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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                   

Commission file number: 001-38075

Graphic

ANTERO MIDSTREAM CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

61-1748605

(State or other jurisdiction of
incorporation or organization)

(IRS Employer Identification No.)

1615 Wynkoop Street
Denver, Colorado

80202

(Address of principal executive offices)

(Zip Code)

(303357-7310

(Registrant’s telephone number, including area code)

Securities registered pursuant to section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

AM

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes   No

The registrant had 506,896,640 shares of common stock outstanding as of July 26, 2019.

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TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

    

2

PART I—FINANCIAL INFORMATION

4

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

54

Item 4.

Controls and Procedures

54

PART II—OTHER INFORMATION

56

Item 1.

Legal Proceedings

56

Item 1A.

Risk Factors

56

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

56

Item 5.

Other Information

56

Item 6.

Exhibits

57

SIGNATURES

58

1

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this Quarterly Report on Form 10-Q may contain forward-looking statements. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

Antero Resources Corporation’s (“Antero Resources”) expected production and ability to meet its drilling and development plan;
our ability to execute our business strategy;
our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;
our ability to realize the anticipated benefits of our investments in unconsolidated affiliates;
natural gas, natural gas liquids (“NGLs”) and oil prices;
our ability to complete the construction of or purchase new gathering and compression, processing, water handling and treatment or other assets on schedule, at the budgeted cost or at all, and the ability of such assets to operate as designed or at expected levels;
competition and government regulations;
actions taken by third-party producers, operators, processors and transporters;
legal or environmental matters;
costs of conducting our operations;
general economic conditions;
credit markets;
operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;
uncertainty regarding our future operating results; and
plans, objectives, expectations and intentions contained in this Quarterly Report on Form 10-Q that are not historical.

We caution investors that these forward-looking statements are subject to all of the risks and uncertainties incidental to our business, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, environmental risks, Antero Resources’ drilling and completion and other operating risks, regulatory changes, the uncertainty inherent in projecting Antero Resources’ future rates of production, cash flows and access to capital, the timing of development expenditures, and the other risks described under the heading “Risk Factors” in our and Antero Midstream Partners LP’s (“Antero Midstream Partners”) Annual Reports on Form 10-K, each for the year ended December 31, 2018 (the “2018 Forms 10-K”), and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, each of which is on file with the Securities and Exchange Commission (“SEC”).

2

Table of Contents

Should one or more of the risks or uncertainties described in this Quarterly Report on Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

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PART I—FINANCIAL INFORMATION

ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Balance Sheets

December 31, 2018 and June 30, 2019

(Unaudited)

(In thousands)

    

December 31, 2018

    

June 30, 2019

Assets

Current assets:

  

Cash and cash equivalents

$

2,822

7,791

Accounts receivable–Antero Resources

103,898

Accounts receivable–third party

586

Other current assets

87

3,092

Total current assets

2,909

115,367

Property and equipment, net

3,744,336

Investments in unconsolidated affiliates

43,492

1,186,161

Deferred tax asset

1,304

Customer relationships

547,685

Goodwill

1,135,266

Other assets, net

40,194

Total assets

$

47,705

6,769,009

Liabilities and Equity

Current liabilities:

Accounts payable–Antero Resources

$

731

5,021

Accounts payable–third party

28

27,003

Accrued liabilities

407

82,077

Contingent acquisition consideration

120,270

Asset retirement obligations

2,615

Taxes payable

15,678

Other current liabilities

518

Total current liabilities

16,844

237,504

Long-term liabilities:

Long-term debt

2,526,334

Asset retirement obligations

3,402

Deferred tax liability

26,738

Other

2,672

Total liabilities

16,844

2,796,650

Partners' Capital and Stockholders' Equity:

Common shareholders—186,219 shares issued and outstanding at December 31, 2018; none issued and outstanding at June 30, 2019

(41,969)

IDR LLC Series B units (66 units vested at December 31, 2018; none issued and outstanding at
June 30, 2019)

72,830

Preferred stock, $0.01 par value: none authorized or issued at December 31, 2018; 100,000 authorized at June 30, 2019

Series A non-voting perpetual preferred stock; none designated, issued or outstanding at
December 31, 2018; 12 designated and 10 issued and outstanding at June 30, 2019

Common stock, $0.01 par value; none authorized, issued or outstanding at December 31, 2018; 2,000,000 authorized and 506,847 issued and outstanding at June 30, 2019

5,068

Additional paid-in capital

3,874,820

Accumulated earnings

92,471

Total partners' capital and stockholders' equity

30,861

3,972,359

Total liabilities and partners' capital and stockholders' equity

$

47,705

6,769,009

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income

Three Months Ended June 30, 2018 and 2019

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended June 30,

    

2018

    

2019

    

Revenue:

    

Gathering and compression–Antero Resources

$

168,925

Water handling and treatment–Antero Resources

95,181

Water handling and treatment–third party

46

Amortization of customer relationships

(8,534)

Total revenue

255,618

Operating expenses:

Direct operating

63,998

General and administrative (including $9,111 and $21,543 of equity-based compensation in 2018 and 2019, respectively)

11,509

34,622

Impairment of property and equipment

594

Depreciation

36,447

Accretion and change in fair value of contingent acquisition consideration

2,297

Accretion of asset retirement obligations

69

Total operating expenses

11,509

138,027

Operating income (loss)

(11,509)

117,591

Interest expense, net

(18)

(31,521)

Equity in earnings of unconsolidated affiliates

33,145

13,623

Income before taxes

21,618

99,693

Provision for income tax expense

(7,231)

(30,419)

Net income and comprehensive income

$

14,387

69,274

Net income per share–basic and diluted

$

0.07

0.14

Weighted average common shares outstanding:

Basic

186,199

506,816

Diluted

186,199

507,767

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income

Six Months Ended June 30, 2018 and 2019

(Unaudited)

(In thousands, except per share amounts)

Six Months Ended June 30,

2018

    

2019

Revenue:

Gathering and compression–Antero Resources

$

202,459

Water handling and treatment–Antero Resources

117,532

Water handling and treatment–third party

50

Amortization of customer relationships

(10,315)

Total revenue

309,726

Operating expenses:

Direct operating

78,980

General and administrative (including $17,745 and $32,966 of equity-based compensation in 2018 and 2019, respectively)

21,073

54,431

Impairment of property and equipment

594

Depreciation

44,097

Accretion and change in fair value of contingent acquisition consideration

3,346

Accretion of asset retirement obligations

79

Total operating expenses

21,073

181,527

Operating income

(21,073)

128,199

Interest expense, net

(14)

(37,738)

Equity in earnings of unconsolidated affiliates

61,598

16,503

Income before taxes

40,511

106,964

Provision for income tax expense

(13,319)

(28,042)

Net income and comprehensive income

$

27,192

78,922

Net income per share–basic and diluted

$

0.14

0.21

Weighted average common shares outstanding:

Basic

186,194

381,045

Diluted

186,194

382,026

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statements of Partners’ Capital

Three and Six Months Ended June 30, 2018

(Unaudited)

(In thousands)

Common

Shares

Representing

Total

Limited Partner

Series B

Partners'

Interests

Unitholders

Capital

Balance at December 31, 2017

$

(19,866)

35,474

15,608

Net income and comprehensive income

12,392

413

12,805

Equity-based compensation

7,777

7,777

Distributions to shareholders

(13,964)

(783)

(14,747)

Balance at March 31, 2018

(13,661)

35,104

21,443

Net income and comprehensive income

13,881

506

14,387

Equity-based compensation

7,777

7,777

Distributions to shareholders

(20,109)

(414)

(20,523)

Balance at June 30, 2018

$

(12,112)

35,196

23,084

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statements of Partners’ Capital and Stockholders’ Equity

Three and Six Months Ended June 30, 2019

(Unaudited)

(In thousands)

Common

Shares

Representing

Limited

Additional

Partner

Series B

Common

Paid-In

Preferred

Accumulated

Total

Interests

Unitholders

Stock

Capital

Stock

Earnings

Equity

Balance at December 31, 2018

$

(41,969)

72,830

30,861

Distributions to unitholders

(30,543)

(3,720)

(34,263)

Net (loss) and comprehensive (loss) pre-acquisition

(13,549)

(13,549)

Equity-based compensation pre-acquisition

7,034

7,034

Exchange of common shares for shares of common stock and cash consideration paid

79,027

(69,110)

5,066

4,002,898

4,017,881

Issuance of Series A non-voting perpetual preferred stock

Equity-based compensation

4,389

4,389

Net income and comprehensive income

23,197

23,197

Balance at March 31, 2019

5,066

4,007,287

23,197

4,035,550

Dividends to shareholders

(152,180)

(152,180)

Equity-based compensation

21,543

21,543

Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes

2

(1,830)

(1,828)

Net income and comprehensive income

69,274

69,274

Balance at June 30, 2019

$

5,068

3,874,820

92,471

3,972,359

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, 2018 and 2019

(Unaudited)

(In thousands)

Six Months Ended June 30,

    

2018

    

2019

 

Cash flows provided by (used in) operating activities:

  

Net income

$

27,192

78,922

Adjustments to reconcile net income to net cash provided by operating activities:

Distributions received from Antero Midstream Partners LP, prior to the Transactions

52,232

43,492

Depreciation

44,097

Accretion and change in fair value of contingent acquisition consideration

3,346

Accretion of asset retirement obligations

79

Impairment of property and equipment

594

Deferred income taxes

28,042

Equity-based compensation

17,745

32,966

Equity in earnings of unconsolidated affiliates

(61,598)

(16,503)

Distributions from unconsolidated affiliates

23,860

Amortization of customer relationships

10,315

Amortization of deferred financing costs

18

1,102

Changes in assets and liabilities:

Accounts receivable–Antero Resources

38,414

Accounts receivable–third party

9

Other current assets

(974)

(1,867)

Accounts payable–Antero Resources

(6)

973

Accounts payable–third party

31

(4,629)

Accrued liabilities

506

(15,370)

Income taxes payable

(548)

(15,678)

Net cash provided by operating activities

34,598

252,164

Cash flows provided by (used in) investing activities:

Additions to gathering systems and facilities

(89,206)

Additions to water handling and treatment systems

(51,984)

Investments in unconsolidated affiliates

(103,409)

Cash received on acquisition of Antero Midstream Partners LP

619,532

Cash consideration paid to Antero Midstream Partners LP unitholders

(598,709)

Change in other assets

2,375

Net cash used in investing activities

(221,401)

Cash flows provided by (used in) financing activities:

Distributions to shareholders

(34,073)

(182,625)

Distributions to Series B unitholders

(1,197)

(3,720)

Distributions to preferred shareholders

(98)

Issuance of senior notes

650,000

Payments of deferred financing costs

(15)

(6,952)

Payments on bank credit facilities, net

(480,500)

Employee tax withholding for settlement of equity compensation awards

(1,828)

Other

(71)

Net cash used in financing activities

(35,285)

(25,794)

Net increase (decrease) in cash and cash equivalents

(687)

4,969

Cash and cash equivalents, beginning of period

5,987

2,822

Cash and cash equivalents, end of period

$

5,300

7,791

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

$

3

31,147

Cash paid during the period for income taxes

$

13,867

16,001

Increase in accrued capital expenditures and accounts payable for property and equipment

$

9,447

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements

December 31, 2018 and June 30, 2019

(1) Organization

Antero Midstream Corporation was originally formed as Antero Resources Midstream Management LLC in 2013 to become the general partner of Antero Midstream Partners LP (“Antero Midstream Partners”).  On May 4, 2017, Antero Resources Midstream Management LLC converted from a limited liability company to a limited partnership under the laws of the State of Delaware (the “Conversion”), and changed its name to Antero Midstream GP LP (“AMGP”) in connection with its initial public offering.  On March 12, 2019, pursuant to the previously announced Simplification Agreement, dated as of October 9, 2018, by and among AMGP, Antero Midstream Partners and certain of their affiliates (the “Simplification Agreement”), (i) AMGP was converted from a limited partnership to a corporation under the laws of the State of Delaware and changed its name to Antero Midstream Corporation, (ii) an indirect, wholly owned subsidiary of Antero Midstream Corporation was merged with and into Antero Midstream Partners, with Antero Midstream Partners surviving the merger as an indirect, wholly owned subsidiary of Antero Midstream Corporation (the “Merger”), and (iii) Antero Midstream Corporation exchanged (the “Series B Exchange” and, together with the Conversion, the Merger and the other transactions pursuant to by the Simplification Agreement, the “Transactions”) each issued and outstanding Series B Unit (the “Series B Units”) representing a membership interest in Antero IDR Holdings LLC (“IDR Holdings”) for 176.0041 shares of its common stock, par value $0.01 per share (“AMC common stock”). As a result of the Transactions, Antero Midstream Partners is now a wholly owned subsidiary of Antero Midstream Corporation and former shareholders of AMGP, unitholders of Antero Midstream Partners, including Antero Resources Corporation (“Antero Resources”), and holders of Series B Units now own AMC common stock. Unless the context otherwise requires, references to the “Company,” “we,” “us” or “our” refer to (i) for the period prior to March 13, 2019, AMGP and its consolidated subsidiaries, which did not include Antero Midstream Partners and its subsidiaries, and (ii) for the period beginning on March 13, 2019, Antero Midstream Corporation and its consolidated subsidiaries, including Antero Midstream Partners and its subsidiaries Antero Midstream LLC, Antero Water LLC (“Antero Water”), Antero Treatment LLC, and Antero Midstream Finance Corporation (“Finance Corp”).

We are a growth-oriented midstream company formed to own, operate and develop midstream energy infrastructure primarily to service Antero Resources and its increasing production and completion activity in the Appalachian Basin’s Marcellus Shale and Utica Shale located in West Virginia and Ohio. Our assets consist of gathering pipelines, compressor stations, interests in processing and fractionation plants, and water handling and treatment assets. The Company, through Antero Midstream Partners and its affiliates, provides midstream services to Antero Resources under long-term contracts. The Company’s corporate headquarters are located in Denver, Colorado.

(2) Summary of Significant Accounting Policies

(a)

Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) applicable to interim financial information and should be read in the context of the Company’s December 31, 2018 consolidated financial statements and notes thereto for a more complete understanding of the Company’s operations, financial position, and accounting policies, which have been filed with the SEC.

These unaudited condensed consolidated financial statements of the Company 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 the Company, these unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary for a fair presentation of the Company’s financial position as of December 31, 2018 and June 30, 2019, and the results the Company’s operations and its cash flows for the three and six months ended June 30, 2018 and 2019. The Company has no items of other comprehensive income; therefore, net income is equal to its comprehensive income.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2018 and June 30, 2019

Certain costs of doing business incurred and charged to the Company by Antero Resources have been reflected in the accompanying unaudited condensed consolidated financial statements. These costs include general and administrative expenses provided to the Company by Antero Resources in exchange for:

business services, such as payroll, accounts payable and facilities management;
corporate services, such as finance and accounting, legal, human resources, investor relations and public and regulatory policy; and
employee compensation, including equity-based compensation.

Transactions between the Company and Antero Resources have been identified in the unaudited condensed consolidated financial statements (see Note 4—Transactions with Affiliates).

As of the date these unaudited condensed consolidated financial statements were filed with the SEC, the Company completed its evaluation of potential subsequent events for disclosure and no items requiring disclosure were identified other than as disclosed in Note 12—Dividends.

(b)

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include (i) for the period prior to March 13, 2019, the accounts of AMGP and its consolidated subsidiaries, which did not include Antero Midstream Partners and its subsidiaries, and (ii) for the period beginning on March 13, 2019, the accounts of Antero Midstream Corporation and its consolidated subsidiaries, including Antero Midstream Partners and its subsidiaries, which were acquired in the Transactions. See Note 3—Business Combination.

(c)

Revenue Recognition

The Company, through Antero Midstream Partners and its affiliates, provides gathering and compression and water handling and treatment services under fee-based contracts primarily based on throughput or at cost plus a margin. Certain of these contracts contain operating leases of the Company’s assets under GAAP. Under these arrangements, the Company receives fees for gathering gas products, compression services, and water handling and treatment services. The revenue the Company earns from these arrangements is directly related to (1) in the case of natural gas gathering and compression, the volumes of metered natural gas that it gathers, compresses, and delivers to natural gas compression sites or other transmission delivery points, (2) in the case of fresh water services, the quantities of fresh water delivered to its customers for use in their well completion operations, (3) in the case of wastewater treatment services performed by the Company, the quantities of wastewater treated for our customers, or (4) in the case of flowback and produced water services provided by third parties, the third-party costs the Company incurs plus 3%. The Company recognizes revenue when it satisfies a performance obligation by delivering a service to a customer or the use of leased assets to a customer. See Note 5—Revenue for the Company’s required disclosures under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. The Company includes lease revenue within revenues by service.

(d)

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements and notes in conformity with GAAP requires that management formulate estimates and assumptions that affect revenues, expenses, assets, liabilities, and the disclosure of contingent liabilities. Items subject to estimates and assumptions include the useful lives of property and equipment, the valuation of assets and liabilities acquired from Antero Midstream Partners, as well as the valuation of accrued liabilities, among others. Although management believes these estimates are reasonable, actual results could differ from these estimates.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2018 and June 30, 2019

(e)

Cash and Cash Equivalents

The Company considers 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.   

(f)

Property and Equipment

Property and equipment primarily consists of gathering pipelines, compressor stations, fresh water delivery pipelines and facilities, and the wastewater treatment facility and related landfill used for the disposal of salt therefrom, stated at historical cost less accumulated depreciation and amortization. The Company capitalizes construction-related direct labor and material costs. Maintenance and repair costs are expensed as incurred.

Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives and salvage values of assets. The depreciation of fixed assets recorded under operating 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 the Company’s services in the areas in which it operates. When assets are placed into service, management makes estimates with respect to useful lives and salvage values that management believes are reasonable.

Amortization of landfill airspace consists of the amortization of landfill capital costs, including those that have been incurred and capitalized and estimated future costs for landfill development and construction, as well as the amortization of asset retirement costs arising from landfill final capping, closure, and post-closure obligations. Amortization expense is recorded on a units-of-consumption basis, applying cost as a rate per-cubic yard. The rate per-cubic yard is calculated by dividing each component of the amortizable basis of the landfill by the number of cubic yards needed to fill the corresponding asset’s airspace. Landfill capital costs and closure and post-closure asset retirement costs are generally incurred to support the operation of the landfill over its entire operating life and are, therefore, amortized on a per-cubic yard basis using a landfill’s total airspace capacity. Estimates of disposal capacity and future development costs are created using input from independent engineers and internal technical teams and are reviewed at least annually.

The Company evaluates its 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 assets being assessed.  If the carrying values of the assets are deemed not recoverable, the carrying values are reduced to the estimated fair values, which are based on discounted future cash flows using assumptions as to revenues, costs, and discount rates typical of third-party market participants, which is a Level 3 fair value measurement.

(g)

Asset Retirement Obligations

The Company’s asset retirement obligations include its obligation to close, maintain, and monitor landfill cells and support facilities. After the entire landfill reaches capacity and is certified closed, the Company must continue to maintain and monitor the landfill for a post-closure period, which generally extends for 30 years. The Company records the fair value of its landfill retirement obligations as a liability in the period in which the regulatory obligation to retire a specific asset is triggered. For the Company’s individual landfill cells, the required closure and post-closure obligations under the terms of its permits and its intended operation of the landfill cell are triggered and recorded when the cell is placed into service and salt is initially disposed in the landfill cell. The fair value is based on the total estimated costs to close the landfill cell and perform post-closure activities once the landfill cell has reached capacity and is no longer accepting salt. Retirement obligations are increased each year to reflect the passage of time by accreting the balance at the weighted average credit-adjusted risk-free rate that is used to calculate the recorded liability, with accretion charged to direct costs. Actual cash expenditures to perform closure and post-closure activities reduce the retirement obligation liabilities as incurred. After initial measurement, asset retirement obligations are adjusted at the end of each period to reflect changes, if any, in the estimated future cash flows underlying the obligation. Landfill retirement assets are capitalized as the related retirement obligations are incurred, and are amortized on a units-of-consumption basis as the disposal capacity is consumed.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2018 and June 30, 2019

Asset retirement obligations are recorded for fresh water impoundments and waste water pits when an abandonment date is identified. The Company records the fair value of its freshwater impoundment and waste water pit retirement obligations as liabilities in the period in which the regulatory obligation to retire a specific asset is triggered. The fair value is based on the total reclamation costs of the assets. Retirement obligations are increased each year to reflect the passage of time by accreting the balance at the weighted average credit-adjusted risk-free rate that is used to calculate the recorded liability, with accretion charged to direct costs. Actual cash expenditures to perform remediation activities reduce the retirement obligation liabilities as incurred. After initial measurement, asset retirement obligations are adjusted at the end of each period to reflect changes, if any, in the estimated future cash flows underlying the obligation. Fresh water impoundments and wastewater pit retirement assets are capitalized as the related retirement obligations are incurred, and are amortized on a straight-line basis until reclamation.

The Company is under no legal obligations, neither contractually nor under the doctrine of promissory estoppel, to restore or dismantle its gathering pipelines, compressor stations, water delivery pipelines and facilities and wastewater treatment facility upon abandonment. The Company’s gathering pipelines, compressor stations, fresh water delivery pipelines and facilities and wastewater treatment facility have an indeterminate life, if properly maintained. Accordingly, the Company is not able to make a reasonable estimate of when future dismantlement and removal dates of its pipelines, compressor stations and facilities will occur.

(h)

Income Taxes

Antero Midstream Corporation recognizes deferred tax assets and liabilities for temporary differences resulting from net operating loss carryforwards for income tax purposes and the differences between the financial statement and tax basis of assets and liabilities.  The effect of changes in tax laws or tax rates is recognized in income during the period such changes are enacted.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.  Antero Midstream Corporation regularly reviews its tax positions in each significant taxing jurisdiction during the process of evaluating its tax provision.  Antero Midstream Corporation makes adjustments to its tax provision when: (i) facts and circumstances regarding a tax position change, causing a change in management’s judgment regarding that tax position; and/or (ii) a tax position is effectively settled with a tax authority at a differing amount.

(i)

Fair Value Measures

The Financial Accounting Standards Board (the “FASB”) ASC 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 the Company estimates 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.  The Company’s 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 the balance sheet of the Company’s cash and cash equivalents, accounts receivable—Antero Resources, accounts receivable—third party, other current assets, accounts payable—Antero Resources, accounts payable, accrued liabilities, other current liabilities, other liabilities and the Credit Facility (as defined in Note 7—Long-Term Debt) approximate fair values due to their short-term maturities. The assets and liabilities of Antero Midstream Partners were recorded at fair value as of the acquisition date, March 12, 2019 (see Note 3—Business Combination).

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2018 and June 30, 2019

(j)

Investments in Unconsolidated Affiliates

The Company uses the equity method to account for its investments in companies if the investment provides the Company with the ability to exercise significant influence over, but not control of, the operating and financial policies of the investee. The Company’s consolidated net income includes the Company’s proportionate share of the net income or loss of such companies. The Company’s judgment regarding the level of influence over each equity method investee includes considering key factors such as the Company’s ownership interest, representation on the board of directors and participation in policy-making decisions of the investee and material intercompany transactions. See Note 15—Investments in Unconsolidated Affiliates.

(k)

Business Combinations

The Company recognizes and measures the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date, with any remaining difference recorded as goodwill. For acquisitions, management engages an independent valuation specialist to assist with the determination of fair value of the assets acquired, liabilities assumed, and goodwill, based on recognized business valuation methodologies.  If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded.  Subsequent to the acquisition, and not later than one year from the acquisition date, the Company will record any material adjustments to the initial estimate based on new information obtained that would have existed as of the acquisition date.  An adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period of the adjustment. Acquisition-related costs are expensed as incurred in connection with each business combination. See Note 3—Business Combination.

(l)

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition of a business.  Goodwill is not amortized, but rather is tested for impairment annually and when events or changes in circumstances indicate that the fair value of a reporting unit with goodwill has been reduced below carrying value.  The impairment test requires allocating goodwill and other assets and liabilities to reporting units.  The fair value of each reporting unit is determined and compared to the carrying value of the reporting unit.  The fair value is calculated using the expected present value of future cash flows method. Significant assumptions used in the cash flow forecasts include future net operating margins, future volumes, discount rates, and future capital requirements. If the fair value of the reporting unit is less than the carrying value, including goodwill, the implied fair value of goodwill is calculated.  The excess, if any, of the book value over the implied fair value of goodwill is charged to net income as an impairment expense.

Amortization of intangible assets with definite lives is calculated using the straight-line method which is reflective of the benefit pattern in which the estimated economic benefit is expected to be received over the estimated useful life of the intangible asset. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible may not be recoverable. If the sum of the expected undiscounted future cash flows related to the asset is less than the carrying amount of the asset, an impairment loss is recognized based on the fair value of the asset.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2018 and June 30, 2019

(k)

Adoption of New Accounting Principle

On February 25, 2016, the FASB issued Accounting Standard Update (“ASU”) No. 2016-02, Leases, which requires lessees to record lease liabilities and right-of-use assets as of the date of adoption and was incorporated into GAAP as ASC Topic 842. The new lease standard does not substantially change accounting by lessors. The Company adopted the new standard prospectively effective January 1, 2019. The Company is not a party to material contracts as a lessee. The Company determined that Antero Midstream Partners’ contractual arrangement with Antero Resources to provide gathering and compression services is an operating lease of certain of the Company’s assets, which are accounted for under the new ASU (see Note 5—Revenue for information on this arrangement).

(3) Business Combination

On March 12, 2019, AMGP and Antero Midstream Partners completed the Transactions. The Transactions have been accounted for using the acquisition method of accounting with Antero Midstream Corporation identified as the acquirer of Antero Midstream Partners.

The components of the fair value of consideration transferred are as follows (in thousands):

Fair value of shares of AMC common stock issued(1)

$

4,017,881

Cash

598,709

Total fair value of consideration transferred

$

4,616,590

(1)The fair value of each share of AMC common stock issued in connection with the Transactions was determined to be $12.54, the closing price of AMGP common shares on March 12, 2019.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2018 and June 30, 2019

The following table summarizes the preliminary purchase price allocation. Due to the proximity of the Transactions to June 30, 2019, the Company is still completing its analysis of the final purchase price allocation. The estimated fair value of assets acquired and liabilities assumed at March 12, 2019, are as follows (in thousands):

Cash and cash equivalents

$

619,532

Accounts receivable–Antero Resources

142,312

Accounts receivable–third party

117

Other current assets

1,150

Property and equipment, net

3,639,148

Investments in unconsolidated affiliates

1,090,109

Customer relationships

558,000

Other assets, net

42,887

Total assets acquired

6,093,255

Accounts payable–Antero Resources

3,316

Accounts payable–third party

30,674

Accrued liabilities

87,021

Other current liabilities

537

Long-term debt

2,364,935

Contingent acquisition consideration

116,924

Asset retirement obligations

5,715

Other liabilities

2,809

Total liabilities assumed

2,611,931

Net assets acquired, excluding goodwill

3,481,324

Goodwill

1,135,266

Net assets acquired

$

4,616,590

The Company’s financial statements include $6 million of acquisition-related costs associated with the Transactions. These costs were expensed as general and administrative costs.

(4) Transactions with Affiliates

(a)

Revenues

Substantially all revenues earned in the three and six months ended June 30, 2019 were earned from Antero Resources, under various agreements for gathering and compression and water handling and treatment services. Revenues earned from gathering and processing services consists of lease income. There were no such revenues earned by AMGP for the three and six months ended June 30, 2018.

(b)

Accounts receivable—Antero Resources and Accounts payable—Antero Resources

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

(c)

Costs charged by Antero Resources

The employees supporting the Company’s operations are employees of Antero Resources.  Direct operating expense includes costs charged to the Company of $1.9 million and $2.3 million during the three months and six months ended June 30, 2019, respectively, related to labor charges for Antero Resources employees associated with the operation of the Company’s gathering lines, compressor stations, and water handling and treatment assets.  There were no such charges to AMGP during the three months and six

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2018 and June 30, 2019

months ended June 30, 2018. General and administrative expense includes costs charged to the Company by Antero Resources of $0.1 million and $11.8 million during the three months ended June 30, 2018 and 2019, respectively.  For the six months ended June 30, 2018 and 2019, general and administrative expenses charged to the Company by Antero Resources were $0.3 million and $13.9 million, 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.  These expenses are charged to the Company based on the nature of the expenses and are apportioned based on a combination of the Company’s proportionate share of gross property and equipment, capital expenditures and labor costs, as applicable.  The Company reimburses Antero Resources directly for all general and administrative costs charged to it, with the exception of noncash equity compensation attributed to the Company for awards issued under Antero Resources’ long-term incentive plan and the Antero Midstream Corporation Long Term Incentive Plan (the “AMC LTIP”).  See Note 10—Equity-Based Compensation.

(5) Revenue

(a)   Revenue from Contracts with Customers

All of the Company’s revenues are derived from service contracts with customers and are recognized when the Company satisfies a performance obligation by delivering a service to a customer. The Company derives substantially all of its revenues from Antero Resources. The following sets forth the nature, timing of satisfaction of performance obligations, and significant payment terms of the Company’s contracts with Antero Resources.

Gathering and Compression Agreement

Pursuant to the Company’s 20-year gathering and compression agreement with Antero Resources, which was originally entered into on November 10, 2014, Antero Resources has dedicated all of its current and future acreage in West Virginia, Ohio and Pennsylvania to the Company for gathering and compression services except for acreage subject to third-party commitments or pre-existing dedications. Upon completion of the initial 20-year term, the gathering and compression agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Resources on or before the 180th day prior to the anniversary of such effective date.

The Company also has an option to gather and compress natural gas produced by Antero Resources on any acreage it acquires in the future outside of West Virginia, Ohio and Pennsylvania on the same terms and conditions. Under the gathering and compression agreement, the Company receives a low pressure gathering fee, a high pressure gathering fee and a compression fee, in each case subject to CPI-based adjustments. In addition, the agreement stipulates that the Company receives a reimbursement for the actual cost of electricity used at its compressor stations.

The Company determined that the gathering and compression agreement is an operating lease as Antero Resources obtains substantially all of the economic benefit of the asset and has the right to direct the use of the asset. The gathering system is an identifiable asset within the gathering and compression agreement, and it consists of underground low pressure pipelines that generally connect and deliver gas from specific well pads to compressor stations to compress the gas before delivery to underground high pressure pipelines that transport the gas to a third-party pipeline or plant. The gathering system is considered a single lease due to the interrelated network of the assets. The Company accounts for its lease and non-lease components as a single lease component as the lease component is the predominant component. The non-lease components consist of operating, oversight and maintenance of the gathering system, which are performed on time-elapsed measures. All lease payments, under the future Minimum Volume Commitments discussed below, are considered to be in-substance fixed lease payments under the gathering and compression agreement.

The Company recognizes revenue when low pressure volumes are delivered to a compressor station, compression volumes are delivered to a high pressure line and high pressure volumes are delivered to a processing plant or transmission pipeline. The Company invoices the customer the month after each service is performed, and payment is due in the same month.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2018 and June 30, 2019

Water Services Agreement

Antero Midstream Partners is party to a Water Services Agreement with Antero Resources whereby Antero Midstream Partners agreed to provide certain water handling and treatment services to Antero Resources within an area of dedication in defined service areas in Ohio and West Virginia. Antero Resources agreed to pay Antero Midstream Partners for all water handling and treatment services provided by Antero Midstream Partners in accordance with the terms of the water services agreement. The initial term of the water services agreement is 20 years from September 23, 2015 and from year to year thereafter until terminated by either party. Under the agreement, the Company receives a fixed fee per barrel in West Virginia, Ohio and all other locations for fresh water deliveries by pipeline directly to the well site. Additionally, the Company receives a fixed fee per barrel for fresh water delivered by truck to high-rate transfer facilities. All of these fees have been subject to annual CPI adjustments since the inception of the agreement in 2015. Antero Resources also agreed to pay the Company a fixed fee per barrel for wastewater treatment at the advanced wastewater treatment complex, in each case subject to annual CPI-based adjustments and additional fees based on certain costs.

Under the water services agreement, the Company may also contract with third parties to provide water services to Antero Resources. Antero Resources reimburses the Company for third-party out-of-pocket costs plus a 3% markup.

The Company satisfies its performance obligations and recognizes revenue when the fresh water volumes have been delivered to the hydration unit of a specified well pad and the wastewater volumes have been delivered to the Company’s wastewater treatment facility. The Company invoices the customer the month after water services are performed, and payment is due in the same month. For services contracted through third-party providers, the Company’s performance obligation is satisfied when the service to be performed by the third-party provider has been completed. The Company invoices the customer after the third-party provider billing is received, and payment is due in the same month.

Minimum Volume Commitments

Both the gathering and compression and water services agreements include certain minimum volume commitment provisions. If and to the extent Antero Resources requests that the Company construct new high pressure lines and compressor stations, the gathering and compression agreement contains minimum volume commitments that require Antero Resources to utilize or pay for 75% and 70%, respectively, of the capacity of such new construction for 10 years. Antero Resources also committed to pay a fee on a minimum volume of fresh water deliveries in calendar years 2016 through 2019. Antero Resources is obligated to pay a minimum volume fee to the Company in the event the aggregate volume of fresh water delivered to Antero Resources under the water services agreement is less than 120,000 barrels per day in 2019. The Company recognizes water handling and treatment revenue related to these minimum volume commitments at the time it is determined that the volumes will not be consumed by Antero Resources, and the amount of the shortfall is known. The Company recognizes lease income from its minimum volume commitments under its gathering and compression agreement on a straight-line basis.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2018 and June 30, 2019

Minimum revenue amounts under the minimum volume commitments are as follows:

Remainder of

Year Ended December 31,

(in thousands)

2019

2020

2021

2022

2023

2024

Thereafter

Total

Minimum revenue under the Gathering and Compression Agreement (1)

$

63,997

210,363

209,788

209,788

209,788

210,363

535,756

1,649,843

Minimum revenue under the Water Services Agreement

73,604

73,604

Total

$

137,601

210,363

209,788

209,788

209,788

210,363

535,756

1,723,447

(1)Minimum volume commitments under the Gathering and Compression Agreement are recognized on a straight-line basis and additional operating lease income is earned when excess volumes are delivered under the contract. The Company is not party to any leases that have not commenced.

(b)   Disaggregation of Revenue

In the following table, revenue is disaggregated by type of service and type of fee. The table also identifies the reportable segment to which the disaggregated revenues relate. For more information on reportable segments, see Note 16—Reporting Segments.

Three Months

Six Months

Ended

Ended

June 30,

June 30,

Segment to which

(in thousands)

2019

2019

revenues relate

Revenue from contracts with customers

Type of service

Gathering—low pressure

$

78,807

94,634

Gathering and Processing(1)

Gathering—high pressure

47,749

57,032

Gathering and Processing(1)

Compression

42,369

50,793

Gathering and Processing(1)

Fresh water delivery

43,429

54,204

Water Handling and Treatment

Wastewater treatment

12,011

14,441

Water Handling and Treatment

Other fluid handling

39,787

48,937

Water Handling and Treatment

Amortization of customer relationships(2)

(2,402)

(2,903)

Gathering and Processing

Amortization of customer relationships(2)

(6,132)

(7,412)

Water Handling and Treatment

Total

$

255,618

309,726

Type of contract

Per Unit Fixed Fee

$

168,925

202,459

Gathering and Processing(1)

Per Unit Fixed Fee

55,440

68,645

Water Handling and Treatment

Cost plus 3%

39,787

48,937

Water Handling and Treatment

Amortization of customer relationships

(2,402)

(2,903)

Gathering and Processing

Amortization of customer relationships

(6,132)

(7,412)

Water Handling and Treatment

Total

$

255,618

309,726

(1)Revenue related to the gathering and processing segment is classified as lease income related to the gathering system.
(2)Fair value of customer contracts acquired as part of the Transactions discussed in Note 3—Business Combination.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2018 and June 30, 2019

(c)   Transaction Price Allocated to Remaining Performance Obligations

The majority of the Company’s service contracts have a term greater than one year. As such, the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under the Company’s service contracts, each unit of product delivered to the customer represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

The remainder of our service contracts, which relate to contracts with third parties, are short-term in nature with a contract term of one year or less. Accordingly, the Company is exempt from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

(d)   Contract Balances

Under the Company’s service contracts, the Company invoices customers after its performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s service contracts do not give rise to contract assets or liabilities. At June 30, 2019, the Company’s receivables with customers were $104 million. There were no receivables from customers as of December 31, 2018.

(6) Property and Equipment

The Company’s investment in property and equipment for the periods presented is as follows:

Estimated

(in thousands)

    

useful lives

    

June 30, 2019

Land

n/a

$

23,665

Gathering systems and facilities

40-50 years(1)

2,390,018

Fresh water permanent buried pipelines and equipment

10-20 years

686,179

Wastewater treatment facility

30 years

304,375

Fresh water surface pipelines and equipment

1-5 years

44,915

Landfill

n/a(2)

77,866

Heavy trucks and equipment

3-5 years

4,941

Above ground storage tanks

5-10 years

4,235

Construction-in-progress

n/a

251,940

Total property and equipment

3,788,134

Less accumulated depreciation

(43,798)

Property and equipment, net

$

3,744,336

(1)Gathering systems and facilities are recognized as a single-leased asset with no residual value.
(2)Amortization of landfill costs is recorded over the life of the landfill on a units-of-consumption basis.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2018 and June 30, 2019

(7)

Long-Term Debt

On May 9, 2018, AMGP entered into a credit facility (the “AMGP Credit Facility”) with a bank, which provided for a line of credit of up to $12 million. At December 31, 2018, AMGP had no borrowings under the AMGP Credit Facility. In connection with the Transactions, the AMGP Credit Facility was terminated on March 12, 2019.

AMGP had no long-term debt at December 31, 2018. Antero Midstream Corporation’s long-term debt was as follows at June 30, 2019:

(in thousands)

June 30, 2019

Credit Facility (a)

$

594,500

5.375% senior notes due 2024 (b)

652,600

5.75% senior notes due 2027 (c)

653,250

5.75% senior notes due 2028 (d)

650,000

Net unamortized debt issuance costs

(24,016)

Total long-term debt

$

2,526,334

(a)

Antero Midstream Partners Revolving Credit Facility

Antero Midstream Partners, an indirect, wholly owned subsidiary of Antero Midstream Corporation, as borrower (the “Borrower”), has a senior secured revolving credit facility (the “Credit Facility”) with a consortium of banks. Lender commitments under the Credit Facility are $2.0 billion. At June 30, 2019, the Borrower had borrowings under the Credit Facility of $595 million with a weighted average interest rate of 3.79%. No letters of credit were outstanding at June 30, 2019 under the Credit Facility. The maturity date of the facility is October 26, 2022. The Credit Facility includes fall away covenants and lower interest rates that are triggered if and when the Borrower is assigned an Investment Grade Rating (as defined below).

Under the Credit Facility, “Investment Grade Period” is a period that, as long as no event of default has occurred and the Borrower is in pro forma compliance with the financial covenants under the Credit Facility, commences when the Borrower elects to give notice to the Administrative Agent that the Borrower has received at least one of either (i) a BBB- or better rating from Standard and Poor’s or (ii) a Baa3 or better from Moody’s (provided that the non-investment grade rating from the other rating agency is at least either Ba1 if Moody’s or BB+ if Standard & Poor’s (an “Investment Grade Rating”)). An Investment Grade Period can end at the Borrower’s election. 

During a period that is not an Investment Grade Period, the Credit Facility is ratably secured by mortgages on substantially all of the Borrower’s properties, including the properties of its subsidiaries, and guarantees from its subsidiaries. During an Investment Grade Period, the liens securing the obligations thereunder shall be automatically released (subject to the provisions of the Credit Facility).

The Credit Facility contains certain covenants including restrictions on indebtedness, and requirements with respect to leverage and interest coverage ratios; provided, however, that during an Investment Grade Period, such covenants become less restrictive on the Borrower. The Credit Facility permits distributions to the holders of the Borrower’s equity interests in accordance with the cash distribution policy previously adopted by the board of directors of the general partner of the Borrower, provided that no event of default exists or would be caused thereby, and only to the extent permitted by our organizational documents. The Borrower was in compliance with all of the financial covenants under the Credit Facility as of June 30, 2019.

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, plus an applicable margin rate. Interest at the time of borrowing is determined with reference to (i) during any period that is not an Investment Grade Period, the Borrower’s then-current leverage ratio and (ii) during an Investment Grade Period, with reference to the rating given to the Borrower by Moody’s or Standard and Poor’s. During an Investment Grade Period, the applicable margin rates are reduced by 25 basis points.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

December 31, 2018 and June 30, 2019

Commitment fees on the unused portion of the Credit Facility are due quarterly at rates ranging from 0.25% to 0.375% based on the leverage ratio, during a period that is not an Investment Grade Period, and 0.175% to