- Generated third quarter net income of $83.7 million,
representing a 94% increase year-over-year, and Adjusted EBITDA1 of
$265.7 million, a 23% increase in Adjusted EBITDA1
year-over-year
- Raising the Company’s 2024 Adjusted EBITDA1 Guidance range to
$970 million to $1 billion and tightening Capital Expenditures2
Guidance range to $270 million to $290 million
- Increased quarterly cash dividend to $0.78 per share for the
third quarter ended September 30, 2024, up 4% versus the prior
quarterly dividend
- Acquired an additional equity interest in EPIC Crude Holdings,
LP (“EPIC Crude”), bringing the Company’s ownership interest
to 27.5%, in a series of transactions with Diamondback Energy that
position EPIC Crude for long-term success
- Announcing a new large diameter, high-pressure pipeline to
connect the Company’s Delaware North and Delaware South systems,
providing a highly capital efficient solution to flow more than 150
Mmcf/d of rich gas south and optimize system processing
capacity
Kinetik Holdings Inc. (NYSE: KNTK) (“Kinetik” or the
“Company”) today reported financial results for the quarter
ended September 30, 2024.
Third Quarter 2024 Results and
Commentary
For the three and nine months ended September 30, 2024, Kinetik
reported net income including noncontrolling interest of $83.7
million and $228.0 million, respectively.
Kinetik generated Adjusted EBITDA1 of $265.7 million and $733.6
million, Distributable Cash Flow1 of $184.2 million and $501.6
million, and Free Cash Flow1 of $164.7 million and $377.7 million
for the three and nine months ended September 30, 2024,
respectively.
For the three months ended September 30, 2024, Kinetik processed
natural gas volumes of 1.71 Bcf/d, a 15% increase
year-over-year.
“Kinetik reported a record breaking third quarter that exceeded
all expectations,” said Jamie Welch, Kinetik’s President &
Chief Executive Officer. “Adjusted EBITDA1 increased 23%
year-over-year. Our Midstream Logistics segment benefited from a
full quarter from our New Mexico assets with the system operating
at full capacity as well as strong run times and performance at our
Texas assets. The outperformance demonstrated is even more
significant given nearly 170 Mmcf/d of wellhead gas volume
curtailments on our system in response to low Waha Hub prices.
Strength at our Pipeline Transportation segment reflected
contributions from the Permian Highway Pipeline Expansion and
Delaware Link, as well as our now increased ownership of EPIC
Crude.”
“In September, we announced a series of transactions with
Diamondback Energy and EPIC Midstream to strengthen the financial
profile of EPIC Crude. Immediately following the transactions, EPIC
Crude launched and completed a Term Loan B refinancing, which was a
key component to the overall transformation. We are pleased with
the outcome of the refinancing as it significantly reduces interest
expense and positions the business to start distributions to
partners in 2025. Also in September, Kinetik received approval from
the US Environmental Protection Agency (“EPA”) for the
Monitoring, Reporting and Verification (“MRV”) Plan for
three Class II Acid Gas Injection (“AGI”) wells at our
Maljamar and Dagger Draw processing facilities. This is only the
fourth MRV Plan approved in the state of New Mexico and eighth in
the Permian Basin. The MRV Plan enables Kinetik to economically
benefit from sequestered carbon dioxide (“CO2”) through 45Q
tax credits.”
“The Operations and Commercial teams have been progressing
project construction in Lea and Eddy Counties, New Mexico and
commercializing the build out and expansion of our Kings Landing
Processing Complex. Our Operations team remains highly focused on
the construction of Kings Landing Cryo I. Its in-service is
critical for our customers in the region, and we expect it to
commence operations in the second quarter of 2025. We have also
continued our track record of cost discipline, which gives us
confidence to tighten our 2024 Capital Expenditures2 Guidance range
to $270 million to $290 million. Following our decision to purchase
long-lead critical path components required for an expansion of the
Kings Landing Processing Complex, the Commercial team has been very
active with current and prospective customers, and we plan to make
a final investment decision as soon as possible given the
processing capacity needed to facilitate producer development plans
in the Northern Delaware.”
Welch continued, “As we look to close out a strong year, we are
increasing our Adjusted EBITDA1 Guidance range to $970 million to
$1 billion with an internal focus to achieve the top end of that
range. Employees are aligned on this objective, and I am incredibly
proud of our team’s dedication and focus on execution as we strive
together to reach this goal. Our outperformance year-to-date
coupled with the large Lea County customer MVC step-up and treating
services commencing and the return of curtailed volumes during the
fourth quarter puts what was once a medium-term goal now within
immediate reach.”
“The increased confidence in Kinetik’s outlook and the
achievement of our 3.5x leverage target underscored the Board of
Directors’ decision to raise the quarterly cash dividend. We remain
committed to a balanced capital allocation approach that maximizes
shareholder value and provides both flexibility for opportunistic
organic and inorganic capital deployment, as well as continued
acceleration of returns to shareholders through annual ratable
dividend growth.”
Financial
- Achieved quarterly net income of $83.7 million and Adjusted
EBITDA1 of $265.7 million.
- Revised the Company’s 2024 Adjusted EBITDA1 Guidance increasing
the range to $970 million to $1 billion, implying nearly 20% growth
at the revised midpoint year-over-year.
- Tightened the Company’s 2024 Capital Expenditures2 Guidance
range to $270 million to $290 million.
- Exited the quarter with a Leverage Ratio1,3 per the Company’s
Credit Agreement of 3.2x and a Net Debt to Adjusted EBITDA1,4 Ratio
of 3.6x.
- Received $30 million deferred cash payment in the quarter from
an affiliate of ArcLight Capital Partners LLC following final
investment decision on the Gulf Coast Express Pipeline capacity
expansion project.
Selected Key Metrics
Three Months Ended September
30,
Nine Months Ended September
30,
2024
2024
(In thousands, except
ratios)
Net income including noncontrolling
interest5
$
83,654
$
228,009
Adjusted EBITDA1
$
265,683
$
733,644
Distributable Cash Flow1
$
184,158
$
501,575
Dividend Coverage Ratio1,6
1.5x
1.4x
Capital Expenditures2
$
58,532
$
157,350
Free Cash Flow1
$
164,697
$
377,656
Leverage Ratio1,3
3.2x
Net Debt to Adjusted EBITDA Ratio1,4
3.6x
Common stock issued and outstanding7
157,534
September 30, 2024
June 30, 2024
March 31, 2024
(In thousands)
Net Debt1,8
$
3,436,562
$
3,423,251
$
3,537,244
Operational
- Increased equity interest in EPIC Crude to 27.5% and finalizing
a new transportation arrangement with EPIC Crude.
- Construction on the 200 Mmcf/d Kings Landing Cryo I in Eddy
County, New Mexico continues and is expected to be operational in
the second quarter of 2025.
- Progressing construction on the low- and high-pressure gas
gathering and processing project in Eddy County, New Mexico, which
is expected to begin in December 2024.
- MVC step-up and treating services commenced in November 2024
with an amended agreement with one of Kinetik’s largest customers
in Lea County, New Mexico.
- Announcing a new intrabasin large diameter, high-pressure rich
gas pipeline connecting the west side of the Company’s system in
Eddy County, New Mexico to Culberson County, Texas, with expected
in-service in the first quarter of 2026. The new pipeline will
provide flexibility to transport sweet gas volumes sourced from the
Northern Delaware to Kinetik’s Delaware South system, freeing up
processing capacity at its Delaware North system for additional
sour gas treating and processing. This project is a creative
modification of scope for our recently announced Eddy County
project without introducing incremental capital spend.
New Energy Ventures and
Sustainability
- Received approval from the EPA for the MRV Plan for the
Maljamar and Dagger Draw Gas Plants to inject Treated Acid Gas into
three AGI wells which will enable Kinetik to begin collecting 45Q
tax credits on sequestered CO2, supporting Kinetik’s broader
decarbonization efforts.
- Published 2023 Sustainability Report highlighting the Company’s
sustainability commitment, initiatives, progress, and achievements
throughout 2023.
- Kinetik reduced its Scope 1 and Scope 2 methane emissions
intensity in 2023 by 32% relative to its 2021 baseline year. As a
result, the Company achieved its Sustainability Linked Financing
Framework target and maintained its interest rate reduction in July
2024.
Upcoming Tour Dates
Kinetik plans to participate at the following upcoming
conferences and events:
- Bank of America Global Energy Conference in Houston on November
13th
- Mizuho Power, Energy & Infrastructure Conference in New
York on December 9th - 10th
- Wells Fargo Midstream, Energy & Utilities Symposium in New
York on December 10th - 11th
- Goldman Sachs Energy, CleanTech & Utilities Conference in
Miami on January 7th - 8th
- UBS Global Energy & Utilities Winter Conference in Deer
Valley on January 14th - 15th
Investor Presentation
An updated investor presentation will be available under Events
and Presentations in the Investors section of the Company’s website
at www.ir.kinetik.com.
Conference Call and
Webcast
Kinetik will host its third quarter 2024 results conference call
on Thursday, November 7, 2024 at 8:00 am Central Standard Time
(9:00 am Eastern Standard Time) to discuss third quarter results.
To access a live webcast of the conference call, please visit the
Investors section of Kinetik’s website at www.ir.kinetik.com. A
replay of the conference call also will be available on the website
following the call.
About Kinetik Holdings
Inc.
Kinetik is a fully integrated, pure-play, Permian-to-Gulf Coast
midstream C-corporation operating in the Delaware Basin. Kinetik is
headquartered in Midland, Texas and has a significant presence in
Houston, Texas. Kinetik provides comprehensive gathering,
transportation, compression, processing and treating services for
companies that produce natural gas, natural gas liquids, crude oil
and water. Kinetik posts announcements, operational updates,
investor information and press releases on its website,
www.kinetik.com.
Forward-looking
statements
This news release includes certain statements that may
constitute “forward-looking statements” for purposes of the federal
securities laws. Forward-looking statements include, but are not
limited to, statements that refer to projections, forecasts or
other characterizations of future events or circumstances,
including any underlying assumptions. The words “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intends,”
“may,” “might,” “plan,” “seeks,” “possible,” “potential,”
“predict,” “project,” “prospects,” “guidance,” “outlook,” “should,”
“would,” “will,” and similar expressions may identify
forward-looking statements, but the absence of these words does not
mean that a statement is not forward-looking. These statements
include, but are not limited to, statements about the Company’s
future business strategy and plans, expectations, and objectives
for the Company’s operations, including statements about strategy,
synergies, sustainability goals and initiatives, portfolio
monetization opportunities, expansion projects and future
operations, and financial guidance; growth opportunities; the
amount and timing of future shareholder returns; the Company’s
projected dividend amounts and the timing thereof; and the
Company’s leverage and financial profile. While forward-looking
statements are based on assumptions and analyses made by us that we
believe to be reasonable under the circumstances, whether actual
results and developments will meet our expectations and predictions
depend on a number of risks and uncertainties which could cause our
actual results, performance, and financial condition to differ
materially from our expectations. See Part I, Item 1A. Risk Factors
in our Annual Report on Form 10-K for the year ended December 31,
2023. Any forward-looking statement made by us in this news release
speaks only as of the date on which it is made. Factors or events
that could cause our actual results to differ may emerge from time
to time, and it is not possible for us to predict all of them. We
undertake no obligation to publicly update any forward-looking
statement whether as a result of new information, future
development, or otherwise, except as may be required by law.
Additional information
Additional information follows, including a reconciliation of
Adjusted EBITDA, Distributable Cash Flow, Free Cash Flow, and Net
Debt (non-GAAP financial measures) to the GAAP measures.
Non-GAAP financial
measures
Kinetik’s financial information includes information prepared in
conformity with generally accepted accounting principles (GAAP) as
well as non-GAAP financial information. It is management’s intent
to provide non-GAAP financial information to enhance understanding
of our consolidated financial information as prepared in accordance
with GAAP. Adjusted EBITDA, Distributable Cash Flow, Free Cash
Flow, Dividend Coverage Ratio, Net Debt and Leverage Ratio are
non-GAAP measures. This non-GAAP information should be considered
by the reader in addition to, but not instead of, the financial
statements prepared in accordance with GAAP and reconciliations
from these results should be carefully evaluated. See
“Reconciliation of GAAP to Non-GAAP Measures” elsewhere in this
news release.
- A non-GAAP financial measure. See “Non-GAAP Financial Measures”
and “Reconciliation of GAAP to Non-GAAP Measures” for further
details.
- Net of contributions in aid of construction and returns of
invested capital from unconsolidated affiliates.
- Leverage Ratio is total debt less cash and cash equivalents
divided by last twelve months Adjusted EBITDA, calculated in the
Company’s credit agreement. The calculation includes EBITDA
Adjustments for Qualified Projects, Acquisitions and
Divestitures.
- Net Debt to Adjusted EBITDA Ratio is defined as Net Debt
divided by last twelve months Adjusted EBITDA.
- Net income including noncontrolling interest for the three and
nine months ended September 30, 2023 was $43.1 million and $119.1
million, respectively.
- Dividend Coverage Ratio is Distributable Cash Flow divided by
total declared dividends.
- Issued and outstanding shares of 157,534,469 is the sum of
59,751,435 shares of Class A common stock and 97,783,034 shares of
Class C common stock. Excludes 7,680,492 million shares of Class C
common stock to be issued on July 1, 2025 in connection with the
Durango Permian acquisition.
- Net Debt is defined as total current and long-term debt,
excluding deferred financing costs, less cash and cash
equivalents.
KINETIK HOLDINGS INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024
2023
2024
2023
(In thousands, except per
share data)
Operating revenues:
Service revenue
$
103,100
$
104,349
$
301,710
$
310,325
Product revenue
290,423
221,280
787,092
586,534
Other revenue
2,839
4,672
8,411
10,685
Total operating revenues
396,362
330,301
1,097,213
907,544
Operating costs and expenses:
Costs of sales (exclusive of depreciation
and amortization shown separately below) (1)
144,586
147,756
444,786
374,100
Operating expenses
55,804
42,925
143,278
118,804
Ad valorem taxes
5,896
5,607
18,400
14,954
General and administrative expenses
29,619
22,751
94,846
73,131
Depreciation and amortization expenses
87,583
69,935
236,250
208,271
Loss on disposal of assets
—
2,927
4,090
15,166
Total operating costs and expenses
323,488
291,901
941,650
804,426
Operating income
72,874
38,400
155,563
103,118
Other income (expense):
Interest and other income
1,872
289
2,272
1,625
Loss on debt extinguishment
—
—
(525
)
—
Gain on sale of equity method
investment
29,953
—
89,837
—
Interest expense
(66,029
)
(45,009
)
(167,545
)
(130,443
)
Equity in earnings of unconsolidated
affiliates
53,244
50,754
169,668
146,828
Total other income, net
19,040
6,034
93,707
18,010
Income before income taxes
91,914
44,434
249,270
121,128
Income tax expense
8,260
1,303
21,261
2,030
Net income including noncontrolling
interest
83,654
43,131
228,009
119,098
Net income attributable to Common Unit
limited partners
57,891
27,551
153,504
77,068
Net income attributable to Class A Common
Stock Shareholders
$
25,763
$
15,580
$
74,505
$
42,030
Net income attributable to Class A Common
Shareholders, per share
Basic
$
0.35
$
0.21
$
1.03
$
0.58
Diluted
$
0.35
$
0.21
$
1.02
$
0.57
Weighted-average shares
Basic
59,811
53,340
59,116
50,464
Diluted
60,424
53,463
59,852
50,719
(1) Cost of sales (exclusive of depreciation and amortization)
is net of gas service revenues totaling $60.2 million and $38.6
million for the three months ended September 30, 2024 and 2023,
respectively, and $159.4 million and $107.1 million for the nine
months ended September 30, 2024 and 2023, respectively, for certain
volumes, where we act as principal.
KINETIK HOLDINGS INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024
2023
2024
2023
(In thousands)
Net Income Including Noncontrolling
Interests to Adjusted EBITDA
Net income including noncontrolling
interest (GAAP)
$
83,654
$
43,131
$
228,009
$
119,098
Add back:
Interest expense
66,029
45,009
167,545
130,443
Income tax expense
8,260
1,303
21,261
2,030
Depreciation and amortization expenses
87,583
69,935
236,250
208,271
Amortization of contract costs
1,655
1,655
4,965
4,965
Proportionate EBITDA from unconsolidated
affiliates
88,229
78,585
262,553
224,933
Share-based compensation
15,171
12,502
52,868
43,340
Loss on disposal of assets
—
2,927
4,090
15,166
Loss on debt extinguishment
—
—
525
—
Commodity hedging unrealized (gain)
loss
(8,817
)
8,259
(1,935
)
616
Contingent liability fair value
adjustment
1,400
—
1,400
—
Integration costs
2,540
21
5,091
985
Acquisition transaction costs
31
378
3,538
648
Other one-time costs or amortization
3,717
2,662
8,448
7,545
Deduct:
Interest income
572
293
1,459
314
Warrant valuation adjustment
—
(4
)
—
73
Gain on sale of equity method
investment
29,953
—
89,837
—
Equity income from unconsolidated
affiliates
53,244
50,754
169,668
146,828
Adjusted EBITDA(1) (non-GAAP)
$
265,683
$
215,324
$
733,644
$
610,825
Distributable Cash Flow(2)
Adjusted EBITDA (non-GAAP)
$
265,683
$
215,324
$
733,644
$
610,825
Proportionate EBITDA from unconsolidated
affiliates
(88,229
)
(78,585
)
(262,553
)
(224,933
)
Returns on invested capital from
unconsolidated affiliates
71,028
69,661
223,670
205,891
Interest expense
(66,029
)
(45,009
)
(167,545
)
(130,443
)
Unrealized loss (gain) on interest rate
derivatives
12,336
(7,835
)
2,770
(27,481
)
Maintenance capital expenditures
(10,631
)
(5,503
)
(28,411
)
(15,065
)
Distributable cash flow
(non-GAAP)
$
184,158
$
148,053
$
501,575
$
418,794
Free Cash Flow(3)
Distributable cash flow (non-GAAP)
$
184,158
$
148,053
$
501,575
$
418,794
Cash interest adjustment
27,401
12,378
(1,994
)
(7,953
)
Realized gain on interest rate swaps
3,994
4,665
11,899
7,082
Growth capital expenditures
(49,840
)
(78,732
)
(130,253
)
(240,640
)
Capitalized interest
(2,955
)
(6,731
)
(4,885
)
(13,776
)
Investments in unconsolidated
affiliates
—
(43,795
)
(3,273
)
(194,125
)
Returns of invested capital from
unconsolidated affiliates
1,549
—
2,789
5,793
Contributions in aid of construction
390
967
1,798
7,839
Free cash flow (non-GAAP)
$
164,697
$
36,805
$
377,656
$
(16,986
)
KINETIK HOLDINGS INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES (CONTINUED)
Nine Months Ended September
30,
2024
2023
(In thousands)
Reconciliation of net cash provided by
operating activities to Adjusted EBITDA
Net cash provided by operating
activities
$
493,356
$
405,585
Net changes in operating assets and
liabilities
24,981
24,604
Interest expense
167,545
130,443
Amortization of deferred financing
costs
(5,497
)
(4,601
)
Current income tax expense
1,528
355
Returns on invested capital from
unconsolidated affiliates
(223,670
)
(205,891
)
Proportionate EBITDA from unconsolidated
affiliates
262,553
224,933
Derivative fair value adjustment and
settlement
(835
)
25,917
Commodity hedging unrealized (gain)
loss
(1,935
)
616
Interest income
(1,459
)
(314
)
Integration costs
5,091
985
Acquisition transaction costs
3,538
648
Other one-time cost or amortization
8,448
7,545
Adjusted EBITDA(1) (non-GAAP)
$
733,644
$
610,825
Distributable Cash Flow(2)
Adjusted EBITDA (non-GAAP)
$
733,644
$
610,825
Proportionate EBITDA from unconsolidated
affiliates
(262,553
)
(224,933
)
Returns on invested capital from
unconsolidated affiliates
223,670
205,891
Interest expense
(167,545
)
(130,443
)
Unrealized loss (gain) on interest rate
derivatives
2,770
(27,481
)
Maintenance capital expenditures
(28,411
)
(15,065
)
Distributable cash flow
(non-GAAP)
$
501,575
$
418,794
Free Cash Flow(3)
Distributable cash flow (non-GAAP)
$
501,575
$
418,794
Cash interest adjustment
(1,994
)
(7,953
)
Realized gain on interest rate swaps
11,899
7,082
Growth capital expenditures
(130,253
)
(240,640
)
Capitalized interest
(4,885
)
(13,776
)
Investments in unconsolidated
affiliates
(3,273
)
(194,125
)
Returns of invested capital from
unconsolidated affiliates
2,789
5,793
Contributions in aid of construction
1,798
7,839
Free cash flow (non-GAAP)
$
377,656
$
(16,986
)
KINETIK HOLDINGS INC.
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES (CONTINUED)
September 30,
June 30,
March 31,
2024
2024
2024
(In thousands)
Net Debt(4)
Short-term debt
$
150,000
$
148,800
$
—
Long-term debt, net
3,279,689
3,258,403
3,517,115
Plus: Debt issuance costs, net
27,311
28,597
29,885
Total debt
3,457,000
3,435,800
3,547,000
Less: Cash and cash equivalents
20,438
12,549
9,756
Net debt (non-GAAP)
$
3,436,562
$
3,423,251
$
3,537,244
(1) Adjusted EBITDA is defined as net income including
non-controlling interests adjusted for interest, taxes,
depreciation and amortization, impairment charges, asset
write-offs, the proportionate EBITDA from unconsolidated
affiliates, equity in earnings from unconsolidated affiliates,
share-based compensation expense, non-cash increases and decreases
related to trading and hedging agreements, extraordinary losses and
unusual or non-recurring charges. Adjusted EBITDA provides a basis
for comparison of our business operations between current, past and
future periods by excluding items that we do not believe are
indicative of our core operating performance. Adjusted EBITDA
should not be considered as an alternative to the GAAP measure of
net income including non-controlling interest or any other measure
of financial performance presented in accordance with GAAP.
(2) Distributable Cash Flow is defined as Adjusted EBITDA,
adjusted for the proportionate EBITDA from unconsolidated
affiliates, returns on invested capital from unconsolidated
affiliates, interest expense, net of amounts capitalized,
unrealized gains or losses on interest rate derivatives and
maintenance capital expenditures. Distributable Cash Flow should
not be considered as an alternative to the GAAP measure of net
income including non-controlling interest or any other measure of
financial performance presented in accordance with GAAP. We believe
that Distributable Cash Flow is a useful measure to compare cash
generation performance from period to period and to compare the
cash generation performance for specific periods to the amount of
cash dividends we distribute.
(3) Free Cash Flow is defined as Distributable Cash Flow
adjusted for growth capital expenditures, investments in
unconsolidated affiliates, returns of invested capital from
unconsolidated affiliates, cash interest, capitalized interest,
realized gains or losses on interest rate derivatives and
contributions in aid of construction. Free Cash flow should not be
considered as an alternative to the GAAP measure of net income
including non-controlling interest or any other measure of
financial performance presented in accordance with GAAP. We believe
that Free Cash Flow is a useful performance measure to compare cash
generation performance from period to period and to compare the
cash generation performance for specific periods to the amount of
cash dividends that we distribute.
(4) Net Debt is defined as total current and long-term debt,
excluding deferred financing costs, premiums and discounts, less
cash and cash equivalents. Net Debt illustrates our total debt
position less cash on hand that could be utilized to pay down debt
at the balance sheet date. Net Debt should not be considered as an
alternative to the GAAP measure of total long-term debt, or any
other measure of financial performance presented in accordance with
GAAP.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241106076851/en/
Kinetik Investors: (713) 574-4743 Alex Durkee Website:
www.kinetik.com
Kinetik (NYSE:KNTK)
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Kinetik (NYSE:KNTK)
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From Feb 2024 to Feb 2025
