Kinetik Holdings Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis addresses the results of our operations for the three month period ended March 31, 2022, as compared to our results of operations for the three month period ended March 31, 2021. In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods. The previously announced merger of ALTM and BCP and their respective consolidated subsidiaries closed on February 22, 2022. As the Transaction was determined to be a reverse merger, BCP was considered the accounting acquirer and ALTM was considered the legal acquirer. Therefore, BCP’s net assets, carrying at historical value, were presented as the predecessor to the Company’s historical financial statements and the comparable period presented herein reflects the results of operations of BCP for the three months ended March 31, 2021. The results of operations of ALTM is reflected within the Company’s Condensed Consolidated Financial Statements from the Closing Date through March 31, 2022. Unless otherwise noted or the context requires otherwise, references herein to Kinetik Holdings Inc.,“the Company”, “us”, “our”, “we” or similar terms, with respect to time periods prior to February 22, 2022 include BCP and its consolidated subsidiaries and do not include ALTM and its consolidated subsidiaries, while references herein to Kinetik Holdings Inc. with respect to time periods from and after February 22, 2022 include ALTM and its consolidated subsidiaries. The Transaction On February 22, 2022, the Company consummated the previously announced business combination transactions contemplated by the Contribution Agreement, dated as of October 21, 2021, by and among the Company, the Partnership, Contributor and BCP. Pursuant to the Contribution Agreement, in connection with the Closing, (i) Contributor contributed all of the equity interests in BCP and its consolidated subsidiaries, to the Partnership; and (ii) in exchange for such contribution, the Partnership issued 50,000,000 Common Units and the Company issued 50,000,000 shares of the Company’s Class C Common Stock to Contributor. The Company’s stockholders immediately prior to the Closing continued to hold their shares of the Company’s Class A Common Stock. As a result of the Transaction, immediately following the Closing (i) Contributor owns approximately 75% of the issued and outstanding Common Stock, (ii) Apache Midstream owns approximately 20% of the issued and outstanding Common Stock, and (iii) the Company’s remaining stockholders own approximately 5% of the issued and outstanding Common Stock. Upon close of the Transaction, the Company’s Pipeline Transportation segment expanded to include three additional EMI pipelines and to increase its ownership interest in PHP. Further note that a secondary offering of 4 million Apache shares was closed during March of 2022, reducing Apache’s ownership to 13% as of March 31, 2022. The Transaction also brought in additional volume capacity from ALTM for the Midstream Logistic segment, including 182 miles of in-service natural gas gathering pipelines, approximately 46 miles of residue gas pipelines with four market connections, and approximately 38 miles of NGLs pipelines. The increase volume capacity has contributed to the increase in operating revenue for the three months ended March 31, 2022 compared to the same period in 2021. Overview The Company, through its subsidiaries, owns gas gathering, processing, and transmission assets in the Permian Basin of West Texas and provides comprehensive gathering, transportation, compression, processing, and treating services for companies that produce NGLs, natural gas, crude, and water. Our core capabilities serve a variety of service offerings across multiple streams, including natural gas gathering, transportation, compression, treating and processing; NGLs stabilization and transportation; produced water gathering and disposal; and crude oil gathering, stabilization, storage and transportation. We have four plant sites in operation across more than 1,300 miles of pipeline in the ground in four counties in the Southern Delaware Basin. Our Operations Upon Closing, the Company evaluated the Company and ALTM’s respective reporting segment activities and then renamed its Gathering and Processing segment to Midstream Logistics and renamed its Transmission segment to Pipeline Transportation. These name changes were made to better align segment activities with the name of respective segment. The Midstream Logistics segment operates under three service offerings, 1) gas gathering and processing, 2) crude oil gathering, stabilization, and storage services, and 3) water gathering and disposal. The Pipeline Transportation segment consists of four EMI pipelines in the Permian Basin with various access points to the Texas Gulf Coast and our Delaware Link Pipeline, which is currently under commercialization. The pipelines transport crude oil, natural gas, and NGLs along the Texas Gulf Coast. 29 Table of Contents Midstream Logistics Natural Gas The Midstream Logistics segment provides gas gathering and processing services with approximately 1,200 miles of low and high-pressure steel pipeline located throughout the Southern Delaware Basin. Gas processing assets are centralized at five processing complexes with total cryogenic processing capacity of approximately 2 billion cubic feet per day (“Bcf/d”): the East Toyah complex (460 MMcf/d), the Pecos Bend complex (540 MMcf/d), the Pecos complex (260 MMcf/d), the Sierra Grande complex (60 MMcf/d), and Diamond Cryogenic complex (600 MMcf/d). Current residue gas outlets include the El Paso Natural Gas Pipeline, Energy Transfer Comanche Trail Pipeline, ONEOK Roadrunner Pipeline, and Energy Transfer Oasis Pipeline. NGLs outlets include Energy Transfer’s Lone Star NGL Pipeline, Targa’s Grand Prix NGL Pipeline, and Enterprise’s Shin Oak NGL Pipeline. Crude The Midstream Logistics segment also includes crude oil gathering, stabilization, and storage services throughout the Texas Delaware Basin. Crude gathering assets are centralized at the Caprock Stampede Terminal and the Pinnacle Sierra Grande Terminal. The system includes approximately 200 miles of gathering pipeline and 90,000 barrels of crude storage. The crude facilities have connections for takeaway transportation into Plains’ 285 Central Station and State Line and Oryx’s Orla & Central Mentone facilities. Water In addition, this segment includes water gathering and disposal assets located in northern Reeves County, Texas which are included in the Midstream Logistics segment. The system includes approximately 70 miles of gathering pipeline and approximately 500,000 barrels per day of permitted disposal capacity at 16 active and permitted disposal wells. Pipeline Transportation The Pipeline Transportation segment consists of four EMI pipelines in the Permian Basin with access to various points along the Texas Gulf Coast and the Delaware Link Pipeline, which is currently under construction. EMI pipelines include the following: • An approximate 53.3% equity interest in PHP, which is also owned and operated by Kinder Morgan. PHP transports natural gas from the Waha area in northern Pecos County, Texas to the Katy, Texas area with connections to Texas Gulf Coast and Mexico markets. PHP was placed in service January 2021, with the total capacity of 2.1 Bcf/d fully subscribed under long-term contracts. • A 16% equity interest in the Gulf Coast Express Pipeline (“GCX”), which is owned and operated by Kinder Morgan Texas Pipeline, LLC (“Kinder Morgan”). GCX transports natural gas from the Permian Basin in West Texas to Agua Dulce near the Texas Gulf Coast. GCX was placed in service during 2019, with the total capacity of 2.0 Bcf/d fully subscribed under long-term contracts. • A 33% equity interest in the Shin Oak NGL Pipeline (“Shin Oak”), which is owned by Breviloba, LLC, and operated by Enterprise Products Operating LLC. Shin Oak transports NGLs from the Permian Basin to Mont Belvieu, Texas. Shin Oak was placed in service during 2019, with total capacity of up to 550 MBbl/d. • A 15% equity interest in the EPIC Crude oil pipeline (“EPIC”), which is operated by EPIC Consolidated Operations, LLC. EPIC transports crude oil from Orla, Texas in Northern Reeves County to the Port of Corpus Christi, Texas. EPIC was placed in service early 2020, with initial throughput capacity of approximately 600 MBbl/d. Factors Affecting Our Business The Significance of Crude Oil and Producer Volumes on Our Revenues, Cost of Sales and Gross Margin The Company’s assets include more than 1,300 miles of NGLs, natural gas, condensate, produced water, and crude oil pipelines as well as 2 Bcf/d of natural gas processing capacity as of March 31, 2022. Most of the gas gathered and processed by the Company is associated gas included in the oil stream, making producers’ oil break-even prices the primary driver of activity. The average price of WTI crude oil was $95.01/bbl during the first quarter of 2022. If crude prices were to fall below producers’ break-even prices for a prolonged period of time, drilling activity and volumes might decline and might have a negative impact on our business. In addition, because the Company’s Pipeline Transportation segment provides NGLs 30 Table of Contents transmission service through its EMI pipelines, a decrease in natural gas and NGL price will have an adverse impact on the Company’s results of operations as it may lead to lower natural gas production and thus lower volumes of NGLs transported. The average natural gas price was $4.59/MMBtu during the first quarter of 2022. For additional risk factors that affect the Company’s business, please refer to Item 1A - Risk Factors . Recent Developments Commodity Price Volatility There has been, and we believe there will continue to be, volatility in commodity prices and in the relationships among NGLs, crude oil and natural gas prices. As a result of uncertainty around global commodity supply and demand, uncertainty in global economic recovery from COVID-19 pandemics and the armed conflict in Ukraine, global oil and natural gas commodity prices continue to remain volatile. The volatility and uncertainty of natural gas, crude oil and NGL prices impact drilling, completion and other investment decisions by producers and ultimately supply to our systems. Although the armed conflict in Ukraine generated commodity price upward pressure, and our operation could benefit in an environment of higher natural gas, NGLs and condensate prices, the instability of international political environment and human and economic hardship result from the conflict would have a highly uncertain impact on the U.S. economy, which in turn, might affect our business and operations adversely. The Company continues to monitor commodity price closely and may enter into commodity price hedge from time to time as necessary to mitigate the volatility risk. Inflation The annual rate of inflation in the United States hit 8.5% in March 2022, the highest in more than three decades, as measured by the Consumer Price Index. We expect that inflation in 2022 will modestly increase our operating costs and the overall cost of capital projects we undertake. Inflation, combined with other economic factors has caused drilling and completion costs to increase over 20% from the prior year, which affects our customers and the wells they bring on line. In addition, the Federal Reserve has tightened its monetary policy by approving a half-percentage-point interest rate hike in May 2022 to maintain the federal funds rate in a target range of 0.75% - 1.0%. Furthermore, the Chairman of the Federal Reserve signaled that the Federal Reserve would continue to take necessary action to bring inflation down and to ensure price stability, including continued rate increases. Increased interest rates will have a negative impact on the Company’s ability to meet its contractual debt obligations and to fund its operating expenses, capital expenditures, dividends and distributions. Supply Chain Considerations During 2021 and the first quarter of 2022 challenging supply chain issues have emerged that will continue at least through the balance of 2022. Supply chains generally are being strained given the pick up in economic activity as the global economy reemerges from the COVID-19 pandemic. The principal supply issues facing our industry for the next twelve months include: raw materials availability, finished good inventory, rising freight costs, delays due to port congestion and overall labor shortages. All bidding will require the risk of shipping costs and delays to be factored into proposals. Trucking availability and pricing will impact North American opportunities while sea-freight costs will impact sales of North American manufactured goods being delivered internationally for the foreseeable future. The import of raw materials from China will also incur price increases. To that end, accelerating tensions between China and the U.S. could also result in further supply disruption. Comprehensive Refinancing During the second quarter of 2022, the Company plans to enter into transactions to comprehensively refinance our long term debt and minimize ongoing exposure to the Federal Reserve’s decision to raise interest rates to combat the impacts of inflation and the market instability caused by the Russian conflict with Ukraine. 31 Table of Contents Key Performance Metrics Adjusted EBITDA Adjusted EBITDA is defined as net income including noncontrolling interests adjusted for interest, taxes, depreciation and amortization, impairment charges, asset write-offs, the proportionate EBITDA from our equity method investment, equity in earnings from investments recorded using the equity method, stock-based compensation expense, 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. We believe that Adjusted EBITDA provides a meaningful understanding of certain aspects of earnings before the impact of investing and financing charges and income taxes. Adjusted EBITDA is useful to an investor in evaluating our performance because this measure: • Is widely used by analysts, investors and competitors to measure a company’s operating performance; • Is a financial measurement that is used by rating agencies, lenders, and other parties to evaluate our credit worthiness; and; • Is used by our management for various purposes, including as a measure of performance and as a basis for strategic planning and forecasting. Adjusted EBITDA is not defined in GAAP The GAAP measure used by the Company that is most directly comparable to Adjusted EBITDA is net income including noncontrolling interests. Adjusted EBITDA should not be considered as an alternative to the GAAP measure of net income including noncontrolling interests or any other measure of financial performance presented in accordance with GAAP. Adjusted EBITDA has important limitations as an analytical tool because it excludes some, but not all, items that affect net income including noncontrolling interests. Adjusted EBITDA should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. The Company’s definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies in the industry, thereby diminishing its utility. Reconciliation of non-GAAP financial measure Company management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measure, understanding the differences between Adjusted EBITDA as compared to net income including noncontrolling interests, and incorporating this knowledge into its decision-making processes. Management believes that investors benefit from having access to the same financial measure that the Company uses in evaluating operating results. The following table presents a reconciliation of the GAAP financial measure of net income including noncontrolling interests to the non-GAAP financial measure of Adjusted EBITDA. 32 Table of Contents Three Months Ended March 31,* Variance 2022 2021 $ % Reconciliation of net income including noncontrolling interests to Adjusted EBITDA (In thousands) Net income including noncontrolling interests $ 21,389 $ 18,136 $ 3,253 18 % Add back: Interest expense 26,645 25,549 1,096 4 % Gain on redemption of mandatorily redeemable Preferred Units (4,493) — (4,493) NM Income tax expense 676 — 676 NM Depreciation and amortization 61,023 55,971 5,052 9 % Amortization of contract costs 448 448 — — % Proportionate EMI EBITDA 40,741 16,256 24,485 151 % Share-based compensation 6,132 — 6,132 NM Loss on sale of assets 110 32 78 244 % Loss (gain) on debt extinguishment 129 (239) 368 (154) % Unrealized loss on derivatives 2,886 — 2,886 NM Derivative loss due to Winter Storm Uri — 13,456 (13,456) (100) % Integration Costs 6,151 — 6,151 NM Transaction Costs 5,676 — 5,676 NM Other one-time cost or amortization 1,195 328 867 264 % Deduct: Interest and other income — 16 (16) (100) % Equity income from unconsolidated affiliates 27,917 11,355 16,562 146 % Adjusted EBITDA $ 140,791 $ 118,566 $ 22,225 19 % * The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to the Form 10-Q basis of presentation in Note 1—Description of the Organization an d Summary of Significant Accounting Policies, for further information on the Company’s basis of presentation. NM - not meaningful Adjusted EBITDA increased by $22.2 million, or 19%, to $140.8 million for the three months ended March 31, 2022, compared to $118.6 million for the same period in 2021. The increase was primarily driven by an increase in net income including noncontrolling interest of $3.3 million and increases in add back related to the Company’s proportionate share of its EMI pipelines’ EBITDA, integration costs, share-based compensation, transaction costs, depreciation and amortization expense and interest expense, as a result of the Transaction closed in February 2022. The increase was partially offset by an increase in EMI pipelines income of $16.6 million, resulting from the three additional EMI pipelines entities through the Transaction, as well as a decrease in add back related to derivative loss due to Winter Storm Uri of $13.5 million as there was no add back related to extreme weather in the first quarter of 2022, nor was there elevated pricing which also resulted from Winter Storm Uri. The 2022 Adjusted EBITDA presented in the above table does not include any expected synergies including ad valorem taxes, operating expenses and corporate G&A, which will be recognized over the course of 2022. Segment Adjusted EBITDA Segment Adjusted EBITDA is defined as segment net earnings adjusted to exclude interest expense, income tax expense, depreciation and amortization, the proportionate effect of these same items for our equity method investments and other non-recurring items. Following table presents segment adjustment EBITDA for the three months ended March 31, 2022 and 2021. Also refer to Note 17—Segments in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q for reconciliation of segment adjusted EBITDA to net income including noncontrolling interests. 33 Table of Contents Three Months Ended March 31,* Variance 2022 2021 $ % (In thousands) Midstream Logistics $ 102,890 $ 105,800 $ (2,910) (3) % Pipeline Transportation 40,437 15,322 25,115 164 % Corporate and Other (1) (2,536) (2,556) 20 (1) % Total segment adjusted EBITDA $ 140,791 $ 118,566 $ 22,225 19 % * The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to the Form 10-Q basis of presentation in Note 1—Description of the Organization and Summary of Significant Accounting Policies, for further information on the Company’s financial statement consolidation. (1) Corporate and Other represents those results that: (i) are not specifically attributable to a reportable segment; (ii) are not individually reportable or (iii) have not been allocated to a reportable segment for the purpose of evaluating their performance, including certain general and administrative expense items. Midstream Logistics segment adjusted EBITDA decreased by $2.9 million, or 3%, to $102.9 million for the three months ended March 31, 2022, compared to $105.8 million for the same period in 2021. The decrease was primarily driven by no similar Winter Storm Uri event in the first quarter of 2022. For example, derivative loss due to Winter Storm Uri of $13.5 million was added back to segment adjusted EBITDA for first quarter of 2021, but no similar add back recorded in the first quarter of 2022. The decrease was partially offset by an increase in segment net income including noncontrolling interests of $1.0 million and increases in depreciation and amortization expense, integration cost and income tax expense add backs of $5.1 million, $4.1 million and $0.5 million, respectively, in relation to the Transaction closed in February 2022. Pipeline Transportation segment adjusted EBITDA increased by $25.1 million, or 164%, to $40.4 million for the three months ended March 31, 2022, compared to $15.3 million for the same period in 2021. The increase was driven by investments in GCX and Shin Oak and a 100% increase in the Company’s investment in PHP, which were all acquired through the Transaction in February 2022. During the three months ended March 31, 2021, the Company only held a 26.67% interest in PHP. 34 Table of Con tents Results of Operations The following table presents the Company’s results of operations for the periods presented: Three Months Ended March 31,* Variance 2022 2021 $ % (In thousands) Revenues: Service revenue $ 80,445 $ 67,662 $ 12,783 19 % Product revenue 174,928 79,993 94,935 119 % Other revenue 1,876 448 1,428 319 % Total revenues 257,249 148,103 109,146 74 % Operating costs and expenses: Costs of sales (exclusive of depreciation and amortization) 120,275 37,005 83,270 225 % Operating expense 29,871 15,564 14,307 92 % Ad valorem taxes 4,153 2,351 1,802 77 % General and administrative 22,752 5,626 17,126 304 % Depreciation and amortization 61,023 55,971 5,052 9 % Loss on disposal of assets 110 32 78 244 % Total operating costs and expenses 238,184 116,549 121,635 104 % Operating income 19,065 31,554 (12,489) (40) % Other income (expense): Interest and other income 250 537 (287) (53) % Gain on Preferred Units redemption 4,493 — 4,493 NM Unrealized loss on derivatives (2,886) — (2,886) NM Interest expense (26,774) (25,310) (1,464) 6 % Equity in earnings of unconsolidated affiliate 27,917 11,355 16,562 146 % Total other income (expense), net 3,000 (13,418) 16,418 (122) % Income before income tax 22,065 18,136 3,929 22 % Current income tax expense 676 — 676 NM Net income including noncontrolling interests $ 21,389 $ 18,136 $ 3,253 18 % * The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to the Form 10-Q basis of presentation in Note 1—Description of the Organization and Summary of Significant Accounting Policies, for further information on the Company’s presentation. NM - Not meaningful Revenues For the three months ended March 31, 2022, revenue increased $109.1 million, or 74%, to $257.2 million, compared to $148.1 million for the same period in 2021. The increase was primarily driven by period to period increases in gathered and processed volumes, as well as similar increases in residue, condensate and NGL volumes sold. Service revenue Service revenue consists of service fees paid to us by our customers for providing comprehensive gathering, treating, processing and water disposal services necessary to bring natural gas, NGLs and crude oil to market. Service revenue for the three months ended March 31, 2022, increased by $12.8 million, or 19%, to $80.4 million, compared to $67.7 million for the same period in 2021. This increase is primarily due to a period over period increase in gathered and processed gas volumes of 280.0 Mcf per day and 280.5 Mcf per day, respectively, of which 164.0 Mcf per day and 124.3 Mcf per day are a result of new operations acquired through the Transaction. Service revenues are included entirely in the Midstream Logistics segment. 35 Table of Con tents Product revenue Product revenue consists of commodity sales (including condensate, natural gas residue, and NGLs). Product revenue for the three months ended March 31, 2022, increased by $94.9 million, or 119%, to $174.9 million, compared to $80.0 million for the same period in 2021, primarily due to period over period increases in NGL and condensate prices combined with increased sales volumes of these liquids and natural gas residue. NGL prices increased $18.27 per barrel or 64% and condensate prices increased $35.18 per barrel or 95%. NGL and condensate sales volumes increased 1.8 million barrels or 27%. Similarly, natural gas residue sales volumes increased 1.8 million MMBtu or 25%. Partially offsetting these increases was a period over period decrease in natural gas prices of $0.35 per MMBtu or 7%. Product revenues are included entirely in the Midstream Logistics segment. Operating Costs and Expenses Costs of sales (exclusive of depreciation and amortization) Cost of sales (exclusive of depreciation and amortization) primarily consists of purchases of NGLs and natural gas from our producers at contracted market prices to support product sales to other third parties. For the three months ended March 31, 2022, cost of sales increased $83.3 million, or 225%, to $120.3 million, compared to $37.0 million for the same period in 2021. The increase was primarily driven by the period to period increase in NGL prices and NGL and natural gas volumes discussed above. Cost of sales (exclusive of depreciation and amortization) are included entirely in the Midstream Logistics segment. Operating expenses Operating expenses increased by $14.3 million, or 92%, to 29.9 million for the three months ended March 31, 2022, compared to 15.6 million for the same period in 2021. Of the total increase, $3.5 million was driven by the new operations acquired through the Transaction. The remaining increase was primarily driven by higher period over period electricity costs of $9.4 million and merger integration costs of $1.4 million. The higher electricity costs were due to electricity credits received from one of our primary electricity providers during the month of February 2021 related to the extreme weather caused by Winter Storm Uri. General and administrative General and administrative (“G&A”) expense increased by $17.1 million, or 304%, to $22.8 million for the three months ended March 31, 2022, compared to $5.6 million for the same period in 2021. The increase was primarily driven by acquisition and integration costs of $10.4 million incurred in relation to the Transaction closed in February 2022 and share-based compensation recognized of $6.1 million, both of which are in connection with the Transaction and are non-recurring expenses. Other Income (Expense) Equity in earnings of unconsolidated affiliate Income from EMI pipelines increased by $16.6 million, or 146% to $27.9 million for the three months ended March 31, 2022, compared to $11.4 million for the same period in 2021. The increase was primarily due to acquisition of new EMI pipelines and additional equity interest in the Company’s existing EMI pipeline, PHP, through the Transaction closed in February 2022 and due to higher earnings. Capital Resources and Liquidity The Company’s primary use of capital since inception has been for the initial construction of gathering and processing assets, as well as the acquisition of the EMI pipelines and associated subsequent construction costs. For 2022, the Company’s primary capital spending requirements are anticipated to be related to integration of the Alpine High gathering system with the legacy BCP system, certain integration related synergies including the relocation of compression units and treating assets to the legacy BCP processing plants, the Company’s contractual debt obligation, the Company’s payment of quarterly cash dividend on its Class A Common Stock and Common Units as may be declared by its Board of Directors and cash payment upon redemption of remaining mandatorily redeemable Preferred Units. 36 Table of Con tents During the three months ended March 31, 2022, the Company’s primary sources of cash were distributions from the EMI pipelines, borrowings under the revolving credit facility, and cash generated from operations. Based on the Company’s current financial plan and related assumptions including the Reinvestment Agreement, the Company believes that cash from operations, a reduced capital program for its midstream infrastructure, and distributions from the EMI pipelines will generate cash flows in excess of capital expenditures and the amount required to fund the Company’s planned quarterly dividend and redemption of mandatorily redeemable Preferred Units during 2022. Given recent crude oil price volatility and uncertain economic activity resulting from inflation, increased interest rates, the armed conflict in Ukraine and related governmental actions, the Company continues to monitor expected natural gas throughput volumes and capacity utilization of the EMI pipelines. Capital Requirements and Expenditures Our operations can be capital intensive, requiring investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational regulations. During the three months ended March 31, 2022 and 2021, capital spending for midstream infrastructure assets totaled $29.2 million and $19.8 million, respectively. Management believes its existing gathering, processing, and transmission infrastructure capacity is capable of fulfilling its midstream contracts to service its customers. During the three months ended March 31, 2022, the Company made no cash contributions to its EMI pipelines compared to $20.5 million contributed to an EMI pipeline in the same period of 2021. The Company anticipates its existing capital resources will be sufficient to fund the future capital expenditures for EMI pipelines and the Company’s existing infrastructure assets. For further information on EMIs, refer to Note 9—Equity Method Investments in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q. Cash Flows The following tables present cash flows from operating, investing, and financing activities during the periods presented: For the Three Months Ended March 31, 2022 2021 (In thousands) Cash provided by operating activities $ 98,393 $ 41,594 Cash used in investing activities $ (19,392) $ (41,057) Cash (used in) provided by financing activities $ (80,084) $ 10,795 Operating Activities . Net cash provided by operating activities increased by $56.8 million for the three months ended March 31, 2022 compared with the same period in 2021. The change in the operating cash flows reflected an increase in net income including noncontrolling interests of $3.3 million, an increase of adjustments related to non-cash items of $12.4 million and an increase in cash provided by changes in working capital of $41.1 million. Period over period increase in cash provided by operating activities was primarily driven by new operation acquired through the Transaction. Investing Activities . Net cash used in investing activities decreased by $21.7 million for the three months ended March 31, 2022 compared with the same period in 2021 as the Company did not make any contribution to the EMI pipelines during first quarter of 2022. The decrease was also driven by the cash inflow of $13.4 million acquired through the acquisition closed in February 2022. The decrease was partially offset by an increase in cash outflows of $9.5 million for higher capital expenditures on gathering, processing and transmission systems expansion. Financing Activities . Net cash used in financing activities increased by $90.9 million for the three months ended March 31, 2022 compared with the same period in 2021. The change was primarily due to redemption of mandatorily redeemable Preferred Units of $60.7 million, an increase of $13.9 million in principal payments on long-term debt and a reduction in equity contribution received of $14.9 million. 37 Table of Con tents Dividend and Distribution Reinvestment Agreement On February 22, 2022, the Company entered into a Dividend and Distribution Reinvestment Agreement (the “Reinvestment Agreement”) with the Partnership, APA Corporation, Apache Midstream, Buzzard Midstream LLC, a Delaware limited liability company and controlled affiliate of ISQ Global Infrastructure Fund II L.P., BCP Raptor Aggregator, LP, a Delaware limited partnership and controlled affiliate of Blackstone Capital Partners VII L.P. and Blackstone Energy Partners II L.P., BC Permian Pipeline Aggregator LP, BX Permian Pipeline Aggregator LP, a Delaware limited partnership and controlled affiliate of Blackstone Capital Partners VII L.P. and Blackstone Energy Partners II L.P., Contributor, and certain other individuals associated with Contributor (collectively, the “Reinvestment Holders”). The Reinvestment Agreement obligates each Reinvestment Holder to reinvest in shares of Class A Common Stock at least 20% of all distributions on Common Units or dividends on shares of Class A Common Stock held by such Reinvestment Holder immediately after the Closing, including shares of Class A Common Stock received at a later date in exchange for Common Units held immediately after Closing. The Reinvestment Agreement provides the audit committee of the Board with the authority to at any time increase the percentage of the mandatory dividend reinvestment to up to 100% of such distributions or dividends or decrease such percentage to not less than 20%. The mandatory obligations of each Reinvestment Holder will continue from Closing until the earliest of (i) March 31, 2024, (ii) the date dividends and distributions are paid by the Company and the Partnership, respectively, in respect of the quarter ending December 31, 2023, and (iii) such other date determined by the audit committee of the Board. All shares of Class A Common Stock issued pursuant to the Reinvestment Agreement will be issued at a 3% discount to the volume-weighted average price of the Class A Common Stock for the five trading days immediately preceding, but excluding, the dividend or distribution payment date. The Reinvestment Agreement also provides an obligation for the Company to establish a dividend reinvestment plan that provides all other holders of Class A Common Stock the optional right to reinvest all or part of any dividends on shares of Class A Common Stock held by such holder on substantially the same terms as the Reinvestment Holders. On April 4, 2022, the Company filed a Registration Statement on Form S-3 related to the Reinvestment Agreement and the establishment of the Plan for all other holders. On Feb 22, 2022, the audit committee recommended to the Board of the Company and the Board approved that the dividends to be paid on shares held by the Reinvestment Holders will be paid in newly issued Class A shares for each quarterly dividend for the calendar year 2022. The foregoing description of the Reinvestment Agreement is a summary only and is qualified in its entirety by reference to the Reinvestment Agreement, a copy of which is attached as Exhibit 10.2 to this Quarterly Report on Form 10-Q and is incorporated herein by reference. Class A Common Stock Dividend On April 19, 2022, the Company’s Board of Directors declared a cash dividend of $1.50 per share on the Company’s Class A Common Stock which will be payable to stockholders on May 17, 2022. Please refer to Note 10—Equity and Warrants for additional information. Common Units Distribution Pursuant to the Contribution Agreement, in connection with the Closing, (i) Contributor contributed all of the equity interests of the Contributed Entities to the Partnership; and (ii) in exchange for such contribution, the Partnership issued 50,000,000 common units representing limited partner interests in the Partnership and the Company issued 50,000,000 shares of the Company’s Class C common stock, par value $0.0001 per share, to Contributor. For further information on the Preferred Units, refer to Note 10—Equity and Warrants in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q. In the first quarter of 2022, the Company, through its ownership of the general partner of the Partnership, declared a distribution of $1.50 per Common Unit from the Partnership to the holders of Common Units. Please refer to Note 10—Equity and Warrants for additional information. Series A Cumulative Redeemable Preferred Units The Partnership issued Preferred Units on June 12, 2019. Because the Transaction was accounted for as a reverse merger, certain Preferred Units that were issued and outstanding were assumed at Closing for accounting purposes. The Preferred Units are exchangeable for shares of the Company’s Class A Common Stock at the option of the Preferred Unit holders upon the occurrence of specified events, unless otherwise redeemed by the Company. 38 Table of Con tents The Preferred Units entitle the holders to receive quarterly distributions at a rate of seven percent per annum, commencing with the quarter ended June 30, 2019. The rate increases to 10 percent per annum upon the occurrence of specified events. On the Closing Date of the Transaction, the Company effectuated the Third Amended and Restated Agreement of Limited Partnership of the Partnership (“Partnership LPA”), which among other things, provides for mandatory redemptions by the Partnership of 50,000 Preferred Units at or prior to each of the six-, twelve- and eighteen-month anniversaries of the effectiveness from the Partnership LPA, for an aggregate of 150,000 Preferred Units over such eighteen-month period. The Company intends to redeem the Preferred Units by year end 2022. For further information on the Preferred Units, refer to Note 11—Series A Cumulative Redeemable Preferred Units in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q. Liquidity The following table presents a summary of the Company’s key financial indicators at the dates presented: March 31, December 31, 2022 2021 (In thousands) Cash and cash equivalents $ 17,646 $ 18,729 Total debt $ 2,948,349 $ 2,307,702 Available committed borrowing capacity $ 269,000 $ 133,000 Cash and cash equivalents As of March 31, 2022 and December 31, 2021, the Company had $17.6 million and $18.7 million, respectively, in cash and cash equivalents. The majority of the cash is invested in highly liquid, investment-grade instruments with maturities of three months or less at the time of purchase. Total Debt and Available credit facilities There is no assurance that the financial condition of banks with lending commitments to Company will not deteriorate. The Company closely monitors the ratings of the banks in the Company’s bank group. Having a large bank group allows the Company to mitigate the potential impact of any bank’s failure to honor its lending commitment. Contractual Obligations Long-term debt obligation and related interest payments. We have contractual obligations for principal and interest payments on our term loans. See Note 6—Debt and Financing Costs in the Notes our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. Under certain of our transportation services agreements with third party pipelines to transport natural gas and NGLs with current contract terms from 2021 to 2031, if we fail to ship a minimum throughput volume during any year, then we will pay a deficiency payment for transportation based on the volume shortfall up to the MVC amount. The Company has made no historical shortfall payments through March 31, 2022. Off-Balance Sheet Arrangements Other than the arrangements described in Exhibit 99.6 to the Company’s Current Report on Form 8-K filed on February 28, 2022, the Company has not entered into any transactions, agreements, or other contractual arrangements with unconsolidated entities that are reasonably likely to materially affect the Company’s liquidity or capital resource positions. 39 Table of Con tents Critical Accounting Policies The Company’s significant accounting policies (refer to Summary of Significant Accounting Policie s in Exhibit 99.4 to the Company’s Current Report on Form 8-K filed on February 28, 2022) are fundamental to understanding our results of operations and financial condition. Some accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments and may require significant judgments in applying complex accounting principles to individual transactions, where actual results could differ materially from the Company’s estimates. The Company has procedures and processes in place to facilitate making these judgments. In addition, certain accounting policies are more likely than others to have a critical effect on the Company’s Condensed Consolidated Financial Statements, and may apply to areas of relatively greater business importance. The following accounting policies are critical to the Company’s Condensed Consolidated Financial Statements: • Revenue recognition, • Use of estimates, • Business combination, • Fair value measurement, and • Impairment of long-lived assets. 40 Table of Con tents