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Hello, and welcome to the Antero Midstream Fourth Quarter 2022 Earnings Conference Call and Webcast. [Operator Instructions]. As a reminder, this conference is being recorded.
It's now my pleasure to turn the call over to your host, Justin Agnew. Please go ahead, Justin.
Good morning, and thank you for joining us on Antero Midstream's fourth quarter 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 website at www.anteromidstream.com, where we have provided a separate earnings call presentation that will be reviewed during today's call.
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; Brendan Krueger, CFO of Antero Midstream; and Michael Kennedy, CFO of Antero Resources and Director of Antero Midstream.
With that, I'll turn the call over to Paul.
Thanks, Justin. 2022 was an exceptional year for Antero Midstream. Despite the inflationary environment, we delivered capital expenditures below guidance and EBITDA at the high-end of guidance We completed two bolt-on, free cash flow accretive, strategic acquisitions that extended our dedicated underlying inventory to over two decades.
With these achievements, Antero Midstream is in the strongest financial position, since its IPO with a very attractive 5-year outlook. I'll begin my formal remarks on Slide number 3 titled, Delivering Consistent Returns on Invested Capital. In our 2022, capital expenditures, we were at $265 million below our guidance range of $275 million to $300 million and approximately flat year-over-year.
This is a tremendous achievement by our midstream planning and procurement teams to deliver these results in the inflationary environment that we are in today. I'd also like to highlight a midstream operations team that maintained asset uptime availability of over 99% in 2022 This exemplary performance contributed to our strong financial results for the year and allowed us to return -- to deliver return on invested capital of 17% in 2022.
The consistency of our operations and returns on our invested capital, support our dividend and balance sheet strength.
Now let's move to Slide number 4 titled Capital Declining in 2023. The chart on the left hand side of the page illustrates the decline in the high pressure trunk line capital, depicted in orange that drives much of our capital reduction in 2023. Of our 2023 capital budget, approximately 90% will be invested in the Marcellus Shale in the liquids rich midstream corridor. We expect this declining capital trend to continue beyond 2023, while still delivering EBITDA growth.
Lastly, I want to finish my comments on the strength of AR and the stability of its development program, on Slide 5, titled Premier Customer in Appalachia. As shown on the left hand side of the page, AR has paid down over $2.6 billion of debt over the past three years. This has resulted in leverage at year end 2022 of just 0.4x. This conservative debt reduction strategy as opposed to initiating a dividend policy or adding absolute debt through acquisitions, positions AR to maintain low leverage throughout commodity cycles.
Importantly, while other E&Ps have seen their leverage and debt reduction targets extend, due to the decline in commodity prices, AR has already achieved its initial debt reduction target. As a result, AR does not expect a change in its development plan that drives growth at AM. This is driven by a number of strategic and competitive advantages that AR has. First, AR sells 100% of its gas production out of basin and approximately 75% of its gas to the LNG fairway. This results in premium pricing relative to NYMAX and more importantly for AM, the ability to avoid volatile local basis in Appalachia that could result in shut in volumes at certain times.
Second, AR is one of the largest NGL producers in North America, with exposure to the liquids pricing uplift and tailwinds from China reopening. Based on consensus estimates for 2023, AR's liquids revenue as a percent of total revenue is approximately 45% versus the peer average of just 22%. Lastly, AR only needs two to three rigs and one to two completion crews to deliver gross volume growth on AM's assets.
In inflationary environments like today, it's a competitive advantage to operate in Appalachia, where development costs are roughly half of what you see in other gas basins. Steeper decline rates, geologic complexity and increased competition for rigs and completion crews, all contribute to the higher development costs outside of Appalachia. This will likely lead to reductions activity in these other basins and impact midstream providers that are active in these areas. In summary, AM is well-positioned to deliver on its 5 year targets, supporting a premier customer with low debt in a competitively advantaged basin.
With that, I will turn the call over to Brendan.
Thanks, Paul. I'll start my comments by briefly highlighting the fourth quarter results and then move on to our 2023 guidance and updated 5 year outlook through 2027. Starting on Slide number 6, titled year-over-year midstream throughput growth. AM's low pressure gathering volumes were 3.1 Bcf a day. Over 3% of all natural gas volumes gathered in the U.S. Compression volumes during the fourth quarter were 2.9 bcf a day, a 4% increase year-over-year. The year-over-year volume growth was driven by the gross production growth from the QL Capital Partners Drilling Partnership and approximately 2 months of contribution from the acquired Crestwood assets.
Moving on to the water side of the business. Fresh water delivery volumes in the fourth quarter averaged 111,000 barrels per day with 22 wells serviced. For the year, AM serviced 76 well completions, in line with our guidance. Slide 7, titled EBITDA growth and declining capital, illustrates our 2023 outlook, which is a truly pivotal year for Antero Midstream.
Before we get into the outlook, I would like to note that our 2023 guidance and long-term outlook does not include any impact from the damages awarded to Antero Midstream relating to the Clearwater treatment facility. As noted in our 10-K, in January of this year, the District Court found that AM prevailed its claims for breach of contract and fraud. Including the pre judgment interest, these damages totaled approximately $309 million. Given that this process is still ongoing and the damages award is subject to appeal, we will be unable to answer any questions regarding that specific matter.
Now on to the guidance. For 2023, we are budgeting 7% annual EBITDA growth and a 23% decline in capital at the midpoint of guidance. The EBITDA growth is both a function of organic growth from the QL Capital Partners Drilling Partnership and a full year contribution of our recent acquisitions.
As Paul discussed, this capital is highly visible, non-speculative, capital investment supporting production operated by Antero Resources. These investments tend to have superior project economics and lower risk compared to projects and higher growth, higher competition and higher risk shale plays. In addition, the ability to generate EBITDA growth with declining capital is truly unique in the midstream space, and illustrates the significant operational leverage our assets have. This plan allows us to generate over $500 million of free cash flow before dividends over $100 million of free cash flow after dividends and reduced our leverage to 3.5x or less year end 2023.
Slide number 8 titled expanding free cash flow and lower debt, illustrates just how far we have come as a company over 10 years. After out spending cash flow during the high growth era of the shale revolution, we transitioned to a more sustainable business model that has been approximately free cash flow breakeven after dividends for the last 2 years. This transition to internally finance both our capital investments and return of capital to shareholders significantly de-risked our business model and allowed us to maintain a flat leverage position while successfully integrating bolt on organic acquisitions.
Looking ahead, we expect our free cash flow after dividends to more than double in 2024, driven by organic growth expiration of the fee rebate program, and a further decline in capital. This allows us to continue to pay down absolute debt and achieve our leverage target of three times or less by year end 2024. Importantly over the five-year period from 2023 through 2027, we are now targeting 3.15 to 3.45 billion of free cash flow before dividends and 1 to 1.3 billion of free cash flow after dividends assuming a flat 90 cent dividend on an annual basis. The substantial amount of expected free cash flow after dividends will be used for continued debt reduction and once our leverage target of three times is achieved an increased return of capital to shareholders.
I will finish my comments on slide number nine. This slide illustrates how truly unique AM is, not only in the midstream industry, but in the broader S&P 400 universe. Of those 400 companies in the S&P 400, only approximately 250 generate free cash flow after dividends, and only 200 have less than four times leverage and generate free cash flow after dividends. Of that subset 11 are forecasted to generate EBITDA growth greater than 5% with capital declining more than 10% over the next two years. The only company in the S&P 400 with all of those attributes that also pays an attractive dividend greater than 6% is Antero Midstream, which again, highlights how truly unique our business model is. In summary, I would like to echo Paul's remarks that 2022 was an exceptional year, both operationally and financially.
Our de-risked organic growth model, along with highly strategic bolt-on acquisitions position us to deliver this expanding free cash flow story making AM one of the most unique investments in the midstream industry.
With that operator, we are ready to take questions.
[Operator Instructions] Our first question is coming from Jeremy Tonet from JP Morgan.
Just start off with AR kind of transitioning to a maintenance post return in capital model. curious around your thoughts around metrics we should watch for when thinking about Antero Midstream reaching a return of capital positive inflection point?
Yes. So I think we tried to come up for that in the prepared remarks. But overall, we were at a free cash flow breakeven in the last 2 years with the build-out of the infrastructure. And as we get into '23, do expect to generate nice free cash flow before dividends of over $500 million and after dividends of over $100 million as we move forward through the years, do continue to expect capital to decline and further EBITDA growth. So should we see that free cash flow after dividends expanding nicely, as we noted, double -- over double what we'd expect in 2023 on free cash flow after dividends. So nice trajectory for AM as the capital continues to come down, and we have nice growth with the drilling partnership plus the fee rebate expiring in 2024.
Got it. Makes sense. And then I wanted to pivot a bit with Shell's cracker in the Northeast on you guys thoughts on competitive landscape for NGLs and processing within the region.
Yes. I think overall, we've got a dedicated processing facility with largest in North America with Sherwood and Smithburg complexes. So we've got plenty of capacity for AR to develop, and that will flow through to AM, of course, with the joint venture with MPLX. So very well positioned as it relates to liquids, both on the processing side and then also on the takeaway side, you noted the Shell cracker that really does not have an effect from an AM perspective, that AM is not a participant in that facility, and there's no incremental volume in terms of fee related from AM's perspective as a result of that facility. So no impact there.
[Operator Instructions] Our next question is coming from John Mackay from Goldman Sachs.
I wanted to maybe start on just the small bolt-on from -- Looks like a lot of capacity and a decent amount of kind of current throughput versus what you paid for it. So maybe you could just kind of frame up for us maybe what the eventual kind of CapEx savings versus your initial plan could be and if there is any upside potential on these assets that you acquired?
Yes. No, it was a small. We had the Crestwood deal earlier in the year. This is another asset that really fit the mold. It was compression activity, servicing ARs production over in the Utica. AR does have a couple of pads that will continue to feather in over to Utica over time. So from an investment standpoint, most midstream assets typically take 6 to 7 years from the payout, this will be 2 to 3 years from a payout perspective just with the development we have planned. So great asset over there. And on top of that, you do have the unutilized compression capacity that certainly could be deployed to other areas as we've shown thus far in 2023 with the first reuse of compressor stations. So we're excited about that. Despite it being small, it was a great transaction for AM and just built on top of the Crestwood transaction as well.
That makes sense. Maybe on that last piece, you’ve talked through a couple different opportunities you’ve had to save CapEx so far on the compression side. You talked about a little bit of that on the Crestwood deal. You have this one. You found some of your own kind of opportunities internally. Wondering if you could just kind of frame all of that up for us? And maybe talk about what that means for either ‘23 or maybe 24 CapEx versus what your original plan would have been, let's say, 2‘years ago? Maybe just altogether kind of putting together the magnitude of that in terms of overall capital savings.
Yes. And I would say that the comments I gave, some of this we continue to evaluate, and so you do – we’d like to think there will be additional opportunities. But in terms of what we’ve identified already, we’ll have about $50 million of capital savings over the 5 years as a result of reuse. Near term, call it, ‘23 and ‘24 is about $20 million of that $50 million. But again, we’ll continue to evaluate and look for opportunities. You’re able to buy these assets at attractive values to us and the unutilized piece kind of comes with that. So we’re always looking to just redeploy and invest capital in the most efficient manner we can.
We reach the end of our question-and-answer I'd like to turn the floor back over for any further or closing comments.
Yes, thank you for the time today. Please reach out if there's any further questions. Thank you.
Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.