What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-09 · 193 added, 110 removed, 163 unchanged (65% 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 period ended March 31, 2024 , as compared to our results of operations for the same period in 2023 .

The following discussion and analysis addresses the results of our operations for the three and six month period ended June 30, 2024, as compared to our results of operations for the same periods in 2023 .

Please read the following discussion of our financial condition and results of operations in conjunction with the financial statements and notes thereto included elsewhere in this report.

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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 EMI pipelines originating in the Permian Basin with various access points to the U.S.

The Pipeline Transportation segment consists of three EMI pipelines originating in the Permian Basin with various access points to the U.S.

Gulf Coast, as well as Kinetik NGL and Delaware Link Pipelines.

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Gas Gathering and Processing.

The Midstream Logistics segment provides gas gathering and processing services with over 1,600 miles of low and high-pressure steel pipelines 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.

The Midstream Logistics segment provides gas gathering and processing services with over 4,100 miles of low and high-pressure steel pipeline located throughout the Delaware Basin, including over 2,500 miles of gas pipeline acquired through the Durango Acquisition.

Gas processing assets are centralized at five processing complexes with total cryogenic processing capacity of approximately 2.2 Bcf/d as of today and over 2.4 Bcf/d once the Kings Landing Project is complete in early 2025.

Crude Oil Gathering, Stabilization and Storage Services.

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EMI pipelines.

The Company owns the following equity interests in four EMI pipelines in the Permian Basin with access to various points along the U.S.

1) an approximate 55.5% equity interest in Permian Highway Pipeline LLC (“ PHP”), which is operated by Kinder Morgan;

2) 16% equity interest in Gulf Coast Express Pipeline LLC (“ GCX”), which is also operated by Kinder Morgan;

3) 33% equity interest in Breviloba, LLC, the owner of Shin Oak, which is operated by Enterprise Products Operating LLC;

The Company owns the following equity interests in three EMI pipelines in the Permian Basin with access to various points along the U.S.

1) an approximate 55.5% equity interest in Permian Highway Pipeline LLC (“PHP”), which is also owned and operated by Kinder Morgan;

2) 33.0% equity interest in Breviloba, LLC (“Breviloba”), the owner of Shin Oak (“Shin Oak”), which is operated by Enterprise Products Operating LLC;

and 3) 15% equity interest in Epic Crude Holdings, LP (“EPIC”), which is operated by EPIC Consolidated Operations, LLC.

Kinetik NGL Pipelines.

The Kinetik NGL Pipelines consist of approximately 96 miles of NGL pipelines connecting our East Toyah and Pecos complexes to Waha, including our 20-inch Dewpoint pipeline that spans 40 miles, and our 30 mile, 16-inch Brandywine Pipeline connecting to our Diamond Cryogenic complex.

The Kinetik NGL Pipelines consist of approximately 96 miles of NGL pipelines connecting our East Toyah and Pecos complexes to Waha, including our 20-inch Dewpoint pipeline that spans over 40 miles, and our 30 mile, 16-inch Brandywine Pipeline connecting to our Diamond Cryogenic complex.

The Kinetik NGL pipeline system has a capacity of approximately 560 MBbl/d.

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Recent Developments

On April 2, 2024, Kinetik Receivables LLC (“Kinetik Receivables”), a bankruptcy remote special purpose entity formed as a direct subsidiary of Kinetik Holdings LP, a Delaware limited partnership ( the “Partnership”) , entered into an accounts receivable securitization facility with an initial facility limit of $150 million (“A/R Facility”) which has a scheduled termination date of April 1, 2025, with renewal options.

Pursuant to the terms of the A/R Facility, Kinetik Receivables acquires certain receivables from the Partnership and other subsidiaries of the Company and makes further sales of such receivables to certain purchasers.

The net proceeds of the A/R Facility were used, together with cash on hand, to repay a portion of the outstanding borrowings under the existing term loan credit facility (“Term Loan Credit Facility”), lowering the remaining balance to $1.00 billion.

Durango Acquisition

On June 24, 2024, the Company consummated the previously announced Durango Acquisition for an adjusted purchase price of approximately $845.2 million, consisting of (i) $358.0 million of cash consideration paid at closing, (ii) approximately 3.8 million shares of Class C Common Stock and an equivalent number of OpCo Units, issued at closing and (iii) approximately 7.7 million shares of Class C Common Stock and an equivalent number of OpCo Units to be issued on July 1, 2025.

Durango Seller is also entitled to an earn out of up to $75.0 million in cash contingent upon the completion and placing into service of the Kings Landing Project in Eddy County, New Mexico, which is currently under construction.

This earn out is subject to reduction based on actual capital costs associated with the Kings Landing Project.

This transaction was accounted for as a business combination pursuant to ASC 805.

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

The Durango Acquisition significantly expands Kinetik’s footprint into New Mexico and the Northern Delaware Basin, expanding Kinetik’s processing capacity by 225 million cubic feet per day and doubling its existing gathering pipeline mileage.

An additional 200 MMcf/d of processing capacity will be added upon completion of the Kings Landing Project.

GCX Divestiture

On June 4, 2024, the Company consummated the previously announced transaction contemplated by the GCX Purchase Agreement to sell its 16% equity interest in GCX for an adjusted purchase price of $524.4 million, consisting of $494.4 million of cash, including working capital adjustments at closing and an additional $30.0 million earn out in cash upon the approval by the GCX Board of Directors of one or more capital projects that achieve certain capacity expansion criteria.

Net cash proceeds of $494.4 million were received on June 4, 2024.

The Company recognized a gain of $59.9 million upon closing of the GCX Sale.

On April 2, 2024, Kinetik Receivables, a bankruptcy remote special purpose entity formed as a direct subsidiary of the Partnership, entered into an A/R Facility with an initial facility limit of $150.0 million with PNC Bank, as the administrative agent, and certain purchasers party thereto from time to time, which has a scheduled termination date of April 1, 2025.

Pursuant to the A/R Facility, the Company and certain of its subsidiaries continuously transfer receivables to Kinetik Receivables and Kinetik Receivables transfers ownership and control of certain receivables that meet certain qualifying conditions to third-party purchasers in exchange for cash.

Certain receivables are held by Kinetik Receivables and are pledged to secure the collectability of the sold receivables.

The amount available for purchases of receivables at any one time under the A/R Facility is limited to an amount calculated based on the outstanding balance of eligible receivables sold to the purchasers, subject to certain reserves, concentration limits, and other limitations.

As of June 30, 2024, eligible accounts receivable of $148.8 million was pledged to the A/R Facility as collateral and $1.2 million was available to be invested by the purchasers.

The net proceeds of the A/R Facility were used, together with cash on hand, to repay a portion of the outstanding borrowings under the existing Term Loan Credit Facility, lowering the remaining balance to $1.00 billion.

As a result, the maturity of the Term Loan Credit Facility extended to December 8, 2026.

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Our product sales revenue is exposed to commodity price fluctuations.

Therefore, commodity price decline and sustained periods of low natural gas, condensate and NGL prices could have an adverse effect on our product revenue stream.

Therefore, commodity price decline and sustained periods of low natural gas and NGL prices could have an adverse effect on our product revenue stream.

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.

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Inflation and Interest Rates

The annual rate of inflation in the United States was 3.25% in March 2024 compared to 5.0% in March 2023, as measured by the Consumer Price Index.

The annual rate of inflation in the United States was 3.0% in June 2024 as measured by the Consumer Price Index.

However, the Federal Open Market Committee (“FOMC”) maintains its long-term goals of maximum employment and inflation at the rate of 2.00%.

In support of these goals, the FOMC maintained the target range for the federal funds rate to 5.25% - 5.50% during its meeting in March 2024.

During the meeting, the FOMC noted the economic outlook is uncertain and the FOMC remains highly attentive to inflation risk.

It does not expect to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.00%.

Elevated interest rates beyond the term of our hedges will increase our financing costs and could 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.

In support of these goals, the FOMC maintained the target range for the federal funds rate at 5.25% - 5.50% during its meeting in July 2024.

During the meeting, the FOMC noted that in considering any adjustments to the target range for the federal funds rate, the FOMC will carefully assess incoming data, the evolving outlook, and the balance of risks.

The FOMC does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.00%.

Elevated interest rates beyond the term of our hedges may increase our financing costs and could 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 March 31,

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

2024 2023 % Change 2024 2023

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Other revenue 2,940 2,222 32 % 5,572 6,013 (7 %)

Total operating revenues

341,394 281,040 21 %

Total revenues 359,457 296,203 21 % 700,851 577,243 21 %

Operating costs and expenses:

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146,513 110,467 33 % 300,200 226,344 33 %

Operating expenses

43,406 35,973 21 %

Operating expense 44,068 39,906 10 % 87,474 75,879 15 %

Ad valorem taxes 6,212 3,889 60 % 12,504 9,347 34 %

General and administrative expenses

34,136 27,511 24 %

Depreciation and amortization expenses

General and administrative 31,091 22,869 36 % 65,227 50,380 29 %

Depreciation and amortization 75,061 69,482 8 % 148,667 138,336 7 %

(Gain) loss on disposal of assets

(76) 12,137 (101 %) 4,090 12,239 (67 %)

Loss on disposal of assets 4,166 102 NM

Total operating costs and expenses 302,869 258,750 17 % 618,162 512,525 21 %

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Interest and other income 309 1,042 (70 %) 400 1,336 (70 %)

Interest expense (47,467) (69,308) (32 %)

Loss on debt extinguishment (525) — 100 % (525) — 100 %

Gain on sale of equity method investments

59,884 — 100 % 59,884 — 100 %

Interest expense (54,049) (16,126) NM (101,516) (85,434) 19 %

Equity in earnings of unconsolidated affiliates 55,955 49,610 13 % 116,424 96,074 21 %

Total other income (expense), net 13,093 (22,550) 158 %

Income before income taxes 39,194 4,715 NM

Income tax expenses

Net income including noncontrolling interest $ 35,407 $ 4,299 NM

(1) Cost of sales (exclusive of depreciation and amortization) is net of gas service revenues totaling $44.5 million and $30.5 million for the three months ended March 31, 2024 and 2023, respectively for certain volumes where we act as principal.

Total other income, net

61,574 34,526 (78 %) 74,667 11,976 NM

Income before income taxes 118,162 71,979 64 % 157,356 76,694 105 %

Income tax expense 9,214 311 NM 13,001 727 NM

Net income including noncontrolling interest $ 108,948 $ 71,668 52 % $ 144,355 $ 75,967 90 %

(1) Cost of sales (exclusive of depreciation and amortization) is net of gas service revenues totaling $54.7 million and $38.1 million for the three months ended June 30, 2024 and 2023, respectively, and $99.2 million and $68.5 million for the six months ended June 30, 2024 and 2023, respectively, for certain volumes, where we act as principal.

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Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

For the three months ended March 31, 2024, revenue increased $60.4 million, or 21%, to $341.4 million, compared to $281.0 million for the same period in 2023.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

For the three months ended June 30, 2024, revenue increased $63.3 million, or 21%, to $359.5 million, compared to $296.2 million for the same period in 2023.

The increase was primarily driven by higher product revenue related to increased commodity prices and increased natural gas residue volumes sold.

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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 March 31, 2024, decreased by $1.2 million, or 1%, to $102.2 million, compared to $103.4 million for the same period in 2023.

This decrease was driven by lower period over period crude gathering fees of $1.1 million.

Service revenue for the three months ended June 30, 2024, decreased by $6.1 million, or 6%, to $96.4 million, compared to $102.6 million for the same period in 2023.

This decrease was driven by lower period-over-period gas gathering fees of $6.2 million.

Period-over-period gathered and processed gas volumes increased by 95.4 Mcf per day, or 5% and by 121.9 Mcf per day, or 8%, respectively.

However, the total gathered and processed gas volumes where we function as the agent decreased period over period causing the change in net gas gathering fees presented as revenues to be flat.

However, the total gathered and processed gas volumes where we function as the agent decreased period over period causing the change in net gas gathering fees presented as revenues to be down 6%.

Over 91% of service revenues are included in the Midstream Logistics segment.

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

Product revenue for the three months ended March 31, 2024, increased by $62.7 million, or 36%, to $236.6 million, compared to $173.8 million for the same period in 2023, primarily due to increased residue gas volumes sold and higher commodity prices.

Period over period natural gas residue volumes sold increased 4.4 million MMBtu, or 45% and the period over period natural gas price realized increased by $0.62 per MMBtu, or 49%.

Further contributing to the quarter over quarter increased product sales, composite NGL prices increased $8.59 per barrel, or 36%, and condensate prices increased $2.93 per barrel or 4%.

Partially offsetting these increases, NGL and condensate volumes sold decreased 0.2 million barrels, or 3%.

Product revenue for the three months ended June 30, 2024, increased by $68.7 million, or 36%, to $260.1 million, compared to $191.4 million for the same period in 2023, primarily due to increased residue gas volumes sold and higher commodity prices.

Period over period natural gas residue volumes sold increased 15.1 million MMBtu, or over 900%.

Further contributing to the quarter over quarter increase, composite NGL prices increased $12.21 per barrel, or 64%, and condensate prices increased $8.40 per barrel or 12%.

Partially offsetting these increases, NGL and condensate volumes sold decreased 2.1 million barrels, or 27% and residue gas prices decreased $0.37 per MMBtu, or 25%.

Product revenues are included entirely in the Midstream Logistics segment.

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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, 2024, cost of sales increased $37.8 million, or 33%, to $153.7 million, compared to $115.9 million for the same period in 2023.

The increase was primarily driven by aforementioned period over period increases in commodity prices and natural gas residue volumes sold.

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

Operating expenses

Operating expenses increased by $7.4 million, or 21%, to $43.4 million for the three months ended March 31, 2024, compared to $36.0 million for the same period in 2023.

Of the total increase, $1.8 million relates to increased water gathering operating expenses, primarily associated with the assets that were acquired during the first quarter of 2023.

The remaining increase relates to higher electricity, internal labor, lubricants and chemicals, and leased compression associated with the increased period over period gathered and processed gas volumes.

For the three months ended June 30, 2024, cost of sales increased $36.0 million, or 33%, to $146.5 million, compared to $110.5 million for the same period in 2023.

The increase was primarily driven by aforementioned period over period increases in commodity prices and natural gas residue volumes sold, but were slightly offset by residue price decreases and NGL and condensate volume decreases.

Over 99% of cost of sales (exclusive of depreciation and amortization) is included entirely in the Midstream Logistics segment.

General and administrative expenses

General and administrative expenses increased by $6.6 million, or 24% to $34.1 million for the three months ended March 31, 2024, compared to $27.5 million for the same period in 2023.

The increase was mainly driven by an increase in share-based compensation of $5.0 million due to additional incentive units granted to employees during the first quarter of 2024.

General and administrative expenses increased by $8.2 million, or 36% to $31.1 million for the three months ended June 30, 2024, compared to $22.9 million for the same period in 2023.

The increase was mainly driven by an increase in share-based compensation of $1.8 million due to new RSUs and PSUs granted to employees during the first half of 2024 and increases in professional fees of $2.2 million, legal fees of $1.7 million and bank fees of $0.8 million primarily due to costs associated with the GCX Sale and the Durango Acquisition.

(Gain) loss on disposal of assets

The Company recognized a gain on disposal of assets of $0.1 million for the three months ended June 30, 2024, compared to a loss of $12.1 million for the same period in 2023.

The loss incurred during the second quarter of 2023 was primarily related to the write off of an obsolescent train at the Pecos Bend Plant.

Other Income (Expense)

Interest expense

Interest expense decreased by $21.8 million, or 32%, to $47.5 million for the three months ended March 31, 2024, compared to $69.3 million for the same period in 2023.

The decrease was primarily driven by realized gains and favorable valuation marks on our interest rate swaps totaling $13.3 million for the first quarter of 2024 compared to unfavorable valuation marks of $17.2 million for the same period in 2023.

Interest expense increased by $37.9 million, or 235%, to $54.0 million for the three months ended June 30, 2024, compared to $16.1 million for the same period in 2023.

The increase was primarily driven by a decrease in unrealized gains from favorable valuation marks on our interest rate swaps of $36.6 mainly due less fluctuation in the forward interest rate curves during 2024 as well as the termination of one existing and partial termination of another interest rate swap contract during the fourth quarter of 2023.

Refer to Note—11 Derivatives and Hedging Activities in the Notes to Condensed Consolidated Financial Statements regarding the Company’s strategy in managing interest rate risk.

This decrease was partially offset by higher period over period interest expense of $7.2 million due primarily to higher realized interest rates .

Gain on sale of equity method investment

Gain on sale of equity method investment increased by $59.9 million, or 100%, for the three months ended June 30, 2024 compared to the same period in 2023.

The increase was related to the GCX Sale consummated in the second quarter of 2024.

Income Tax Expense

Income tax expense increased by $8.9 million for the three months ended June 30, 2024 compared to the same period in 2023.

The increase was primarily due to the release of the valuation allowance against deferred tax assets in December 2023 and the recognition of federal income tax of $8.6 million for the three months ended June 30, 2024 compared to nil for same period in 2023.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

For the six months ended June 30, 2024, revenue increased $123.6 million, or 21%, to $700.9 million, compared to $577.2 million for the same period in 2023.

The increase was primarily driven by higher period-over-period product revenue due to increased commodity prices and increased natural gas residue 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 six months ended June 30, 2024, decreased by $7.4 million, or 4%, to $198.6 million, compared to $206.0 million for the same period in 2023.

The decrease was primarily driven by lower period-over-period gas gathering fees of $6.6 million.

Total gathered and processed gas volumes increased 150.9 Mcf per day, or 9% and 163.0 Mcf per day, or 12%, respectively.

However, the total gathered and processed gas volumes where we function as the agent decreased period over period causing the change in net gas gathering fees presented as revenues to be down 4%.

Over 91% 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 six months ended June 30, 2024, increased by $131.4 million, or 36%, to $496.7 million, compared to $365.3 million for the same period in 2023, primarily due to period-over-period increases in commodity prices and residue gas volumes sold.

Period over period NGL prices increased $10.46 per barrel, or 49%, condensate prices increased $5.75 per barrel or 8% and residue prices increased $0.09 per MMBtu, or 6%.

The increase was also driven by period-over-period increase in natural gas residue sales volumes of 23.2 million MMBtu, or 203%.

The overall increase was partially offset by decreases in NGL and condensate volumes sold of 2.3 million barrels, or 16%.

Product revenues are included entirely in the Midstream Logistics segment.

Operating Costs and Expenses

Costs of sales (exclusive of depreciation and amortization)

For the six months ended June 30, 2024, cost of sales increased $73.9 million, or 33%, to $300.2 million, compared to $226.3 million for the same period in 2023.

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

Over 99% of cost of sales (exclusive of depreciation and amortization) is included entirely in the Midstream Logistics segment.

Operating Expense

Operating expenses increased by $11.6 million, or 15%, to $87.5 million for the six months ended June 30, 2024, compared to $75.9 million for the same period in 2023.

Of the total increase, 3.2 million was driven by internal labor, $2.6 million due to higher electricity costs, 2.1 million due to maintenance and 1.4 million due to lubricants and chemicals.

These increases were primarily driven by the increased gathered and processed volumes discussed above.

Over 99% of operating expenses are included in the Midstream Logistics segment.

General and administrative expenses

General and administrative expenses increased by $14.8 million, or 29% to $65.2 million for the six months ended June 30, 2024, compared to $50.4 million for the same period in 2023.

The increase was mainly driven by an increase in share-based compensation of $6.9 million due to new RSUs and PSUs granted during the first half of 2024 and by increases in professional fees of $2.1 million, legal fees of $1.5 million and bank fees of $0.6 million primarily due to costs associated with the GCX Sale and Durango Acquisition.

Other Income (Expense)

Interest Expense

Interest expense increased by $16.1 million, or 19%, to $101.5 million for the six months ended June 30, 2024, compared to $85.4 million for the same period in 2023.

The increase was driven by overall higher period over period interest expense of $5.8 million due primarily to higher variable interest rate, a decrease in capitalized interest expense of $5.1 million given the completion of the PHP expansion in December of 2023, and a net decrease in realized and unrealized gains on interest rate swaps of $4.6 million comparing to the same period in 2023.

Refer to Note—11 Derivatives and Hedging Activities in the Notes to Condensed Consolidated Financial Statements regarding the Company’s strategy in managing interest rate risk.

Gain on sale of equity method investment

Gain on sale of equity method investment increased by $59.9 million, or 100%, for the six months ended June 30, 2024 compared to the same period in 2023.

The increase was related to the GCX Sale consummated in the second quarter of 2024.

Equity in earnings of unconsolidated affiliates

Income from EMI pipelines increased by $14.0 million, or 30%, to $60.5 million for the three months ended March 31, 2024, compared to $46.5 million for the same period in 2023.

The increase was driven by higher profitability from the Company’s investment in PHP due to its expanded capacity that was placed into service in December 2023.

Income from EMI pipelines increased by $20.4 million, or 21%, to $116.4 million for the six months ended June 30, 2024, compared to $96.1 million for the same period in 2023.

An increase of $23.8 million was driven by higher profitability from the Company’s investment in PHP due to its expanded capacity that was placed into service in December 2023.

This increase was partially offset by the decrease in equity in earnings of unconsolidated affiliates from GCX of $3.4 million due to the GCX Sale consummated in the second quarter of 2024.

Income Tax Expense

Income tax expense increased by $12.3 million for the six months ended June 30, 2024 compared to the same period in 2023.

The increase was primarily due to the release of the valuation allowance against deferred tax assets in December 2023 and the recognition of federal income tax of $11.8 million for six months ended June 30, 2024 compared to nil for the same period in 2023.

Key Performance Metrics

Adjusted EBITDA

Adjusted EBITDA is defined as net income including noncontrolling interests adjusted for interest, taxes, depreciation and amortization, warrant valuation, loss on disposal of assets, the proportionate EBITDA from our EMI pipelines, equity income from investments recorded using the equity method, share-based compensation expense, noncash increases and decreases related to trading and hedging activities, integration and transaction costs and extraordinary losses and unusual or non-recurring charges.

Adjusted EBITDA is defined as net income including noncontrolling interests adjusted for interest, taxes, depreciation and amortization, warrant valuation, gain or loss on disposal of assets and debt extinguishment, the proportionate EBITDA from our EMI pipelines, equity income and gain from sale of investments recorded using the equity method, share-based compensation expense, noncash increases and decreases related to hedging activities, integration and transaction costs and 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.

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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.

The GAAP measure used by the Company that is most directly comparable to Adjusted EBITDA is net income including noncontrolling interest.

Adjusted EBITDA should not be considered as an alternative to the GAAP measure of net income including noncontrolling interest 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 interest.

Adjusted EBITDA should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP.

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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 March 31,

2024 2023 % Change

Three Months Ended June 30,

Six Months Ended June 30,

2024 2023 % Change 2024 2023 % Change

(In thousands, except percentages)

Reconciliation of net income including noncontrolling interest to Adjusted EBITDA

Net income including noncontrolling interest $ 35,407 $ 4,299 NM

Interest expense 47,467 69,308 (32 %)

Income tax expense 3,787 416 NM

Net income including noncontrolling interest $ 108,948 $ 71,668 52 % $ 144,355 $ 75,967 90 %

Interest expense 54,049 16,126 NM 101,516 85,434 19 %

Income tax expense 9,214 311 NM 13,001 727 NM

Depreciation and amortization 75,061 69,482 8 % 148,667 138,336 7 %

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Share-based compensation 15,136 13,299 14 % 37,697 30,839 22 %

Loss on disposal of assets 4,166 102 NM

Commodity hedging unrealized loss (gain)

15,088 (4,987) NM

Integration costs

(Gain) Loss on disposal of assets

(76) 12,137 (101 %) 4,090 12,239 (67 %)

Transaction costs

Loss on debt extinguishment 525 — 100 % 525 — 100 %

Commodity hedging unrealized loss

— — — % 6,883 — 100 %

Integration costs

2,510 41 NM 2,551 953 168 %

Transaction costs

3,232 2 NM 3,232 270 NM

Other one-time cost or amortization 2,581 1,104 134 % 5,006 4,864 3 %

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Warrant valuation adjustment — 33 (100 %) — 77 (100 %)

Commodity hedging unrealized gain 8,205 2,678 NM — 7,643 (100 %)

Gain on sale of equity method investment

59,884 — 100 % 59,884 — 100 %

Equity income from EMI's 55,955 49,610 13 % 116,424 96,074 21 %

1 unchanged sentence

NM - not meaningful

Adjusted EBITDA increased by $46.1 million, or 25%, to $233.6 million for the three months ended March 31, 2024, compared to $187.5 million for the same period in 2023.

Adjusted EBITDA increased by $26.4 million, or 13%, to $234.4 million for the three months ended June 30, 2024, compared to $208.0 million for the same period in 2023.

As discussed in the Item 2.

“ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations ” to this Quarterly Report on Form 10-Q, $7.7 million of the increase was due to increased total operating revenue of $60.4 million, partially offset by increased cost of sales (exclusive of depreciation and amortization) of $37.8 million and an increase in operating expenses, ad valorem taxes and General and Administrative Expenses totaling of $14.9 million.

The increase was also driven by (i) higher proportionate EMI EBITDA of $16.5 million due to expanded capacity on PHP that was placed into service in December 2023 (ii) increases in the add backs related to unrealized loss (gain) on commodity hedging activities and share-based compensation.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations to this Quarterly Report Form 10-Q, $12.5 million of the increase was due to increased total operating revenue of $63.3 million, partially offset by increased cost of sales (exclusive of depreciation and amortization), operating expenses, ad valorem taxes and general and administrative expense of $50.8 million.

The remaining increase was primarily driven by higher proportionate EMI EBITDA of $11.4 million.

Adjusted EBITDA increased by $72.5 million, or 18%, to $468.0 million for the six months ended June 30, 2024, compared to $395.5 million for the same period in 2023.

As discussed in the Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations to this Quarterly Report Form 10-Q, $20.2 million of the increase was due to increased total operating revenue of $123.6 million, partially offset by increased cost of sales (exclusive of depreciation and amortization), operating expenses, ad valorem taxes and general and administrative expenses of $103.5 million.

The increase was also driven by (i) higher proportionate EMI EBITDA of $28.0 million primarily related to the expanded capacity at PHP that was placed into service during December 2023 and (ii) increases in the add backs related to unrealized loss on commodity hedging activities of $14.5 million and stock based compensation of $6.9 million.

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, 2024 and 2023.

The following table presents Segment Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023.

Also refer to Note 16—Segments in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for a reconciliation of Segment Adjusted EBITDA to net income before income taxes.

Three Months Ended March 31,

2024 2023 % Change

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

2024 2023 % Change 2024 2023 % Change

(In thousands, except percentages)

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(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 $23.7 million, or 20%, to $143.0 million for the three months ended March 31, 2024, compared to $119.2 million for the same period in 2023.

The increase was primarily due to the increased total operating revenue of $52.8 million, partially offset by increases in cost of sales (exclusive of depreciation and amortization) of $37.8 million and operating expense of $7.2 million.

Midstream Logistics Segment Adjusted EBITDA increased by $11.0 million, or 8%, to $147.6 million for the three months ended June 30, 2024, compared to $136.6 million for the same period in 2023.

The increase was primarily due to the increased total operating revenue of $55.1 million, partially offset by increases in cost of sales (exclusive of depreciation and amortization) of $36.0 million and operating expense and ad valorem taxes of $5.8 million.

The reasons for the fluctuations are discussed in Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations to this Quarterly Report on Form 10-Q.

The increase was also driven by an increase in add back related to unrealized loss (gain) on commodity hedging activities of $20.1 million.

Pipeline Transportation Segment Adjusted EBITDA increased by $23.2 million, or 32%, to $95.5 million for the three months ended March 31, 2024, compared to $72.3 million for the same period in 2023.

The increase was primarily driven by higher proportionate EMI EBITDA of $16.5 million due to the expanded capacity on PHP that was placed into service in December 2023 and an increase in segment revenues of $7.6 million from the Delaware Link Pipeline that was placed into service during October 2023.

Midstream Logistics Segment Adjusted EBITDA increased by $34.2 million, or 13%, to $290.5 million for the six months ended June 30, 2024, compared to $256.4 million for the same period in 2023.

The increase was primarily due to the increased total operating revenue of $107.8 million, partially offset by increases in cost of sales (exclusive of depreciation and amortization) of $73.8 million and operating expense and ad valorem taxes of $13.3 million.

The reasons for the fluctuations are discussed in Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations to this Quarterly Report on Form 10-Q.

The increase was also driven by an increase in add back related to unrealized loss on commodity hedging activities of $14.5 million compared to the same period in 2023.

Pipeline Transportation Segment Adjusted EBITDA increased by $18.7 million, or 25%, to $93.5 million for the three months ended June 30, 2024, compared to $74.8 million for the same period in 2023.

The increase was primarily driven by higher proportionate EMI EBITDA of $11.4 million due to increases in equity income from EMIs, which was mainly related to expanded capacity in PHP that was placed into service starting in December 2023.

The increase was also driven by the increase in operating revenue of $8.2 million.

The reasons for the fluctuations are discussed in Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations to this Quarterly Report on Form 10-Q.

Pipeline Transportation Segment Adjusted EBITDA increased by $41.9 million, or 28%, to $189.1 million for the six months ended June 30, 2024, compared to $147.1 million for the same period in 2023.

The increase was primarily driven by higher proportionate EMI EBITDA of $28.0 million due to increases in equity income.

The remaining increase was driven by increased operating revenue of $15.8 million.

The reasons for the fluctuations are discussed in Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations to this Quarterly Report on Form 10-Q.

Contractual Obligations

We have contractual obligations for principal and interest payments on our 2028 Notes, 2030 Notes and Term Loan Credit Facility.

We have contractual obligations for principal and interest payments on our 2028 Notes, 2030 Notes, and under the Term Loan Credit Facility, Revolving Credit Facility and A/R Facility.

See Note 7 —Debt and Financing Costs in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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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 acquisitions, including the EMI pipelines and associated subsequent construction costs.

For 2024, the Company’s primary capital spending requirements are expected to relate to the Durango Acquisition and budgeted capital expenditures for construction and maintenance of gathering and processing assets, , the Company’s contractual debt obligations and quarterly cash dividends.

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 2024, the Company’s primary capital spending requirements are related to the business and midstream infrastructure acquisitions and other budgeted capital expenditures for construction and maintenance of gathering and processing assets, the Company’s contractual debt obligations and quarterly cash dividends.

In addition, the Company may repurchase its Class A Common Stock pursuant to the Share Repurchase Program from time to time.

During the three months ended March 31, 2024, the Company’s primary sources of cash were distributions from the EMI pipelines, borrowings under the Revolving Credit Facility and cash generated from operations.

During the six months ended June 30, 2024, the Company’s primary sources of cash were distributions from the EMI pipelines, borrowings under the Revolving Credit Facility and A/R Facility, proceeds from the GCX Sale and cash generated from operations.

Based on the Company’s current financial plan, the Company believes that cash from operations and distributions from the EMI pipelines, and remaining borrowing capacity on our credit facilities 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.

The Company expects to fund the cash consideration required to close the Durango Acquisition (“Closing Cash Consideration”) with proceeds from the GCX Sale.

However, if the Durango Acquisition closes prior to the GCX Sale, the Company expects to fund the Closing Cash Consideration with borrowings under its revolving credit facility.

On April 2, 2024, Kinetik Receivables, a bankruptcy remote special purpose entity formed as a direct subsidiary of the Partnership , entered into an A/R Facility which has a scheduled termination date of April 1, 2025 with renewal options.

On April 2, 2024, Kinetik Receivables, a special purpose entity formed as a direct subsidiary of the Partnership , entered into an A/R Facility which has a scheduled termination date of April 1, 2025.

Certain receivables are held by Kinetik Receivables and are pledged to secure the collectability of the sold receivables.

As of June 30, 2024, eligible accounts receivable of $148.8 million was pledged to the A/R Facility as collateral and $1.2 million was available to be invested by the purchasers.

The net proceeds of the A/R Facility were used, together with cash on hand, to repay a portion of the outstanding borrowings under the Term Loan Credit Facility, lowering the remaining balance to $1.00 billion.

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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, 2024 and 2023, capital spending for property, plant and equipment totaled $58.0 million and $58.9 million, respectively, intangible asset purchases totaled $2.2 million and $9.8 million, respectively, and contributions to EMI totaled $3.3 million and $58.7 million, respectively.

The decrease in capital spending was mainly due to the completion of the Delaware Link Pipeline and PHP expansion projects in the second half of 2023.

Management believes its existing gathering, processing and transmission infrastructure capacity is capable of fulfilling its midstream contracts to service its customers.

During the six months ended June 30, 2024 and 2023, capital spending for property, plant and equipment totaled $97.4 million and $160.2 million, respectively, intangible asset purchases totaled $2.8 million and $14.0 million, respectively, and contributions to EMI totaled $3.3 million and $154.7 million, respectively.

The decrease in capital spending was mainly due to completion of the Delaware Link Pipeline and PHP expansion projects in the second half of 2023.

Management believes its existing gathering, processing and transmission infrastructure capacity and future planned projects are capable of fulfilling its midstream contracts to service its customers.

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.

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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)

Cash provided by operating activities $ 279,222 $ 231,047

Cash used in investing activities $ (61,980) $ (246,468)

Cash provided by (used in) investing activities

$ 43,302 $ (447,903)

Cash (used in) provided by financing activities

$ (314,485) $ 212,699

Operating activities .

Net cash provided by operating activities increased by $34.1 million for the three months ended March 31, 2024 compared with the same period in 2023.

The change in the operating cash flows reflected (i) an increase in net income including noncontrolling interests of $31.1 million;

(ii) an increase in net income reconciliation adjustments of $5.8 million, which was mainly driven by increases in distributions from EMIs of $9.4 million, share-based compensation of $5.0 million, loss on disposal of assets $4.1 million and depreciation and amortization expense of $4.8 million, partially offset by a decrease in net derivative activity of $7.0 million and an increase in earnings from EMIs of $14.0 million and (iii) a decrease in working capital of $2.8 million.

Net cash provided by operating activities increased by $48.2 million for the six months ended June 30, 2024 compared with the same period in 2023.

The change in the operating cash flows reflected (i) an increase in net income including noncontrolling interest of $68.4 million;

(ii) a decrease in adjustments related to non-cash items of $18.2 million, which was primarily driven by a gain of $59.9 million recognized on the GCX Sale and an increase in equity in earnings from EMI’s of $20.4 million, partially offset by increases in distributions from EMI’s of $16.4 million, deferred income taxes of $11.8 million, depreciation and amortization expense of $10.3 million and a decrease in derivative activities of $23.7 million and (iii) a decrease in working capital of $2.0 million.

Investing activities .

Net cash used in investing activities decreased by $184.5 million for the three months ended March 31, 2024 compared with the same period in 2023.

The decrease was primarily driven by decreases in cash outflows related to the business acquisition of $125.0 million for certain midstream assets made in the first quarter of 2023 and contributions made to unconsolidated affiliates of $55.4 million, as the PHP expansion project reached commercial in service during December 2023.

Net cash provided by investing activities was $43.3 million for the six months ended June 30, 2024, compared to net cash used in investing activities of $447.9 million in the same period of 2023.

The change was mainly driven by the cash proceeds from the GCX Sale of $494.4 million and a reduction of investments in EMI’s of $151.4 million as the PHP expansion project was completed and put into service in December 2023, partially offset by increased outgoing cash for acquisitions of $224.3 million related to the Durango Acquisition.

Financing activities .

Net cash used in financing activities was $86.5 million for the three months ended March 31, 2024, which was primarily comprised of net payments on the Partnership’s Revolving Credit Facility of $47.0 million and cash dividends of $39.5 million paid to the holders of Class A Common Stock and Common Units, compared with net cash provided by financing activities of $122.5 million for the three months ended March 31, 2023, which was primarily comprised of net proceeds from the Partnership’s Revolving Credit Facility of $142.0 million and cash dividends of $17.1 million paid to the holders of Class A Common Stock and Common Units.

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 a specified percent of all distributions on Common Units or dividends on shares of Class A Common Stock in the Company’s Class A Common Stock.

The Reinvestment Agreement terminated automatically on March 8, 2024.

During the first three months ended March 31, 2024, the Company made cash dividend payments of $39.5 million to holders of Class A Common Stock and Common Units and $74.2 million was reinvested in shares of Class A Common Stock by the Reinvestment Holders.

On April 18, 2024, 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 9, 2024.

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 9, 2024.

Net cash used in financing activities was $314.5 million for the six months ended June 30, 2024, which was primarily comprised of net payments on the Partnership’s Term Loan, Revolving Credit Facility and A/R Facility of $158.2 million and cash dividends of $154.7 million paid to the holders of Class A Common Stock and Common Units, compared with net cash provided by financing activities of $212.7 million for the six months ended June 30, 2023, which was primarily comprised of net proceeds from the Partnership’s Revolving Credit Facility of $255.0 million and cash dividends of $36.5 million paid to the holders of Class A Common Stock and Common Units.

The significant increase in cash dividends paid in the first half of 2024 compared to the same period in 2023 was mainly due to the expiration of the Reinvestment Agreement on March 8, 2024, as such Reinvestment Holders are not obligated to reinvest a specified percent of all distributions on Common Units or dividends on shares of Class A Common Stock in the Company’s Class A Common Stock.

During the six months ended June 30, 2024, the Company made cash dividend payments of $154.7 million to holders of Class A Common Stock and Common Units and $74.8 million was reinvested in shares of Class A Common Stock by the Reinvestment Holders.

On July 18, 2024, 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 July 29, 2024.

As described in these Condensed Consolidated Financial Statements, as the context requires, dividends paid to holders of Class A Common Stock and distributions paid to holders of Common Units may be referred to collectively as “dividends.”

Share Repurchase Program

For the three months ended March 31, 2024, the Company did not repurchase any of its outstanding shares.

For six months ended June 30, 2024, the Company did not repurchase any of its outstanding shares.

For more information regarding the 1% U.S.

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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)

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Off-Balance Sheet Arrangements

As of March 31, 2024, there were no off-balance sheet arrangements.

As of June 30, 2024, there were no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

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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