Antero Midstream Corp

NYSE:AM

Earnings Call Transcript 2019-Q2

[Operator]

Greetings, and welcome to Antero Midstream Second Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the presentation. [Operator Instructions]. As a reminder, this conference is being recorded.

I would now like to turn the conference over to Michael Kennedy, Chief Financial Officer. Thank you. Please go ahead.

[Michael Kennedy, SVP, Finance and CFO]

Thank you for joining us for Antero Midstream's second quarter 2019 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&A. I would also like to direct you to the homepage of our Web site at www.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 Glen Warren, President and CFO of Antero Resources and President of Antero Midstream.

With that, I'll turn the call over to Paul.

[Paul Rady, Chairman and CEO]

Thanks, Mike. I’ll begin my comments on AR on Slide 3 titled AR Strength and Resiliency Drives AM Strength, which illustrates the increase in capital efficiency, financial strength and scale that AR has achieved since the AM IPO in 2014.

Starting with the proven capital efficiency, AR’s drilling and completion CapEx has decreased 50% from $2.6 billion to $1.3 billion from 2014 to 2019. Over that same time period, AR has generated attractive net production growth and replaced natural decline on a production base that is now over 3x as large as it was in 2014, while reducing its development costs by over 50%. In addition, AR’s operational efficiencies have driven its rig count down from a peak of 21 rigs to four rigs from cal '14 to cal '19.

From a financial strength standpoint, AR has taken considerable steps to maintain and improve its balance sheet driving total debt down by over $700 million and reducing leverage from 3.9x to 2.3x. Over the past five years we have maintained our conservative approach to hedging and risk management with 100% of AR’s oil and natural gas production hedged for the remainder of cal '19 and over 90% of expected natural gas production hedged in cal '20.

Our capital efficiency and financial strength have allowed AR to achieve significant scale over the last five years, roughly tripling proved developed reserves that underpin the future growth at AM. Antero continues to be a dynamic and integrated organization with a track record of driving efficiencies, navigating challenging commodity price environments, maintaining financial strength and doing what we say we’re going to do.

We expect this track record to continue even at current commodity strip pricing which is driven by AR’s 10% to 14% well cost reduction initiatives that I will discuss on Slide 4 titled Cost Reduction Initiatives Breakdown. Over the last several quarters we undertook an internal review of every expense line item associated with AR’s well cost with the goal of becoming a pure leader in well cost.

The outcome is well cost savings of $1.2 million to $1.7 million per well for a 12,000 foot lateral bringing AR’s targeted well cost to $0.83 million to $0.87 million per 1,000 feel lateral. These savings will come from a combination of water optimization, service cost deflation and continued efficiency gains, approximately 35% of which has already been achieved as of today.

On the water optimization front, AR is targeting approximately $800,000 per well in cost reductions from optimized completion design and a more efficient and localized flowback water management process. After successful pilots using mostly 100 mesh proppant, AR plans to reduce water used in completions from a range of 40 to 45 barrels per foot down to 35 to 38 barrels per foot in a new cost efficient completion design.

The completion design optimizes both fracture length which is driven by water usage and reservoir conductivity which is driven by the type and amount of proppant in the most cost effective manner without any degradation in production or EURs.

On the flowback water side, AR is targeting these savings through more efficient flowback water management. AM plans to expand the scope of its water services to help AR to achieve these savings and AM expects to offset the majority of the $25 million to $35 million impact from drying up the completions with cash flow from these new water services.

In addition, AR is targeting $650,000 per well in savings from, number one, vendor and service providers to reflect the deflationary commodity environment; and secondly, additional direct sourced sand and improved less mile logistics; and thirdly, efficiency gains from improved completion stages per day, drilling days and tap-hole optimization. These savings make AR a more resilient and more capital efficient producer which in turn ensures AM’s throughput volume growth.

Assuming a similar level of drilling and completion activity in cal '20 compared to cal '19 or approximately 110 to 120 wells results in a drilling and completion budget for AR of $1.2 billion to $1.3 billion even while increasing average lateral lengths from 10,200 feet to 12,100 feet. This drilling and completion capital budget allows AR to target a 10% net production compound annual growth rate that is roughly cash flow neutral at current strip pricing.

Further to AR’s resiliency to commodity prices, I want to briefly touch on AR’s hedge position on Slide 5 titled AR’s Hedge Position. Our comprehensive hedging program which has generated $4.5 billion of net cash hedge gains over the last 10 years has been crucial to our success and underpins the long-term stability in AR’s development plan.

For the remainder of 2019, AR is 100% hedged on its oil and natural gas production through a combination of swaps and collars at a blended floor of $2.79 per MMBtu on gas and $59.50 per barrel on oil.

Looking ahead to cal '20, AR has approximately 90% of its natural gas production hedged at $2.87 per MMBtu or approximately 15% of current NYMEX natural gas strip prices after executing additional hedges in the second quarter of cal '19.

Looking to 2021 and beyond, AR has hedges at attractive prices between $2.88 per MMBtu and $3.00 per MMBtu. Altogether, AR’s hedge book has a $716 million mark-to-market value as of June 30, 2019 and $774 million mark-to-market as of yesterday, July 31, 2019.

Let’s move on to the AM opportunity set on Slide 6 titled AM Water Operations and Future Opportunity Set. The top half of the page illustrates the current flowback in produced water operations where AM contracts a third party to truck flowback and produced water to the Antero Clearwater Facility and to third party injection wells.

The bottom half of the page illustrates AM’s opportunity set. AM is planning to expand the scope of its water business to reduce third party trucking and utilize new and existing infrastructure to transport flowback and produce water. This solution is cost efficient for AR, improves road safety and reduces emissions from trucking. It also allows for increased reuse of water in future completions. This business would replace AM’s current cost of service business which generates a 3% margin with more attractive margins and double-digit rates of return.

Specifically in our northern rich-gas fairway where our development activity will be focused over the next five to eight years, we plan to; number one, construct localized storage near our development; number two, utilize mobile treatment for flowback and produced water volumes; and three, implement blending operations into our freshwater system.

The blended and treated volumes reused and delivered through the freshwater system for completions will continue to be charged the very same current freshwater delivery fee and will act as a reliable water source similar to the affluent water that comes from the Antero Clearwater Facility where the affluent is put directly back into the AM freshwater system.

In addition, we plan to repurpose certain segments of the existing freshwater system to transport flowback and produced water to localized blending and treatment operations as well as to the Antero Clearwater Facility.

Infrastructure build out will be a flexible, fit-for-purpose approach based on AR’s development plan and will be phased in over the next several years. This localized approach highlights the benefit of a consolidated acreage position where our completion operations will be concentrated.

In addition, Antero’s integrated operations and communication between the upstream and midstream entities will allow us to generate cost savings and efficiencies. Antero has been a pioneer in integrated water operations in Appalachia and has significant experience operating the largest freshwater system in Appalachia.

Our significant operating experience, advancement and pipeline integrity and investment in engineering risk management give us comfort to safely build out the flowback and produced water business in a capital efficient manner.

In short, the expansion of the water business is a win-win for the Antero family as it reduces well cost and increases cash flow for AR enhancing the resiliency of its development plan and business model while delivering an incremental cash flow stream for AM.

With that, I’ll turn the call over to Mike.

[Michael Kennedy, SVP, Finance and CFO]

Thank you, Paul. For those who did not have a chance to listen in to the AR conference call, I would encourage you to listen to the replay or access the AR earnings call slides on the AR Web site, which go into greater detail on the cost savings initiatives that underpin the resiliency of the AR business model that Paul discussed.

I’ll begin my AM comments by highlighting the recently announced AM cash dividend of $0.3075 per share, 146% 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 18th consecutive distribution increase since the IPO of Antero Midstream Partners in 2014. As depicted on Slide 7, we are on track to achieve our 2019 full year dividend of $1.24 per share which represents over a 13% yield on today’s share price.

Now let’s move on to the second quarter operational results, beginning with Slide 8 titled High Growth Year-Over-Year Midstream Throughput. Starting on the top left portion of the page, low pressure gathering volumes were 2.7 Bcf per day in the second quarter, which represents a 34% increase from the prior year quarter.

Compression volumes during the quarter averaged 2.4 Bcf per day, a 54% increase compared to the prior year quarter. Compression capacity was 88% utilized during the second quarter. Joint venture gross processing volumes averaged 1 Bcf per day, a 73% increase compared to the prior year quarter.

Joint venture gross fractionation volumes averaged 27,000 barrels per day, a 170% increase from the prior year quarter. And freshwater delivery volumes averaged 122,000 barrels per day, a 46% decrease over the prior year quarter. The decline in freshwater delivery volumes was driven by a reduction in completion activities at AR, as expected.

During the third quarter, Antero Resources picked up an additional completion crew which we expect to drive an increase in completion activities and freshwater delivery volumes during the second half of 2019 compared to the second quarter of 2019. AM remains on track to achieve the volumetric targets for the first 125 million earn-out payment covering the 2017 through 2019 period that is expected to be paid in the first quarter of 2020.

Before moving on to financial results for the quarter, I’d like to touch on our operational savings and improvements on Slide 9 titled Operating Expense Improvement. Through the implementation of automation, centralized operations and field wide best practices, operational efficiencies and scale we continue to drive down our per unit operating cost.

Our gathering and compression per unit operating expenses are down 40% and 48%, respectively, over the last five years while freshwater per unit OpEx down 41%. Looking ahead, we continue to see areas of improvement and driving additional efficiencies in both our gathering and water businesses.

I’m extremely proud of and would like to thank all of our Midstream employees focused on operations for this impressive and relentless dedication in generating efficiencies and driving down costs.

Moving on to the financial results. Adjusted EBITDA for the second quarter was $206 million, an 18% increase compared to the prior year quarter. The increase in adjusted EBITDA was primarily driven by increased throughput volumes.

Approximately 70% of AM’s adjusted EBITDA was generated from gathering and compression, 10% was generated from our processing and fractionation joint venture and Stonewall investments and the remaining 20% was generated from freshwater delivery and treatment.

We see these percentages staying approximately the same over the next several years with 80% of AM’s adjusted EBITDA delivered from core gathering, processing and fractionation and 20% of AM’s adjusted EBITDA derived from water.

Distributable cash flow for the second quarter was $156 million resulting in DCF coverage ratio of 1x. Antero’s second quarter results place us on track to achieve our previously communicated 2019 dividend guidance of $1.23 to $1.25 per share with DCF coverage and adjusted EBITDA trending towards the bottom end of the previously announced coverage and guidance ranges.

During the second quarter, Antero Midstream invested $163 million in gathering, compression, water infrastructure and the processing and fractionation JV. Gathering, compression, water infrastructure, capital investments totaled $125 million and investments in the JV totaled $38 million. We are currently trending towards the bottom end of the capital budget guidance range at $750 million to $800 million.

Moving on to the balance sheet and liquidity. As of June 30, 2019, Antero Midstream had $595 million drawn on its $2 billion revolving credit facility resulting in 1.4 billion in liquidity. AM’s net debt to LTM adjusted EBITDA was 3.2x at quarter end.

I’ll finish my comments on Slide 10 titled DCF Profile Supports Growing Return of Capital. As a reminder, AR and AM previously provided net production in DCF growth sensitivities respectively for $3.15 gas and $65 oil price scenario and $2.85 gas and $50 oil scenario.

While prices are well below the lower boundary scenario pricing, AR’s well cost reductions, efficiency gains and hedged position enable it to offset the difference in commodity pricing and maintain a 10% compound annual net production growth rate that is approximately within cash flow.

Even at currently depressed strip pricing, this results in AM’s DCF CAGR trending in the low to mid-teens after adjusting for the new completion design. Importantly, AM is still targeting high single digit return on capital growth in 2020 as compared to 2019 supported by the DCF wedge relative to the future capital estimates necessary to generate this DCF growth.

This attractive growth profile and an efficient capital program leveraging existing infrastructure allows AM to continue self-funding its operations and supports an increasing return on capital to shareholders for 2020.

With that operator, we are ready to take questions.

[Operator]

Thank you. [Operator Instructions]. Our first question comes from the line of Spiro Dounis with Credit Suisse.

[Spiro Dounis, Credit Suisse]

Hi. Good morning, guys. First one, just a two-part question on some of the finer details around the new water opportunity. Just first on the top line. I believe AR mentioned spending upwards something like 160 million on these water services and was looking to save around 50 million or so. So if I just do the simple math around that, is it fair to say the top line opportunity for AM will be something around 110 million? And the second part of that is just how to think about some of the spending, the CapEx spending to build out this infrastructure?

[Michael Kennedy, SVP, Finance and CFO]

Yes, the first you talked about is the LOE or how much we spend. So the 160 million, if the 50 million savings would be the 110 million for AM.

[Spiro Dounis, Credit Suisse]

Okay. And then the potential CapEx needed to build this out, how should we think about that?

[Michael Kennedy, SVP, Finance and CFO]

It’s over the next couple of years. It’s around the $100 million range as well over two or three years.

[Spiro Dounis, Credit Suisse]

Okay. And that’s spread out over those three years.

[Michael Kennedy, SVP, Finance and CFO]

Right.

[Spiro Dounis, Credit Suisse]

Got it. Okay, that’s helpful. Second one kind of high level here, but stock’s trading down materially today and follows a pretty challenging July. You’ve come out, you’ve reiterated guidance, you’ve talked to some new opportunities, you’ve talked to capital efficiencies and it doesn’t seem to be having an impact. And so I guess at what point does it make sense to undergo a strategic review here and consider what, if anything, could really be changed? And just trying to be clear, I’m not saying you should do anything dramatic for the sake of the share price. But if I’m echoing some feedback we receive, it seems to be ongoing concerns around counterparty risk and basin risk and it just doesn’t seem like reiterating guidance is going to be enough to appease that?

[Paul Rady, Chairman and CEO]

Yes, I’m not sure how to answer that. We are under strategic review all the time. That’s what we do. And I think it’s hard to impeach the business and we’ve got great rock and a great business and taken our product to great sales points and we’re well hedged and strong balance sheet. So, yes, I don’t really – not sure what you’re getting at. Glad to talk offline about that. But I think we’re doing the right thing here.

[Spiro Dounis, Credit Suisse]

That’s fair. We can catch up on that. Just last one for me with --

[Paul Rady, Chairman and CEO]

Obviously we don’t control the stock price, right, so you’re kind of --

[Spiro Dounis, Credit Suisse]

No, I totally understand that. We’ve seen others do it. When your yield starts to get to this level and to your point you’re always under strategic review, so I appreciate that. But we can follow up offline. Next one I believe is on the last call you mentioned maybe an increasing appetite to potentially get more into long haul business. Could you just maybe update us on where that stands?

[Paul Rady, Chairman and CEO]

For AM getting more into long haul type. Yes, those are not the kind of things that we can talk about publicly on the call. We’re always looking at opportunities that you’ll hear about if we do something.

[Spiro Dounis, Credit Suisse]

Understood. Thanks for the color. Thanks, guys.

[Paul Rady, Chairman and CEO]

Thank you.

[Operator]

Our next question is from the line of David Amoss with Heikkinen Energy.

[David Amoss, Heikkinen Energy]

Hi. Good morning. I’m trying to think about your CapEx in 2020. I think the newest deck shows that growth CapEx is a little under 600 million. And just thoughts about how sticky that number is and are there things that you can do at the AM level to get CapEx down next year?

[Michael Kennedy, SVP, Finance and CFO]

That’s right now looking at the AR plan, so obviously it will follow the AR. But we have been trending lower on capital as we get more efficient. So still a target of 600 million with the 10% AR plan; that’s still a good ballpark but we’ll continue to try to refine that and bring that down.

[David Amoss, Heikkinen Energy]

Okay. Thanks. And then on the pilots with your lower water usage, can you just tell us how many of these pilots you’ve done and how long those well have been producing? And then just anything high level on your confidence levels that the production from the new completions will hold up to the production from the older [ph] completions?

[Paul Rady, Chairman and CEO]

Yes, I think we started out probably between two and three years ago where we’d on a certain – whenever we do pilots on pads and these might be pads with 10 or 12 wells, we vary the treatment on different wellbores. So we might do three wellbores that incorporate 30-50 sand and then three wellbores that are interspersed that are just pure 100 mesh, and we watch those. And so we have a production history going back at least two, maybe three years where we do these within the pad basis on the pilots. And then more recently we’ve done full pads where the entire pad is 100 mesh or the entire north directed, so say six wells going north are all 100 mesh and then the other six wells going south are the standard design that uses coarse mesh. So we have a good sampling throughout our area. I would say that at least 10 pads have been involved in 100 mesh piloting over the last two to three years, so 10 pads and if you say an average of at least eight wells per pad, there’s probably at least 80 wells where we’ve piloted throughout the fairway and have seen positive results. But 100 mesh provides as good if not better sometimes production than the traditional design, so feeling good about that. Does that answer your question, David?

[David Amoss, Heikkinen Energy]

Yes. Thanks, Paul. And then just one last one, if you wouldn’t mind just kind of going through why you had to pull Clearwater off again in the second quarter, thoughts going forward on achieving efficiencies through that facility that you expected when you built it? And then finally, is there any legal remedy to clawback some of the underperformance from Clearwater over the last year or so?

[Paul Rady, Chairman and CEO]

I would say Clearwater is a good facility. It’s complicated. It’s got three or four different processes within it and so it’s just working the bugs out. We have seen greater and greater volumes. We’ve got a good operating team there that’s growing it. But sometimes when we have – we will schedule a number of projects when we have downtime, let’s say 10 days or two weeks of downtime, there’s a number of things that go on not just one flaw in the operating side, but there might be two, three, four or five. And so that’s usually what the downtime is, is just either – really improving the efficiency and adding things on. So mostly what we’ve been doing is just improving the process and there’s just – it’s a big facility, going to 50,000 to 60,000 barrels a day is there’s a lot of moving parts there. So that’s what we’ve been doing and it’s been good so far. Was there another part of that question, David, that I didn’t address?

[David Amoss, Heikkinen Energy]

So just to clarify of what you’re saying, it’s an operational issue not a design flaw?

[Paul Rady, Chairman and CEO]

Right. Just the operational issues, yes.

[Operator]

Okay. Our next question is coming from the line of Tim Howard with Stifel.

[Tim Howard, Stifel]

Hi. Thanks for my question. Just given the kind of strategy change and DCF trending towards the low end of guidance in 2019, was there any thought of removing the 7% to 9% expected capital return growth in 2020 just to build coverage? It seems like that’s what investors are preferring more these days and the stock doesn’t appear to be valuing the growth.

[Michael Kennedy, SVP, Finance and CFO]

That is building coverage – excuse me, the 7% to 9% is below our actual DCF growth of kind of low to mid-teens here, so that does build the coverage back into the 1.2x range. So the DCF growth in 2020 does support that type of return to capital target.

[Tim Howard, Stifel]

Got it. And then was there any thought on providing just more detailed expectations into 2020, adjusted EBITDA, DCF guidance officially given the new strategy you set and just maybe supporting investor concerns?

[Michael Kennedy, SVP, Finance and CFO]

These are targets generally in the ballpark or at. We did a formal budget process in the following winter of each year and the '19 that gets Board approval and that’s when we come out with formal guidance.

[Tim Howard, Stifel]

Got it. And then just pivoting to the water, how much produced water is flowing today and maybe what’s expected into 2020? And then is there any thought on kind of how of that will be captured via pipeline as you kind of work through 2020?

[Paul Rady, Chairman and CEO]

I would say produced water now is in the 45,000 to 65,000 barrel a day range. So depending on the timing of turning in line pads, you get a surge and then it will go down, but roughly in the high 50s. So as to how much will come into the new business, we’ll do as much as we can as we focus on the northern fairway, and so as much as we can. So could it be 10,000, 20,000 barrels a day at least that we are polishing and blending and keeping local, in other words decentralized and not bringing to Clearwater could be in that range. We’re just setting out in the earliest pads now. So we aim to make as big a dent as possible just because the cost structure is so superior not to have to do the long haul trucking. But that’s a good target is at least 10,000 to 20,000 barrels a day out of 55,000 or 60,000 total, and we’ll see where it goes from there. One can think, well, that will be less for Clearwater, but as we have more than 1,000 wells producing now and our growth rate is such that the overall water grows. So even as we do a cut with polishing and blending, still there’s an overall quantity of water that continues to grow. So there will still be good water available for Clearwater.

[Tim Howard, Stifel]

Got it. Yes, that was kind of my next question. What is the expectation for Clearwater in 2020 with this new strategy? It’s still in that like 40 to 50 since I think that’s where it was previously.

[Paul Rady, Chairman and CEO]

Yes, I think that’s reasonable. We got our operating teams now that are very busy focused on bringing on a number of pads in the northern fairway where we’re working hard on coordinating flowback and produced water to take advantage of it and use that water in future completions. So we’ll see just how effective we can get that. But we’ll want to be of course as effective as possible. And so in the success case, maybe the polishing and blending can take 20,000 or 30,000 barrels a day from the northern fairway and not move it to the south. But again, the overall number is increasing so I think I’m giving you ballparks as to what Clearwater will maintain at, but it could be in the 40,000 or 50,000 range while we polish and blend 10,000, 20,000, 30,000 barrels a day just as we step into this over the next 18 months.

[Tim Howard, Stifel]

Okay, that’s helpful. And then last one from me, what drives growth in the second half for Antero Midstream cash flows? I assume that the water completions I think were mentioned, but production is supposed to be relatively flat at AR I think is what I heard. So can you just help us out with that? Thanks.

[Paul Rady, Chairman and CEO]

Yes, so a lot of it’s the water obviously but also the production. You got to remember the east side of the field that’s not Antero Midstream dedicated is not being developed. So as it declines even with flat AR production that means growth for AM’s volumes, because the areas that AM services grow while the areas that it does not service are declining. And then we also obviously have the freshwater that increases with that increased completion with one completion crew addition in the third quarter.

[Tim Howard, Stifel]

Thank you.

[Paul Rady, Chairman and CEO]

Thank you.

[Operator]

[Operator Instructions]. Our next question is coming from the line of Barrett Blaschke with MUFG.

[Barrett Blaschke, MUFG]

Hi, guys. Just sort of looking at the commodity world as it sits today and the JV you have with MPLX and some of their commentary around more spending on their L&S segment and less on their G&P. Can you give us kind of an outlook on where you see things going after sort of the 12 and 13?

[Paul Rady, Chairman and CEO]

Well, the outlook, of course, is for growth and more processing plants and so that will be at Sherwood or the new call it a twin facility that’s just a couple of miles away to the west called Smithburg. And so new plants are being prepared there as well as now, so the growth will continue well beyond plants 12 and 13 and it’s all timed out relative to our production growth.

[Barrett Blaschke, MUFG]

So there are plants --

[Paul Rady, Chairman and CEO]

Generally, it’s roughly two plants a year. Sorry about that, Barrett. What did you say?

[Barrett Blaschke, MUFG]

I’m sorry. So there’s plants on the drawing board today to go on beyond 14 and 15 and what sort of triggers timing and investment decision on that?

[Paul Rady, Chairman and CEO]

Well, we’re always looking at our production curves and anticipating when we’re going to need it. We give our joint venture partner MPLX usually an 18-month lead time, 18 or 20 months and we all work towards that. And of course our teams are meeting every month. So we give updates. But that’s how it’s coordinated.

[Barrett Blaschke, MUFG]

And just one last one from me. Could you tell me how much of the volume on those plants is typically Antero volume?

[Michael Kennedy, SVP, Finance and CFO]

Typically 100%.

[Barrett Blaschke, MUFG]

Okay.

[Michael Kennedy, SVP, Finance and CFO]

I think you can see it on our Web site.

[Barrett Blaschke, MUFG]

That’s what I thought.

[Michael Kennedy, SVP, Finance and CFO]

Smithburg, the civil work’s already been done. Smithburg 1 comes on, I forget, sometime next year. First half of next year. And so you can see all that outlined on the Web site. I think we are pretty clear about them. It takes a lot of planning. That’s what we do. And you don’t see us having a lot of hiccups on takeaway and processing and such.

[Paul Rady, Chairman and CEO]

It’s been a long time since we’ve had to wait for a plant, but we bring these pads on as you can imagine, if a plant is 200 million, 215 million a day, the pads come on and choke back at 175 million, 200 million. So a big pad will fill a plant right away, very efficient.

[Barrett Blaschke, MUFG]

Thank you.

[Paul Rady, Chairman and CEO]

Thank you.

[Operator]

Our next question is from the line of Sunil Sibal with Seaport Global. Please go ahead.

[Sunil Sibal, Seaport Global]

Hi. Good morning, guys, and thanks for all the clarity. I just wanted to go back a little bit when you did the Analyst Day last year getting to investment grade balance sheet was the goal and realized that you made a fair bit of progress towards that and things will change around. I was kind of curious how do you think about that in the current context of things? And any considerations with regard to – I know you talked about the dividend growth but in light of your goal to get to IG, is there any consideration for slowing down and getting the balance sheet beefed up?

[Michael Kennedy, SVP, Finance and CFO]

Antero Midstream is really capped out at where Antero Resources is rated by the rating agencies. And of course with the current commodity price environment, Antero Resources is a strong DD credit. But I don’t think there’s – in the next 12 months I don’t think there is any movement from the rating agencies and upgrading E&P companies just because the commodity price environment. Antero Midstream on its own right now probably would be investing grade, but with it’s very strong balance sheet low 3s in scale but it is capped where AR’s at.

[Sunil Sibal, Seaport Global]

Okay. Also, I think you kind of talked about getting into the downstream side of things. Is there something in terms of opportunities set in the near term that you guys are looking at to make progress in that direction?

[Paul Rady, Chairman and CEO]

Well, we’re always looking and of course we can’t comment on. If there was something imminent, we couldn’t announce that until it really happened. But we’re always looking, we’re always thinking and I think that’s all we can say about that. It’s possible in the future.

[Sunil Sibal, Seaport Global]

Okay, got it. Thanks, guys.

[Paul Rady, Chairman and CEO]

Thank you.

[Operator]

We have now reached the end of our question-and-answer session. I would like to turn the floor back to Michael Kennedy for closing comments.

[Michael Kennedy, SVP, Finance and CFO]

I’d like to thank everyone for joining us today. If you have any further questions, please feel free to reach out to us. Thanks again.

[Operator]

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.