Antero Midstream - Earnings Call - Q1 2020
April 30, 2020
Transcript
Speaker 0
Greetings, and welcome to the Antero Midstream First Quarter twenty twenty Earnings Conference Call and Webcast. This time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to our host, Michael Kennedy, Senior Vice President of Finance and Chief Financial Officer for Antero Midstream.
Thank you. You may begin.
Speaker 1
Thank you for joining us for Antero Midstream's first quarter twenty twenty 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 and A. I'd also like to direct you to the homepage of our website at ww.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 Conalongo, Vice President of Liquids Marketing and Transportation. With that, I'll turn the call over to Paul.
Speaker 2
Thanks, Mike. I'd like to start by discussing the updated development plans and capital budgets at Antero Resources and Antero Midstream on slide number three titled Flexible and Just in Time Capital Budget. The left hand side of the page illustrates AR's drilling and completion capital budgets, which have remained flexible based on commodity prices and targeting free cash flow. In March, AR announced a reduction of its drilling and completion capital budget from $1,150,000,000 to $1,000,000,000 as a result of achieving D and C capital cost savings ahead of schedule. These savings were driven by flowback water savings and increased efficiencies such as daily drilling footage improvements and an increase in completion stages per day.
This allowed AR to maintain a D and C capital budget that approximated free cash flow even after the initial decline in commodity prices. In order to maintain its financial profile and liquidity, AR has further reduced its D and C capital budget to $750,000,000 in response to the unprecedented demand impacts from the global COVID-nineteen pandemic and oil price war. This reduction was driven primarily by the deferral of 20 well completions from 2020 into 2021. Importantly, given the visibility AM has into AR's development plans, AM has quickly adapted to these changes and lowered its capital budget from an original budget of 300,000,000 to $325,000,000 in February to a range of $215,000,000 to $240,000,000 today. Our our updated capital budget represents a 20¢ 27% reduction from our original capital budget and a 65% reduction compared to 2019 capital expenditures.
Looking ahead, should natural gas prices continue to strengthen, AR has four dry gas Utica pads that are development ready and can be feathered in to the 2021 drilling program. These dry gas pads require very little additional capital investment from AM and are located nearby existing infrastructure with excess capacity. This development plan visibility and pure play Appalachian focus is a competitive advantage compared to midstream gathering and processing companies that have a multitude of producers across various basins. Our coordinated planning with AR reduces uncertainty, particularly in today's environment, and allows AM to have a more stable financial policy that benefits our shareholders. Slide four titled Significant Liquidity Enhancements illustrates the recent liquidity developments at AR.
First, AR's borrowing base under its credit facility was confirmed at $2,850,000,000 well in excess of lender commitments of $2,640,000,000 As a result, AR had over $1,000,000,000 of liquidity under its $2,640,000,000 credit facility as of 03/31/2020, which is shown on the dark green bar on the left hand side of the page. AR's updated development plan is expected to generate 175,000,000 of free cash flow in 2020, further improving its liquidity position. Assuming execution of the remaining sales under AR's targeted asset sale program of $900,000,000 AR would have over $2,100,000,000 in liquidity at year end 2020 prior to any further bond repurchases. Over the last two quarters, AR has taken a proactive approach to debt reduction, repurchasing $6.00 $8,000,000 of notional senior unsecured debt at a 20% weighted average discount, reducing total debt by $120,000,000 The par value of the remaining 20 one's plus twenty twenty two maturities is $1,491,000,000 The market value of the remaining twenty twenty one and 'twenty two senior notes, net of what has been repurchased to date, is shown on the right hand side of the page and totals $1,104,000,000 As you can see, due to its broad range of assets and natural gas rather than oil focus, AR should be well positioned with sufficient capacity to repay its near term maturities.
In addition, AR continues to focus on asset sales, cost reductions and other opportunities to enhance its liquidity position. Before turning the call over to Dave, I would like to briefly walk through AR's updated hedge position on Slide five titled Enhanced Natural Gas Hedge Position. AR has continued its consistent hedging program and taken advantage of the natural pricing strength on the back end of the curve. During the first quarter, AR added $6.88 MMBtus a day of gas hedges at an average price of $2.48 per MMBtu. As depicted on the slide, AR is 94% hedged on its expected 2020 natural gas production and 100% hedged on its expected natural gas production in 2021.
In addition, we expect AR to continue to proactively hedge volumes in Cal 'twenty two and beyond as prices continue to improve. In addition, Antero is 100 hedged on its 2020 oil and C5 plus production at an oil price equivalent of $55.63 per barrel. Dave will discuss the Northeast storage situation and impacts from COVID-nineteen on the NGL and condensate markets, but these hedges provide significant price protection for AR's liquids production. This consistent approach to hedging drives development plan stability across commodity price cycles, which in turn benefits AM. With that, I'll turn the call over to Dave.
Speaker 3
Thank you, Paul. I'll begin by providing an update on in basin condensate market dynamics. The COVID-nineteen pandemic and the nationwide stay at home order have severely impacted demand for transportation fuels resulting in a dramatic decline in refinery runs. We have in turn witnessed a reduction in purchases of Appalachian oil condensate from the traditional buyers in the basin. Prior to the COVID-nineteen pandemic, Antero had developed a diverse set of buyers and sales points as well as off-site storage capacity.
Since then, we have expanded our customer base and nearly doubled our in basin storage capacity. To date, AR has not had to shut in or curtail any production as a result of storage constraints. We are confident today that we have the firm sales and storage in place to produce our wells at full capacity at least through the summer. Due to the proactive steps taken at Antero to secure additional oil storage and sales, we expect that regional and national demand will be restored to a great extent before we would see any significant impacts to our production. Importantly, AR is 100% hedged on its oil and pentanes production, the two products most impacted by COVID nineteen demand destruction at an average price of $55.63 per barrel.
There is still uncertainty about how long stay at home mandates will remain in place and therefore reduce demand, but we are set up to weather the storm with minimal impact to our production for a prolonged period. Now let's turn to slide six and discuss the NGL macro environment. The COVID-nineteen pandemic has not impacted global demand for NGL products nearly as much as it has impacted demand for transportation fuels derived from oil. The restart of economic activity in Asia coupled with lower LPG production from refineries in The US and abroad has led to strengthening prices for LPG on a relative basis to WTI as shown on the left hand side of the page. NGL prices have decoupled from WTI prices highlighting the inelastic global NGL demand from petrochemicals and residential commercial markets further supported by government subsidies in countries like India.
This is particularly evident as the c three plus NGL percent of WTI ratio has nearly doubled since February, and the strengthening has occurred during the shoulder season when NGL prices are historically the weakest. The right hand side of the page illustrates Asia propane prices, which have already bottomed and continue to recover as economic activity resumes. Importantly, Antero is well positioned with its access to international markets through Mariner East two, where we have not seen any impacts on our ability to export LPGs. As a reminder, Antero has the ability to adjust our cargo destinations based on the most favorably priced markets, which has included taking advantage of strengthening prices in Asia. LPG prices in Europe have been slower to recover as economic activity has yet to return in a meaningful way and storage levels remain elevated.
Consequently, Antero is targeting Asia destinations with our discretionary cargoes. Meanwhile, AR has hedged essentially all of its projected twenty twenty propane exports to Europe at $0.55 per gallon net of shipping or 37% above current strip prices. Moving to the supply side of the equation on slide seven, the expected decline in North American oil production is anticipated to result in a significant reduction in associated NGL production. Everyone is familiar with the associated gas story, that is gas production associated with oil production, but the impact of the decline in associated NGLs is expected to be even more pronounced as we move into next year. This rollover in NGL supply results in sufficient LPG export capacity for the foreseeable future that has historically constrained U.
S. NGL pricing and production as illustrated on the right hand side of the page. We expect this to result in a strengthening of domestic NGL prices towards Brent linked international prices over time. For several years now, The US has been critical to global LPG markets responsible most recently for supplying well in excess of 50% of the world's waterborne LPG imports and growing. In our most recent NGL fundamentals analysis updated last quarter, The US was needed to provide an incremental 445,000 barrels per day of LPG to world markets by 2022 to satisfy global growth driven by the residential commercial and petrochemical markets.
With both U. S. And OPEC plus NGL production anticipated to be in decline over this timeframe. The backdrop for NGLs begins to look similar to the scenario we saw play out in 2017 and 2018 resulting in strong NGL prices precipitated by a period of low oil prices and declining U. S.
Production. With that, I will turn it over to Mike.
Speaker 1
Thank you, Dave. I'll begin my AM comments with the first quarter operational results beginning on slide number eight titled year over year midstream throughput. Starting in the top left portion of the page, low pressure gathering volumes were 2.7 Bcf per day in the first quarter, which represents a 6% increase from the prior year quarter. Compression volumes during the quarter averaged 2.5 Bcf per day, a 12% increase compared to the prior year. Our fiftyfifty joint venture gross processing volumes averaged 1.3 Bcf per day, a 33% increase compared to the prior year quarter.
Processing capacity was 95% utilized during the quarter. JV gross fractionation volumes averaged 33,000 barrels per day, a 50% increase from the prior year, and freshwater delivery volumes averaged 183,000 barrels per day, a 20% increase over the prior year quarter. During the first quarter, AR averaged over seven completion stages per day, which was ahead of budget and resulted in stages originally scheduled for the second quarter to shift into the first quarter. As a result, we expect the reduction in completion activity combined with this scheduled shift to result in a decrease in freshwater delivery volumes in the 2020. Moving on to financial results, adjusted EBITDA for the first quarter was $217,000,000 a 7% increase compared to the prior year quarter.
Distributable cash flow for the fourth quarter was $164,000,000 resulting in a DCF coverage ratio of 1.1 times. Capital expenditures during the quarter were $80,000,000 56% decrease compared to the 2019. During the first quarter, we generated $99,000,000 of free cash flow before dividends compared to an outspend of $2,000,000 last year. As depicted on slide number nine, AM has reached an inflection point of generating free cash flow in 2020 as we leverage our existing midstream infrastructure. The free cash flow generated in the first quarter places us on track to achieve our increased free cash flow guidance of $420,000,000 to $450,000,000 for the full year 2020.
Moving on to balance sheet and liquidity on slide number 10. As of 03/31/2020, Antero Midstream had $1,170,000,000 drawn on its $2,130,000,000 revolving credit facility resulting in approximately billion dollars of liquidity. Additionally, AM's net debt to LTM adjusted EBITDA was 3.7 times at quarter end. Importantly, AM's nearest senior note maturity isn't until 2024, and it has an attractive term debt structure over the next several years. I'll finish my comments in slide number 11 that summarizes the guidance changes we announced yesterday.
AM is well positioned to adapt to the uncertainties in today's environment with leverage over a turn lower than the peer average and approximately a billion dollars of liquidity. Further, we have $420,000,000 to $450,000,000 of free cash flow before return of capital, which gives us tremendous flexibility. Paul mentioned we have the benefit of real time information from our primary customer, which allows us to quickly adjust our capital program and be one of the most capital efficient midstream companies in the industry. As a result, we have taken over $85,000,000 out of our 2020 capital budget alone and will continue to flex our capital budget up or down in response to AR's development plans. Antero Midstream does not have any long cycle time projects that result in an inflexible capital budget and as a result our leverage is expected to stay in the mid to high three times range.
These capital budget reductions more than offset the change in our adjusted EBITDA guidance, which results in an improved free cash flow profile by $35,000,000 at the midpoint or a 9% improvement. Unlike a lot of GNP peers, AM is not facing declining throughput and uncertainty from oil shale plays. Further, we have not had any operational or throughput issues to date as a result of COVID nineteen, but we'll continue to monitor our guidance and capital budget and ensure we maintain our financial strength and flexibility. In summary, continue to be pragmatic and diligent in response to the current uncertainty driven by the COVID nineteen pandemic, and I would like to thank all of our employees for their dedication during these unprecedented times. With that, operator, we are ready to take questions.
Speaker 0
Thank you. At this time, we'll be conducting a question and answer session. Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions.
Thank you. Our first question comes from Kyle May with Capital One Securities. Please state your question.
Speaker 4
Good morning. I'd like to start with the freshwater side of the business. You talked about 20 well completions will be pushed into next year. Can you talk about your expectations for wells that would be serviced with freshwater in the second quarter of this year and then kind of the cadence through the balance of the year?
Speaker 1
Yeah. You know, obviously, when we service the freshwater, that's ahead of the completion. So on AR's call, we talked about how we did 25 wells completed in the first quarter and about 45 in the second. So a lot of that water was pushed into the first quarter. So the water does come down.
Looking ahead into the second half of the year, AR is going to complete, you know, approximately 30 to 35 wells. So, you know, the second quarter will be down, from that. So we did about 35 to 40 wells in the first quarter and goes down about 20 in the second.
Speaker 4
Got it. Okay. That's helpful. And then also on the Antero Resources call, it sounded like you're leaning towards a maintenance mode for 2021. If that plays out as expected, what kind of CapEx would you need at Antero Midstream to support that level of activity?
Speaker 1
Yeah. Looking out the CapEx, this year's $215,000,000 to $240,000,000 it averages about $200,000,000 in '21. It's kinda where we're at. Our CapEx continues to decline, so hopefully, we can work that down from there, but about $200,000,000 is our estimate.
Speaker 4
Got it. And and the last one, if I can. Previously, you've talked about doing more water recycling in the field after you idled the Clearwater facility. Can you give us an update on this program and how we should think about the mix of activity between infield recycling and outsourcing to third party for the balance of the year?
Speaker 2
Well, our in field recycling has been very successful. Our goal is a 100% recycling. We've hit that a number of times, but typically, we're anywhere from a third up to 60% of flowback water. Our teams water teams have made great efficiency improvements, so that's that's going along real well, and we feel very good about the path that we're on.
Speaker 4
Okay. That's helpful. That's all for me. Thank you.
Speaker 0
Thank you. Our next question comes from Tarek Hamid with JPMorgan. Please state your question.
Speaker 5
Good morning.
Speaker 6
Morning. I wanted to ask quickly about how you're thinking about the balance sheet right now given both the puts and takes on CapEx as well as the distribution. Talked about the three to four times leverage ratio is kind of being your target. You're certainly within there now. Is it sort of fair to say that remains the target?
Speaker 1
Yeah. No. We feel good about it. Like I mentioned, we're at 3.7 times, and we see that kind of a level that we sustain over the next couple of years.
Speaker 0
Got it.
Speaker 6
And I guess as you think about your liquidity currently, obviously, you're you're a little bit drawn on the revolver now. So how do you think about the right number of liquidity at AM to run the business on a go forward basis kind of given all the uncertainty?
Speaker 1
Yeah. We have a billion dollars. That's ample liquidity. We don't really draw much on the credit facility on a go forward basis. We have, you even not that maintenance capital for AR.
We have continued EBITDA growth into 2021, and our capital continues to decline. So you really don't draw much going forward. So having $1,000,000,000 liquidity plus or minus feels good.
Speaker 6
Got it. And then just last one for me. As you think about just the return of capital, how do you balance distributions versus share repurchases? Obviously, you've used both in the last twelve months.
Speaker 0
And just love to get a sense
Speaker 6
of how you're thinking about that mix going forward.
Speaker 1
Yes. We have about $150,000,000 left on our repurchase program. Obviously, where the equity is at right now, it's attractive to us. So that's why you saw us being active in the first quarter. I would think that, you know, we would continue to be active on that going forward at kind of similar levels that we had in the first quarter.
So we like buying back shares at these prices.
Speaker 6
Got it. That's it for me. Thank you very much.
Speaker 2
Thanks, Derek.
Speaker 0
Our next question comes from Sunil Sibal with Seaport Global Securities. Please state your question.
Speaker 7
Yes. Hi. Good morning, guys, and thanks for all the clarity. I just had one quick question. So when we look at, you know, the guidance that you've given versus what you reported in q one, so it seems like, you know, you will have some, you know, headwinds in for the remainder of the year.
Is that all primarily driven by the water segment and the and the completion activities there, or are there other I mean, other factors which are driving that?
Speaker 1
No. Just the water. The throughput is as expected. AR's guidance is the same for 2020, so it's really just a deferral of those 20 wells completions since obviously would have been completed with our water system, in 2020 being deferred into '21.
Speaker 7
Okay. And the fact that you did much higher completions in the q one kind of pulled in some of
Speaker 1
the revenues forward in That's right.
Speaker 7
Yeah. Got it. And then one on the capital allocation kind of framework. So if the conditions, you know, were to deteriorate in terms of commodity pricing, etcetera, you know, reflect on AR's plans, I was wondering, you know, is forex kind of leverage the max that you let it run to before you take a, you know, hard look at returning cash Or how should you think about or how should we think about that, you know, variability in the leverage versus your goals of returning cash to shareholders?
Thanks.
Speaker 1
Yeah. The it's not a max. That's our financial policies to go up to four times. It's hard for me to even envision a case where it goes higher than that. I think you've seen how flexible the capital at AM is.
So if AR's capital is less, then AM is gonna have much less capital as well. So being fixed fee, have the acreage dedication. You know, it's a it's a very stable business. So and that just in time portion and not having any inflexible capital really bodes well for AM. So I just I don't really see how it could go about four times, but our financial policy is to not exceed that.
But, you know, we're in good shape.
Speaker 0
Okay. Thanks.
Speaker 2
Thanks,
Speaker 0
Jimmy. Thank you. Our next question comes from Jeremy Tonet with JPMorgan. Please state your question.
Speaker 8
Hey, Jeremy. Good morning, guys. This is James on for Jeremy. If I could just start with maybe the incentive fee program, I think when you guys released that back in in December, that was kind of built around an eight to 10% production growth from Antero and that, you know, it seems to be have changed with messaging this morning. Can you share any updated thoughts there?
Speaker 1
Yeah. No. It's working well. We designed that in December for incentive growth for AR. And as you know, the first six months at 2.7 Bcf per day under low pressure, and AR was able to deliver two seven one seven.
So they hit that plan, and there's growth from AR in the second and third quarter. So we do see them achieving those growth incentive fees in the first three quarters. So we have that $36,000,000 rebate in our guidance. So it's working as planned. You know, I think we'll see how the year progresses and, where the the volumes go.
They could potentially hit the fourth, but, you know, that's yet to be seen. But, right now, it's working as planned.
Speaker 8
Got it. Thanks. And then, you similarly the same question, but looking at the 2021, the broader implications there for internal midstream given the maintenance mode scenario that you guys are running at directionally where should we think about given the situation is fluid and there's lot of moving pieces, but directionally where should we think about Antero Midstream's outlook there?
Speaker 1
No. It looks good. You know, as I mentioned, our EBITDA is still growing. You know, you're still even maintenance capital, you're still growing on AM dedicated lands. So our EBITDA is still growing in 2021, a couple percent.
So it's definitely it's come down from the high single digits to low single digits, but still growing. And then our capital continues to decline. So, you know, see actually capital next year lower than 2020. So that free cash flow profile is actually increases in '21. So it looks good for AM.
Speaker 8
Great. Thanks. That's helpful. I appreciate the color.
Speaker 9
Thank you.
Speaker 0
Our next question comes from Greg Brody with Bank of America. Please state your question.
Speaker 5
Hey, Greg. Good to talk to you again. So you you mentioned the refund from AM will pay to AR. How is that going to flow through just the financial statements? How should we think about that?
Speaker 1
It's just a $12,000,000 reduction in the fees. So it'll be you wouldn't see it. We just have 12,000,000 less of LP revenue.
Speaker 5
Okay. And then then that would so for on the AR side, it would just be a lower cost?
Speaker 1
Right. It's just lower in the TP and T line item.
Speaker 5
Got it. You you also mentioned I didn't jump into this on the credit facility, but since you've been talking about AR for for quite a bit, what there's some flexibility. It sounds like you've mentioned it in the in the press release. And if you look through the amendment, you can see there's flexibility for sales. How for certain sales, how how did you design the credit facility changes to allow for sales?
What's how much can you actually sell without liquidity on the AR facility coming down?
Speaker 1
Yeah. Well, first thing to note is when you when you think about the asset sales, it's the borrowing base impact. It's not the actual proceeds. And if you can imagine, you know, the the price decks that the banks use, there wasn't really much undeveloped undeveloped value, PUD value. So, not only do we have flexibility in those baskets that you're referring to quite a bit, but it's really around the borrowing base amount.
So, that provides us a lot of cushion. And then the fact that we're 210,000,000 above the actual credit facility amount, two eight five to two six four, obviously, is a cushion that that we can capitalize on as well. So we have quite a lot of leeway in being able to do asset sales without impacting liquidity.
Speaker 5
Got it. So you didn't you didn't take assets and motors from the borrowing base? No.
Speaker 1
Those were already existing asset buckets. It was just we put in a mechanism that not only asset sales, now we can offset it with any further hedging or further PDP wells that come on over that same time frame. So there's there's a interesting mechanism there that nets those values from the hedges and PDP wells against any asset sales. So that was a that was a nice improvement.
Speaker 5
And noticed I think the value of AM is in that as well.
Speaker 1
Right. That a deconsolidated. It's the fur it's our first credit facility deconsolidated. So AM's shares are pledged underneath that credit facility, so any sale would count as an asset sale.
Speaker 9
Got it.
Speaker 5
And then you've I think you there's some in both press releases, there's mention of evaluating your return to shareholders through dividends and share repurchases. I it seems like what we've talked about on this call is you're comfortable with your leverage liquidity. So are you thinking about that today, potentially changing your return to shareholders, or is that just a general statement that you're making just as a it's just part of the what you're what you're just telling investors could happen, but not necessarily a near term?
Speaker 1
Right now, I think you hit it. You know, in the first part, we feel good about our position where we're at with our liquidity and balance sheet and knowing our sponsor's plan. And so we you know, which is kind of impressive that AM can actually provide guidance when most are withdrawing their guidance. So we're we're in good shape, and we feel good about it. But with that said, we're kinda in unchartered territory around this COVID nineteen.
We think we have a lot of visibility in our plans, but we just wanted to flag that there's obviously a lot of uncertainty in the market. So like we always do, we sit down with the board every quarter and assess where we're at, and we'll do the same this next July, and, we'll know a lot more then. But right now, we feel good about it.
Speaker 5
And last question for you. The the Clearwater facility, I know there's a lot going on right now in the world. I'm curious if there's any developments on potentially capturing some value from that.
Speaker 1
No. We don't have anything. I think you saw update. We're in litigation with that, and we'll pursue that vigorously. But outside of that, it's just been shut down, and we shouldn't really have any more facility expenses with that.
Maybe a couple million for the remaining nine months. So that should really tail off, which will, you know, help the profile as well.
Speaker 5
Got it. Well, thanks for for giving us all your time over these last two calls, guys. I appreciate it.
Speaker 2
Yep. Thanks, Greg.
Speaker 0
Our next question comes from Ned Baramoff with Wells Fargo. Please state your question.
Speaker 1
Hi, and thanks for for taking the question. Could you could you maybe elaborate a little bit more on the joint effort by AR and AM to mitigate NGL storage capacity issues in the Northeast? Maybe if you can talk about some of the initiatives you're pursuing to ensure that you have ample storage capacity after this summer.
Speaker 3
Yeah. Good good question. So we have our, you know, storage at the in the field level at the pads and the compressor stations and alike. We also you know, I care resources has been able to market its volume at other locations along the Ohio Valley, along the river. And so we've had positions in, in facilities along that, that corridor there and have, been able to secure, capacity at those facilities.
But that's really it for the oil piece on the NGL side. There's really been no challenges or really speak of around moving NGLs here over the last couple of months. There is a significant amount of storage capacity at Marcus Hook, several million barrels of propane as well as some underground storage on top of that. But, you know, vessels continue to come to that facility given some of the geographical advantages it has. And so we've we've seen no no challenges on the NGL front or or a reason to go out and secure additional NGL storage capacity at this time.
Speaker 1
That's helpful. Thank you. And then maybe just a housekeeping item. Could you quantify the percent of revenues that are derived under minimum volume commitment contracts, which I believe relate to the high pressure gathering and compression assets? Yeah.
I don't have a a number for you. Like you mentioned, it's 70 to 75% for compression and high pressure, and then it's also 70% on the processing JV. So and those were for the compression and high pressure for projects after post the IPO. So it's not quite that much, but those are the MVCs we have in. We don't have many MVC volumes at all.
Fairly diminished number. Yeah. Got you. That's all I had. Thank you.
Thank you.
Speaker 0
Our next question comes from Ethan Bellamy with Baird. Please state your question.
Speaker 7
Hey, guys. Good morning. I've got
Speaker 10
a few for you. Is there a bogey at AR in terms of asset modernization or pay down the 20 ones or the 20 twos where AM would be in a position to pay a more sustainable yield?
Speaker 1
We have a $900,000,000 bogey at AR, but that doesn't really influence the the yield at all for AM. AM's looking at the underlying fundamentals, the cash flows. But AR does have a $900,000,000 at the top end of their their range, which, you know, is not needed at all really for the 20 ones and 20 twos just generally to get the leverage down into the low two times.
Speaker 10
So keeping the the distribution at the dividend today and where it is would imply you think that stock price ought to double or triple from here then to make it more
Speaker 7
more reasonable cost of equity?
Speaker 1
Yeah. We don't really lose look at the markets for for that. But, yeah, that's for you to say, think, Ethan, but I like the way you're thinking.
Speaker 10
Okay. Have you seen any international LNG buyers or middlemen trying to bottom fish that market here?
Speaker 2
No. We you know, we have our firm sales at Cove Point, at Sabine Pass, and at Freeport. And those we've not seen what you're talking about. You know, the the cargos sale as per the schedule, and the buyers are there. And so have not seen any hesitation or interruption in the plan schedule.
Speaker 10
Okay. And I I think that you guys are probably good in the short term on all the permitting work for infrastructure, particularly with the slowdown. But do you anticipate any sort of medium or long term problems with the army corps engineers and permitting issues?
Speaker 2
No. Not at all. We have a really good relationship with the permitting regulatory agencies both on the federal and the state level. And, you know, we we, like all of oil and gas in West Virginia and Ohio, are considered essential in the context of COVID nineteen, but we're, you know, we're also just important as a, you know, as an activity base, an employment base, a tax base. And so, you know, we they're important to us.
We're important to them and haven't seen any permitting slowdowns or hang ups.
Speaker 10
And last question. Do you guys have any insight on the timing of the tractor where you're the anchor shipper?
Speaker 3
Nothing that we could say at this time.
Speaker 7
Okay. Thanks, guys. Good luck.
Speaker 1
Thank you.
Speaker 0
Our next question comes from Chris Tillett with Barclays. Please state your question.
Speaker 9
Hey, guys. Good morning. I guess, first for me would be, you just provide a quick update on the build out at Smithburg given what looks like now possibility for entering maintenance mode in 2020 and beyond?
Speaker 1
Yeah. We have two plans planned. The first one comes on at the end of this year, second one next year.
Speaker 9
Okay. But but nothing beyond that. I mean, I know that at one point, you had said there's, you know, possible, I think, to six, but at the moment, nothing beyond the first two
Speaker 8
to six.
Speaker 1
Yeah. Right now, only have two. Not over the next couple of years. Yeah. That's right.
Speaker 9
Okay. Okay. Thank you. And then, maybe more of an AR question. You know, gas prices have improved pretty materially here over the last month or so.
If things continue to look better through the remainder of this year and into next year, do you think from an AR perspective, they might look to take advantage of that and and produce more? Or is it a situation in which, you know, may maybe you're happy with the production plans and and would just harvest some of the cash flow to repair the balance sheet?
Speaker 1
Yeah. I think the latter. We're quite capital disciplined and don't plan to flex with the move in commodity prices in the certainly not in the next year or two.
Speaker 9
That's it for me then. Thanks, guys.
Speaker 2
Thank you. Thanks, Chris.
Speaker 0
Ladies and gentlemen, that is all the questions we have for today. I'll turn it back to Michael Kennedy for closing remarks. Thank you.
Speaker 1
Thank you for listening to our first quarter conference call. If you have any further questions, please feel free to reach out to us. Thanks again.
Speaker 0
Thank you. This concludes today's conference. All parties may disconnect. Have a great day.