Antero Resources Corp. (NYSE: AR) said Oct. 9 it will consolidate its midstream affiliate into a simplified corporate structure the Appalachia shale producer anticipates will fuel share buybacks.

Antero Midstream Partners LP (NYSE: AM) and its general partner, Antero Midstream GP LP (NYSE: AMGP), are set to combine through the acquisition of all outstanding AM units held by the public and Antero Resources in a stock and cash transaction.

As part of the agreement, the combined midstream entity will then convert into a corporation and upon closing of the transaction, expected first-quarter 2019, emerge under the new moniker of Antero Midstream Corp.

Antero’s simplification transaction comes months after other companies made similar moves due to a change in tax policy by the U.S. Federal Energy Regulatory Commission (FERC) that removed certain benefits for MLPs earlier this year. In response to the changes, pipeline operator Enbridge Inc. (NYSE: ENB) released a statement in May that said under the new FERC tax policy, “holding certain interstate pipelines in MLP structures is highly unfavorable to unitholders and is no longer advantageous.”

Antero Family Simplified Pro Forma Structure (Source: Antero Resources Corp.)

Analysts with Capital One Securities Inc. viewed Antero’s transaction as a positive for both the E&P and its midstream affiliate.

Under terms of the simplification agreement, Antero Resources will receive a combination of $3 cash and 1.6023 shares of new Antero Midstream stock for each AM unit owned. The company currently holds 98.9 million of the 188.1 million outstanding units in Antero Midstream Partners.

In total, Antero Resources is expecting to receive roughly $300 million in cash proceeds, which it will use to partly fund a new $600 million share buyback program launched Oct. 9.

“Antero Resources keeps all the benefits of a 31% owner in the new midstream company” plus will receive cash proceeds to help support its share buyback program, Capital One analysts said in the firm’s research note on Oct. 9. The remainder of the share repurchase program will be funded through free cash flow expected to be generated over the next 12 to 18 months.

Antero Resources Asset Map (Source: Antero Resources Corp.)

Public unitholders will receive $3.415 in cash and 1.635 shares of new Antero Midstream stock per unit and can elect to receive all cash, all stock or a combination of both.

Antero Resources will also have the option to receive a larger portion of cash or stock consideration based on public holders’ decision to ensure Antero Midstream unitholders receive about $598 million in total cash consideration.

For Antero Midstream, the simplification will eliminate all incentive distribution rights and series B units, “aligning economic interests across the Antero enterprise,” Capital One analysts said.

Antero projects the simplification transaction will drive PV-10 value tax savings of about $800 million and double-digit accretion for Antero Midstream Partners and its general partner on a discounted cash flow per share basis through 2022.

“The new Antero Midstream will remain focused on top-tier dividend growth, low leverage, and return on invested capital,” Capital One analysts said.

Paul Rady, Antero’s co-founder, chairman and CEO, described the company’s midstream simplification transaction as a “win-win-win” for the Antero family.

Antero Midstream Asset Map (Source: Antero Midstream Partners LP)

“By maintaining our integrated structure, we continue to hold a competitive advantage as we develop our core liquids Appalachian Basin assets in a coordinated effort alongside our midstream provider, Antero Midstream Corp.,” Rady said in a statement. “We remain focused on executing on our five-year development plan announced at the January analyst day as Antero joins an elite group of E&Ps with scale, attractive production growth, low leverage and free cash flow generation.”

Antero Resources holds a 620,000 net-acre position with 3,295 core drilling locations across the Marcellus and Utica shale plays in the Appalachian Basin. The company’s estimated net production for 2018 is about 2.7 billion cubic feet equivalent per day.

Vinson & Elkins is legal adviser to Antero Midstream GP, Antero Midstream Partners and Antero Resources for the transaction. J.P. Morgan Securities LLC is financial adviser to Antero Resources. Baird is financial adviser to the special committee of Antero Resources and Sidley Austin LLP is the committee’s legal adviser.

Goldman Sachs is financial adviser to the conflicts committee of Antero Midstream GP and Hunton Andrews Kurth is the committee’s legal adviser. Richards, Layton & Finger acted as Delaware counsel to the conflicts committee of Antero Midstream GP.

Morgan Stanley & Co. LLC is financial adviser to Antero Midstream Partners. Tudor, Pickering, Holt & Co. is financial adviser to the conflicts committee of Antero Midstream Partners and Gibson, Dunn & Crutcher LLP is the committee’s legal adviser.

Emily Patsy can be reached at