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Antero Midstream GP LP (NYSE:AM)
Q3 2019 Earnings Call
Oct 30, 2019, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Antero Midstream Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] 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.

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Thank you for joining us for Antero Midstream's third 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'd 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.

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 Chief Execuitve Officer

Thanks, Mike, I'd like to start by discussing the expensive cost savings efforts under way 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 items throughout the company. Through this comprehensive review, we've identified the potential to remove $250 million from AR's overall cost structure in 2020 alone. As detailed on Slide number 3 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 million of D&C capex savings and $60 million 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&C capex budget of $1.15 billion to $1.2 billion 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 million 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&A, or approximately $14 million of savings in 2020 from natural employee attrition and overall G&A reductions.

Now let's move to Page 4 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 $1.2 million to $1.7 million 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 million per well.

The savings already achieved are substantially ahead of our previous second half 2020 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 industrywide 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 million impairment of the facility. While we are disappointed in the outcome, we remain focused on developing new opportunities such as blending and other flowback and produced water initiatives that reduced the overall cost structure at AR. This in turn supports the sustainable development at AR that underpins the long-term growth at AM, particularly at a lower-for-longer commodity price environment.

Slide number 3 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 first half of 2019. The downward trend in cost per barrel shown on this 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 cost by over $4.50 a barrel compared to the first quarter of 2019. While the EBITDA contributions from blending operations is not material to AM's overall portfolio, it is a critical business for AM's supporting AR and driving down costs.

Now let's move on to the discussion of our prime -- of our preliminary 2020 capital budget on Slide 6 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 million to $425 million in 2020 or a 40% reduction compared to the midpoint of the updated 2019 capital budget of $665 million to $685 million.

Looking at our processing investments, in the joint venture with MPLX, we have already invested a majority of the capital for our Sherwood 12 and 13, which adds 400 million cubic feet a day of combined processing capacity in the fourth quarter of 2019. This increase in processing capacity at Sherwood, along with one expected plant in the new Smithburg site in mid-2020, supports Antero's 2020 production growth without a significant amount of incremental processing capital investment.

AM's capital flexibility, in addition to its visibility and to 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 number 7 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 $2.80 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 as following the incident in Saudi Arabia.

As depicted on Slide number 8 titled C3+ NGL hedges capturing recent pricing strength, AR is currently 50% hedged of C3+ NGL volumes for the fourth quarter and 28% hedged in calendar 2020. 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.

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Thank you, Paul. I'll begin my AM comments by highlighting the recently announced AM cash dividend of $0.3075 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 19th consecutive distribution declared since the IPO of Antero Midstream Partners in 2014.

In addition, during the third quarter, we commenced our $300 million share repurchase program and repurchased 3.5 million shares for approximately $25 million, which equates to $0.05 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 9 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 50-50 joint venture gross processing volumes averaged 2 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. Fresh water 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 fresh water delivery volumes as compared to the third quarter of 2019. AR remains on track to achieve the volumetric targets for the first $125 million earn-out payment from AM that's expected to be paid in the first quarter of 2020.

Moving on to financial results, adjusted EBITDA for the third quarter was $218 million, 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 million, resulting in a DCF coverage ratio of 1.1 times. Antero Midstream invested $135 million in gathering, compression, water infrastructure in the processing and fractionation JV during the third quarter. Gathering, compression and water infrastructure capital investments totaled $121 million and investments in the JV totaled $14 million.

Moving on to balance sheet and liquidity, as of September 30th, 2019, Antero Midstream had $726 million drawn on its $2.1 billion revolving credit facility. In October, we added an additional lender to our revolving credit facility resulting in $134 million of incremental commitments, bringing our total liquidity to $1.4 billion. 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 just-in-time gathering, processing and fresh water delivery projects, capital saving initiatives and the removal of the final Antero Clearwater Facility milestone payment, we lowered our capital budget to a range of $665 million to $685 million from $750 million to $800 million .

Reduction in capital more than offsets the decrease in our adjusted EBITDA guidance, resulting in a net positive cash flow impact of approximately $50 million at the midpoint of the guidance ranges. The reduction in EBITDA guidance is primarily driven by the idling of the Ontario Clearwater facility and includes an additional $10 million to $15 million 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.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Holly Stewart with Scotia Howard Weil. Please proceed with your question.

Holly Stewart -- Scotia Howard Weil -- Analyst

Good morning, gentlemen.

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Good morning.

Paul Rady -- Chairman and Chief Execuitve Officer

Good morning, Holly.

Holly Stewart -- Scotia Howard Weil -- Analyst

Mike, maybe the first question just on the 2020 capex number. I think last quarter you mentioned something in kind of that $600 million 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 changed for 2020. Was there something else that you were able to reduce that infrastructure spend?

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Yeah. I think you could see it on that map that's in our presentation. We're really focusing on the development in the Tyler County area with all the blending of the water. It really helps AR's cost structure to kind of just drill that next pad over. So really just focusing on that Tyler area and not expanding out into the Wetzel County really eliminate a lot of capital. Also Clearwater -- not having any Clearwater Capital in 2020 is beneficial. And then we highlighted that Sherwood 12 and 13 just came on in the fourth quarter of this year, so you have ample processing capacity to grow into. So, kind of focus on Tyler County and then having processing capacity and not having Clearwater really drove those capital reductions by about $200 million.

Holly Stewart -- Scotia Howard Weil -- Analyst

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

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Exactly. Well, it's gradually built out from our Tyler County position, it really is very efficient just to kind of do pad by pad development mowing the lawn out toward Wetzel County is our plan.

Holly Stewart -- Scotia Howard Weil -- Analyst

Okay. Okay. And then, on -- we began the repurchase program. How should we think about that? Is that going to be systematic lumpy? Just trying to get a sense for how we should allocate that capital.

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Yeah, it will be opportunistic. You saw we bought back $25 million worth about 3.5 million shares in September. We've kind of -- we've got a $300 million program. It is obviously beneficial to buy back earlier rather than later, so that you can get those shares and then 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 $100 million to play with. So we plan on buying back that amount over the next couple of quarters.

Holly Stewart -- Scotia Howard Weil -- Analyst

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

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

No, there are none.

Holly Stewart -- Scotia Howard Weil -- Analyst

Okay.

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

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

Holly Stewart -- Scotia Howard Weil -- Analyst

Got it. Thanks, guys.

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Thanks, Holly.

Operator

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

Jeremy Tonet -- JPMorgan -- Analyst

Hi, good morning. Just want to follow up with the capex side of the equation here. You 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 for that to argue there's not a lot of capex that's left, but then there's other areas that you could expand through, I think, as you just touched on with Holly 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?

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Yeah. We talked about -- we had a $2 billion backlog, and the initial cadence of that was $750 million to $800 million this year. We've obviously reduced that to to $665 million to $685 million, and then we thought around $600 million next year and that's down to $400 million, and then the subsequent years after that were like $400 million and then $200 million. Looking out now with reduced net capital this year and next, that kind of puts the capital budgets in '21, '22 and '23 in the $400 million to $500 million range. So kind of just evens everything out around that kind of $400 million and a little bit over range over the next four years.

Jeremy Tonet -- JPMorgan -- Analyst

That's helpful. Thanks. And if I think about capital allocation here, just wondering -- you talked about the return of capital to equity holders. But with the 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?

Paul Rady -- Chairman and Chief Execuitve Officer

We really don't have any plans around that. The AM bonds have term on it. The first ones maturity is not until 2024, and then the next two are '27 and '28. So, I think the opportunities at AR that those bonds traded at a discount, plus the maturities there in '21 and '22 is a little more near term but at AM, we've got a really nice maturity schedule out there and we enjoy that term.

Jeremy Tonet -- JPMorgan -- Analyst

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 list in the last slide here is down a little bit versus what you had said before. Just wondered if you could provide a bit of color as far as the delta is that timing or is there anything else happening there?

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

I think it was just timing. The JV is definitely on schedule and with the -- we just put on Sherwood 12 and 13 in the fourth quarter, and those should be filled in the next couple of quarters. So it's definitely meeting expectations.

Jeremy Tonet -- JPMorgan -- Analyst

Right. That's it from me. Thanks.

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Thanks, Jeremy.

Operator

Thank you. Our next question comes from Crawford Kob with Tudor Pickering Holt. Please proceed with your question.

Crawford Kob -- Tudor Pickering Holt -- Analyst

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

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

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 thought around the AR. The AR 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, I'm trying to be opportunistic and taking some up then.

Crawford Kob -- Tudor Pickering Holt -- Analyst

Got. That makes sense. All right. That's it for me. Thanks guys.

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Thank you.

Operator

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

Kyle May -- Capital One Securities -- Analyst

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?

Paul Rady -- Chairman and Chief Execuitve Officer

Yeah. Go ahead, Mike.

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Yeah, no, I was going to kind of just run through some numbers here from our -- for our blending operations, it's about $7 million of capital to AM for the second half of 2019. In 2020, that capital is about $10 million to $15 million. That would generate an EBITDA really kind of starting in 2020 of $3 million to $4 million from the blending and then the trucking that actually occurs during that we get cost plus 3%, so that adds about $6 million to 7 million of EBITDA. So it will generate about $10 million of EBITDA, and that's all from the blending. Just to review from the Clearwater side, Clearwater had a couple million dollars of EBITDA this year, but it was costing about $10 million a quarter in capital, so it's actually consuming about $8 million of net cash flows.

So, not having that continuing after the fourth quarter is obviously beneficial for AM, and then you add in this blending opportunity for us. So, the water initiatives are going to improve AM definitely in '20 versus 2019.

Kyle May -- Capital One Securities -- Analyst

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

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Thanks, Kyle.

Operator

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

Ethan Bellamy -- Robert W. Baird -- Analyst

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

Glen Warren -- President and Director

That's one of many discussions we're having, I think, Ethan, that we have to think about the overall Antero family there. So, if something were done, it needs to be favorable 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 AM. And and historically by not doing anything, that's been tough overall for AR and then there is a flow-through negativity to AM.

So, there is room for something to happen there, but it's just one of -- gosh, half a dozen different parties. We're having those discussions with around sort of amend and extend type discussions and otherwise. So, it's just one of many and it's hard to handicap whether or not anything happens with any particular one at this point, but hopefully we get something done with the majority of those.

Ethan Bellamy -- Robert W. Baird -- Analyst

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?

Glen Warren -- President and Director

There you hit it. I can kind of give you a year-over-year comparison, Ethan. The low pressure is very similar in 2020 to 2019. The compression you're actually spending quite a bit less than 2020, we put a lot of compression on this year definitely up in that Tyler County. So you're spending about $90 million less in compression in 2020 versus 2019. High pressure is somewhat similar, fresh water infrastructure you're down about $40 million 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 million 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 $100 million. We spent $175 million this year. We're thinking it's $80 million to $90 million next year, that does even indeed have the Hopedale 5 election and for the fractionation. So it even includes that. So, quite a bit less spend. We did just put on, as I mentioned, Sherwood 12 and 13. So I think you only have one processing plant in the budget for next year.

Ethan Bellamy -- Robert W. Baird -- Analyst

And remind me the governance of that JV, who controls the spending there?

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

It's a joint JV, it's 50-50.

Paul Rady -- Chairman and Chief Execuitve Officer

Mutually agreed to, but Antero proposes what its growth plans are. And then it goes from there with partners planning what will be needed in what timeframe.

Ethan Bellamy -- Robert W. Baird -- Analyst

Okay. Last question, you've got a dividend yield at AM that is uncompetitive and uncompelling Assuming that the share price does not recover, 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 there at some point in the future where you're modeling AR and not necessarily needing the cash or allowing you the flexibility to change the dividend policy, if you wanted to do that.

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

We really haven't thought about changing the dividend. Obviously, we have an increase then and we don't plan on increasing, like I mentioned, the return on capital is going to come in the form of buying back shares. But when you actually look at our model, we highlighted that the trend of the capital going much lower, and then you have the EBITDA growth that kind of mirrors AR's growth plans. Your coverage goes up to the 1.2 to 1.3 range. So that's really not a profile that would lend itself to be reducing the dividend. You also kind of look out and '21-'22, the cash flow plus the dividend payout -- cash flow, excuse me, less the dividend, payout less the capital is about at parity, you're almost free cash flow after dividend.

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 that flat and then returning capital through buying back shares if it just stays down a piece low prices will just be opportunistic and get a lot of shares in

Ethan Bellamy -- Robert W. Baird -- Analyst

Okay. Thanks, Mike and Paul if you'll indulge me just one question, with respect to gas macro, you guys historically made an argument about decline rates leading to supply correction, which would improve price. Do you still see that or are we sort of in the doldrums but just early on that thesis. What are your thoughts right now?

Paul Rady -- Chairman and Chief Execuitve Officer

Yeah. And do we have a page of that in our presentation maybe on our website. And our website

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

presentation. Maybe in our website and 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 to the TETCO M2 price, but the big picture is that prices have been sliding, it's taken a little while that 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 from experience in the business that shelf-correcting on both sides, and on the high side gets shelf corrected on the low side and gets shelf corrected. So should see a fall-off in supply of course where that it takes a little while. There is a lag time. If you drill a well, you actually want to complete it before you back away and stop spending money. So. it's a little bit of lag time. What will be the pecking order? Well, the lease sensitive, of course, is -- or the pure oil plays as in the Permian Basin, so that the gas price is not material for them, but that's not that large of a proportion of the total gas supply 10 Bcf to 13 Bcf a day out of 90 plus. And so then, what are the -- the next least vulnerable well, it's the mixed -- in plays like Antero with liquid supporting the development. And then one gets to the dry gas basins. And I think many people who follow this have the more vulnerable ones on the list, you can already see rig counts dropping in some, and maybe it will happen in some others too.

So, do you see itself correcting? Meanwhile on the demand side, I've made the argument before that demand will be sticky year especially with LNG that the LNG shippers and off-takers are looking for 10 to 20-year contracts. And so, they only -- that gas once they put in the infrastructure much longer. So supply can fall off with gas prices, lower rig count while demand will increase once the infrastructure is sunk. So, I would say that it's just a matter of time as it has been for the last many downturns, and all investors are seeing that macro but wondering when. And so, for that -- obviously we all hope sooner the better.

Ethan Bellamy -- Robert W. Baird -- Analyst

Yes, sir. Thank you very much

Operator

Thank you. Our next question comes from Pat Sheehan with Bank of America. Please proceed with your question.

Gregg Brody -- Bank of America -- Analyst

Hi, guys. This is actually Gregg Brody, Pat called in for me.

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Good morning, Gregg.

Gregg Brody -- Bank of America -- Analyst

Hey, guys. Thanks for all the color and then obviously a big update today across the board with AR and AM. Just honing in on a few things. You mentioned AM and AR working together, and also the opportunity to take some of your transport -- possibly negotiate some of your transportation costs with other third parties. Help me think about how that plays out? Is it a [Indecipherable] net present volume neutral or is there possibility that in the case of AM it actually there is some shared payment, I guess?

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

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

Gregg Brody -- Bank of America -- Analyst

Got it. That's helpful. 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, I think, of $100 million over the next couple of quarters. Is that what we're supposed to think about when you talk about high single-digit growth of return on capital, but it's effectively $100 million you've allocated for 2020 for that?

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Yeah, the $100 million really that number comes from when, if you recall, Gregg, from our initial -- when the Board approved this share repurchase, it cannot 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%, and that's off of $600 million. So when you do math on that, what is that? $50 million to $60 million increase in dividends, that was kind of the initial pod you are 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, so that adds to the pod. So you kind of add that $50 million to $60 million plus dividends that you don't have to pay on the shares that you bought back and that's how you get to $100 million.

Gregg Brody -- Bank of America -- Analyst

Got it. You ran through the math that I was trying to figure out. All right. And then, maybe just one more here with just the Clearwater. So I think I heard you say on the call that this $10 million to $15 million expense for idling doesn't continue next year, but I'm just reading the 8-K you put out that says you're unable to estimate the cost thereafter. Is that how should I reconcile?

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

That kind of included that magnitude. There always could be some costs in 2020, but not $10 million to $15 million a quarter.

Gregg Brody -- Bank of America -- Analyst

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

Paul Rady -- Chairman and Chief Execuitve Officer

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

Gregg Brody -- Bank of America -- Analyst

All right, guys. Thank you for the time. I appreciate all of it.

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Sure. Thank you, Gregg.

Operator

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

Ned Baramov -- Wells Fargo Securities -- Analyst

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 interest and third-party acreage dedications, etc?

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Generally, the only real reconciling item, if you recall, Ned, is that we are on the eastern side kind of 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 actually declines. So when you actually hear about percentages for AR, you generally add about 1% or 2% for the gathering, compression, volumes and a little bit more than that on the processing for Antero Midstream's growth.

Ned Baramov -- Wells Fargo Securities -- Analyst

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

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

We don't have that exactly calculated, but it generally runs and it's not calculated this way. But if you look at our maintenance capital, it's generally in the 10% of the capital range. So, I think this quarter it's $30 million or something like that, so probably around $50 million, $60 million next year.

Ned Baramov -- Wells Fargo Securities -- Analyst

Got it. Thanks. That's all I have.

Operator

Thank 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.

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

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.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Michael Kennedy -- Senior Vice President of Finance and Chief Financial Officer

Paul Rady -- Chairman and Chief Execuitve Officer

Glen Warren -- President and Director

Holly Stewart -- Scotia Howard Weil -- Analyst

Jeremy Tonet -- JPMorgan -- Analyst

Crawford Kob -- Tudor Pickering Holt -- Analyst

Kyle May -- Capital One Securities -- Analyst

Ethan Bellamy -- Robert W. Baird -- Analyst

Gregg Brody -- Bank of America -- Analyst

Ned Baramov -- Wells Fargo Securities -- Analyst

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