19,605 
Sale of units held by Antero to public
6,419 
(6,419)
 
 
 
Balance at Sep. 30, 2016
$ 1,394,727 
$ 36,086 
$ (280,322)
$ 4,807 
$ 1,155,298 
Condensed Combined Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Cash flows provided by operating activities:
 
 
Net income
$ 163,352 
$ 110,097 
Adjustment to reconcile net income to net cash provided by operating activities:
 
 
Depreciation
74,100 
63,515 
Accretion of contingent acquisition consideration
10,384 
 
Equity-based compensation
19,366 
17,663 
Equity in earnings of unconsolidated affiliate
(2,027)
 
Amortization of deferred financing costs
1,185 
774 
Changes in assets and liabilities:
 
 
Accounts receivable – Antero
7,314 
1,963 
Accounts receivable - third party
1,464 
4,910 
Prepaid expenses
(53)
457 
Accounts payable
1,467 
673 
Accounts payable – Antero
99 
781 
Accrued ad valorem tax
(3,923)
62 
Accrued liabilities
(13,593)
(1,336)
Net cash provided by operating activities
259,135 
199,559 
Cash flows used in investing activities:
 
 
Additions to gathering and compression systems
(152,769)
(242,549)
Additions to Water handling and treatment systems
(137,355)
(81,646)
Investment in unconsolidated affiliate
(45,044)
 
Change in other assets
(2,409)
10,883 
Net cash used in investing activities
(337,577)
(313,312)
Cash flows provided by (used in) financing activities:
 
 
Deemed distribution to Antero, net
 
(43,723)
Distribution to Antero
 
(633,457)
Distribution to unitholders
(129,752)
(70,519)
Issuance of senior notes
650,000 
 
Borrowings (repayments) on bank credit facilities, net
(450,000)
410,000 
Issuance of common units to public, net of offering costs
19,605 
240,972 
Payments of deferred financing costs
(8,940)
(1,956)
Other
(133)
(246)
Net cash provided by (used in) financing activities
80,780 
(98,929)
Net increase (decrease) in cash and cash equivalents
2,338 
(212,682)
Cash and cash equivalents, beginning of period
6,883 
230,192 
Cash and cash equivalents, end of period
9,221 
17,510 
Supplemental disclosure of cash flow information:
 
 
Cash paid during the period for interest
11,751 
4,725 
Supplemental disclosure of noncash investing activities:
 
 
Increase (decrease) in accrued capital expenditures and accounts payable for property and equipment
$ (21,971)
$ 21,962 
Business and Organization
Business and Organization

(1)Business and Organization

Antero Midstream Partners LP (the “Partnership”) is a growth-oriented limited partnership formed by Antero Resources Corporation (“Antero”) to own, operate and develop midstream energy assets to service Antero’s increasing production. 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 under long-term, fixed-fee and cost plus contracts. Our assets are located in the southwestern core of the Marcellus Shale in northwest West Virginia and the core of the Utica Shale in southern Ohio. The Partnership’s condensed combined consolidated financial statements as of September 30, 2016, include the accounts of the Partnership, Antero Midstream LLC (“Midstream Operating”), Antero Water LLC (“Antero Water”), Antero Treatment LLC (“Antero Treatment”), and Antero Midstream Finance Corporation (“Finance Corp.”), all of which are entities under common control.

On September 23, 2015, Antero contributed (the “Water Acquisition”) (i) all of the outstanding limited liability company interests of Antero Water to the Partnership and (ii) all of the assets, contracts, rights, permits and properties owned or leased by Antero and used primarily in connection with the construction, ownership, operation, use or maintenance of Antero’s advanced waste water treatment complex under construction in Doddridge County, West Virginia, to Antero Treatment (collectively, (i) and (ii) are referred to herein as the “Contributed Assets”). Our results for the three and nine months ended September 30, 2015 have been recast to include the historical results of Antero Water because the transaction was between entities under common control. Antero Water’s operations prior to the Water Acquisition consisted entirely of fresh water handling operations.

References to “the Partnership,” “we,” “our,” “us” or like terms, when referring to the three and nine months ended September 30, 2015, refer to the Partnership’s gathering and compression assets and operations, and include Antero’s water assets and operations, which were contributed to us on September 23, 2015. References to “the Partnership,” “we,” “our,” “us” or like terms, when referring to the three and nine months ended September 30, 2016 or when used in the present tense or prospectively, refer to Antero Midstream Partners LP and its subsidiaries.

The Partnership’s gathering and compression assets consist of 8-, 12-, 16-, 20-, and 24-inch high and low pressure gathering pipelines and compressor stations that collect natural gas, NGLs and oil from Antero’s wells in West Virginia and Ohio. The Partnership’s assets also include two independent fresh water distribution systems that deliver water used by Antero for hydraulic fracturing activities in Antero’s operating areas. The fresh water distribution systems consist of permanent buried pipelines, surface pipelines and fresh water storage facilitates, as well as pumping stations and impoundments to transport fresh water throughout the pipeline system.

 

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

(2)Summary of Significant Accounting Policies

(a) Basis of Presentation

These condensed combined consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information, and should be read in the context of the December 31, 2015 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, 2015 combined consolidated financial statements were originally filed with the SEC in the 2015 Form 10-K.

The accompanying unaudited condensed combined 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 statements include all adjustments (consisting of normal and recurring accruals) considered necessary for a fair presentation of the Partnership’s financial position as of December 31, 2015 and September 30, 2016, and the results of its operations and its cash flows for the three and nine months ended September 30, 2015 and 2016. The Partnership has no items of other comprehensive income; therefore, its net income is identical to its comprehensive income. Operating results for the period ended September 30, 2016 are not necessarily indicative of the results that may be expected for the full year.

Certain costs of doing business which are incurred by Antero on our behalf have been reflected in the accompanying condensed combined consolidated financial statements. These costs include general and administrative expenses attributed to us by Antero 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 have been identified in the condensed combined consolidated financial statements (see Note 3-Transactions with Affiliates).

As of the date these condensed combined 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 6—Partnership Equity and Distributions.

 (b)Revenue Recognition

We provide gathering and compression and water handling and treatment services under fee-based contracts primarily 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. The revenue we earn from these arrangements is directly related to (1) in the case of natural gas gathering and compression, the volumes of metered natural gas that we gather, compress and deliver to natural gas compression sites or other transmission delivery points, (2) in the case of oil and condensate gathering, the volumes of metered oil and condensate that we gather and deliver to other transmission delivery points, (3) in the case of fresh water delivery, the quantities of fresh water delivered to our customers for use in their well completion operations, or (4) in the case of other fluid handling services, which includes the disposal and treatment of waste water and high rate transfer of fresh water, our costs plus 3%. 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 combined 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

Prior to September 23, 2015 Antero Water’s operations were funded by Antero. Net amounts funded by Antero are reflected as “Deemed distribution to Antero, net” on the accompanying statements of Condensed Combined Consolidated Cash Flows.

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 distribution pipelines and facilities stated at historical cost less accumulated depreciation. We capitalize construction-related direct labor and material costs. 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 for the periods presented is as follows:

 

 

 

 

 

 

 

 

 

 

(in thousands)

    

Estimated
useful lives

    

As of December
31, 2015

    

As of September
30, 2016

 

Land

 

n/a

 

$

3,430

 

$

6,997

 

Fresh water surface pipelines and equipment

 

5 years

 

 

34,402

 

 

38,556

 

Above ground storage tanks

 

10 years

 

 

4,296

 

 

4,301

 

Fresh water permanent buried pipelines and equipment

 

20 years

 

 

410,202

 

 

431,943

 

Gathering and compression systems

 

20 years

 

 

1,291,871

 

 

1,483,364

 

Construction-in-progress

 

n/a

 

 

307,250

 

 

354,649

 

Total property and equipment

 

 

 

 

2,051,451

 

 

2,319,810

 

Less accumulated depreciation

 

 

 

 

(157,625)

 

 

(231,724)

 

Property and equipment, net

 

 

 

$

1,893,826

 

$

2,088,086

 

 

(f)Impairment of Long‑Lived Assets

We evaluate our long‑lived assets for impairment when events or changes in circumstances indicate that the related carrying values of the assets may not be recoverable.  Generally, the basis for making such assessments is undiscounted future cash flow projections for the unit being assessed.  If the carrying values of the assets are deemed not recoverable, the carrying values are reduced to the estimated fair value, which are based on discounted future cash flows or other techniques, as appropriate.  No impairments for such assets have been recorded through September 30, 2016.

(g)Asset Retirement Obligations

Our gathering pipelines, compressor stations and fresh water distribution pipelines and facilities have an indeterminate life, if properly maintained. A liability will be recorded only if and when a future retirement obligation with a determinable life can be estimated. We are not able to make a reasonable estimate of when future dismantlement and removal dates of our pipelines, compressor stations and facilities, will occur and, because it has been determined that abandonment of all other ancillary assets would require minimal costs, we have not recorded asset retirement obligations at December 31, 2015 or September 30, 2016. 

(h)Litigation and Other Contingencies

An accrual is recorded for a loss contingency when its occurrence is probable and damages can be reasonably estimated based on the anticipated most likely outcome or the minimum amount within a range of possible outcomes. We regularly review contingencies to determine the adequacy of our accruals and related disclosures. The ultimate amount of losses, if any, may differ from these estimates.

We accrue losses associated with environmental obligations when such losses are probable and can be reasonably estimated. Accruals for estimated environmental losses are recognized no later than at the time a remediation feasibility study, or an evaluation of response options, is complete. These accruals are adjusted as additional information becomes available or as circumstances change. Future environmental expenditures are not discounted to their present value. Recoveries of environmental costs from other parties are recorded separately as assets at their undiscounted value when receipt of such recoveries is probable.

(i)Equity‑Based Compensation

On March 30, 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-09, Stock Compensation–Improvements to Employee Share-Based Payment Accounting, and the Partnership has elected to early-adopt the standard as of January 1, 2016. See Note 2 (m) Recently Adopted Accounting Pronouncements.

Our condensed combined consolidated financial statements reflect various equity-based compensation awards granted by Antero, as well as compensation expense associated with our own plan. These awards include profits interests awards, restricted stock, stock options, restricted units, and phantom units. For purposes of these condensed combined consolidated financial statements, we recognized as expense in each period an amount allocated from Antero, with the offset recorded as an increase in partners’ capital. See Note 3—Transactions with Affiliates for additional information regarding Antero’s allocation of expenses to us.

In connection with our initial public offering (“IPO”), our general partner 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. Antero recognizes compensation expense for the units awarded to its employees and a portion of that expense is allocated to us. See Note 5—Equity-Based Compensation.

(j)Income Taxes

Our condensed combined 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.

 (k)Fair Value Measures

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.

The carrying values on our balance sheet of our cash and cash equivalents, accounts receivable—Antero, accounts receivable—third party, prepaid expenses, other assets, accounts payable, accounts payable—Antero, accrued liabilities, accrued capital expenditures, accrued ad valorem tax, other current liabilities, other liabilities and the revolving credit facility approximate fair values due to their short-term maturities.

 (l) Investment in Unconsolidated Entities

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 10–Equity Method Investment.

 

(m) Recently Adopted Accounting Pronouncement

On March 30, 2016, the FASB issued ASU No. 2016-09, Stock Compensation–Improvements to Employee Share-Based Payment Accounting.  This standard simplifies or clarifies several aspects of the accounting for equity-based payment awards, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  Certain of these changes are required to be applied retrospectively, while other changes are required to be applied prospectively.  The Partnership has elected to early-adopt the standard as of January 1, 2016.

As a result of adopting this standard, we will reclassify cash outflows attributable to tax withholdings on the net settlement of equity-classified awards from operating cash flows to financing cash flows. No retrospective adjustments to the condensed combined consolidated statement of cash flows were required for the nine months ended September 30, 2015, because no equity-based compensation awards were settled during this period.

Transactions with Affiliates
Transactions with Affiliates

(3)Transactions with Affiliates

(a)Revenues

All revenues earned, except revenues earned from third parties, were earned from Antero, under various agreements for gathering and compression, water services and seconded employees.

(b)Accounts receivable—Antero and Accounts payable—Antero

Accounts receivable—Antero represents amounts due from Antero, primarily related to gathering and compression services and water handling and treatment services. Accounts payable—Antero represents amounts due to Antero for general and administrative expenses and other costs.

(c)Allocation of Costs

The employees supporting our operations are employees of Antero. Direct operating expense includes allocated costs of $0.8 million and $1.0 million during the three months ended September 30, 2015 and 2016, respectively, and $2.2 million and $2.8 million during the nine months ended September 30, 2015 and 2016, respectively, related to labor charges for Antero 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 $11.6 million and $12.2 million during the three months ended September 30, 2015 and 2016, respectively, and $33.9 million and $36.1 million during the nine months ended September 30, 2015 and 2016, 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 5—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 Antero’s gross property and equipment, capital expenditures and labor costs, as applicable.

 

Long-term Debt
Long-term Debt

(4)Long-Term Debt

Long-term debt was as follows at December 31, 2015 and September 30, 2016:

 

 

 

 

 

 

 

(in thousands)

    

As of December
31, 2015

    

As of September
30, 2016

Revolving credit facility(a)

 

$

620,000

 

$

170,000

5.375% senior notes due 2024(b)

 

 

 —

 

 

650,000

Net unamortized debt issuance costs

 

 

 —

 

 

(10,234)

 

 

$

620,000

 

$

809,766

 

(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 provides that, so long as no event of default exists or would be caused thereby, and only to the extent permitted by our organizational documents, distributions to the holders of our equity interests may be made in accordance with the cash distribution policy adopted by the board of directors of our general partner in connection with the IPO. The Partnership was in compliance with all of the financial covenants under the revolving credit facility as of December 31, 2015 and September 30, 2016.

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, 2015 and September 30, 2016, we had borrowings under the revolving credit facility of $620 million and $170 million, respectively, with a weighted average interest rate of 1.92% and 2.03%, respectively.  No letters of credit were outstanding at December 31, 2015 or September 30, 2016. 

(b) 5.375% Senior Notes Due 2024

On September 13, 2016, the Partnership and its wholly-owned subsidiary, 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.

Equity-Based Compensation
Equity-Based Compensation

(5)Equity-Based Compensation

Our general and administrative expenses include equity-based compensation costs allocated to us by Antero for grants made pursuant to Antero’s long‑term incentive plan and the Midstream LTIP. Equity‑based compensation expense allocated to us was $5.3 million and $6.6 million for the three months ended September 30, 2015 and 2016, respectively, and $17.7 million and $19.4 million for the nine months ended September 30, 2015 and 2016, respectively. These expenses were allocated to us based on our proportionate share of Antero’s labor costs. Antero has unamortized expense totaling approximately $210.2 million as of September 30, 2016 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 employs the personnel who provide support to our operations. In connection with the IPO, our general partner 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 ownership 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 7,737,934 common units are available for future grant under the Midstream LTIP as of September 30, 2016. Restricted units and 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 restricted units or phantom units. Compensation related to each restricted unit and 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. Antero recognizes compensation expense for the units awarded and a portion of that expense is allocated to the Partnership. Antero allocates equity-based compensation expense to the Partnership based on our proportionate share of Antero’s 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 restricted unit and phantom unit awards activity during the nine months ended September 30, 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted
average

 

Aggregate

 

 

    

Number of
units

    

grant date
fair value

    

intrinsic value
(in thousands)

 

Total awarded and unvested—December 31, 2015

 

1,667,832

 

$

28.97

 

$

38,060

 

Granted

 

290,254

 

$

21.24

 

 

 

 

Vested

 

(6,354)

 

$

24.98

 

 

 

 

Forfeited

 

(97,723)

 

$

28.63

 

 

 

 

Total awarded and unvested—September 30, 2016

 

1,854,009

 

$

27.79

 

$

49,502

 

 

Intrinsic values are based on the closing price of the Partnership’s common units on the referenced dates. Midstream LTIP unamortized expense of $37.5 million at September 30, 2016 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.

Partnership Equity and Distributions
Partnership Equity and Distributions

(6)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.

Our partnership agreement generally provides that we distribute cash each quarter during the subordination period in the following manner:

·

first, to the holders of common units, until each common unit has received the minimum quarterly distribution of $0.17 plus any arrearages from prior quarters;

·

second, to the holders of subordinated units, until each subordinated unit has received the minimum quarterly distribution of $0.17; and

·

third, to the holders of common units and subordinated units pro rata until each has received a distribution of $0.1955.

If cash distributions to our unitholders exceed $0.1955 per common unit and subordinated unit in any quarter, our unitholders and our general partner, as the holder of our incentive distribution rights (“IDRs”), will receive distributions according to the following percentage allocations:

 

 

 

 

 

 

 

 

Marginal Percentage

 

 

 

Interest in

 

 

 

Distributions

 

 

 

 

 

General Partner

 

Total Quarterly Distribution

 

 

 

(as 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 does not own any limited partner or subordinated limited partner interests in us. However, our general partner owns the IDRs and may in the future own common units or other equity interests in us and will be entitled to receive cash distributions on such interests.

Subordinated Units

Antero owns all of our subordinated units. The principal difference between our common units and subordinated units is that, for any quarter during the subordination period, holders of the subordinated units are not entitled to receive any distribution from operating surplus until the common units have received the minimum quarterly distribution from operating surplus for such quarter plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Subordinated units will not accrue arrearages. When the subordination period ends, all of the subordinated units will convert into an equal number of common units. The subordination period will end on the first business day after we have earned and paid at least $0.68 (the minimum quarterly distribution on an annualized basis) on each outstanding common unit and subordinated unit for each of three consecutive, non-overlapping four-quarter periods ending on or after September 30, 2017 and there are no outstanding arrearages on our common units.

To the extent we do not pay the minimum quarterly distribution on our common units, our common unitholders will not be entitled to receive such arrearage payments in the future except during the subordination period. To the extent we have cash available for distribution from operating surplus in any future quarter during the subordination period in excess of the amount necessary to pay the minimum quarterly distribution to holders of our common units, we will use this excess cash to pay any distribution arrearages on common units related to prior quarters before any cash distribution is made to holders of subordinated units.

Cash Distributions

The board of directors of our general partner has declared a cash distribution of $0.265 per unit for the quarter ended September 30, 2016. The distribution will be payable on November 24, 2016 to unitholders of record as of November 10, 2016.

The following table details the distributions paid during or pertaining to the periods presented below (in thousands, except per unit data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions

 

 

 

 

 

 

 

 

 

Limited Partners

 

 

 

 

 

 

 

 

 

Quarter
and
Year

    

Record Date

    

Distribution Date

    

Common
unitholders

    

Subordinated
unitholders

    

General
partner
(IDRs)

    

Total

  

Distributions
per limited
partner unit

Q4 2014

 

February 13, 2015

 

February 27, 2015

 

$

7,161

 

$

7,161

 

$

 -

 

$

14,322

 

$

0.0943

Q1 2015

 

May 13, 2015

 

May 27, 2015

 

$

13,669

 

$

13,669

 

$

 -

 

$

27,338

 

$

0.1800

Q2 2015

 

August 13, 2015

 

August 27, 2015

 

$

14,429

 

$

14,429

 

$

 -

 

$

28,858

 

$

0.1900

Q3 2015

 

November 11, 2015

 

November 30, 2015

 

$

20,470

 

$

15,568

 

$

295

 

$

36,333

 

$

0.2050

*

 

November 12, 2015

 

November 20, 2015

 

$

397

 

$

 -

 

$

 -

 

$

397

 

$

*

 

 

Total 2015

 

 

 

$

56,126

 

$

50,827

 

$

295

 

$

107,248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

Total 2016

 

 

 

$

70,663

 

$

53,539

 

$

5,550

 

$

129,752

 

 

 

* Distribution equivalent rights on units that vested under the Midstream LTIP.

Net Income Per Limited Partner Unit
Net Income Per Limited Partner Unit

(7)Net Income Per Limited Partner Unit

The Partnership’s net income is attributed to the general partner and limited partners, including subordinated unitholders, in accordance with their respective ownership percentages, and when applicable, giving effect to incentive distributions paid to the general partner. Basic and diluted net income per limited partner unit is calculated by dividing limited partners’ interest in net income, less general partner 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 to the general partner and limited partners 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 September 30, 2016 was calculated based on the diluted weighted average number of units outstanding of 100,824,582, including 370,594 dilutive units attributable to non-vested restricted unit and phantom unit awards. Earnings per common unit assuming dilution for the nine months ended September 30, 2016 was calculated based on the diluted weighted average number of units outstanding of 100,364,955, including 62,647 dilutive units attributable to non-vested restricted unit and phantom unit awards. For the three and nine months ended September 30, 2016, zero and 1,562,669 non-vested phantom unit and restricted unit awards, respectively, were anti-dilutive.

The Partnership’s calculation of net income per common and subordinated unit for the periods indicated is as follows (in thousands, except per unit data):

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

Three months ended September 30,

 

Nine months ended September 30,

 

    

2015

    

2016

    

2015

    

2016

  

 

 

 

 

 

 

 

 

 

 

 

 

Net income

  

$

42,648

  

$

70,524

  

$

110,097

  

$

163,352

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Water Acquisition net income attributed to parent

 

 

(7,841)

 

 

 —

 

 

(40,193)

 

 

 —

General partner interest in net income attributable to incentive distribution rights

 

 

(295)

 

 

(4,807)

 

 

(295)

 

 

(9,387)

Limited partner interest in net income

  

$

34,512

 

$

65,717

  

$

69,609

 

$

153,965

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocable to common units - basic and diluted

 

$

17,561

 

$

37,409

 

$

35,110

 

$

87,615

Net income allocable to subordinated units - basic and diluted

 

 

16,951

 

 

28,308

 

 

34,499

 

 

66,350

Limited partner interest in net income - basic and diluted

 

$

34,512

 

$

65,717

 

$

69,609

 

$

153,965

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per limited partner unit - basic

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

$

0.23

 

$

0.37

 

$

0.46

 

$

0.87

Subordinated units

 

$

0.22

 

$

0.37

 

$

0.45

 

$

0.87

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per limited partner unit - diluted

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

$

0.23

 

$

0.37

 

$

0.46

 

$

0.87

Subordinated units

 

$

0.22

 

$

0.37

 

$

0.45

 

$

0.87

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units  outstanding - basic

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

 

78,018

 

 

100,454

 

 

76,641

 

 

100,302

Subordinated units

 

 

75,941

 

 

75,941

 

 

75,941

 

 

75,941

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units  outstanding - diluted

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

 

78,034

 

 

100,825

 

 

76,657

 

 

100,365

Subordinated units

 

 

75,941

 

 

75,941

 

 

75,941

 

 

75,941

 

 

Sale Of Common Units Under Equity Distribution Agreement
Sale Of Common Units Under Equity Distribution Agreement

(8) Sale of Common Units Under Equity Distribution Agreement

During the third quarter of 2016, the Partnership entered into an Equity Distribution Agreement (the “Distribution Agreement”), pursuant to which the Partnership may sell, from time to time through brokers acting as its sales agents, common units representing distribution limited partner interests having an aggregate offering price of up to $250 million.  The program is 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 three months ended September 30, 2016, the Partnership issued and sold 764,739 common units under the Distribution Agreement, resulting in net proceeds of $19.6 million. As of September 30, 2016, the Partnership had the capacity to issue additional common units under the Distribution Agreement up to an aggregate sales price of $229.8 million.

 

Fair Value Measurement
Fair Value Measurement

(9) Fair Value Measurement

In connection with the Water Acquisition, we have agreed to pay Antero (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):

 

 

 

 

Contingent acquisition consideration—December 31, 2015

 

$

178,049

Accretion

 

 

10,384

Contingent acquisition consideration—September 30, 2016

 

$

188,433

 

We account for contingent consideration in accordance with applicable accounting guidance pertaining to business combinations. We are contractually obligated to pay Antero 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 September 30, 2016, 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, 2015 and September 30, 2016 approximated market value because of their short-term nature. The carrying value of the amounts under the revolving credit facility at December 31, 2015 and September 30, 2016 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 $655.7 million at September 30, 2016.

Equity Method Investment
Equity Method Investment

(10) Equity Method Investment

Our consolidated net income includes the Partnership’s proportionate share of the net income (loss) of equity method investees. When the Partnership records its proportionate share of net income (loss), it increases (decreases) equity income in the 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 investment in Stonewall Gas Gathering LLC because it is a limited liability company, which maintains separate capital accounts, and the Partnership exercises significant influence over the entity. Our judgment regarding the level of influence over the Stonewall Gas Gathering LLC investment 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 Gas Gathering LLC.

The carrying value of the Partnership’s investment in Stonewall Gas Gathering LLC was $47.1 million at September 30, 2016, and is included in the “Investment in unconsolidated affiliate” line item on the condensed combined consolidated balance sheet. The Partnership’s share of Stonewall Gas Gathering LLC’s net income was $1.5 million and $2.0 million for the three and nine months ended September 30, 2016, respectively, and is included in “Equity in earnings of unconsolidated affiliate” on the condensed combined consolidated statement of operations and comprehensive income.

Reporting Segments
Reporting Segments

(11)    Reporting Segments

The Partnership’s operations are located in the United States and are organized into two reporting segments: (1) gathering and compression and (2) water handling and treatment.

Gathering and Compression

The gathering and compression segment includes a network of gathering pipelines and compressor stations that collect natural gas, NGLs and oil from Antero’s wells in West Virginia and Ohio.

Water Handling and Treatment

The Partnership’s water handling and treatment segment includes two independent fresh water distribution systems that source and deliver fresh water from the Ohio River and several regional waterways, and other fluid handling services for well completion operations in Antero’s operating areas. These fresh water systems consist of permanent buried pipelines, surface pipelines and fresh water storage facilitates, as well as pumping stations and impoundments to transport the fresh water throughout the pipelines. Other fluid handling services consist of the disposal and treatment of waste water, including a waste water treatment facility, currently under construction, and high rate transfer of fresh water.

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

 

    

Compression

    

Treatment

    

Total

Three months ended September 30, 2015

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Revenue - Antero

 

$

59,220

 

$

21,819

 

$

81,039

Revenue - third-party

 

 

38

 

 

627

 

 

665

Total revenues

 

 

59,258

 

 

22,446

 

 

81,704

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct operating

 

 

(3,164)

 

 

4,773

 

 

1,609

General and administrative

 

 

11,265

 

 

2,577

 

 

13,842

Depreciation

 

 

15,076

 

 

6,485

 

 

21,561

Total expenses

 

 

23,177

 

 

13,835

 

 

37,012

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

36,081

 

$

8,611

 

$

44,692

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,395,057

 

$

487,734

 

$

1,882,791

Additions to property and equipment

 

$

82,751

 

$

48,381

 

$

131,132

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2016

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Revenue - Antero

 

$

77,871

 

$

72,411

 

$

150,282

Revenue - third-party

 

 

193

 

 

 -

 

 

193

Total revenues

 

 

78,064

 

 

72,411

 

 

150,475

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct operating

 

 

4,692

 

 

28,521

 

 

33,213

General and administrative

 

 

10,281

 

 

3,035

 

 

13,316

Depreciation

 

 

18,298

 

 

7,838

 

 

26,136

Accretion of contingent acquisition consideration

 

 

 -

 

 

3,527

 

 

3,527

Total expenses

 

 

33,271

 

 

42,921

 

 

76,192

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

44,793

 

$

29,490

 

$

74,283

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,653,292

 

$

562,995

 

$

2,216,287

Additions to property and equipment

 

$

55,800

 

$

58,730

 

$

114,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Water

 

 

 

 

  

Gathering and

  

Handling and

  

Consolidated

 

    

Compression

    

Treatment

    

Total

Nine months ended September 30, 2015

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Revenue - Antero

 

$

168,056

 

$

86,759

 

$

254,815

Revenue - third-party

 

 

38

 

 

778

 

 

816

Total revenues

 

 

168,094

 

 

87,537

 

 

255,631

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct operating

 

 

19,817

 

 

19,013

 

 

38,830

General and administrative

 

 

30,685

 

 

7,238

 

 

37,923

Depreciation

 

 

44,748

 

 

18,767

 

 

63,515

Total expenses

 

 

95,250

 

 

45,018

 

 

140,268

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

72,844

 

$

42,519

 

$

115,363

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,395,057

 

$

487,734

 

$

1,882,791

Additions to property and equipment

 

$

242,549

 

$

81,646

 

$

324,195

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2016

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Revenue - Antero

 

$

218,938

 

$

203,750

 

$

422,688

Revenue - third-party

 

 

669

 

 

 —

 

 

669

Total revenues

 

 

219,607

 

 

203,750

 

 

423,357

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct operating

 

 

19,758

 

 

105,193

 

 

124,951

General and administrative

 

 

29,755

 

 

9,957

 

 

39,712

Depreciation

 

 

52,125

 

 

21,975

 

 

74,100

Accretion of contingent acquisition consideration

 

 

 —

 

 

10,384

 

 

10,384

Total expenses

 

 

101,638

 

 

147,509

 

 

249,147

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

117,969

 

$

56,241

 

$

174,210

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,653,292

 

$

562,995

 

$

2,216,287

Additions to property and equipment

 

$

152,769

 

$

137,355

 

$

290,124

 

Contingencies
Contingencies

(12)  Contingencies

Environmental Obligations

We are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. We believe there are currently no such matters that will have a material adverse effect on our results of operations, cash flows or financial position.

Summary of Significant Accounting Policies (Policies)

(a) Basis of Presentation

These condensed combined consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information, and should be read in the context of the December 31, 2015 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, 2015 combined consolidated financial statements were originally filed with the SEC in the 2015 Form 10-K.

The accompanying unaudited condensed combined 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 statements include all adjustments (consisting of normal and recurring accruals) considered necessary for a fair presentation of the Partnership’s financial position as of December 31, 2015 and September 30, 2016, and the results of its operations and its cash flows for the three and nine months ended September 30, 2015 and 2016. The Partnership has no items of other comprehensive income; therefore, its net income is identical to its comprehensive income. Operating results for the period ended September 30, 2016 are not necessarily indicative of the results that may be expected for the full year.

Certain costs of doing business which are incurred by Antero on our behalf have been reflected in the accompanying condensed combined consolidated financial statements. These costs include general and administrative expenses attributed to us by Antero 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 have been identified in the condensed combined consolidated financial statements (see Note 3-Transactions with Affiliates).

As of the date these condensed combined 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 6—Partnership Equity and Distributions.

(b)Revenue Recognition

We provide gathering and compression and water handling and treatment services under fee-based contracts primarily 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. The revenue we earn from these arrangements is directly related to (1) in the case of natural gas gathering and compression, the volumes of metered natural gas that we gather, compress and deliver to natural gas compression sites or other transmission delivery points, (2) in the case of oil and condensate gathering, the volumes of metered oil and condensate that we gather and deliver to other transmission delivery points, (3) in the case of fresh water delivery, the quantities of fresh water delivered to our customers for use in their well completion operations, or (4) in the case of other fluid handling services, which includes the disposal and treatment of waste water and high rate transfer of fresh water, our costs plus 3%. 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 combined 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

Prior to September 23, 2015 Antero Water’s operations were funded by Antero. Net amounts funded by Antero are reflected as “Deemed distribution to Antero, net” on the accompanying statements of Condensed Combined Consolidated Cash Flows.

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 distribution pipelines and facilities stated at historical cost less accumulated depreciation. We capitalize construction-related direct labor and material costs. 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 for the periods presented is as follows:

(f)Impairment of Long‑Lived Assets

We evaluate our long‑lived assets for impairment when events or changes in circumstances indicate that the related carrying values of the assets may not be recoverable.  Generally, the basis for making such assessments is undiscounted future cash flow projections for the unit being assessed.  If the carrying values of the assets are deemed not recoverable, the carrying values are reduced to the estimated fair value, which are based on discounted future cash flows or other techniques, as appropriate.  No impairments for such assets have been recorded through September 30, 2016.

(g)Asset Retirement Obligations

Our gathering pipelines, compressor stations and fresh water distribution pipelines and facilities have an indeterminate life, if properly maintained. A liability will be recorded only if and when a future retirement obligation with a determinable life can be estimated. We are not able to make a reasonable estimate of when future dismantlement and removal dates of our pipelines, compressor stations and facilities, will occur and, because it has been determined that abandonment of all other ancillary assets would require minimal costs, we have not recorded asset retirement obligations at December 31, 2015 or September 30, 2016.

(h)Litigation and Other Contingencies

An accrual is recorded for a loss contingency when its occurrence is probable and damages can be reasonably estimated based on the anticipated most likely outcome or the minimum amount within a range of possible outcomes. We regularly review contingencies to determine the adequacy of our accruals and related disclosures. The ultimate amount of losses, if any, may differ from these estimates.

We accrue losses associated with environmental obligations when such losses are probable and can be reasonably estimated. Accruals for estimated environmental losses are recognized no later than at the time a remediation feasibility study, or an evaluation of response options, is complete. These accruals are adjusted as additional information becomes available or as circumstances change. Future environmental expenditures are not discounted to their present value. Recoveries of environmental costs from other parties are recorded separately as assets at their undiscounted value when receipt of such recoveries is probable.

(i)Equity‑Based Compensation

On March 30, 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-09, Stock Compensation–Improvements to Employee Share-Based Payment Accounting, and the Partnership has elected to early-adopt the standard as of January 1, 2016. See Note 2 (m) Recently Adopted Accounting Pronouncements.

Our condensed combined consolidated financial statements reflect various equity-based compensation awards granted by Antero, as well as compensation expense associated with our own plan. These awards include profits interests awards, restricted stock, stock options, restricted units, and phantom units. For purposes of these condensed combined consolidated financial statements, we recognized as expense in each period an amount allocated from Antero, with the offset recorded as an increase in partners’ capital. See Note 3—Transactions with Affiliates for additional information regarding Antero’s allocation of expenses to us.

In connection with our initial public offering (“IPO”), our general partner 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. Antero recognizes compensation expense for the units awarded to its employees and a portion of that expense is allocated to us. See Note 5—Equity-Based Compensation.

(j)Income Taxes

Our condensed combined 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.

(k)Fair Value Measures

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.

The carrying values on our balance sheet of our cash and cash equivalents, accounts receivable—Antero, accounts receivable—third party, prepaid expenses, other assets, accounts payable, accounts payable—Antero, accrued liabilities, accrued capital expenditures, accrued ad valorem tax, other current liabilities, other liabilities and the revolving credit facility approximate fair values due to their short-term maturities.

(l) Investment in Unconsolidated Entities

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 10–Equity Method Investment.

(m) Recently Adopted Accounting Pronouncement

On March 30, 2016, the FASB issued ASU No. 2016-09, Stock Compensation–Improvements to Employee Share-Based Payment Accounting.  This standard simplifies or clarifies several aspects of the accounting for equity-based payment awards, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  Certain of these changes are required to be applied retrospectively, while other changes are required to be applied prospectively.  The Partnership has elected to early-adopt the standard as of January 1, 2016.

As a result of adopting this standard, we will reclassify cash outflows attributable to tax withholdings on the net settlement of equity-classified awards from operating cash flows to financing cash flows. No retrospective adjustments to the condensed combined consolidated statement of cash flows were required for the nine months ended September 30, 2015, because no equity-based compensation awards were settled during this period.

Summary of Significant Accounting Policies (Tables)
Schedule of investment in property and equipment

 

 

 

 

 

 

 

 

 

 

(in thousands)

    

Estimated
useful lives

    

As of December
31, 2015

    

As of September
30, 2016

 

Land

 

n/a

 

$

3,430

 

$

6,997

 

Fresh water surface pipelines and equipment

 

5 years

 

 

34,402

 

 

38,556

 

Above ground storage tanks

 

10 years

 

 

4,296

 

 

4,301

 

Fresh water permanent buried pipelines and equipment

 

20 years

 

 

410,202

 

 

431,943

 

Gathering and compression systems

 

20 years

 

 

1,291,871

 

 

1,483,364

 

Construction-in-progress

 

n/a

 

 

307,250

 

 

354,649

 

Total property and equipment

 

 

 

 

2,051,451

 

 

2,319,810

 

Less accumulated depreciation

 

 

 

 

(157,625)

 

 

(231,724)

 

Property and equipment, net

 

 

 

$

1,893,826

 

$

2,088,086

 

 

Long-term Debt (Tables)
Schedule of long-term debt

 

 

 

 

 

 

 

(in thousands)

    

As of December
31, 2015

    

As of September
30, 2016

Revolving credit facility(a)

 

$

620,000

 

$

170,000

5.375% senior notes due 2024(b)

 

 

 —

 

 

650,000

Net unamortized debt issuance costs

 

 

 —

 

 

(10,234)

 

 

$

620,000

 

$

809,766

 

Equity-Based Compensation (Tables)
Summary of restricted unit and phantom unit awards activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted
average

 

Aggregate

 

 

    

Number of
units

    

grant date
fair value

    

intrinsic value
(in thousands)

 

Total awarded and unvested—December 31, 2015

 

1,667,832

 

$

28.97

 

$

38,060

 

Granted

 

290,254

 

$

21.24

 

 

 

 

Vested

 

(6,354)

 

$

24.98

 

 

 

 

Forfeited

 

(97,723)

 

$

28.63

 

 

 

 

Total awarded and unvested—September 30, 2016

 

1,854,009

 

$

27.79

 

$

49,502

 

 

Partnership Equity and Distributions (Tables)

 

 

 

 

 

 

 

 

Marginal Percentage

 

 

 

Interest in

 

 

 

Distributions

 

 

 

 

 

General Partner

 

Total Quarterly Distribution

 

 

 

(as 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 distributions paid during or pertaining to the periods presented below (in thousands, except per unit data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions

 

 

 

 

 

 

 

 

 

Limited Partners

 

 

 

 

 

 

 

 

 

Quarter
and
Year

    

Record Date

    

Distribution Date

    

Common
unitholders

    

Subordinated
unitholders

    

General
partner
(IDRs)

    

Total

  

Distributions
per limited
partner unit

Q4 2014

 

February 13, 2015

 

February 27, 2015

 

$

7,161

 

$

7,161

 

$

 -

 

$

14,322

 

$

0.0943

Q1 2015

 

May 13, 2015

 

May 27, 2015

 

$

13,669

 

$

13,669

 

$

 -

 

$

27,338

 

$

0.1800

Q2 2015

 

August 13, 2015

 

August 27, 2015

 

$

14,429

 

$

14,429

 

$

 -

 

$

28,858

 

$

0.1900

Q3 2015

 

November 11, 2015

 

November 30, 2015

 

$

20,470

 

$

15,568

 

$

295

 

$

36,333

 

$

0.2050

*

 

November 12, 2015

 

November 20, 2015

 

$

397

 

$

 -

 

$

 -

 

$

397

 

$

*

 

 

Total 2015

 

 

 

$

56,126

 

$

50,827

 

$

295

 

$

107,248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

Total 2016

 

 

 

$

70,663

 

$

53,539

 

$

5,550

 

$

129,752

 

 

 

* Distribution equivalent rights on units that vested under the Midstream LTIP.

Net Income Per Limited Partner Unit (Tables)
Schedule of net income per common and subordinated unit

The Partnership’s calculation of net income per common and subordinated unit for the periods indicated is as follows (in thousands, except per unit data):

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

Three months ended September 30,

 

Nine months ended September 30,

 

    

2015

    

2016

    

2015

    

2016

  

 

 

 

 

 

 

 

 

 

 

 

 

Net income

  

$

42,648

  

$

70,524

  

$

110,097

  

$

163,352

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Water Acquisition net income attributed to parent

 

 

(7,841)

 

 

 —

 

 

(40,193)

 

 

 —

General partner interest in net income attributable to incentive distribution rights

 

 

(295)

 

 

(4,807)

 

 

(295)

 

 

(9,387)

Limited partner interest in net income

  

$

34,512

 

$

65,717

  

$

69,609

 

$

153,965

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocable to common units - basic and diluted

 

$

17,561

 

$

37,409

 

$

35,110

 

$

87,615

Net income allocable to subordinated units - basic and diluted

 

 

16,951

 

 

28,308

 

 

34,499

 

 

66,350

Limited partner interest in net income - basic and diluted

 

$

34,512

 

$

65,717

 

$

69,609

 

$

153,965

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per limited partner unit - basic

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

$

0.23

 

$

0.37

 

$

0.46

 

$

0.87

Subordinated units

 

$

0.22

 

$

0.37

 

$

0.45

 

$

0.87

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per limited partner unit - diluted

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

$

0.23

 

$

0.37

 

$

0.46

 

$

0.87

Subordinated units

 

$

0.22

 

$

0.37

 

$

0.45

 

$

0.87

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units  outstanding - basic

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

 

78,018

 

 

100,454

 

 

76,641

 

 

100,302

Subordinated units

 

 

75,941

 

 

75,941

 

 

75,941

 

 

75,941

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units  outstanding - diluted

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

 

78,034

 

 

100,825

 

 

76,657

 

 

100,365

Subordinated units

 

 

75,941

 

 

75,941

 

 

75,941

 

 

75,941

 

 

 

 

Fair Value Measurement (Tables)
Schedule of reconciliation of changes in Level 3 financial liabilities measured at fair value on a recurring basis

 

The following table provides a reconciliation of changes in Level 3 financial liabilities measured at fair value on a recurring basis (in thousands):

 

 

 

 

Contingent acquisition consideration—December 31, 2015

 

$

178,049

Accretion

 

 

10,384

Contingent acquisition consideration—September 30, 2016

 

$

188,433

 

Reporting Segments (Tables)
Schedule of financial information concerning the Partnership's segments

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

 

    

Compression

    

Treatment

    

Total

Three months ended September 30, 2015

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Revenue - Antero

 

$

59,220

 

$

21,819

 

$

81,039

Revenue - third-party

 

 

38

 

 

627

 

 

665

Total revenues

 

 

59,258

 

 

22,446

 

 

81,704

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct operating

 

 

(3,164)

 

 

4,773

 

 

1,609

General and administrative

 

 

11,265

 

 

2,577

 

 

13,842

Depreciation

 

 

15,076

 

 

6,485

 

 

21,561

Total expenses

 

 

23,177

 

 

13,835

 

 

37,012

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

36,081

 

$

8,611

 

$

44,692

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,395,057

 

$

487,734

 

$

1,882,791

Additions to property and equipment

 

$

82,751

 

$

48,381

 

$

131,132

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2016

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Revenue - Antero

 

$

77,871

 

$

72,411

 

$

150,282

Revenue - third-party

 

 

193

 

 

 -

 

 

193

Total revenues

 

 

78,064

 

 

72,411

 

 

150,475

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct operating

 

 

4,692

 

 

28,521

 

 

33,213

General and administrative

 

 

10,281

 

 

3,035

 

 

13,316

Depreciation

 

 

18,298

 

 

7,838

 

 

26,136

Accretion of contingent acquisition consideration

 

 

 -

 

 

3,527

 

 

3,527

Total expenses

 

 

33,271

 

 

42,921

 

 

76,192

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

44,793

 

$

29,490

 

$

74,283

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,653,292

 

$

562,995

 

$

2,216,287

Additions to property and equipment

 

$

55,800

 

$

58,730

 

$

114,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Water

 

 

 

 

  

Gathering and

  

Handling and

  

Consolidated

 

    

Compression

    

Treatment

    

Total

Nine months ended September 30, 2015

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Revenue - Antero

 

$

168,056

 

$

86,759

 

$

254,815

Revenue - third-party

 

 

38

 

 

778

 

 

816

Total revenues

 

 

168,094

 

 

87,537

 

 

255,631

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct operating

 

 

19,817

 

 

19,013

 

 

38,830

General and administrative

 

 

30,685

 

 

7,238

 

 

37,923

Depreciation

 

 

44,748

 

 

18,767

 

 

63,515

Total expenses

 

 

95,250

 

 

45,018

 

 

140,268

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

72,844

 

$

42,519

 

$

115,363

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,395,057

 

$

487,734

 

$

1,882,791

Additions to property and equipment

 

$

242,549

 

$

81,646

 

$

324,195

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2016

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Revenue - Antero

 

$

218,938

 

$

203,750

 

$

422,688

Revenue - third-party

 

 

669

 

 

 —

 

 

669

Total revenues

 

 

219,607

 

 

203,750

 

 

423,357

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct operating

 

 

19,758

 

 

105,193

 

 

124,951

General and administrative

 

 

29,755

 

 

9,957

 

 

39,712

Depreciation

 

 

52,125

 

 

21,975

 

 

74,100

Accretion of contingent acquisition consideration

 

 

 —

 

 

10,384

 

 

10,384

Total expenses

 

 

101,638

 

 

147,509

 

 

249,147

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

117,969

 

$

56,241

 

$

174,210

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,653,292

 

$

562,995

 

$

2,216,287

Additions to property and equipment

 

$

152,769

 

$

137,355

 

$

290,124

 

Summary of Significant Accounting Policies (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Dec. 31, 2015
Revenue recognition
 
 
Margin over out-of-pocket costs related to water handling and treatment for revenue recognition (as a percent)
3.00% 
 
Property and equipment:
 
 
Property and equipment
$ 2,319,810 
$ 2,051,451 
Less accumulated depreciation
(231,724)
(157,625)
Property and equipment, net
2,088,086 
1,893,826 
Impairment of Long-Lived Assets
 
 
Impairment of assets
 
Midstream LTIP
 
 
Stock-Based Compensation
 
 
Number of stock-based compensation awards authorized
10,000,000 
 
Land
 
 
Property and equipment:
 
 
Property and equipment
6,997 
3,430 
Fresh water surface pipelines and equipment
 
 
Property and equipment:
 
 
Useful life
5 years 
 
Property and equipment
38,556 
34,402 
Above ground storage tanks
 
 
Property and equipment:
 
 
Useful life
10 years 
 
Property and equipment
4,301 
4,296 
Fresh water permanent buried pipelines and equipment
 
 
Property and equipment:
 
 
Useful life
20 years 
 
Property and equipment
431,943 
410,202 
Gathering and compression systems
 
 
Property and equipment:
 
 
Useful life
20 years 
 
Property and equipment
1,483,364 
1,291,871 
Construction-in-progress
 
 
Property and equipment:
 
 
Property and equipment
$ 354,649 
$ 307,250 
Transactions with Affiliates (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Allocation of costs
 
 
 
 
Direct labor expenses
$ 1.0 
$ 0.8 
$ 2.8 
$ 2.2 
General and administrative expense
$ 12.2 
$ 11.6 
$ 36.1 
$ 33.9 
Long-term Debt (Details) (USD $)
9 Months Ended 0 Months Ended 0 Months Ended
Sep. 30, 2016
Dec. 31, 2015
Sep. 30, 2016
Revolving credit facility
Dec. 31, 2015
Revolving credit facility
Nov. 10, 2014
Revolving credit facility
Sep. 30, 2016
Letter of credit
Dec. 31, 2015
Letter of credit
Nov. 10, 2014
Letter of credit
Sep. 30, 2016
Letter of credit
Minimum
Sep. 30, 2016
Letter of credit
Maximum
Sep. 13, 2016
5.375% Senior Notes due 2024
Sep. 30, 2016
5.375% Senior Notes due 2024
Sep. 13, 2016
5.375% Senior Notes due 2024
Sep. 13, 2016
5.375% Senior Notes due 2024
Maximum
Sep. 13, 2016
5.375% Senior Notes due 2024
Prior to September 15, 2019
Sep. 13, 2016
5.375% Senior Notes due 2024
On or after September 15, 2019
Sep. 13, 2016
5.375% Senior Notes due 2024
On or after September 15, 2022
Long-term debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
 
$ 170,000,000 
$ 620,000,000 
 
 
 
 
 
 
 
$ 650,000,000 
 
 
 
 
 
Net unamortized debt issuance costs
(10,234,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, net
809,766,000 
620,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum amount of the Credit Facility
 
 
 
 
1,500,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
Current borrowing capacity
 
 
 
 
 
 
 
150,000,000 
 
 
 
 
 
 
 
 
 
Commitment fees on the unused portion (as a percent)
 
 
 
 
 
 
 
 
0.25% 
0.375% 
 
 
 
 
 
 
 
Outstanding balance
 
 
170,000,000 
620,000,000 
 
 
 
 
 
 
 
 
 
 
 
Weighted average interest rate (as a percent)
 
 
2.03% 
1.92% 
 
 
 
 
 
 
 
 
 
 
 
 
 
Face amount
 
 
 
 
 
 
 
 
 
 
 
 
650,000,000 
 
 
 
 
Interest rate (as a percent)
 
 
 
 
 
 
 
 
 
 
 
 
5.375% 
 
 
 
 
Debt instrument redemption percentage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
105.375% 
104.031% 
100.00% 
Debt instrument redemption percentage with payment of premium and interest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100.00% 
 
 
Debt instrument redemption percentage upon change of control
 
 
 
 
 
 
 
 
 
 
101.00% 
 
 
 
 
 
 
Percent of aggregate principal amount that can be redeemed
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 35 
 
 
 
Equity Based Compensation (Details) (USD $)
9 Months Ended
Sep. 30, 2016
Midstream LTIP
 
Additional disclosures
 
Number of stock-based compensation awards authorized
10,000,000 
Unamortized expense
$ 37,500,000 
Number of shares available for future grant under the Plan
7,737,934 
Weighted average period for recognizing unrecognized stock-based compensation expense
2 years 3 months 18 days 
Restricted unit and phantom unit awards
 
Number of units
 
Total awarded and unvested at the beginning of the period (in shares)
1,667,832 
Granted (in shares)
290,254 
Vested (in shares)
(6,354)
Forfeited (in shares)
(97,723)
Total awarded and unvested at the end of the period (in shares)
1,854,009 
Weighted average grant date fair value
 
Total awarded and unvested at the beginning of the period (in dollars per unit)
$ 28.97 
Granted (in dollars per unit)
$ 21.24 
Vested (in dollars per unit)
$ 24.98 
Forfeited (in dollars per unit)
$ 28.63 
Total awarded and unvested at the end of the period (in dollars per unit)
$ 27.79 
Aggregate intrinsic value
 
Total awarded and unvested at the beginning of the period
38,060,000 
Total awarded and unvested at the end of the period
49,502,000 
Various equity based compensation plans |
Antero
 
Additional disclosures
 
Unamortized expense
$ 210,200,000 
Partnership Equity and Distributions (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
0 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Aug. 24, 2016
May 25, 2016
Feb. 29, 2016
Nov. 30, 2015
Nov. 20, 2015
Aug. 27, 2015
May 27, 2015
Feb. 27, 2015
Sep. 30, 2016
Sep. 30, 2016
Dec. 31, 2015
Partnership equity and distributions
 
 
 
 
 
 
 
 
 
 
 
Annual cash distribution (per unit)
 
 
 
 
 
 
 
 
 
0.68 
 
Total Distribution
$ 46,775 
$ 43,252 
$ 39,725 
$ 36,333 
$ 397 
$ 28,858 
$ 27,338 
$ 14,322 
 
$ 129,752 
$ 107,248 
Cash distribution declared
$ 0.2500 
$ 0.2350 
$ 0.2200 
$ 0.2050 
 
$ 0.1900 
$ 0.1800 
$ 0.0943 
$ 0.265 
 
 
Minimum cash distributions to trigger unitholder and general partner distributions
 
 
 
 
 
 
 
 
 
$ 0.1955 
 
General Partner
 
 
 
 
 
 
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
 
 
 
 
 
 
Total Distribution
2,731 
1,850 
969 
295 
 
 
 
 
 
5,550 
295 
Common units |
Limited Partner (Common units)
 
 
 
 
 
 
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
 
 
 
 
 
 
Total Distribution
25,059 
23,556 
22,048 
20,470 
397 
14,429 
13,669 
7,161 
 
70,663 
56,126 
Limited Partner (Subordinated units) |
Limited Partner (Common units)
 
 
 
 
 
 
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
 
 
 
 
 
 
Total Distribution
$ 18,985 
$ 17,846 
$ 16,708 
$ 15,568 
 
$ 14,429 
$ 13,669 
$ 7,161 
 
$ 53,539 
$ 50,827 
Above $0.1955 up to $0.2125
 
 
 
 
 
 
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
 
 
 
 
 
 
Unitholders marginal percentage interest in distribution
 
 
 
 
 
 
 
 
 
85.00% 
 
General Partners marginal percentage interest in distribution
 
 
 
 
 
 
 
 
 
15.00% 
 
Above $0.2125 up to $0.2550
 
 
 
 
 
 
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
 
 
 
 
 
 
Unitholders marginal percentage interest in distribution
 
 
 
 
 
 
 
 
 
75.00% 
 
General Partners marginal percentage interest in distribution
 
 
 
 
 
 
 
 
 
25.00% 
 
Above $0.2550
 
 
 
 
 
 
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
 
 
 
 
 
 
Pro rata cash distribution to the holders of common and subordinate units
 
 
 
 
 
 
 
 
 
0.2550 
 
Unitholders marginal percentage interest in distribution
 
 
 
 
 
 
 
 
 
50.00% 
 
General Partners marginal percentage interest in distribution
 
 
 
 
 
 
 
 
 
50.00% 
 
Minimum
 
 
 
 
 
 
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
 
 
 
 
 
 
Minimum quarterly cash distribution (per unit)
 
 
 
 
 
 
 
 
 
0.17 
 
Minimum |
Above $0.1955 up to $0.2125
 
 
 
 
 
 
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
 
 
 
 
 
 
Pro rata cash distribution to the holders of common and subordinate units
 
 
 
 
 
 
 
 
 
0.1955 
 
Minimum |
Above $0.2125 up to $0.2550
 
 
 
 
 
 
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
 
 
 
 
 
 
Pro rata cash distribution to the holders of common and subordinate units
 
 
 
 
 
 
 
 
 
0.2125 
 
Maximum |
Above $0.1955 up to $0.2125
 
 
 
 
 
 
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
 
 
 
 
 
 
Pro rata cash distribution to the holders of common and subordinate units
 
 
 
 
 
 
 
 
 
0.2125 
 
Maximum |
Above $0.2125 up to $0.2550
 
 
 
 
 
 
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
 
 
 
 
 
 
Pro rata cash distribution to the holders of common and subordinate units
 
 
 
 
 
 
 
 
 
0.2550 
 
Net Income Per Limited Partner Unit (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Net income per limited partner unit
 
 
 
 
Net income allocable to common units - basic and diluted
$ 37,409 
$ 17,561 
$ 87,615 
$ 35,110 
Net income allocable to subordinated units - basic and diluted
28,308 
16,951 
66,350 
34,499 
Limited partner interest in net income - basic and diluted
65,717 
34,512 
153,965 
69,609 
Net income
70,524 
42,648 
163,352 
110,097 
Pre-Water Acquisition net income attributed to parent
 
(7,841)
 
(40,193)
General partner's interest in net income attributable to incentive distribution rights
(4,807)
(295)
(9,387)
(295)
Limited partners' interest in net income
$ 65,717 
$ 34,512 
$ 153,965 
$ 69,609 
Weighted average units outstanding:
 
 
 
 
Common units - basic
100,454,000 
78,018,000 
100,302,000 
76,641,000 
Subordinated units - basic
75,941,000 
75,941,000 
75,941,000 
75,941,000 
Common units diluted
100,825,000 
78,034,000 
100,365,000 
76,657,000 
Subordinated units - diluted
75,941,000 
75,941,000 
75,941,000 
75,941,000 
Net income attributable to Antero Midstream Partners LP subsequent to IPO
 
 
 
 
Common units - basic
$ 0.37 
$ 0.23 
$ 0.87 
$ 0.46 
Subordinated units - basic
$ 0.37 
$ 0.22 
$ 0.87 
$ 0.45 
Common units - diluted
$ 0.37 
$ 0.23 
$ 0.87 
$ 0.46 
Subordinated units - diluted
$ 0.37 
$ 0.22 
$ 0.87 
$ 0.45 
Phantom share units
 
 
 
 
Weighted average units outstanding:
 
 
 
 
Antidilutive securities excluded from computation of earnings per share
 
 
Restricted unit awards
 
 
 
 
Weighted average units outstanding:
 
 
 
 
Antidilutive securities excluded from computation of earnings per share
1,562,669 
 
1,562,669 
 
Restricted and phantom unit award
 
 
 
 
Weighted average units outstanding:
 
 
 
 
Weighted average units outstanding - diluted
370,594 
 
62,647 
 
Common units
 
 
 
 
Weighted average units outstanding:
 
 
 
 
Weighted average units outstanding - diluted
100,824,582 
 
100,364,955 
 
Sale Of Common Units Under Equity Distribution Agreement (Details) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2016
Sep. 30, 2015
Sale Of Common Units Under Equity Distribution Agreement
 
 
 
Maximum aggregate offering price of common limited partners units under an equity distribution agreement
$ 250,000,000 
 
 
Common units issued and sold
764,739 
764,739 
 
Net proceeds from issuance of common units
19,600,000 
19,605,000 
240,972,000 
Remaining capacity to issue additional common units under an equity distribution agreement
$ 229,800,000 
$ 229,800,000 
 
Fair Value Measurement (Details) (USD $)
9 Months Ended 0 Months Ended 0 Months Ended
Sep. 30, 2016
Level 2
5.375% Senior Notes due 2024
Sep. 30, 2016
Recurring Member
Level 3
Sep. 17, 2015
Contribution Agreement
Contingent Consideration Period One
bbl
Sep. 17, 2015
Contribution Agreement
Contingent Consideration Period One
Sep. 17, 2015
Contribution Agreement
Contingent Consideration Period Two
bbl
Sep. 17, 2015
Contribution Agreement
Contingent Consideration Period Two
Fair value measurement
 
 
 
 
 
 
Contingent consideration
 
 
 
$ 125,000,000 
 
$ 125,000,000 
Threshold number of barrels of water to trigger contingent consideration payment
 
 
176,295,000 
 
219,200,000 
 
Debt instrument fair value
655,700,000 
 
 
 
 
 
Reconciliation of changes in Level 3 financial liabilities measured at fair value on a recurring basis
 
 
 
 
 
 
Beginning balance
 
178,049,000 
 
 
 
 
Accretion
 
10,384,000 
 
 
 
 
Ending balance
 
$ 188,433,000 
 
 
 
 
Equity Method Investment (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2016
Equity Method Investment
 
 
Carrying value of investment
$ 47,071 
$ 47,071 
Partnership’s share of net income
1,544 
2,027 
Stonewall Gas Gathering LLC
 
 
Equity Method Investment
 
 
Carrying value of investment
47,100 
47,100 
Partnership’s share of net income
$ 1,500 
$ 2,000 
Reporting Segments (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
segment
Sep. 30, 2015
Dec. 31, 2015
Reporting Segments
 
 
 
 
 
Number of reportable segments
 
 
 
 
Revenues:
 
 
 
 
 
Revenue - Antero
$ 150,282 
$ 81,039 
$ 422,688 
$ 254,815 
 
Revenue – third party
193 
665 
669 
816 
 
Total revenues
150,475 
81,704 
423,357 
255,631 
 
Operating expenses:
 
 
 
 
 
Direct operating
33,213 
1,609 
124,951 
38,830 
 
General and administrative expense (before equity-based compensation)
13,316 
13,842 
39,712 
37,923 
 
Depreciation
26,136 
21,561 
74,100 
63,515 
 
Accretion of contingent acquisition consideration
3,527 
 
10,384 
 
 
Total operating expenses
76,192 
37,012 
249,147 
140,268 
 
Operating income
74,283 
44,692 
174,210 
115,363 
 
Total assets
2,216,287 
1,882,791 
2,216,287 
1,882,791 
1,980,032 
Additions to property and equipment
114,530 
131,132 
290,124 
324,195 
 
Gathering And Compression
 
 
 
 
 
Revenues:
 
 
 
 
 
Revenue - Antero
77,871 
59,220 
218,938 
168,056 
 
Revenue – third party
193 
38 
669 
38 
 
Total revenues
78,064 
59,258 
219,607 
168,094 
 
Operating expenses:
 
 
 
 
 
Direct operating
4,692 
(3,164)
19,758 
19,817 
 
General and administrative expense (before equity-based compensation)
10,281 
11,265 
29,755 
30,685 
 
Depreciation
18,298 
15,076 
52,125 
44,748 
 
Total operating expenses
33,271 
23,177 
101,638 
95,250 
 
Operating income
44,793 
36,081 
117,969 
72,844 
 
Total assets
1,653,292 
1,395,057 
1,653,292 
1,395,057 
 
Additions to property and equipment
55,800 
82,751 
152,769 
242,549 
 
Water Handling and Treatment
 
 
 
 
 
Reporting Segments
 
 
 
 
 
Number of independent fresh water systems
 
 
 
 
Revenues:
 
 
 
 
 
Revenue - Antero
72,411 
21,819 
203,750 
86,759 
 
Revenue – third party
 
627 
 
778 
 
Total revenues
72,411 
22,446 
203,750 
87,537 
 
Operating expenses:
 
 
 
 
 
Direct operating
28,521 
4,773 
105,193 
19,013 
 
General and administrative expense (before equity-based compensation)
3,035 
2,577 
9,957 
7,238 
 
Depreciation
7,838 
6,485 
21,975 
18,767 
 
Accretion of contingent acquisition consideration
3,527 
 
10,384 
 
 
Total operating expenses
42,921 
13,835 
147,509 
45,018 
 
Operating income
29,490 
8,611 
56,241 
42,519 
 
Total assets
562,995 
487,734 
562,995 
487,734 
 
Additions to property and equipment
$ 58,730 
$ 48,381 
$ 137,355 
$ 81,646