Antero Midstream (AM) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In 2023, Antero Midstream generated a record $981 million of EBITDA, reflecting an 18$254 million of EBITDA, a 10% year-over-year increase, and full-year EBITDA was $989 million, a 12$156 million, and after dividends, it was $48 million, with full-year free cash flow records of$587 million before and $155 million after dividends [12][13] Business Line Data and Key Metrics Changes - Low pressure gathering and compression volumes increased by 10$185 million, a 30% reduction compared to 2022, with a forecasted capital budget for 2024 of $150 million to$170 million, representing a 14% decrease from 2023 [6][14] Market Data and Key Metrics Changes - Propane inventories have declined significantly, leading to a bullish sentiment in pricing, with Mont Belvieu propane prices increasing from 43% of WTI last fall to 57% today [10] - Approximately 50% of Antero Resources' 2023 revenues were derived from liquids, indicating a strong market position due to pricing improvements [10] Company Strategy and Development Direction - Antero Midstream plans to maintain a stable dividend of $0.90 per share, representing a 7$500 million program [16][18] - The company aims to achieve a three times leverage target in 2024, with a balanced capital allocation strategy to maximize shareholder value [18][48] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the operational leverage of their assets, forecasting over $1 billion of EBITDA for 2024, driven by flat to low single-digit throughput growth and the expiration of fee rebates [14][19] - Despite a volatile commodity price environment, Antero Midstream remains on track to achieve its five-year targets from 2023 through 2027, with a backlog of$900 million to $1 billion in organic projects [17][19] Other Important Information - The company reported a decline in leverage to 3.3 times at year-end 2023, with plans to further reduce debt using free cash flow [13][15] - Antero Midstream's capital budget flexibility allows for adjustments based on Antero Resources' development plans, with a focus on the Marcellus liquids-rich midstream corridor [6][8] Q&A Session Summary Question: Volume trajectory expectations for AR's activity into 2024 - Management indicated that AR's production is expected to be flat, with maintenance capital plans in place, and noted the impact of fee rebates and CPI adjustments on EBITDA outlook [23] Question: Timing of share buybacks - Management confirmed that share buybacks would commence once leverage hits three times, with a preference for open market repurchases [25][26] Question: Flexibility in cash use and potential M&A - Management stated that they evaluate all options based on return on invested capital, balancing between acquisitions, buybacks, and debt paydown [31] Question: Guidance on EBITDA and activity levels - Management clarified that the lower end of the EBITDA guidance reflects potential reductions in activity due to volatile gas prices, while maintaining a positive outlook based on AR's strong balance sheet [33] Question: Impact of gas production decline on AM - Management noted that producers focused on dry gas may face challenges, leading to a decline in production, while AR's liquids focus positions it favorably [37] Question: Update on the lawsuit and cash use - Management provided no new updates on the lawsuit but indicated that any cash received would be evaluated for optimal use [45] Question: Ultimate leverage target for AM - Management confirmed a target of three times leverage, with no immediate plans for further reductions beyond that [48] Question: Water business drivers and volume expectations - Management indicated that total water volumes are expected to decrease in 2024 due to fewer completions, despite longer lateral lengths [52]