$6.70
$21.50
bear $6.70
base $14.80
bull $21.50
margin of safety $9.00
market price* $20.64
Antero Midstream owns the pipelines, compressors and water systems that move gas and fresh water for Antero Resources in the Marcellus and Utica shale of West Virginia, Pennsylvania and Ohio. It is paid fixed fees per Mcf of gas gathered or compressed and per barrel of water, adjusted each year for inflation (CPI). Nearly all revenue comes from that one customer, which has dedicated substantially all of its roughly 537,000 net acres to the company. That concentration is the central risk and the central strength. What the business earns. We measure earnings as cash from operations, less working-capital swings, less stock compensation, less the part of capital spending needed just to stay in place. On that basis, earnings per share were $0.96 (2021), $0.79 (2022), $1.23 (2023), $1.33 (2024) and $1.54 (2025). 2021 and 2022 were held down by heavy spending on new lines and water systems for Antero Resources' drilling. We anchor on the 2023-2025 median of $1.33, because spending has since settled at $160-185 million a year and the 2026 budget is $190-220 million. 2019 is excluded because the merger that formed today's company closed in March of that year. Growth check: earnings per share grew 15% in 2025, largely from lower spending and 10% higher operating cash flow; our first-year assumption is 2%, below that, so nothing needs to reverse for the base case to hold. Operating cash flow for the first half of 2026 was $493 million versus $464 million a year earlier (+6%), consistent with the anchor being conservative. What changed in 2026. In February 2026 the company closed a $1.1 billion purchase of gathering and water assets in West Virginia (HG Midstream) and sold its Ohio Utica midstream assets for about $400 million. Net debt at June 30, 2026 was about $3.6 billion. The filing does not quantify the earnings from the acquired assets, so we credit no earnings uplift for it beyond what has already shown up in reported cash flow; we also do not credit management's expectation of high-single-digit earnings growth in 2027. A one-time $371 million settlement received in July 2026 is excluded from earnings. Fresh-water deliveries fell 16% in the second quarter of 2026 while gathering volumes rose 19%. Base case, $14.80 per share. Earnings start at $1.33 and grow 2% a year, which is the contractual inflation adjustment, through 2038, when the main gathering agreement's initial term ends (its minimum-volume protections end in 2035; the water agreement runs to 2035 and has no minimum volumes). After 2038 we fade the earnings to zero over ten years, because nothing named in the filings secures them beyond that, although wells keep producing and the same lines keep serving them. Taxes are a real issue: the company recorded about $149 million of deferred tax expense in 2025 and holds $557 million of federal loss carryforwards, so it currently pays very little cash tax. We assume about half of that deferred amount (roughly $0.15 per share) becomes cash tax from 2031. Bear case, $6.70. Earnings fall to $0.95, roughly the weakest results in our window, and stay flat with no growth. Cash tax rises to the full deferred amount (about $0.31 per share) from 2030, and the cash flows stop when the main agreement's term ends in 2038 with no renewal. Supporting facts: Antero Resources may sell dedicated acreage free of dedication up to the amount it has acquired, the water agreement has no minimum volumes, and debt of about $3.25 billion at year-end 2025 plus the new acquisition financing leaves less room for a bad stretch. Bull case, $21.50. Earnings start at $1.55, the level actually reached in 2025, grow 3% a year through 2038 (inflation adjustment plus more than 400 undeveloped Marcellus locations that came with the HG assets, which management says add about five years of drilling inventory), pay no meaningful cash tax, and fade over fifteen years after 2038 instead of ten. What we left out: growth from new drilling by Antero Resources, new pipelines such as the East Side Express, margin improvement, and management's 2027 targets, because none of these is contracted or a repeated result at a steady pace. What would make this wrong: Antero Resources sharply cutting drilling or shifting volumes elsewhere, the main contract not continuing past 2038, or cash taxes arriving faster than we assume. The company also has notes called or maturing in 2028-2034 that will need refinancing at prevailing rates. The margin-of-safety price is $9.00: about 40% under our base value and a little above the bear case, reflecting single-customer dependence, higher leverage and the tax uncertainty.