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 periods ended March 31, 2023, as compared to our results of operations for the same periods in 2022. In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods. The business combination 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, carried 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, 2022 and results of operations of ALTM 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. Business Combination On February 22, 2022 (the “Closing Date”), Kinetik Holdings Inc., a Delaware corporation (formerly known as Altus Midstream Company), consummated the previously announced business combination transactions contemplated by the Contribution Agreement, dated as of October 21, 2021 (the “Contribution Agreement”), by and among the Company, Altus Midstream LP (now known as Kinetik Holdings LP), a Delaware limited partnership and subsidiary of Altus Midstream Company (the “Partnership”), New BCP Raptor Holdco, LLC, a Delaware limited liability company (“Contributor”), and BCP. The transactions contemplated by the Contribution Agreement are referred to herein as the “Transaction.” In connection with the closing of the Transaction (the “Closing”), the Company changed its name from “Altus Midstream Company” to “Kinetik Holdings Inc.” Upon closing of the business combination, BCP and its subsidiaries became wholly owned subsidiaries of the Partnership. The Transaction was accounted for as a reverse merger pursuant to ASC 805 Business Combination (“ASC 805”). Refer to Note 2—Business Combination in the Notes to our Condensed Consolidated Financial Statements for further information. Overview We are an integrated midstream energy company in the Permian Basin providing comprehensive gathering, transportation, compression, processing and treating services. Our core capabilities include a variety of service offerings 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. The Company’s corporate office is located in Houston, TX and our operations are strategically located in the heart of the Delaware Basin. Our Operations and Segments Upon Closing, the Company 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 each 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 equity method investment (“EMI”) pipelines originating in the Permian Basin with various access points to the Texas Gulf Coast, Kinetik NGL Pipeline and Delaware Link Pipeline that is under development. The pipelines transport crude oil, natural gas and NGLs within the Permian Basin and to the Texas Gulf Coast. Midstream Logistics Gas Gathering and Processing. The Midstream Logistics segment provides gas gathering and processing services with over 1,500 miles of low and high-pressure steel pipeline located throughout the Delaware Basin. Gas processing assets are centralized at five processing complexes with total cryogenic processing capacity of approximately 2.0 Bcf/d. Crude Oil Gathering, Stabilization and Storage Services. Crude gathering assets are centralized at the Caprock Stampede Terminal and the Pinnacle Sierra Grande Terminal. The system includes approximately 220 miles of gathering pipeline and 90,000 barrels of crude storage. 22 Table of Contents Water Gathering and Disposal. The system includes over 360 miles of gathering pipeline and approximately 760,000 barrels per day of permitted disposal capacity. Pipeline Transportation EMI pipelines. The Company owns the following equity interests in four EMI pipelines in the Permian Basin with access to various points along the Texas Gulf Coast: 1) an approximate 53.3% equity interest in Permian Highway Pipeline LLC (“ PHP”), which is also owned and operated by Kinder Morgan; 2) 16% equity interest in Gulf Coast Express Pipeline LLC (“ GCX”), which is owned and operated by Kinder Morgan; 3) 33% equity interest in Shin Oak, which is owned by Breviloba, LLC, and operated by Enterprise Products Operating LLC; and 4) 15% equity interest in Epic Crude Holdings, LP (“EPIC”), which is operated by EPIC Consolidated Operations, LLC. Kinetik NGL Pipeline. Approximately 30 miles of 20-inch NGL pipelines connected to our Diamond Cryogenic complex. Delaware Link Pipeline. The Company is currently building the Delaware Link Pipeline, which will provide additional transportation capacity to Waha when it is put into service. The project is expected to be complete in the fourth quarter of 2023. Upon completion, this pipeline is estimated to be 40 miles and to have a capacity of approximately 1.0 Bcf/d. Factors Affecting Our Business 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 the aftereffects of the COVID-19 pandemic and the armed conflict in Ukraine, and uncertainty from the recent banking turmoil and its effects on financial markets, 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 resulting from the conflict would have a highly uncertain impact on the U.S. economy, which in turn, might affect our business and operations adv ersely. Our product sales revenue is exposed to commodity price fluctuations. Therefore, commodity price decline and sustained periods of low natural gas and NGL prices could have an adverse effect on our product revenue stream. Also, after a rapid rise of oil and natural gas prices in first half of 2022, oil and natural gas prices have moderated from their peaks during the past six months. The Company continues to monitor commodity prices closely and may enter into commodity price hedges from time to time as necessary to mitigate the volatility risk. In addition, the Company, when economically appropriate, enters into fee-based arrangements that insulate the Company from commodity price volatility. Inflation and Interest Rates The annual rate of inflation in the United States dropped slightly to 5.0% in March 2023 compared to 8.5% in March 2022, as measured by the Consumer Price Index, which was the lowest since May 2021. However, the Federal Open Market Committee (“FOMC”) maintains its long run goals of maximum employment and inflation at the rate of 2.00%. In support of these goals, the FOMC decided to raise the target range for the federal funds rate to 4.75% and 5.00% during its meeting in March 2023. FOMC acknowledged the current stress on the banking system, stating that while the United States banking system is sound and resilient, recent developments are likely to result in tighter credit conditions for households and businesses and to affect economic activity, hiring, and inflation. The extent of these effects is uncertain. There is uncertainty regarding whether inflation will continue to be tamed by the FOMC’s effort or whether the FOMC will continue to tighten its monetary policy in the next 12 months. Increased interest rates will increase our operating costs and 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. The Company will continue to actively evaluate and analyze whether any additional forms of interest rate hedging should be implemented to mitigate interest rate exposure. Supply Chain Considerations During 2022, challenging supply chain issues emerged that we expect will continue at least through the first half of 2023. Geopolitical events have further disrupted global supply chains and caused volatile commodity prices for natural gas, NGLs and crude oil. The United States has banned the import of Russian oil, NGLs and other energy commodities and the European Union has taken steps to reduce imports of Russian oil and natural gas. The principal supply issues facing our industry for the 23 Table of Contents next twelve months include: raw materials availability, finished good inventory, rising freight costs, delays due to port congestion and overall labor shortages. Recent Developments Share Repurchase Program In February 2023, the Board of Directors (the “Board”) approved a share repurchase program (“Repurchase Program”), authorizing discretionary purchases of the Company’s Class A Common Stock up to $100 million in the aggregate. Repurchases may be made at management’s discretion from time to time, in accordance with applicable securities laws, on the open market or through privately negotiated transactions and may be made pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act. Privately negotiated repurchases from affiliates are also authorized under the Repurchase Program, subject to such affiliates’ interest and other limitations. The repurchases will depend on market conditions and may be discontinued at any time without prior notice. For the three months ended March 31, 2023, the Company repurchased 81,862 shares at a total cost of $2.4 million. For additional information, see “Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” in this Quarterly Report on Form 10-Q. 24 Table of Contents Results of Operations The following table presents the Company’s results of operations for the periods presented: Three Months Ended March 31, 2023 2022 * % Change (In thousands, except percentages) Revenues: Service revenue $ 103,425 $ 80,445 29 % Product revenue 173,824 174,928 (1 %) Other revenue 3,791 1,876 102 % Total operating revenues 281,040 257,249 9 % Operating costs and expenses: Cost of sales (exclusive of depreciation and amortization shown separately below) 115,877 120,275 (4 %) Operating expenses 35,973 29,871 20 % Ad valorem taxes 5,458 4,153 31 % General and administrative expenses 27,511 22,752 21 % Depreciation and amortization expenses 68,854 61,023 13 % Loss on disposal of assets 102 110 (7 %) Total operating costs and expenses 253,775 238,184 7 % Operating income 27,265 19,065 43 % Other income (expense): Interest and other income 294 250 18 % Gain on redemption of mandatorily redeemable Preferred Units — 4,493 (100 %) Gain on embedded derivatives — (2,886) (100 %) Interest expense (69,308) (26,774) 159 % Equity in earnings of unconsolidated affiliates 46,464 27,917 66 % Total other income (expense), net (22,550) 3,000 NM Income before income taxes 4,715 22,065 (79 %) Income tax expense 416 676 (38 %) Net income including noncontrolling interests $ 4,299 $ 21,389 (80 %) * 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 in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q, for further information. NM - Not meaningful Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022 Revenues For the three months ended March 31, 2023, revenue increased $23.8 million, or 9%, to $281.0 million, compared to $257.2 million for the same period in 2022. The increase was primarily driven by period-to-period higher service revenues related to increases in gathered and processed gas volumes. 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, 2023, increased by $23.0 million, or 29%, to $103.4 million, compared to $80.4 million for the same period in 2022. This increase was primarily due to a period-over-period increase in gathered and processed gas volumes of 169.3 Mcf per day and 164.2 Mcf per day, respectively. Over 99% of service revenues are included in the Midstream Logistics segment. 25 Table of Contents Product revenue Product revenue consists of commodity sales (including condensate, natural gas residue and NGLs). Product revenue for the three months ended March 31, 2023, decreased by $1.1 million, or 1%, to $173.8 million, compared to $174.9 million for the same period in 2022. Product revenues were flat due to period over period decreases in natural gas, NGL and condensate prices, offset by increased sales volumes of these commodities. NGL prices decreased $23.20 per barrel, or 49%, and condensate prices decreased $20.61 per barrel, or 22%. NGL and condensate sales volumes increased 3.8 million barrels, or 165%. Similarly, natural gas prices decreased period over period by $3.14 per MMBtu, or 70% , while natural gas residue sales volumes increased by 0.3 million MMBtu, or 3%. 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, 2023, cost of sales decreased $4.4 million, or 4%, to $115.9 million, compared to $120.3 million for the same period in 2022. The decrease was primarily driven by lower transportation costs during the current quarter. Cost of sales (exclusive of depreciation and amortization) are included entirely in the Midstream Logistics segment. Operating expenses Operating expenses increased by $6.1 million, or 20%, to $36.0 million for the three months ended March 31, 2023, compared to $29.9 million for the same period in 2022. Of the total increase, $4.5 million was driven by the inclusion of Altus operations for the entire period, versus just over a month during the same period of 2022. The remaining increase is primarily the result of higher compression and electricity expenses from the increased gathered and processed volumes discussed above. Over 99% of operating expenses are included in the Midstream Logistics segment. General and administrative General and administrative expense increased by $4.8 million, or 21%, to $27.5 million for the three months ended March 31, 2023, compared to $22.8 million for the same period in 2022. The increase was driven by higher share-based compensation of $11.4 million related to a full quarter of stock compensation amortization during 2023 versus just over a month of amortization during the same period of 2022 and due to certain members of management opting to receive their bonuses in the form of stock compensation during March 2023. This increase was partially offset by a decrease of $5.7 million of costs related to the Transaction incurred during the first quarter of 2022. Depreciation and amortization Depreciation and amortization expense increased by $7.8 million, or 13%, to $68.9 million for the three months ended March 31, 2023, compared to $61.0 million for the same period in 2022. The increase was primarily driven by the new assets acquired through the Transaction, which closed on February 22, 2022. Other Income (Expense) Interest Expense Interest expense increased by $42.5 million, or 159%, to $69.3 million for the three months ended March 31, 2023, compared to $26.8 million for the same period in 2022. The increase was primarily driven by higher interest rate swap valuation marks of $28.8 million when comparing the first quarter of 2023 to the same period in 2022. The remaining increase relates to higher debt obligations resulting from the comprehensive refinancing completed in June 2022, as well as an overall increase in interest rates associated with the Term Loan Credit Facility (as defined below) and Revolving Credit Facility (as defined below, which carried some variability. Refer to Note—12 Derivatives and Hedging Activities in the Notes to our Consolidated Financial Statements regarding the Company’s strategy in managing interest rate risk. 26 Table of Contents Equity in earnings of unconsolidated affiliates Income from EMI pipelines increased by $18.5 million, or 66%, to $46.5 million for the three months ended March 31, 2023, compared to $27.9 million for the same period in 2022. The increase was primarily due to the acquisition of new EMI pipelines and additional equity interests in the Company’s existing EMI pipeline, PHP, through the Transaction, which closed in February 2022. Equity in earnings of unconsolidated affiliates is included entirely in the Pipeline Transportation segment. 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 investments, equity in earnings from investments recorded using the equity method, share-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. 27 Table of Contents Three Months Ended March 31, 2023 2022 * % Change (In thousands, except percentages) Reconciliation of net income including noncontrolling interests to Adjusted EBITDA Net income including noncontrolling interests $ 4,299 $ 21,389 (80) % Add back: Interest expense 69,308 26,645 160 % Income tax expense 416 676 (38) % Depreciation and amortization 68,854 61,023 13 % Amortization of contract costs 1,655 448 NM Proportionate EMI EBITDA 71,867 40,741 76 % Share-based compensation 17,540 6,132 186 % Loss on disposal of assets 102 110 (7) % Loss on debt extinguishment — 129 (100) % Unrealized (gain) loss on commodity or embedded derivatives (4,987) 2,886 NM Integration Costs 925 6,151 (85) % Transaction Costs 268 5,676 (95) % Other one-time cost or amortization 3,748 1,195 NM Deduct: Warrant valuation adjustment 44 — 100 % Gain on redemption of mandatorily redeemable Preferred Units — 4,493 (100) % Equity income from EMI's 46,464 27,917 66 % Adjusted EBITDA $ 187,487 $ 140,791 33 % * The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to Note 1—Description of the Organization and Summary of Significant Accounting Policies for further information on the Company’s basis of presentation. NM - not meaningful Adjusted EBITDA increased by $46.7 million, or 33%, to $187.5 million for the three months ended March 31, 2023, compared to $140.8 million for the same period in 2022. The increase was primarily driven by increases in add back related to the Company’s proportionate share of its EMI pipelines’ EBITDA of $31.1 million, or 76%, share-based compensation of $11.4 million, or 186%, and depreciation and amortization expense of $7.8 million. The increase in adjusted EBITDA was partially offset by EMI pipelines equity income of $18.5 million, a decrease in net income including noncontrolling interest of $17.1 million, or (80)%, and a decrease in integration costs of $5.2 million, or 85%. 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. The following table presents segment adjusted EBITDA for the three months ended March 31, 2023 and 2022. Also refer to Note 16—Segments in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q for a reconciliation of segment adjusted EBITDA to net income including noncontrolling interests. Three Months Ended March 31, 2023 2022 * % Change (In thousands, except percentages) Midstream Logistics $ 119,249 $ 102,890 16 % Pipeline Transportation 72,290 40,437 79 % Corporate and Other** (4,052) (2,536) 60 % Total segment adjusted EBITDA $ 187,487 $ 140,791 33 % * The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to Note 1—Description of the Organization and Summary of Significant Accounting Policie s in the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q for further information on the Company’s financial statement consolidation. 28 Table of Contents ** 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 increased by $16.4 million, or 16%, to $119.2 million for the three months ended March 31, 2023, compared to $102.9 million for the same period in 2022. The increase was primarily driven by an increase in segment net income including noncontrolling interests of $41.8 million and increases in the add back related to interest expense of $26.6 million due to increased balances on the Company’s credit facilities and depreciation and amortization expense of $7.5 million due to new operations acquired through the Transaction. The increase in adjusted EBITDA was partially offset by decreased in add back related to integration and acquisition costs of $4.1 million. Pipeline Transportation segment adjusted EBITDA increased by $31.9 million, or 79%, to $72.3 million for the three months ended March 31, 2023, compared to $40.4 million for the same period in 2022. The increase was driven by investments in GCX, EPIC and Shin Oak as well as a 100% increase in the Company’s investment in PHP, which were all acquired through the Transaction closed in February 2022. During the three months ended March 31, 2022, the Company only held a 26.67% interest in PHP. 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 2023, the Company’s primary capital spending requirements are related to the PHP expansion project, the midstream infrastructure acquisition and other budgeted capital expenditures for construction of gathering and processing assets and the Company’s contractual debt obligations. The Company will continue to have Apache, Blackstone, I Squared and management reinvest 100% of their 2023 distribution and dividends into shares of our Class A Common Stock. In addition, the Board has approved the Repurchase Program authorizing discretionary purchases of the Company’s Class A Common Stock up to $100 million in aggregate. During the three months ended March 31, 2023, 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 (as defined below), the Company believes that cash from operations 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 over the next 12 months. Additionally, the Company has locked in the floating base rate on its Term Loan Credit Facility with interest rate swaps with a $2.25 billion notional that are effective through May 31, 2025 swapping floating SOFR for a fixed swap rate between 4.38% and 4.49%. Comprehensive Refinancing On June 8, 2022, the Partnership completed the private placement of $1.00 billion aggregate principal amount of 5.875% Senior Notes due 2030, which are fully and unconditionally guaranteed by the Company. The Notes are issued under our Sustainability-Linked Financing Framework and include sustainability-linked features. In addition, the Partnership entered into the revolving credit agreement with Bank of America, N.A., as administrative agent (the “Revolving Credit Agreement”), which provides for a $1.25 billion senior unsecured Revolving Credit Facility maturing on June 8, 2027 (the “Revolving Credit Facility”), and the term loan credit agreement with PNC Bank as administrative agent (the “TLA”), which provides for a $2.00 billion senior unsecured Term Loan Credit Facility maturing on June 8, 2025 (the “Term Loan Credit Facility”). Proceeds from the Notes and the Term Loan Credit Facility were used to repay all outstanding borrowings under our existing credit facilities and to pay fees and expenses related to the offering. Note 8—Debt and Financing Costs in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for further information. 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, 2023 and 2022, capital spending for property, plant and equipment totaled $56.7 million and $29.2 million, respectively and intangible asset purchases of $9.8 million and $3.6 million, respectively. The first quarter of 2023 also included capital spend of $65 million for certain midstream infrastructure assets, as discussed in Note 2 - Business Combinations . 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, 2023, the Company contributed $58.7 million to PHP, for the Capacity Expansion Project, which started in June 2022. 29 Table of Contents 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 over the next 12 months. For further information on EMIs, refer to Note 6—Equity Method Investments in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q. Cash Flow The following tables present cash flows from operating, investing, and financing activities during the periods presented: Three Months Ended March 31, 2023 2022 (In thousands) Cash provided by operating activities $ 119,591 $ 98,393 Cash used in investing activities $ (246,468) $ (19,392) Cash provided by (used in) financing activities $ 122,467 $ (80,084) Operating Activities . Net cash provided by operating activities increased by $21.2 million for the three months ended March 31, 2023 compared with the same period in 2022. The change in the operating cash flows reflected increases in adjustments related to non-cash items of $46.1 million, offset by decreases in working capital of $7.8 million and decreases in net income including noncontrolling interests of $17.1 million. Investing Activities . Net cash used in investing activities increased by $227.1 million for the three months ended March 31, 2023 compared with the same period in 2022. The increase was primarily driven by an increase in net cash (paid for) acquired in acquisition of $138.4 million, an increase in property, plant and equipment expenditures of $29.6 million, an increase in contributions made to unconsolidated affiliates of $58.7 million related to the PHP expansion project and an increase in intangible assets expenditure of $6.2 million. Financing Activities . Net cash provided by financing activities was $122.5 million for the three months ended March 31, 2023, which was comprised of net borrowings from the Company’s Revolving Credit Facility of $142.0 million, offset by cash dividends of $17.1 million and repurchase of Class A common stock of $2.4 million. Net cash used in financing activities was $80.1 million for the three months ended March 31, 2022, which was comprised of redemption of mandatorily redeemable Preferred Units of $60.7 million and net payments on the Company’s long-term debt and Revolving Credit Facility of $19.4 million. Dividend and Distribution Reinvestment Agreement On February 22, 2022, the Company entered into a Dividend and Distribution Reinvestment Agreement (the “Reinvestment Agreement”) with certain stockholders including BCP Raptor Aggregator, LP, BX Permian Pipeline Aggregator, LP, Buzzard Midstream LLC, APA Corporation Apache Midstream LLC, and certain individuals (each, a “Reinvestment Holder”). Under the Reinvestment Agreement, each Reinvestment Holder is obligated to reinvest at least 20% of all distributions on Common Units or dividends on shares of Class A Common Stock in the Company’s Class A Common Stock. The Audit Committee resolved that for the calendar year 2023, 100% of all distributions or dividends received by each Reinvestment Holder would be reinvested in shares of Class A Common Stock. During the first three months of 2023, the Company made cash dividend payments of $17.1 million to holders of Class A Common Stock and Class C Common Units and $87.9 million was reinvested in shares of Class A Common Stock by the Reinvestment Holders. Stock Split On May 19, 2022, the Company announced the Stock Split with respect to its Class A Common Stock and Class C Common Stock in the form of a stock dividend. The Stock Split was accomplished by distributing one additional share of Class A Common Stock for each share of Class A Common Stock outstanding and one additional share of Class C Common Stock for each share of Class C Common Stock outstanding. The additional shares of Common Stock were issued on June 8, 2022 to holders of record at the close of business on May 31, 2022. 30 Table of Contents Dividend On April 19, 2023, the Board declared a cash dividend of $0.75 per share on the Company’s Class A Common Stock which will be payable to stockholders on May 17, 2023. The Company, through its ownership of the general partner of the Partnership, declared a distribution of $0.75 per Common Unit from the Partnership to the holders of Common Units, which will be payable on May 17, 2023. Stock Repurchase Program In February 2023, the Board approved the Repurchase Program, authorizing discretionary purchases of the Company’s Class A Common Stock up to $100.0 million in the aggregate. Repurchases may be made at management’s discretion from time to time, in accordance with applicable securities laws, on the open market or through privately negotiated transactions and may be made pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act. Privately negotiated repurchases from affiliates are also authorized under the Repurchase Program, subject to such affiliates’ interest and other limitations. The repurchases will depend on market conditions and may be discontinued at any time without prior notice. For the three months ended March 31, 2023, the Company repurchased 81,862 shares at a total cost of $2.4 million. For additional information regarding the Repurchase Program, see “Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” in this Quarterly Report on Form 10-Q. For more information regarding the 1% U.S. federal excise tax imposed on certain repurchases of stock by publicly traded U.S. corporations, please refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Business—Share Repurchase Program,” included in this Quarterly Report on Form 10-Q. Liquidity The following table presents a summary of the Company’s key liquidity indicators at the dates presented: March 31, December 31, 2023 2022 (In thousands) Cash and cash equivalents $ 1,984 $ 6,394 Total debt, net of unamortized deferred financing cost $ 3,511,648 $ 3,368,510 Available committed borrowing capacity $ 713,000 $ 855,000 Cash and cash equivalents As of March 31, 2023 and December 31, 2022, the Company had $2.0 million and $6.4 million, respectively, in cash and cash equivalents. Total Debt and Available credit facilities There is no assurance that the financial condition of banks with lending commitments to the 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 We have contractual obligations for principal and interest payments on our Term Loan Credit Facility. See Note 7—Debt and Financing Costs in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q. Under certain of our transportation services agreements with third party pipelines to transport natural gas and NGLs, 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, 2023. Off-Balance Sheet Arrangements As of March 31, 2023, there were no off-balance sheet arrangements. 31 Table of Contents Critical Accounting Policies and Estimates There have been no significant changes to our critical accounting policies and estimates from those disclosed on our Annual Report Form 10-K for the year ended December 31, 2022. Please refer to information regarding our critical accounting policies and estimates included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Commission on March 7, 2023.