Antero Midstream - Earnings Call - Q3 2019

Transcript

Speaker 0

Greetings, and welcome to the Antero Midstream Third Quarter twenty nineteen Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Kennedy, Senior Vice President of Finance and Chief Financial Officer.

Thank you, sir. You may begin.

Speaker 1

Thank you for joining us for Antero Midstream's third quarter twenty nineteen 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 and Glenn Warren, President and CFO of Antero Resources and President of Antero Midstream. With that, I'll turn the call over to Paul.

Speaker 2

Thanks, Mike. I'd like to start by discussing the expansive cost savings efforts underway at Antero Resources AR. Over the last year, we've been intensely focused on reducing the overall cost structure to make AR more competitive in a lower for longer commodity price environment. This process included a line by line review of every expense item throughout the company. Through this comprehensive review, we've identified the potential to remove $250,000,000 from AR's overall cost structure in 2020 alone.

As detailed on Slide three titled AR Cost Reduction Strategy Overview, the majority of these reductions will come from lower well costs and reduced lease operating expenses, or LOE, driven by the new flowback and produced water blending operations. Through these blending operations, optimized trucking logistics, dryer completions, and improved coordination during well turn in line events, we expect to see $160,000,000 of D and C CapEx savings and $60,000,000 of LOE savings in 2020. Importantly, the vast majority of these savings can be achieved in house and are under Antero's control. These savings allow AR to target a D and C CapEx budget of 1,150,000,000.00 to $1,200,000,000 in 2020 that is expected to generate 8% to 10% year over year net production growth. In addition, AR continues to focus on mitigating net marketing expense and has already entered into agreements to mitigate excess capacity this winter.

These initiatives save approximately $15,000,000 and AR remains active in evaluating opportunities to further reduce net marketing expenses with third party midstream providers. Lastly, AR is targeting a 10% reduction in G and A or approximately $14,000,000 of savings in 2020 from natural employee attrition and overall G and A reductions. Now let's move to page four titled Marcellus Well Cost Reductions. Last quarter, AR announced a well cost savings initiative that targets 10% to 15% reduction in well costs on a per lateral foot basis or approximately $1,200,000 to $1,700,000 per well. The left hand side of the page illustrates AR's January 2019 well costs at $970 per foot that was assumed in AR's budget.

Today, AR's well costs are $895 per foot, which equates to savings of nearly $1,000,000 per well. The savings already achieved are substantially ahead of our previous second half twenty twenty target of $930 per foot. Our ability to achieve lower well costs ahead of schedule is primarily due to the acceleration of localized blending operations during the third quarter that resulted in reduced flowback water costs. The coordinated effort between AR and AM allowed us to quickly and successfully execute our blending program and deliver savings ahead of schedule. Before getting into the details of our new flowback and produced water blending operations, I want to briefly discuss our decision to idle the Antero Clearwater facility.

As you remember, we began construction on the facility in 2015 to become industry leaders in water recycling and to be at the forefront of environmentally responsible shale development. At the time, flowback water was not used in completions and there were industry wide concerns regarding the long term viability of injection wells in Appalachia. The decision to idle the facility was driven by its inability to operate at its intended specifications. As a result of idling the plant, we recorded a $457,000,000 impairment impairment of the facility. While we are disappointed in the outcome, we remain focused on developing new opportunities such as blending and other flowback end produced water initiatives that reduce the overall cost structure at AR.

This in turn supports the sustainable development at AR that underpins the long term growth at particularly in a lower for longer commodity price environment. Slide number three, titled Antero Water Savings Performance, shows the blending operations to date. Antero Midstream plays an integral role in providing blending operations for both flowback and produced water that drives CapEx and LOE savings at AR. As depicted by the yellow line on the chart, AR's all in cost to dispose of wastewater was in the $10 per barrel range during the 2019. The downward trend in cost per barrel shown on the slide is driven primarily by an increase in blending volumes, which are depicted in the purple bars.

These savings from blending, combined with reduced trucking costs, is expected to reduce AR's wastewater disposal costs by over $4.5 a barrel compared to the 2019. While the EBITDA contribution from blending operations is not material to AM's overall portfolio, It is a critical business for AM supporting AR and driving down costs. Now let's move on to the discussion of our preliminary 2020 capital budget on slide six titled 2020 Preliminary Capital Target. As depicted on the map on the right side of the page, in 2019, we constructed the backbone of our infrastructure into Tyler County, West Virginia that supports AR's development over the next several years. Looking ahead to 2020, we have optimized our capital plan to focus on the highest rate of return locations at AR that are also in close proximity to existing gathering and water infrastructure.

This allows us to target a capital budget of $375,000,000 to $425,000,000 in 2020 or a 40% reduction compared to the midpoint of the updated 2019 capital budget of $665,000,000 to $685,000,000 Looking at our processing investments in the joint venture with MPLX, we have already invested a majority of the capital for Sherwood twelve and thirteen, which adds 400,000,000 cubic feet a day of combined processing capacity in the 2019. This increase in processing capacity at Sherwood, along with one expected plant in the new Smithburg site in mid-twenty twenty, supports Antero's 2020 production growth without a significant amount of incremental processing capital investment. AM's capital flexibility, in addition to its visibility into AR's development plan, is a competitive advantage for AM. Before handing the call over to Mike, I want to briefly touch on AR's hedges on Slide seven titled Industry Leading Natural Gas Hedge Position. During the third quarter, AR added to its hedge position for both gas and NGLs.

On the gas side, we shifted 2022 hedges into calendar year 2021 to more closely align AR's hedge profile with its unutilized firm transportation expenses and modest growth profile. AR is now over 90% hedged on natural gas in 2020 at an average price of $2.87 per MMBtu and 89% hedged in calendar year 2021 at an average price of $2.8 per MMBtu, assuming approximately 8% to 10% annual growth in 2020. 10% growth in 2021. Based on strip pricing today, AR's hedge realizations more than offset its net marketing expense through calendar year 2021. On the NGL side, AR has been actively hedging and was able to take advantage of the global price spikes following the incident in Saudi Arabia.

As depicted on slide number eight titled C3 plus NGL Hedges Capturing Recent Pricing Strength, AR is currently 50% hedged on C3 plus NGL volumes for the fourth quarter and 28% hedged in Cal twenty twenty. This includes a balanced mix of domestic hedges and international hedges for the volumes shipped to Europe and Asia out of Marcus Hook. While AR's capital budget will be flexible based on commodity prices, this industry leading hedge portfolio allows AR to have more consistent capital budgets that are less sensitive to drastic changes in response to commodity prices. With that, I'll turn the call over to Mike.

Speaker 1

Thank you, Paul. I'll begin my announced AM cash dividend of $0.03 $0.35 per share, a 114% increase year over year for former AMGP shareholders and a 40% increase year over year for Antero Midstream Partners unitholders. The dividend at AM was the nineteenth consecutive distribution declared since the IPO of Antero Midstream Partners in 2014. In addition, during the third quarter, we commenced our $300,000,000 share repurchase program and repurchased 3,500,000.0 shares for approximately $25,000,000 which equates to $05 per share of return of capital in addition to the dividend. Repurchasing shares at today's prices generates attractive rates of return in DCF per share accretion at AM.

Looking forward, we expect our high single digit return of capital growth target in 2020 to be comprised primarily of share repurchases. We believe this is an attractive use of capital, especially when combined with a 40% year over year reduction in AM's capital budget. Now let's move on to third quarter operational results beginning with slide number nine titled High Growth 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 third quarter, which represents a 25% increase from the prior year quarter. Compression volumes during the quarter averaged 2.4 Bcf per day, a 39% increase compared to the prior year.

Compression capacity was 90% utilized during the third quarter. Our fiftyfifty joint venture gross processing volumes averaged one Bcf a day, a 71% increase compared to the prior year quarter. Processing capacity was 100% utilized during the quarter. Joint venture gross fractionation volumes averaged 32,000 barrels per day, an 88% increase from the prior year. Freshwater delivery volumes averaged 141,000 barrels per day, a 28% decrease over the prior year quarter.

During the fourth quarter, Antero Resources picked up an additional completion crew, which we expect to drive an increase in completion activities and freshwater delivery volumes as compared to the 2019. AR remains on track to achieve volumetric targets for the first $125,000,000 earn out payment from AM as expected to be paid in the 2020. Moving on to financial results, adjusted EBITDA for the third quarter was $218,000,000 an 18% increase compared to the prior year quarter. The increase in adjusted EBITDA was driven by increased throughput volumes. Distributable cash flow for the third quarter was $170,000,000 resulting in a DCF coverage ratio of 1.1 times.

Antero Midstream invested $135,000,000 in gathering, compression, water infrastructure in the processing and fractionation JV during the third quarter. Gathering, compression and water infrastructure capital investments totaled $121,000,000 and investments in the JV totaled $14,000,000 Moving on to balance sheet and liquidity. As of 09/30/2019, Antero Midstream had $726,000,000 drawn on its $2,100,000,000 revolving credit facility. In October, we added an additional lender to our revolving credit facility resulting in $134,000,000 of incremental commitments, bringing our total liquidity to $1,400,000,000 Additionally, AM's net debt to LTM adjusted EBITDA was 3.3 times at quarter end. I'll finish my comments on slide number 10 that summarizes the 2019 guidance changes.

The left hand side of the page depicts the change in our 2019 capital budget, driven by the deferral of just in time gathering, processing and freshwater delivery projects, capital saving initiatives, and the removal of the final Ontario Clearwater Facility milestone payment, we lowered our capital budget to a range of $665,000,000 to $685,000,000 from $750,000,000 to 800,000,000 The reduction in capital more than offsets the decrease in our adjusted EBITDA guidance resulting in a net positive cash flow impact of approximately $50,000,000 at the midpoint of the guidance ranges. The reduction in EBITDA guidance is primarily driven by the idling of the Antero Clearwater facility and includes an additional $10,000,000 to $15,000,000 of idling expenses during the fourth quarter that we do not expect to persist into 2020. In summary, we remain highly focused on capital discipline and our overall cash flow profile. During sustained periods of low commodity prices, this results in lower AM capital budgets and non speculative investment that still generates high asset utilization rates and EBITDA growth. This capital flexibility results in an attractive cash flow profile and maintains AM's strong balance sheet, positioning it to continue growing the return of capital to shareholders in the future.

With that operator, we are ready to take questions.

Speaker 0

Thank you. Please proceed with your question. Good morning,

Speaker 3

Good morning. Good morning, Holly.

Speaker 4

Mike, maybe the first question just on the 2020 CapEx number. I think last quarter, you mentioned something in kind of that $600,000,000 neighborhood. So a big reduction at this point in terms of what you're thinking. Is there or was there a change in AR's like, development plan? I'm just trying to think through since their growth plans haven't haven't changed for 2020.

Was there something else that you were able to reduce that infrastructure spend?

Speaker 1

Yeah. I think you could see it on that map. That was that's in our presentation. You know, we're really focusing on the development in the Tyler County area with all the blending of the water. It really, you know, helps AR's cost structure to kinda just drill that next pad over.

So really just focusing in that Tyler area, and and not expanding out into the Wetzel County, really eliminate a lot of capital. Also, Clearwater, not having any Clearwater capital in 2020, is is beneficial. And then we highlighted that Sherwood twelve and thirteen just came on in the fourth quarter of this year. So you have ample processing capacity to grow into. So kind of focus in Tyler County and then having, you know, processing capacity and not having Clearwater really drove those capital reductions by about $200,000,000.

Speaker 4

Okay. And so sort of think about that, you know, Wetzel County development being pushed out to maybe '21 or beyond.

Speaker 1

Exactly. We'll just gradually build out from our Tyler County position. It really is very efficient just to kinda do pad by pad development, mowing the lawn out towards Wetzel County is is our plans.

Speaker 4

Okay. Okay. And then on you know, you began the repurchase program. How should we think about that? Is that gonna be systematic, lumpy?

Just trying to get a sense for how we should allocate that capital.

Speaker 1

Yeah. It'll be opportunistic. You know, you saw we bought back $25,000,000 worth about 3 and a half million shares in September. We've kinda we've got a $300,000,000 program. It is obviously beneficial to buy it back earlier rather than later so that you can get those shares and not have to pay the dividend on that.

We said that program would be we would not leverage the balance sheet to do that. So when you look at that, that gives you about a $100,000,000 to to play with. So we plan on on buying about back that amount over the the next couple of quarters.

Speaker 4

Okay. Great. And then maybe just one final one for me on on AR. Is there is there any implications to AM if AR should receive a downgrade, like, a financing standpoint?

Speaker 5

No. There there are not.

Speaker 6

Okay.

Speaker 1

Well, for AM I mean, AM generally follows AR's credit rating. So in as much as they are consistent with that, AM, with AR would would probably go down in tandem, but it's not a, it's not on any sort of AM credit metrics.

Speaker 0

Got it.

Speaker 4

Thanks guys.

Speaker 2

Thanks, Ali.

Speaker 0

Thank you. The next question is from the line of Jeremy Tonet with JPMorgan. Please proceed with your question.

Speaker 7

Hi, good morning. Just want to follow-up with the CapEx side of the equation here and did a good job pulling back CapEx for 2020, but just want to kind of think longer term normalized, I guess, and realize it's a very difficult question to ask. But if we look into 2021, it seems like the system is largely kind of mature, backbone built out, so that argue there's not a lot of CapEx that's left. But then there's other areas that you could expand to, I think, you just touched on with Holli there. Just wondering how you think about what normalized CapEx could look like for this business going forward with what you guys see in front of you?

Speaker 1

Yes. We talked about we had a 2,000,000,000 backlog and the initial cadence of that was 750 to 800,000,000 this year. We've always reduced that to $6.65 to six eighty five, and then we thought around 600,000,000 next year, and that's down to 400. And then the subsequent years after that were like 400,000,400 million and then 200. You know, looking out now with reducing that capital this year and next, that kind of puts the capital budgets in '21, '22, and '23 in the April range.

So kinda just evens everything out around that kinda $400,000,000 a little bit over range over the next four years.

Speaker 7

That's helpful. Thanks. And if I think about capital allocation here, just wondering, you talked about return of capital to equity holders, with AM bonds kind of yielding near 10% right now, just wondering if that factors into your calculus there, if you might be opportunistic there or what do you think about that side?

Speaker 1

No. We really don't have any plans around that. Those you know, the AM bonds have term on it. The first one's not maturity is not till 2024 and then the the next two are '27 and '28. So I think the opportunities at AR that those bonds traded at a a discount plus the maturities there in '21 and '22 is a little more near term.

But at AM, you know, we've got a really nice maturity schedule out there and and we enjoy that term.

Speaker 7

That's helpful. Thanks. And one last one if I could. Just if I look at the guidance, it looks like the JV contributions that you guys listed in the last slide here is down a little bit versus what you had said before. Just wonder if you could provide a bit of color as far as the delta.

Is that timing, or is there anything else, happening there?

Speaker 1

Yeah. I think it was just timing. The JV is definitely on schedule and with the we just put on the Sherwood twelve and thirteen in the the fourth quarter and those should be filled in the next couple of quarters. So it's definitely meeting expectations.

Speaker 7

Great. That's it for me. Thanks.

Speaker 2

Mhmm. Thanks, Jeremy.

Speaker 0

Our next question comes from Crawford Cobb with Tudor, Pickering, Holt. So

Speaker 3

with regard to the share repurchase program, any preference between repurchasing AM units owned by AR relative to to AM units in the open market?

Speaker 1

No. We've just been focused on the open market. I mean, that's obviously where AM can go out and just purchase every day, and it's just been opportunistic like I mentioned. So really haven't haven't thought, you know, around the AR. The AR, you know, position is something that generates dividends for them and they enjoy.

So really just kind of been focused on when you see the dips in the AM share price, you know, trying to be opportunistic and picking some up then.

Speaker 3

Got it. That makes sense. Alright. That's it for me. Thanks, guys.

Speaker 2

Mhmm. Thank

Speaker 0

you. Our next question comes from Kyle May with Capital One Securities. Please proceed.

Speaker 6

Good morning. I wanted to talk a little bit more about the water program. So you've talked about the water savings initiatives, but just wondering if you can give us some more perspective on how this affects the outlook at Antero Midstream compared to your prior expectations.

Speaker 2

Yeah. Go ahead, Mike.

Speaker 1

Yeah. No. I was gonna kinda just run through some numbers here. You know, from our, for our blending operations, it's about $7,000,000 of capital to AM for the 2019. In 2020, that capital is about 10 to $15,000,000.

That'll generate EBITDA really kind of starting in 2020 of 3 to $4,000,000 from the blending and then the trucking that actually occurs during that. Get cost plus 3%. So that's about 6 to 7,000,000 of EBITDA. So it'll generate about 10,000,000 of EBITDA. And that's all from the blending, you know, just to review from the Clearwater side.

The Clearwater, you know, had a couple million dollars of EBITDA this year, but was costing about $10,000,000 a quarter in capital. So it's actually assuming about $8,000,000 of net cash flow. So, you know, not having that continuing after the fourth quarter is obviously beneficial for AM. And then you add in this blending opportunity for us. So, you know, the water initiatives are are going to improve AM definitely in 2020 versus 2019.

Speaker 6

Got it. That's helpful. That's all for me today. Thank you.

Speaker 5

Thanks, Kyle.

Speaker 0

Thank you. The next question comes from the line of Ethan Bellamy with Baird. Please proceed with your question.

Speaker 8

Hey, guys. Good morning. What is the probability of a renegotiation of contracts between AR and AM? How should we think about that?

Speaker 3

You know, that's that's one of many discussions we're having. I think, Ethan, that, you know, we have to think about the overall Antero family there. So if something were done, it needs to be favorable, you know, for both at the end of the day. And so, obviously, if we did something that was overly favorable for AR, that would be good for AR, but not necessarily for for AM. And and historically, by not doing anything, that's that's been tough overall for for AR, and then there's a flow through negativity to AM.

So, you know, there's there's room for something to happen there, but it's just one of, gosh, a half a dozen different parties we're having those discussions with around sort of amend and extend type discussions and and otherwise. So it's just one of one of many. It's hard to handicap whether or anything happens with any particular one at this point. But hopefully, we get something done with with the majority of those.

Speaker 8

Okay. Thanks, Glenn. With respect to the 2020 CapEx program, can you give us any granularity about how much is within and without of the MPLX JV? And is there any lumpiness or returns that we can be modeling in terms of specific spending or projects?

Speaker 1

Hey. Hey. I can kinda give you a year over year comparison, Ethan. You know, the low pressure is very similar in 2020 to 2019. The compression, you're actually spending quite a bit less in 2020.

We put a lot compression on this year and definitely up in that Tyler County. So you're spending about $90,000,000 less in compression in 2020 versus 2019. High pressure is, you know, somewhat similar. Freshwater infrastructure, You're down about 40,000,000 year over year. We built a big trunk line in 2019 that goes through the heart of our Tyler County development.

So, obviously, you don't need to replicate that. You're down about $40,000,000 on Clearwater because you obviously don't have any capital in 2020 versus 2019. And then specifically to your question for the processing and fractionation JV, we're down about a $100,000,000. We spent 175,000,000 this year. We're thinking it's, you know, 80 to 90 next year.

That does even indeed have the Hopefield Hopedale Five Election in for the fractionation. So it even includes that. So quite a bit less spend. We did just put on, as I mentioned, Sherwood twelve and thirteen. So I think you only have one processing plan in the budget for next year.

Speaker 8

And remind me the governance of that JV. Who controls the spending there?

Speaker 1

It's it's a joint JV. It's fifty fifty.

Speaker 2

Mutually agreed to, but, Antero proposes what, its growth plans are, and, and it goes from there with the partners planning what what will be needed and what time frame.

Speaker 8

Okay. Last question. You've got a dividend yield at AM that, is uncompetitive and uncompelling. Assuming that the share price does not recover, you know, it it looks like that cash might be better used for something else. Could you talk about how you think about the distribution policy or dividend policy here?

And is

Speaker 1

there

Speaker 8

some point in the future where you're modeling AR not necessarily needing that cash or allowing you the flexibility to change dividend policy if you wanted to do that?

Speaker 1

No. We really haven't thought about changing the dividend. Obviously, we haven't increased it, and we don't plan on increasing it. Like I mentioned, the return of capital is gonna come in the form of buying back shares. But when you actually look at our model, you know, we highlighted that the trend of the capital going much lower, and then you have the EBITDA growth that kinda mirrors AR's growth plans.

Your coverage goes up, you know, to the one two to one three range. So that's really not a profile that would lend itself to be reducing the dividend. You also kinda look out in '21, '22, the cash flow plus the dividend payout is, you know, cash flow, excuse me, less the dividend payout, less the capital You're almost at free cash flow after dividends. So, again, not a profile that would suggest that you would be needing to cut any of the dividends.

So we don't see that in the future. We just plan on holding flat and then returning capital through buying back shares. If it just stays down at these low prices, we'll just be opportunistic and and, get a lot of shares in.

Speaker 8

Okay. Thanks, Mike. And, Paul, if you indulge me, just one question. With respect to gas macro, you guys have historically made an argument about decline rates leading to supply correction, which would improve price. Do you do you still see that?

Are we sort of in the doldrums, but just early on that thesis? What are you what are your thoughts right now?

Speaker 2

Yeah. And do we have a page of that in our presentation? Maybe on our website. Mhmm. On our website, Ethan is shows what natural gas prices are.

NYMEX prices plotted over this last year. So Cal 19, and it shows what horizontal gas rig count is doing. And we have that both for Nationwide and also for Appalachia and that is tied to the local price of the TEDCO M2 price. But the big picture is that prices have been sliding. It's taken a little while, but rig count is has begun to fall pretty dramatically as many people are following.

And then we also show that for completion crews, and those are getting idled too. And so as, you know, as, you know, from experience in the business that self correcting on both sides and, you know, on the high side, self corrected, on the low side, self corrected. So should see a fall off in supply. Of course, where the you know, it takes a little while. There's a lag time.

If you drill a well, you actually wanna complete it before you, you know, before you back away and stop and stop spending money. So so a little bit of lag time. What will be the pecking order? Well, the least sensitive, of course, is are the pure oil plays as in Permian Basin, so on that the gas price is not material for them, but that's not that large of a proportion of the total gas supply, 10 to 13 BCF a day out of 90 plus. And so then what are the, you know, the next least vulnerable?

Well, it's the mixed in in place like Antero with liquids supporting the development. And then one gets to the dry gas basins, and I think many people who follow this have the the more vulnerable ones on the list. You can only already see rig counts dropping in some, and maybe it'll happen in some others too. So do see itself correcting. And meanwhile, on the demand side, you know, I've I've made the argument before that demand will be stickier, especially with LNG, that the LNG shippers and off takers are looking for ten twenty year contracts.

And so they'll need that gas once they put in the infrastructure much longer so supply can fall off with gas prices, lowered rig count, while demand will increase once the infrastructure is sunk. So it'll so I I would say that it's just a matter of time as it has been for the last many downturns. And but, you know, all investors are seeing that macro, but wondering when. And so for that, obviously, we all hope sooner the better.

Speaker 8

Yes, sir. Thank you very much.

Speaker 0

Our next question comes from Pat Sheehan with Bank of America. This

Speaker 6

is actually Greg Brody. Pat called in for me. For all the color and obviously a big update today across the board with AR and AM. Just honing in on a few things. You mentioned that AM and AR are working together and also the opportunity to take of your transport possibly renegotiate some of your transportation costs with other third parties.

How can we think about how that plays out? Is it a men's STEM where it's net present value neutral? Or is there a possibility that that in the case of AM, it actually there's some shared shared pain, I guess?

Speaker 3

Yeah. It all depends on the parties and and, you know, we're not gonna get into details on that, Greg. But I'd say discussions are pretty free form around, you know, all of those midstream service arrangements. So it's hard to pinpoint any particular viewpoint or or strategy at this point. I just have to be patient and we'll see what what gets done there.

Speaker 6

Got it. That's helpful. Alright. I appreciate that you can't negotiate against yourself on the phone. So just in terms of dividend, you mentioned you threw a number out there, think, of $100,000,000 over the next couple of quarters.

Is that what we're supposed to think about is when you talk about high single digit growth of return on capital that it's effectively $100,000,000 you've allocated for 2020 for that?

Speaker 1

No. The 100 yeah. The 100,000,000, really, that number comes from when you you if you recall, Greg, from our initial when the board approved this, share repurchase, it could not add be additive to leverage. When you do the math on how much you have that you're supposed to increase the dividend by, so that's 7% to 9%, then that's off of $600,000,000 when you do the math on that, it's what is that? 50,000,000 to $60,000,000 increase in dividends.

That was kind of the initial pot you were working with. But when you actually buy back shares sooner rather than later, you don't have to pay dividends over that two year time frame. That adds to the pot. So you kind of add that 50,000,000 to $60,000,000 plus the dividends that you don't have to pay on the shares that you bought back, and that's how you get to $100,000,000

Speaker 6

Got it. Thank you. I was you rented the mess that I was trying to figure out. Sure. All right.

And then maybe just one more here with just with Clearwater. So I think I heard you say on the call that there's this 10,000,000 to $15,000,000 expense for idling doesn't continue next year. But I'm just reading the eight ks you put out that says it's under unable to estimate the cost thereafter. Is that is

Speaker 1

how should I reconcile that? Magnitude. You know, there always should be some costs in 2020, but not 10 to $15,000,000 a quarter.

Speaker 6

And then you mentioned that it just wasn't operating as expected, but it it it looks like, this was sort of the shared pain together that would for AR to AM to work together. How'd you think about is it as simple as it wasn't working properly? Or is it was there sort of some net present value analysis you guys were doing when you thought about idling this and not using it?

Speaker 2

Yeah. Fundamentally, it just wasn't working properly relative to, the design and what we we envisioned it was going to be able to achieve.

Speaker 6

Our

Speaker 0

next question comes from Ned Baramov with Wells Fargo. Please proceed with your question.

Speaker 5

Good morning. Thanks for taking the questions. Just looking at AR's production growth guidance for 2020 of 8% to 10%, Could you maybe talk about what does that translate to in terms of gathering growth on the AM side, given all the puts and takes related to royalty interests and third party acreage dedications, etcetera?

Speaker 1

Yeah. So, generally, the the only real reconciling item, if you recall, Ned, is that we are on the Eastern side, kind of in Harrison County, West Virginia of our Antero Resources acreage in the dry gas area. That's not Antero Midstream dedicated acreage, and there's no development that occurs there. So that act actually declines. So when you actually hear about percentages for AR, you generally add about one or 2% for the gathering compression volumes and a little bit more than that on the processing for Antero Midstream's growth.

Speaker 5

Got it. And then maybe can you break out the maintenance CapEx number from the total CapEx guidance you provided for 2020?

Speaker 1

We don't have that exactly calculated, but it generally runs and it's not calculated this way. But if you look at it, our our maintenance capital is generally in the 10% of kind of the 10% of the capital range. So, you know, I think this quarter is $13,000,000 or something like that. So probably around $5,060,000,000 dollars next year.

Speaker 5

Got it. Thanks. That's all I had. Thank

Speaker 0

you. We have no additional questions at this time. So I'd like to pass the floor back over to management for any additional concluding comments.

Speaker 1

Sure. Thank you for joining us on our conference call today. If you have any further questions, please feel free to contact us. Thanks again.

Speaker 0

Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.