Greetings and welcome to the Antero Midstream Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions]. As a reminder this conference is being recorded. It is now my pleasure to turn the call over to Michael Kennedy, Chief Financial Officer. Please go ahead, sir.

Thank you for joining us for Antero Midstream’s third quarter 2020 investor conference call. We’ll spend a few minutes going through the financial and operating highlights and then we’ll open it up for Q&A. I would also like to direct you to the homepage of our website at www.anteromidstream.com where we have provided a separate earnings call presentation that will be reviewed during today’s call. Before we start our comments, I would first like to remind you that during this call Antero management will make forward-looking statements. Such statements are based on our current judgments regarding factors that will impact the future performance of Antero Resources and Antero Midstream and are subject to a number of risks and uncertainties many of which are beyond Antero’s control. Actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements. Today’s call may also contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures including reconciliations to the most comparable GAAP financial measures. Joining me on the call today are Paul Rady, Chairman and CEO of Antero Resources and Antero Midstream; Glen Warren, President and CFO of Antero Resources and President of Antero Midstream; and Dave Cannelongo, Vice President of Liquids Marketing and Transportation. With that, I’ll turn the call over to Paul.

Thanks, Mike. I'd like to start by highlighting the progress AR has made on its asset sale program in 2020. Beginning on Slide number three, titled AR Asset Sale, Refinancing and Debt Repurchase Update. To-date, AR has executed $751 million of assets sales, achieving the bottom end of its $750 million to $1 billion asset sale target. These transactions have allowed AR to reduce its near term maturities by $1.3 billion since initiating the asset sale program in the fourth quarter of 2019, and positions AR to repay its 2021 and 2022 maturities. AR continues to monitor various asset sale markets, and any additional proceeds will be used for further debt reduction. The current natural gas and NGL fundamentals continue to look encouraging as we head into 2021, as Dave Cannelongo will discuss in his comments. This further supports upside to ARs free cash flow profile driven by the scale AR has achieved over the last several years. To put it in perspective as the second largest NGL producer in the U.S. every $5 per barrel change in C3+ NGL prices, improves ARs annual cash flow profile by over $225 million. On the natural gas side, AR is 100% hedged in 2021, but the improving gas strip increases ARs underlying value and opportunity set. Now let's turn to Slide number four, titled AR Firm Transportation Provides Stability. The red line in the chart represents the Appalachian basis differential which has averaged at $0.82 below NYMEX going back to 2014. ARs premium FT from transportation has delivered a $0.05 discount to NYMEX over that same timeframe. It is also worth noting, that since AR has had access to its entire FT portfolio in 2018, it has been able to realize a $0.06 premium to NYMEX to-date. During the third quarter this…

Thanks, Paul. Let's turn to Slide number 6 and begin by adding some color on the NGL and LPG macro environment. In the aftermath of the March OPEC + price war in the COVID-19 pandemic, the resulting decline in rig and completion crew activity in oil focused shale basins has set up expectations of a prolonged period of depressed U.S. oil production. Thus far, that is what has materialized. A decline in flattening of oil production, which has resulted in a decrease in associated NGL production from the oil focus place. The chart on the left hand side of the slide illustrates that U.S. NGL supply forecasts have declined by 1.1 million barrels per day since the beginning of this year. We believe it may take three to four years for U.S. NGL production to return to pre-COVID-19 levels. The chart on the right hand side of the slide highlights the expected surplus of LPG export capacity along the Gulf Coast. Since the start of the shale revolution, we have enjoyed only a handful of periods, when ample export capacity has been available. Looking forward plentiful capacity will allow the U.S. to fully access the International markets on a sustained basis, resulting in U.S. Mont Belvieu prices, closely linked to International markets. While Antero has enjoyed unrestricted access to these International markets through our Mariner East commitment for nearly two years now, this fundamental change on the U.S. Gulf Coast will benefit Antero share of NGL production that is sold domestically in linked to Mont Belvieu pricing. Turning to Slide number 7, titled NGL Price Recovery Expected. We can see that the strength of NGL markets relative to WTI and Brent has continue to stay elevated as a result of resilient petrochemical and residential commercial markets during this pandemic. Here…

Thanks, Dave. I'll begin my comments with third quarter operational results. Beginning on slide number 10, titled, Year-over-year Midstream Throughput. Starting in the top left portion of the page, low pressure gathering volumes for 3.1 BCF per day in the third quarter, which represents a 13% increase from the prior year quarter. Compression volumes during the quarter averaged 2.8 BCF per day, a 16% increase compared to the prior year. AM added $120 million per day compressor station in the Marcellus and compression capacity was 90% utilized during the third quarter of 2020. Our 50-50 joint venture gross processing volumes averaged 1.5 BCF per day, a 43% increase compared to the prior year quarter. Processing capacity was over 100% utilized during the third quarter. JV gross fractionation volumes averaged 39,000 barrels per day, a 22% increase from the prior year, JV fractionation capacity was 98% utilized during the quarter. Freshwater delivery volumes averaged 111,000 barrels per day a 21% decrease from the prior year quarter driven by lower completion activity by Antero Resources. Fresh water delivery volumes were ahead of expectations during the third quarter, driven by an acceleration of completions as they are averaged a company record 8.5 completion stages per day. This pulled incremental stages into the third quarter originally scheduled for the fourth quarter, and as a result, we expect a reduction in freshwater delivery volumes in the fourth quarter. Moving on to financial results. Adjusted EBITDA for the third quarter was $229 million, a 5% increase compared to the prior year quarter. Distributable cash flow for the third quarter was $189 million, resulting in a DCF coverage ratio of 1.3 times. Capital expenditures during the quarter was $37 million, a 77% decrease compared to the third quarter of 2019. During the third quarter, we generated a…

[Operator Instructions]. Our first question today is coming from Jeremy Tonet from JP Morgan. Your line is now live.

Hey, good morning, guys. This is James on for Jeremy. I guess just started off with 2021 and understand it's early to provide any numbers there. But I guess just given the revised guidance for 2020 and what that assumed for 4Q, would it be fair to assume that 4Q might be a good annualized run rate for 2021 just assuming Antero’s activity here.

Now, I mean, it would be at least on the revenue side, probably okay. But, Antero Midstream had a couple expense items in 2020 that will not repeat in 2021 and that's specifically around the Clearwater facility. And then also on the remains to be seen, but the rebates step up in 2021, though the threshold levels. So some of those may or may not be achieved, whereas in the 2020 timeframe, and in fourth quarter, we expect those to be achieved. So EBITDA should be higher than that’s kind of fourth quarter run rate.

Got it. That's helpful. And then just shifting to kind of the debt profile here. As it seems like it's been trending a little bit higher the last two quarters, could you just talk maybe about, where you expect in terms of the pace of the leveraging next year, and then you guys have mentioned, you're comfortable within this kind of three to four times range. But just wanted to see given the free cash flow function, if you can see that leverage taking lower next year?

Yes, I don't know, what you're referring on the second and the third quarter, we actually paid down a little bit in the second quarter in the third quarter, we only increase the leverage by $30 million and that's because we'd have our interest expense of actual cash interest paid occurs in March and September of every year for $60 million, versus an interest expense of 30. So we actually had free cash flow above the return of capital this quarter, I think it was $147 million --, about $10 million worth. So that's first time. So, now we expect leverage to be flat. When we look at the models going forward, we don't add any absolute leverage. It stays flat and with EBITDA taken up a little bit that 3.7 times trends a bit lower but kind of stays in the mid to mid 3s level.

Got it. And then one more if I could, the smaller macro one, but obviously, given particularly the basin in the Atlantic coast cancellation. There's MEP hurdles remaining, I guess just looking out next year, what's really the impact if maybe MVP has delayed on the AM business?

For me, I think that would be encouraging for AR obviously AR has the firm transport already in place to deliver its production to the premium price markets. So any winding in basis does not affect them from a production flow assurance from a throughput in the AM systems, but it probably allow AR to have lower marketing expense which would improve just their overall financial profile.

Got it. Thanks. That’s it for me.

The next question today is coming from John MacKay from Goldman Sachs. Your line is now live.

Hey everyone. Good morning. Thanks for the time. Just wanted to circle back onto those actually just asking a little bit different way. The 2020 guidance implies a bit of a step down for 4Q 2020. I understand that, AR production is going to step back a little bit. But is there anything else moving there? Maybe a one off on the either side?

Now, I mean, one thing is, I mentioned in my comments, you probably about have half the completion activity that we had in second and third quarter in the water. And so when you look at that way, I think the water EBITDA for this quarter was in between $30 million and $35 million. So, half of that would suggest, next quarters water EBITDA would be, $15 million to $17 million. So, that's part of the primary step down, and then you do have a little bit lower, $100 million a day lower volumes of throughput. So, those two in combination gets you to that implied EBITDA, kind of midpoint in the fourth quarter of $195 million to $200 million.

Great. That's helpful. Thank you. And then my -- actually, so you didn't use the buybacks this quarter? But can you guys just share how you think about, using the buyback going forward and whether or not you might consider increasing leverage, even just, temporary, temporarily to buy back shares?

Yes, no, we wouldn't consider increasing leverage to buy back shares, we put up $150 million available to us, and we're just opportunistic around that. But we definitely, take an account our leverage and do not want to increase our leverage for buybacks.

That’s it for me. Thank you.

Thank you, John.

Thank you. Our next question today is coming from Gregg Brody from Bank of America. Your line is now live.

Hey, guys. Just a clarification on the midstream fee incentive, which you said this quarter. Which you’ve I guess you paid AR, do you expect that to occur in the fourth quarter as well, or…

Yes.

It do. And that's in the numbers in. There's no delay in that. That happens surface in the third quarter that happened you paid AR in third quarter for it? Or did you actually…

We have been one month away, we paid them in October.

October. Okay. That's it for me. Best for the time.

Thank you. Our next question today is coming from Sunil Sibal from Seaport Global Securities. Your line is now live.

Yes. Hi, good morning, guys. Thanks for taking my question. First question was related to the NGL volumes that you processed with your JV, seems like there was a pretty decent pick up sequentially in that number. Is that anything to do with how you're recovering NGLs or because the process volumes were up 6% but the NGL flows seems like were up more. So just trying to understand that?

Nothing different I was just from the production growth today are being focused on heavy liquids window of the Marcellus.

Okay. And then on the consolidation front, obviously, the E&P sector is seeing some consolidation effort. I was curious, how your, what your views are around consolidation in the midstream side? I think in the past, you guys have talked about growing third party business. I was wondering if you could, frame for us any opportunities, how do you see that playing out?

Now, we're still focused on an organic, the organic business, but we said that we definitely keep our eyes open for opportunities. And I don't think there's anything near term but we'll keep evaluating anything that comes up in the basin. And we generally have shied away from situations where we, buy in the gathering driven by another producer. So, that's not really been of interest. It's been more looking at downstream opportunities.

Got it. Thanks.

Thank you.

Thank you, Sunil.

Thank you. We have reach the end of our question-answer-session. I'd like to turn the floor back over to Michael Kennedy for any further or closing comments.

I want to thank everyone for participating in our conference call today. If there are any further questions, please feel free to reach out to us. Thanks again.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.