Antero Midstream's Q3 2025: Contradictions Emerge on Behind-the-Meter Timelines, Capital Allocation Priorities, and Data Center Integration

Guidance:

• Expectation of expanding free cash flow as we head into 2026.
• Continue balanced capital allocation roughly 50% share repurchases and 50% debt reduction.
• Maintain focus on returning additional capital to shareholders while funding growth across liquids-rich and dry-gas assets.
• Pro forma liquidity of over $870 million and no near-term maturities after refinancing to 2033.

Business Commentary:

* Capital Investment and Infrastructure Expansion: - Antero Midstream invested $51 million in Q3, bringing year-to-date capital invested to $133 million, which is approximately 75% of their total budget at the midpoint of guidance. - The company expanded its water assets and connected the southern end of the Marcellus Shale, enhancing development flexibility and unlocking significant low-cost inventory.

• Financial Performance and Free Cash Flow:
• Antero Midstream's adjusted EBITDA increased to $281 million in Q3, a 10% year-over-year increase.

• The growth in EBITDA, combined with a decline in capital, resulted in free cash flow after dividends of $78 million, which is a 94% increase compared to last year.

• Balance Sheet Strength and Debt Reduction:

• The company reduced its absolute debt by approximately $175 million and lowered its leverage to 2.7x as of September 30.

• This credit improvement led to a credit ratings upgrade and the ability to refinance near-term maturities, extending to 2033 at the same 5.75% coupon.

• In-basin Demand Opportunities and Strategic Growth:

• Antero Resources and Antero Midstream are exploring behind-the-meter solutions and data center opportunities in the state of West Virginia to reduce costs and optimize resource usage.

• Investments in underutilized assets and infrastructure have created significant dry gas development opportunities, offering attractive returns and potential upside to previous acquisitions.

• Asset Acquisitions and Dedication to Midstream:

• Antero Resources acquired approximately $260 million worth of assets in the core area, including 10 additional locations dedicated to Antero Midstream.
• This acquisition has more than offset the 2025 development plan and supports the strategic initiative of expanding both Antero Resources and Antero Midstream's infrastructure and core acreage.

Sentiment Analysis:

Overall Tone: Positive

• Adjusted EBITDA of $281M, up 10% YOY; free cash flow after dividends $78M, up 94% YOY; leverage reduced to 2.7x and absolute debt down ~$175M; management: 'AM's balance sheet is in the strongest position since our IPO.'

Q&A:

• Question from Jeremy Tonet (JPMorgan Chase & Co, Research Division): Just wanted to turn to the topic of in-basin demand, specifically as it relates to the potential for behind-the-meter opportunities. And I believe Antero has talked about being in discussions there and looking at this. I'm just trying to get a sense for, I guess, how near or later term this is. Just trying to get a feel for that and whether customers are looking for prices pin to just in-basin or is Henry Hub part of the conversation? I'm wondering how this all mixes together.
  Response: No timeline—still analyzing and in discussions; Antero Resources/AM are well positioned for behind-the-meter and data-center opportunities given integrated assets and large local footprint.

• Question from Jeremy Tonet (JPMorgan Chase & Co, Research Division): Got it. Understood. And on this Sherwood behind-the-meter potential project here, what are the specific, I guess, hurdles at this point that would stop, I guess, moving forward?
  Response: Primary hurdles are equipment availability and securing appropriate utility/power agreements; therefore no near-term announcement expected.

• Question from Jeremy Tonet (JPMorgan Chase & Co, Research Division): Got it. And then as regards to the underutilized assets that fit quite nicely given the dynamics there. Just wondering, are there other, I guess, pockets across your footprint where the same potential could unfold going forward where there's underutilized assets that could step into new production that provides the strong accretion?
  Response: Yes—acquisitions like Crestwood (2022) and Summit (2024) leave ~150,000 acres with underutilized high-pressure and compression capacity that can absorb development.

• Question from Ivan Scotto (UBS Investment Bank, Research Division): I wanted to ask about the 10 undeveloped locations that AR acquired. What kind of capital or infrastructure spend is needed on your end for connectivity to those locations?
  Response: Not material—roughly $1 million per well for LP and water; total incremental spend around $10 million.

• Question from Ivan Scotto (UBS Investment Bank, Research Division): Okay. Got it. And then just based off of your free cash flow growth and leverage of 2.7x, how should we think about capital allocation priorities moving forward?
  Response: Continue a balanced approach—roughly 50/50 between share repurchases and debt reduction.

• Question from John Mackay (Goldman Sachs Group, Inc., Research Division): I wanted to touch on some of these comments around drilling into where AM is moving capacity. You called this kind of first dry gas well as a bit of a proof of concept. But I guess, is the current AR plan to kind of lean more in this direction? Really, what I'm trying to get to is could we see the effective capital intensity for AM per incremental [ M ] of AR production come down if you're moving into those windows? Or is this again a kind of, hey, we'll see how we develop the dry side?
  Response: If AR shifts into those dry-gas windows, AM's capital intensity would be materially lower because existing midstream structure can serve the development.

• Question from John Mackay (Goldman Sachs Group, Inc., Research Division): And maybe just a follow-up to that is, yes, I mean, you are calling it a proof of concept. I guess is this a comment on your side on the liquids outlook and more enthusiasm for the dry side? Or is this a, hey, people that are looking at us for in-basin solutions do kind of want to see us be able to execute on the dry piece as well?
  Response: Primarily a proof of concept for local in-basin demand; also provides optionality to toggle between liquids and dry gas depending on relative economics and demand.

Contradiction Point 1

Behind-the-Meter Opportunities and Infrastructure Development

It involves differing levels of optimism and expected timelines for the development of behind-the-meter opportunities and related infrastructure, which could impact strategic planning and investor expectations.

What is the potential for behind-the-meter opportunities tied to in-basin natural gas demand? - Jeremy Tonet (JPMorgan Chase & Co, Research Division)

2025Q3: Antero Resources is a major consumer of power in West Virginia, and behind-the-meter solutions could reduce operating costs and free up grid power. Discussions are ongoing, but no concrete timeline or near-term announcements are expected. - Brendan Krueger(CFO)

Can you discuss in-basin demand opportunities and their connection to AM's recent developments? - Jeremy Bryan Tonet (JPMorgan Chase & Co)

2025Q2: West Virginia's microgrid bill benefits AM if it supplies 70% of data center power. AM can benefit from AR's increased production or directly build infrastructure for third parties. AM is having internal discussions but no timeline for announcements. - Brendan E. Krueger(CFO)

Contradiction Point 2

Capital Allocation Priorities

It involves differing perspectives on the prioritization of capital allocation between share buybacks and debt reduction, which are critical decisions impacting the company's financial health and shareholder value.

How should we prioritize capital allocation given free cash flow growth and 2.7x leverage? - Ivan Scotto (UBS Investment Bank, Research Division)

2025Q3: The balanced approach of share repurchases and debt reduction will continue. The company sees value in both, with debt reduction providing flexibility and enabling refinancing benefits. - Justin Agnew(CFO)

How does AM prioritize share buybacks versus balance sheet improvements? - John Ross Mackay (Goldman Sachs)

2025Q2: AM aims to be opportunistic with 50% of excess free cash flow for buybacks. The priority may shift quarter-to-quarter. Debt paydown accrues to equity due to AM's low leverage status. AM continues to see value in both share buybacks and debt reduction. - Brendan E. Krueger(CFO)

Contradiction Point 3

Data Center Opportunities and Integration

The contradiction lies in the level of detail and commitment to data center opportunities and the integration of Antero Resources and Antero Midstream in pursuing these opportunities.

Can you discuss the potential for behind-the-meter opportunities in in-basin natural gas demand? - Jeremy Tonet (JPMorgan Chase & Co, Research Division)

2025Q3: Antero Resources is a major consumer of power in West Virginia, and behind-the-meter solutions could reduce operating costs and free up grid power. Discussions are ongoing, but no concrete timeline or near-term announcements are expected. - Brendan Krueger(SVP of Finance & Treasurer)

What are AR plans related to future data center deals and how will this translate into AM? - Naomi Marfatia (UBS)

2024Q4: AM, being the primary midstream service provider to AR, would be part of discussions regarding data center opportunities in the region. While these discussions are still early, any material developments will be shared. - Brendan Krueger(CFO, Antero Midstream)