Antero Midstream Partners LP (Antero Midstream) announced its 2017 capital budget and guidance and provided a long term outlook through 2020.
2017 capital budget
During 2017, Antero Midstream plans to expand its existing Marcellus and Ohio Utica Shale gathering, compression, fresh water and advanced wastewater treatment infrastructure to accommodate Antero Resources Corporation's (Antero Resources) development plans. Antero Resources has announced its 2017 drilling and completion capital budget of US$1.3 billion, which is forecast to generate production growth of 20 - 25% over 2016 guided production, and that it is targeting a 20 - 22% compound annual growth rate for net production for the years 2018 through 2020. For 2017, Antero Resources plans to operate an average of four drilling rigs in the Marcellus Shale and three drilling rigs in the Ohio Utica Shale. Antero Resources plans to complete 135 wells in the Marcellus Shale and 35 wells in the Ohio Utica Shale utilising advanced completion designs.
Commenting on the Antero Resources 2017 capital budget and guidance and long term production growth targets, along with its impact on Antero Midstream's growth, Paul Rady, Chairman and CEO of Antero Resources and Antero Midstream, said: "In addition to the 20 - 25% expected production growth in 2017, Antero Resources is targeting 20 - 22% compound annual production growth for 2018 through 2020, which in turn supports Antero Midstream throughput growth and a best-in-class distribution growth target of 28 - 30% annually through 2020. We believe that we can achieve this long term distribution growth target strictly through the organic buildout of infrastructure to support Antero Resources. Importantly, we do not anticipate that this organic infrastructure buildout will require any external financing beyond our current ATM programme and we expect to maintain debt to adjusted EBITDA in the 2.0-times range. Antero Resources' increased capital efficiency, premium price realisations driven by its firm transportation portfolio, production sold forward at attractively hedged prices, and more than 14 years of highly economic core drilling inventory at the 2017 completion pace, all contribute to the ability to deliver strong long term growth which will benefit Antero Midstream."
Antero Midstream has budgeted an investment of US$460 million and US$65 million in expansion and maintenance capital, respectively, resulting in a total Antero Midstream capital budget of US$525 million in 2017. This capital budget includes US$350 million of capital for gathering and compression infrastructure, resulting in 490 million ft3/d of incremental compression capacity and over 35 miles of gathering pipelines in the Marcellus and Ohio Utica Shales combined. Approximately 75% of the gathering and compression capital is planned to be invested in the Marcellus Shale and the remaining 25% invested in the Ohio Utica Shale. This mix is driven by Antero Resources' focus on Marcellus Shale drilling and completions in the first half of 2017 until incremental firm transportation to favourable markets in the Ohio Utica Shale is placed into service, which is expected in the second half of 2017. Antero Midstream has the ability to adjust its investments based on Antero Resources' development plan which has the flexibility to shift focus between the Marcellus Shale and Ohio Utica Shale due to firm transportation constraints.
In addition to CAPEX for gathering and compression, Antero Midstream has budgeted investment of US$75 million for water infrastructure to construct four fresh water storage impoundments as well as 37 miles of additional fresh water trunklines and surface pipelines to support Antero's completion activities. Approximately 67% of the water infrastructure budget will be allocated to the Marcellus Shale and the remaining 33% will be allocated to the Ohio Utica Shale. This excludes US$100 million of capital to be invested in the construction of the Antero Clearwater Facility, which at 60 000 bpd is expected to be the largest advanced wastewater treatment facility in the world for oil and gas operations. The Antero Clearwater facility is expected to be placed into service in the fourth quarter of 2017.
The year-over-year increase to US$65 million in maintenance capital is primarily driven by an increase in low pressure gathering and surface water pipeline investment as compared to 2016.
Antero Midstream expects to fund all 2017 CAPEX through cash flow from operations, available borrowing capacity within Antero Midstream's existing US$1.5 billion bank credit facility, and proceeds from its at-the-market unit offering program. As of 30 September 2016, Antero Midstream had approximately US$1.0 billion of liquidity to fund organic growth opportunities.
Antero Midstream is forecasting net income of US$295 million to US$335 million, adjusted EBITDA of US$510 million to US$550 million and distributable cash flow (DCF) of US$395 million to US$435 million for 2017. Additionally, Antero Midstream is forecasting annual distribution growth of 28 - 30% as compared to 2016, resulting in an average DCF coverage ratio of 1.30x - 1.45x on an annual basis. Antero Midstream's 2017 guidance excludes any impact from potential third-party volumes or transactions.
Long term growth targets
Antero Midstream is targeting compound annual distribution growth of 28 -30% through 2020 based on Antero Resources' corresponding 2017 guidance of 20 - 25% production growth and 20 - 22% compound annual production growth target from 2018 through 2020. Additionally, Antero Midstream expects DCF coverage in excess of 1.2x over the corresponding period. Antero Midstream's distribution growth target excludes the impact of any third-party service revenues and any future acquisitions or divestitures, consistent with historical practice.
Commenting on the Antero Midstream 2017 capital budget and guidance, Michael Kennedy, Antero Midstream's CFO, said: "Antero Midstream's ability to provide best-in-class distribution growth guidance and targets through 2020, while maintaining DCF coverage in excess of 1.2-times, speaks to the superior visibility into Antero Resources' development plan and Antero Midstream's return on invested capital. Looking forward, Antero Midstream has over US$2.4 billion in organic growth opportunities from 2016 through 2020, providing an extended runway for long term growth and infrastructure development, ultimately benefiting our unitholders."
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