What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-04 · 163 added, 120 removed, 187 unchanged (60% of the section changed)

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.

The following discussion and analysis addresses the results of our operations for the three and six month periods ended June 30, 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.

The business combination of Altus Midstream Company (“ALTM”) and BCP Raptor Holdco, LP (“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.

Therefore, BCP’s net assets, carried at historical value, were presented as the predecessor to Kinetik Holdings Inc.’s (the “Company”) historical financial statements and the comparable period presented herein reflects the results of operations of BCP for the three and six months ended June 30, 2022 and results of operations of ALTM from the Closing Date (as defined below) through June 30, 2022.

Unless otherwise noted or the context requires otherwise, references herein to Kinetik Holdings Inc.

2 unchanged sentences

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.

Refer to Note 2—Business Combination in the Notes to Condensed Consolidated Financial Statements for further information.

We are an integrated midstream energy company in the Permian Basin providing comprehensive gathering, transportation, compression, processing and treating services.

3 unchanged sentences

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.

The Company’s corporate office is located in Houston, Texas and our operations are strategically located in the heart of the Delaware Basin.

Our Operations and Segments

1 unchanged sentence

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 Midstream Logistics segment operates under three service offerings, 1) gas gathering and processing, 2) crude oil gathering, stabilization and storage services and 3) produced 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.

27 unchanged sentences

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.

Although the armed conflict in Ukraine generated commodity price upward pressure, and our operations could benefit in an environment of higher natural gas, NGLs and condensate prices, the instability of the 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.

1 unchanged sentence

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.

Also, after a rapid rise of oil and natural gas prices in the first half of 2022, oil and natural gas prices have moderated from their peaks during the past twelve 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.

1 unchanged sentence

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.

The annual rate of inflation in the United States dropped slightly to 3.0% in June 2023 compared to 9.1% in June 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.

In support of these goals, the FOMC raised the target range for the federal funds rate to 5.25% - 5.50% during its meeting in July 2023.

FOMC has 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

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.

Increased interest rates beyond the term of our hedges 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.

Results of Operations

The following table presents the Company’s results of operations for the periods presented:

Three Months Ended

Three Months Ended June 30, Six Months Ended June 30,

% Change 2023 2022 *

(In thousands, except percentages)

2 unchanged sentences

Other revenue 2,222 3,841 (42 %) 6,013 5,717 5 %

Total operating revenues 281,040 257,249 9 %

Total revenues 296,203 335,572 (12 %) 577,243 592,821 (3 %)

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 %

Cost of sales (exclusive of depreciation and amortization) 110,467 152,714 (28 %) 226,344 272,989 (17 %)

Operating expense 39,906 35,280 13 % 75,879 65,151 16 %

Ad valorem taxes 3,889 5,880 (34 %) 9,347 10,033 (7 %)

General and administrative expenses 27,511 22,752 21 %

Depreciation and amortization expenses 68,854 61,023 13 %

General and administrative 22,869 25,960 (12 %) 50,380 48,712 3 %

Depreciation and amortization 69,482 66,581 4 % 138,336 127,604 8 %

Loss on disposal of assets 12,137 8,546 42 % 12,239 8,656 41 %

2 unchanged sentences

Other income (expense):

Interest and other income 294 250 18 %

Interest and other income 1,042 — 100 % 1,336 250 NM

Gain on redemption of mandatorily redeemable Preferred Units — 5,087 (100 %) — 9,580 (100 %)

Gain on embedded derivatives — (2,886) (100 %)

Loss on debt extinguishment — (27,975) (100 %) — (27,975) (100 %)

Gain on embedded derivative — 91,448 (100 %) — 88,562 (100 %)

Interest expense (16,126) (25,347) (36 %) (85,434) (52,121) 64 %

Equity in earnings of unconsolidated affiliates 49,610 47,786 4 % 96,074 75,703 27 %

Total other income (expense), net (22,550) 3,000 NM

Total other income, net 34,526 90,999 (62 %) 11,976 93,999 (87 %)

Income before income taxes 71,979 131,610 (45 %) 76,694 153,675 (50 %)

Income tax expense 311 162 92 % 727 838 (13 %)

Net income including noncontrolling interests $ 4,299 $ 21,389 (80 %)

Net income including noncontrolling interest $ 71,668 $ 131,448 (45 %) $ 75,967 $ 152,837 (50 %)

* 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.

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 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

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.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

For the three months ended June 30, 2023, revenue decreased $39.4 million, or 12%, to $296.2 million, compared to $335.6 million for the same period in 2022.

The decrease was primarily driven by period-to-period lower product revenues related to decreases in commodity prices, partially offset by increases in volumes sold.

Service revenue

Service revenue consists of service fees paid to us by our customers for providing comprehensive gathering, treating, processing and produced water disposal services necessary to bring natural gas, NGLs and crude oil to market.

Service revenue for the three months ended June 30, 2023, increased by $0.5 million, or less than 1%, to $102.6 million, compared to $102.1 million for the same period in 2022.

Period-over-period gathered and processed gas volumes increased 296.9 Mcf per day and 320.4 Mcf per day, respectively, but the contract mix driving the increase in volumes did not lead to a commensurate increase in service fees.

Over 99% of service revenues are included in the Midstream Logistics segment.

Product revenue

Product revenue consists of commodity sales (including condensate, natural gas residue and NGLs).

Product revenue for the three months ended June 30, 2023, decreased by $38.2 million, or 17%, to $191.4 million, compared to $229.7 million for the same period in 2022, primarily due to period over period decreases in commodity prices.

Period over period NGL prices decreased $21.54 per barrel, or 53%, condensate prices decreased $36.71 per barrel or 35% and residue prices decreased $5.75 per MMBtu or 84%.

These decreases were partially offset by increases in NGL and condensate volumes sold of 2.8 million barrels, or 62%.

Natural gas residue sales volumes decreased 10.4 million MMBtu, or 207%.

The period over period increase in NGL and condensate volumes and related decrease in residue volumes was partially driven by running our plants in recovery during the three months ended June 30, 2023 versus rejection for one month during the same period in 2022.

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 June 30, 2023, cost of sales decreased $42.2 million, or 28%, to $110.5 million, compared to $152.7 million for the same period in 2022.

The decrease was primarily driven by period over period decreases in commodity prices as discussed above.

Cost of sales (exclusive of depreciation and amortization) are included entirely in the Midstream Logistics segment.

Operating expenses

Operating expenses increased by $4.6 million, or 13%, to $39.9 million for the three months ended June 30, 2023, compared to $35.3 million for the same period in 2022.

Of the total increase, $4.3 million was driven by higher leased compression and electricity expenses from the increased gathered and processed volumes discussed above.

General and administrative

General and administrative (“G&A”) expense decreased by $3.1 million, or 12%, to $22.9 million for the three months ended June 30, 2023, compared to $26.0 million for the same period in 2022.

The decrease was driven by lower legal fees of $2.6 million that were primarily related to the Transaction and associated integration.

The remaining decrease relates primarily to lower labor costs that is also associated with the integration of the Transaction.

Other Income (Expense)

Loss on debt extinguishment

For the three months ended June 30, 2022, the Company recognized a loss on debt extinguishment of $28.0 million in relation to the comprehensive refinancing completed in June 2022.

Unrealized gain on embedded derivative

For the three months ended June 30, 2022, the Company recognized an unrealized gain on an embedded derivative of $91.4 million.

The unrealized gain was a result of the decrease in fair value of the embedded derivative related to the redeemable noncontrolling interest Preferred Units.

The substantial decrease in fair value of this derivative related to the comprehensive debt refinancing that achieved more favorable interest terms for the Company and the partial redemption of these Preferred Units on July 1, 2022, which was known as of the end of the second quarter.

Interest Expense

Interest expense decreased by $9.2 million, or 36%, to $16.1 million for the three months ended June 30, 2023, compared to $25.3 million for the same period in 2022.

The decrease was primarily driven by interest rate swap valuation marks of $37.4 million when comparing the second quarter of 2023 to the same period in 2022.

The decrease was partially offset by increased interest expense of $26.1 million related to higher debt obligations 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 Condensed Consolidated Financial Statements regarding the Company’s strategy in managing interest rate risk.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

For the six months ended June 30, 2023, revenue decreased $15.6 million, or 3%, to $577.2 million, compared to $592.8 million for the same period in 2022.

The decrease was primarily driven by period-to-period lower product revenues related to decreases in commodity prices, offset by 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.

Service revenue for the six months ended June 30, 2023, increased by $23.5 million, or 13%, to $206.0 million, compared to $182.5 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 330.4 Mcf per day and 339.7 Mcf per day, respectively.

2 unchanged sentences

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 revenue for the six months ended June 30, 2023, decreased by $39.3 million, or 10%, to $365.3 million, compared to $404.6 million for the same period in 2022, primarily due to period over period decreases in commodity prices.

Period over period NGL prices decreased $21.71 per barrel, or 51%, condensate prices decreased $28.39 per barrel or 29% and residue prices decreased $4.37 per MMBtu, or 78%.

The overall decrease was partially offset by increases in NGL and condensate volumes sold of 6.6 million barrels, or 96%.

Natural gas residue sales volumes decreased 11.3 million MMBtu, or 77%.

The period over period increase in NGL and condensate volumes and related decrease in residue volumes was partially driven by running our plants in recovery during the six months ended June 30, 2023 versus rejection for certain months during the same period in 2022.

Product revenues are included entirely in the Midstream Logistics segment.

2 unchanged sentences

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.

For the six months ended June 30, 2023, cost of sales decreased $46.6 million, or 17%, to $226.3 million, compared to $273.0 million for the same period in 2022.

The decrease was primarily driven by a period to period decrease in commodity prices, slightly offset by increases in condensate and NGL volumes sold.

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.

Operating expenses increased by $10.7 million, or 16%, to $75.9 million for the six months ended June 30, 2023, compared to $65.2 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 four months 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.

1 unchanged sentence

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.

General and administrative expense increased by $1.7 million, or 3%, to $50.4 million for the six months ended June 30, 2023, compared to $48.7 million for the same period in 2022.

The increase was driven by higher share-based compensation of $12.5 million related to a full six months of stock compensation amortization during 2023 versus just over four months 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 $10.9 million in labor, professional fees and legal fees that were primarily related to the Transaction and its related integration.

Other Income (Expense)

Loss on debt extinguishment

For the six months ended June 30, 2022, the Company recognized a loss on debt extinguishment of $28.0 million in relation to the comprehensive refinancing completed in June 2022.

Unrealized gain on embedded derivative

For the six months ended June 30, 2022, the Company recognized an unrealized gain on an embedded derivative of $88.6 million.

The unrealized gain was a result of the decrease in fair value of the embedded derivative related to the redeemable noncontrolling interest Preferred Units.

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.

Interest expense increased by $33.3 million, or 64%, to $85.4 million for the six months ended June 30, 2023, compared to $52.1 million for the same period in 2022.

$42.7 million of the increase was driven by higher debt obligations 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.

The increase was partially offset by higher interest rate swap valuation marks of $8.6 million when comparing the six months ended June 30, 2023 to the same period in 2022.

Refer to Note—12 Derivatives and Hedging Activities in the Notes to Condensed Consolidated Financial Statements regarding the Company’s strategy in managing interest rate risk.

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.

Income from EMI pipelines increased by $20.4 million, or 27%, to $96.1 million for the six months ended June 30, 2023, compared to $75.7 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.

16 unchanged sentences

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.

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 interest, 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.

Three Months Ended March 31,

The following table presents a reconciliation of the GAAP financial measure of net income including noncontrolling interest to the non-GAAP financial measure of Adjusted EBITDA.

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 % Change 2023 2022 *

(In thousands, except percentages)

Reconciliation of net income including noncontrolling interests to Adjusted EBITDA

Net income including noncontrolling interests $ 4,299 $ 21,389 (80) %

Reconciliation of net income including noncontrolling interest to Adjusted EBITDA (*)

Net income including noncontrolling interest 71,668 131,448 (45) % $ 75,967 $ 152,837 (50) %

Interest expense 16,126 25,347 (36) % 85,434 52,121 64 %

1 unchanged sentence

Depreciation and amortization 69,482 66,581 4 % 138,336 127,604 8 %

Amortization of contract costs 1,655 448 NM

Amortization of contract costs 1,655 448 NM 3,310 896 NM

Proportionate EMI EBITDA 74,481 71,340 4 % 146,348 112,081 31 %

2 unchanged sentences

Loss on debt extinguishment — 27,975 (100) % — 27,975 (100) %

Unrealized (gain) loss on commodity or embedded derivatives (4,987) 2,886 NM

Integration Costs 41 5,286 (99) % 953 11,438 (92) %

Transaction Costs 2 674 (100) % 270 6,350 (96) %

Other one-time cost or amortization 3,748 1,195 NM

Other one-time cost or amortization 1,104 2,259 (51) % 4,864 3,454 41 %

Unrealized gain on derivatives 2,678 — 100 % 7,643 — 100 %

Warrant valuation adjustment 33 — 100 % 77 — 100 %

Gain on redemption of mandatorily redeemable Preferred Units — 5,087 (100) % — 9,580 (100) %

Gain on embedded derivative — 91,448 (100) % — 88,562 (100) %

Equity income from EMI's 49,610 47,786 4 % 96,074 75,703 27 %

3 unchanged sentences

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%.

Adjusted EBITDA increased by $0.1 million, or 0%, to $208.0 million for the three months ended June 30, 2023, compared to $207.9 million for the same period in 2022.

Adjusted EBITDA increased by $46.8 million, or 13%, to $395.5 million for the six months ended June 30, 2023, compared to $348.7 million for the same period in 2022.

The increase was primarily driven by increases in the Company’s proportionate share of its EMI pipelines’ EBITDA of $34.3 million due to the acquisition of new EMI pipelines and additional equity interests in the Company’s existing EMI pipeline, PHP, through the Transaction.

The remaining increase is primarily due to owning the legacy Altus assets for the entire period during 2023 versus approximately four months during 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.

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

(In thousands, except percentages)

The following table presents segment adjusted EBITDA for the three and six month periods ended June 30, 2023 and 2022.

Also refer to Note 1 7 —Segments in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for a reconciliation of segment adjusted EBITDA to net income including noncontrolling interest.

Three Months Ended June 30, 2023

2023 2022 % Change

Midstream Logistics $ 136,570 $ 140,654 (3 %)

2 unchanged sentences

Total segment adjusted EBITDA $ 207,985 $ 207,919 — %

Six Months Ended June 30,

Midstream Logistics $ 256,362 $ 243,383 5 %

Pipeline Transportation 147,127 111,323 32 %

Corporate and Other** (7,996) (5,997) 33 %

Total segment adjusted EBITDA $ 395,493 $ 348,709 13 %

* 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.

Refer to Note 1—Description of the Organization and Summary of Significant Accounting Policie s in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information on the Company’s financial statement consolidation.

** Corporate and Other represents those results that:

1 unchanged sentence

(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.

Midstream Logistics segment adjusted EBITDA decreased by $4.1 million, or 3%, to $136.6 million for the three months ended June 30, 2023, compared to $140.7 million for the same period in 2022.

The decrease was primarily driven by decrease in add backs related to interest expense of $20.6 million and loss on debt extinguishment of $28.0 million recognized in 2022, partially offset by an increase in segment net income including noncontrolling interests of $41.1 million and increase in add back related to loss on disposal of assets of $3.6 million.

Midstream Logistics segment adjusted EBITDA increased by $13.0 million, or 5%, to $256.4 million for the six months ended June 30, 2023, compared to $243.4 million for the same period in 2022.

The increase was primarily driven by an increase in segment net income including noncontrolling interests of $83.5 million and increases in the add back related to depreciation and amortization expense of $10.0 million due to new operations acquired through the Transaction and loss on disposal of assets of $3.5 million.

The increase in adjusted EBITDA was partially offset by decrease in add back related to interest expense of $47.4 million, loss on debt extinguishment of $28.0 million recognized in 2022 and integration and acquisition costs of $4.7 million.

Pipeline Transportation segment adjusted EBITDA increased by $3.9 million, or 6%, to $74.8 million for the three months ended June 30, 2023, compared to $70.9 million for the same period in 2022.

The increase was driven by investments in GCX, EPIC, Shin Oak and PHP, which were all acquired through the Transaction closed in February 2022.

Pipeline Transportation segment adjusted EBITDA increased by $35.8 million, or 32%, to $147.1 million for the six months ended June 30, 2023, compared to $111.3 million for the same period in 2022.

The increase was driven by investments in GCX, EPIC, Shin Oak and PHP, which were all acquired through the Transaction closed in February 2022.

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 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 June 30, 2023.

Capital Resources and Liquidity

1 unchanged sentence

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.

The Company will continue to have the Reinvestment Holders (as defined below) and management reinvest 100% of their 2023 distributions and dividends into shares of our Class A Common Stock.

In addition, the Board of Directors (the “Board”) has approved the Repurchase Program (as defined below) authorizing discretionary purchases of the Company’s Class A Common Stock up to $100 million in aggregate.

During the six months ended June 30, 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.

3 unchanged sentences

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”).

In addition, the Partnership entered into the revolving credit agreement with Bank of America, N.A.

as administrative agent, 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, 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.

See Note 8—Debt and Financing Costs in the Notes to 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.

During the six months ended June 30, 2023 and 2022, capital spending for property, plant and equipment totaled $160.2 million and $71.4 million, respectively and intangible asset purchases of $14.0 million and $8.5 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.

During the six months ended June 30, 2023, the Company contributed $154.7 million to PHP for the capacity expansion project, which started in June 2022.

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.

For further information on EMIs, refer to Note 6—Equity Method Investments in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.

The following tables present cash flows from operating, investing and financing activities during the periods presented:

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

3 unchanged sentences

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.

Net cash provided by operating activities decreased by $37.9 million for the six months ended June 30, 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 $71.5 million, offset by decreases in working capital of $32.5 million and a decrease in net income including noncontrolling interests of $76.9 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.

Net cash used in investing activities increased by $378.8 million for the six months ended June 30, 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 related to the current year acquisition of midstream infrastructure assets, an increase in property, plant and equipment expenditures of $88.7 million, an increase in contributions made to unconsolidated affiliates of $152.0 million related to the PHP expansion project and an increase in intangible assets expenditure of $5.4 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.

Net cash provided by financing activities was $212.7 million for the six months ended June 30, 2023, which was comprised of net borrowings from the Company’s Revolving Credit Facility of $255.0 million, offset by cash dividends of $36.5 million and repurchase of Class A common stock of $5.8 million.

Net cash used in financing activities was $213.3 million for the six months ended June 30, 2022, which was comprised of redemption of mandatorily redeemable Preferred Units of $152.6 million, payments on debt issuance costs of $37.0 million, cash dividends of $20.5 million and net payments on the Company’s outstanding indebtedness of $3.1 million.

Dividend and Distribution Reinvestment Agreement

2 unchanged sentences

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.

During the first six months of 2023, the Company made cash dividend payments of $36.5 million to holders of Class A Common Stock and Class C Common Units and $175.6 million was reinvested in shares of Class A Common Stock by the Reinvestment Holders.

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.

1 unchanged sentence

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.

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.

On July 20, 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 August 16, 2023.

Share Repurchase Program

In February 2023, the Board approved a share repurchase program (the “Repurchase Program”), authorizing discretionary purchases of the Company’s Class A Common Stock up to $100.0 million in the aggregate.

1 unchanged sentence

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 the three and six months ended June 30, 2023, the Company repurchased 112,312 shares at a total cost of $3.3 million and 194,174 shares at a total cost of $5.8 million, respectively.

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.

The Inflation Reduction Act of 2022 provides for, among other things, the imposition of a 1% U.S.

federal excise tax (the “Stock Buyback Tax”) on certain repurchases of stock by publicly traded U.S.

corporations such as us after December 31, 2022.

Accordingly, the Stock Buyback Tax will apply to our share repurchase program in 2023 and in subsequent taxable years.

The Biden Administration has proposed increasing the amount of the Stock Buyback Tax from 1% to 4%;

however, it is unclear whether such a change in the amount of the Stock Buyback Tax will be enacted and, if enacted, how soon any such change could take effect.

The following table presents a summary of the Company’s key liquidity indicators at the dates presented:

March 31, December 31,

June 30, December 31,

(In thousands)

3 unchanged sentences

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.

As of June 30, 2023 and December 31, 2022, the Company had $2.2 million and $6.4 million, respectively, in cash and cash equivalents.

Total debt and available credit facilities

2 unchanged sentences

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.

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.

As of June 30, 2023, there were no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis