Kinetik Holdings Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis addresses the results of our operations for the three and nine month period ended September 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. Overview We are an integrated midstream energy company in the Permian Basin providing comprehensive gathering, transportation, compression, processing and treating services. Our core capabilities include a variety of service offerings including natural gas gathering, transportation, compression, treating and processing; NGLs stabilization and transportation; produced water gathering and disposal; and crude oil gathering, stabilization, storage and transportation. Our operations are strategically located in the heart of the Delaware Basin. Our Operations and Segments We have two reportable segments which are strategic business units with various products and services. 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 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. The pipelines transport natural gas, NGLs and crude oil within the Permian Basin and to the U.S. Gulf Coast. Midstream Logistics Gas Gathering and Processing. The Midstream Logistics segment provides gas gathering and processing services with over 3,900 miles of low and high-pressure steel pipeline located throughout the Delaware Basin, including over 2,300 miles of gas pipeline acquired through the Durango Acquisition, and over 570,000 horsepower of compression capacity. Gas processing assets are centralized at seven processing complexes with system-wide front-end amine treating capability, 6.5 Mmcfpd AGI capacity and 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. Crude gathering assets are centralized at the Caprock Stampede Terminal and the Pinnacle Sierra Grande Terminal. The system includes approximately 220 miles of gathering pipeline and 90,000 barrels of crude storage. Water Gathering and Disposal. The system includes over 360 miles of gathering pipeline and approximately 580,000 barrels per day of permitted disposal capacity. Pipeline Transportation EMI pipelines. The Company owns the following equity interests in three EMI pipelines in the Permian Basin with access to various points along the U.S. Gulf Coast: 1) an approximate 55.5% equity interest in Permian Highway Pipeline LLC (“PHP”), which is operated by Kinder Morgan; 2) 33.0% equity interest in Breviloba, LLC (“Breviloba”), the owner of the Shin Oak NGL Pipeline (“Shin Oak”), which is operated by Enterprise Products Operating LLC; and 3) 27.5% 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 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. Delaware Link Pipeline. The Delaware Link Pipeline consists of approximately 40 miles of 30-inch diameter pipeline with an initial capacity of approximately 1.0 Bcf/d that provides additional transportation capacity to Waha. The project reached commercial in-service in October 2023. 29 Table of Contents Recent Developments EPIC Equity Interest During the third quarter, the Company consummated the Equity Sale and Purchase Agreement with Dos Rios Crude Intermediate LLC (“Seller”) to purchase a 12.5% of equity interest in EPIC. The acquisition of additional interest is accounted for as a business acquisition pursuant to ASC 805. After completion of the transaction, the Company owned a 27.5% equity interest in EPIC as of September 30, 2024. EPIC has over 800 miles of pipeline connecting the Delaware and Midland Basins and has a capacity of 625 MBbl/d. 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 over 200 MMcf/d 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 (the "GCX Sale"), including 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 from the GCX Buyer on June 4, 2024 and the cash earn out was received in September 2024. The Company recognized a gain of $89.8 million upon closing of the GCX Sale. Factors Affecting Our Business Commodity Price Volatility There has been, and we believe there will continue to be, volatility in commodity prices and in the relationships among NGLs, crude oil and natural gas prices. As a result of uncertainty around global commodity supply and demand, the current conflict in Israel and the Gaza Strip and elsewhere in the Middle East, as well as the ongoing armed conflict in Ukraine, global oil and natural gas commodity prices continue to remain volatile. The volatility and uncertainty of natural gas, crude oil and NGL prices impact drilling, completion and other investment decisions by producers and ultimately supply to our systems. Although ongoing armed conflicts might generate 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 conflicts would have a highly uncertain impact on the U.S. economy, which in turn, might affect our business and operations adv ersely. Our product sales revenue is exposed to commodity price fluctuations. Therefore, commodity price decline and sustained periods of low natural gas and NGL prices could have an adverse effect on our product revenue stream. The Company continues to monitor commodity prices closely and may enter into commodity price hedges from time to time as necessary to mitigate the volatility risk. In addition, the Company, when economically appropriate, enters into fee-based arrangements that insulate the Company from commodity price volatility. 30 Table of Contents Inflation and Interest Rates The annual rate of inflation in the United States was 2.4% in September 2024 as measured by the Consumer Price Index. In light of the recent economic activity, unemployment level and progress on lowering inflation, the Federal Open Market Committee (“FOMC”) decided to lower the target range for the federal funds rate by 0.50% to 4.75% - 5.00% during its meeting in September 2024. During the meeting, the FOMC noted that the economic outlook is uncertain and the Committee is attentive to the risks to both sides of its dual mandate. If interest rates elevated beyond the term of our hedges, our financing cost will increase and could have a negative impact on the Company’s ability to meet its contractual debt obligations and to fund its operating expenses and capital expenditures. The Company will continue to monitor the FOMC’s monetary policy and interest rate movement. Refer to Note 11—Derivatives and Hedging Activities in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional discussion regarding our hedging strategies and objectives for interest rate risk. 31 Table of Contents Results of Operations The following table presents the Company’s results of operations for the periods presented: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 % Change 2024 2023 % Change (In thousands, except percentages) Revenues: Service revenue $ 103,100 $ 104,349 (1 %) $ 301,710 $ 310,325 (3 %) Product revenue 290,423 221,280 31 % 787,092 586,534 34 % Other revenue 2,839 4,672 (39 %) 8,411 10,685 (21 %) Total revenues 396,362 330,301 20 % 1,097,213 907,544 21 % Operating costs and expenses: Cost of sales (exclusive of depreciation and amortization) (1) 144,586 147,756 (2 %) 444,786 374,100 19 % Operating expense 55,804 42,925 30 % 143,278 118,804 21 % Ad valorem taxes 5,896 5,607 5 % 18,400 14,954 23 % General and administrative 29,619 22,751 30 % 94,846 73,131 30 % Depreciation and amortization expense 87,583 69,935 25 % 236,250 208,271 13 % Loss on disposal of assets — 2,927 (100 %) 4,090 15,166 (73 %) Total operating costs and expenses 323,488 291,901 11 % 941,650 804,426 17 % Operating income 72,874 38,400 90 % 155,563 103,118 51 % Other income (expense): Interest and other income 1,872 289 NM 2,272 1,625 40 % Loss on debt extinguishment — — — % (525) — 100 % Gain on sale of equity method investments 29,953 — 100 % 89,837 — 100 % Interest expense (66,029) (45,009) 47 % (167,545) (130,443) 28 % Equity in earnings of unconsolidated affiliates 53,244 50,754 5 % 169,668 146,828 16 % Total other income, net 19,040 6,034 NM 93,707 18,010 NM Income before income taxes 91,914 44,434 107 % 249,270 121,128 106 % Income tax expense 8,260 1,303 NM 21,261 2,030 NM Net income including noncontrolling interest $ 83,654 $ 43,131 94 % $ 228,009 $ 119,098 91 % (1) Cost of sales (exclusive of depreciation and amortization) is net of gas service revenues totaling $60.2 million and $38.6 million for the three months ended September 30, 2024 and 2023, respectively, and $159.4 million and $107.1 million for the nine months ended September 30, 2024 and 2023, respectively, for certain volumes, where we act as principal. NM - Not meaningful 32 Table of Contents Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 Revenues For the three months ended September 30, 2024, revenue increased $66.1 million, or 20%, to $396.4 million, compared to $330.3 million for the same period in 2023. The increase was primarily driven by higher product revenue related to increased natural gas residue volumes sold and increased 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 produced water disposal services necessary to bring natural gas, NGLs and crude oil to market. Service revenue for the three months ended September 30, 2024, decreased by $1.2 million, or 1%, to $103.1 million, compared to $104.3 million for the same period in 2023. This decrease was driven by lower period-over-period gas gathering fees of $1.7 million. Period-over-period gathered and processed gas volumes increased by 212.3 Mcf per day, or 12% and by 238.7 Mcf per day, or 16%, respectively. Of the increase, Durango’s operation accounted for 207.2 Mcf per day and 195.8 Mcf per day of gathered and processed gas volume, 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 2%. 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 three months ended September 30, 2024, increased by $69.1 million, or 31%, to $290.4 million, compared to $221.3 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 36.1 million MMBtu, of which, Durango’s operations accounted for 14.2 million MMBtu. Partially offsetting this increase, NGL and condensate volumes sold decreased 2.0 million barrels, or 24%. Product revenues are included entirely in the Midstream Logistics segment. Operating Costs and Expenses Operating expenses Operating expenses increased by $12.9 million, or 30%, to $55.8 million for the three months ended September 30, 2024, compared to $42.9 million for the same period in 2023. Of the total increase, $11.7 million was driven by Durango’s operations that were acquired during June 2024. Over 99% of operating expenses are included in the Midstream Logistics segment. General and administrative expenses General and administrative expenses increased by $6.9 million, or 30% to $29.6 million for the three months ended September 30, 2024, compared to $22.8 million for the same period in 2023. The increase was mainly driven by increases in share-based compensation of $2.7 million due to new RSUs and PSUs granted during 2024 and Durango integration costs of $2.2 million. The remaining $2.0 million increase primarily relates to higher internal labor and insurance expenses that have resulted from the overall growth of the organization. Depreciation and amortization expense Depreciation and amortization expense increased by $17.6 million, or 25% to $87.6 million for the three months ended September 30, 2024, compared to $69.9 million for the same period in 2023. Of the total increase, $12.8 million was driven by the Durango Acquisition that was completed during June of 2024. The remaining increase was driven by assets placed in service since third quarter of 2023, primarily related to the Delaware Link Pipeline that was placed in service in October 2023. Other Income (Expense) Gain on sale of equity method investment Gain on sale of equity method investment increased by $30.0 million, or 100%, for the three months ended September 30, 2024. The increase was related to the cash earn out received in September 2024 related to the GCX Sale. 33 Table of Contents Interest expense Interest expense increased by $21.0 million, or 47%, to $66.0 million for the three months ended September 30, 2024. The increase was primarily driven by an unrealized loss on interest rate swaps of $12.3 million during the three months ended September 30, 2024 versus an unrealized gain on interest rate swaps of $7.8 million during 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. Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Revenues For the nine months ended September 30, 2024, revenue increased $189.7 million, or 21%, to $1,097.2 million, compared to $907.5 million for the same period in 2023. The increase was primarily driven by higher period-over-period product revenue due to increased natural gas residue volumes sold and increased 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 nine months ended September 30, 2024, decreased by $8.6 million, or 3%, to $301.7 million, compared to $310.3 million for the same period in 2023. The decrease was primarily driven by lower period-over-period gas gathering fees of $8.2 million. Total gathered and processed gas volumes increased 171.1 Mcf per day, or 10% and 188.0 Mcf per day, or 13%, respectively. Of the increase, Durango’s operations accounted for 74.8 Mcf per day and 70.6 Mcf per day of gathered and processed gas volume, 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 3%. 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 nine months ended September 30, 2024, increased by $200.6 million, or 34%, to $787.1 million, compared to $586.5 million for the same period in 2023, primarily due to a period-over-period increase in residue gas volumes sold. Natural gas residue sales volumes increased 59.6 million MMBtu, of which Durango’s operations accounted for 14.6 million MMBtu. The increase was also driven by a period over period increase in NGL prices of $8.46 per barrel, or 39%. The overall increase was partially offset by decreases in NGL and condensate volumes sold of 4.3 million barrels, or 19% and a decrease in natural gas prices of $0.42 per MMBtu, or 25%. 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 nine months ended September 30, 2024, cost of sales increased $70.7 million, or 19%, to $444.8 million, compared to $374.1 million for the same period in 2023. As discussed above, the increase was primarily driven by period to period increases in natural gas residue volumes sold, slightly offset by a decrease in NGL and condensate volumes sold as well as lower natural gas prices. 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 $24.5 million, or 21%, to $143.3 million for the nine months ended September 30, 2024, compared to $118.8 million for the same period in 2023. Of the total increase, $12.7 million was driven by Durango’s operations that were acquired during June of 2024. The remaining increase was primarily driven by increases in internal labor, repairs and maintenance and lubricants and chemicals totaling $9.8 million, which was related to the increased gathered and processed volumes during 2024. Over 99% of operating expenses are included in the Midstream Logistics segment. 34 Table of Contents General and administrative expenses General and administrative expenses increased by $21.7 million, or 30% to $94.8 million for the nine months ended September 30, 2024, compared to $73.1 million for the same period in 2023. The increase was mainly driven by higher share-based compensation of $9.5 million due to new RSUs and PSUs granted during 2024 and $7.9 million of integration and transaction costs associated with the 2024 Durango and Epic transactions. The remaining $4.3 million increase primarily relates to higher internal labor and insurance expenses that have resulted from the overall growth of the organization. Depreciation and amortization expense Depreciation and amortization expense increased by $28.0 million, or 13% to $236.3 million for the nine months ended September 30, 2024, compared to $208.3 million for the same period in 2023. Of the total increase, $13.6 million was driven by Durango Acquisition that was completed during June of 2024. The remaining increase was driven by assets placed in service since third quarter of 2023, primarily related to the Delaware Link Pipeline that was placed in service in October 2023 and the rich gas lateral into Lea County, New Mexico. Loss on disposal of assets Loss on disposal of asset decreased by $11.1 million, or 73% to $4.1 million for the nine months ended September 30, 2024, compared to $15.2 million for the same period in 2023. The decrease was mainly due to the write off of obsolete gathering and processing systems and facilities of $11.8 million in 2023, but no similar write off took place in 2024. Other Income (Expense) Gain on sale of equity method investment Gain on sale of equity method investment increased by $89.8 million, or 100%, for the nine months ended September 30, 2024, compared to the same period in 2023. The increase was related to the GCX Sale consummated in the second quarter of 2024. Interest Expense Interest expense increased by $37.1 million, or 28%, to $167.5 million for the nine months ended September 30, 2024, compared to $130.4 million for the same period in 2023. The increase was driven by a decrease in capitalized interest expense of $8.9 million given the completion of the PHP expansion in December of 2023, and an unrealized loss on interest rate swaps of $2.8 million during the nine months ended September 30, 2024 versus an unrealized gain on interest swaps of $27.5 million during 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. Equity in earnings of unconsolidated affiliates Income from EMI pipelines increased by $22.8 million, or 16%, to $169.7 million for the nine months ended September 30, 2024, compared to $146.8 million for the same period in 2023. An increase of $35.9 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 due to the GCX sale consummated in the second quarter of 2024. Income Tax Expense Income tax expense increased by $19.2 million for the nine months ended September 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 deferred federal income tax of $18.4 million for nine months ended September 30, 2024 compared to nil for the same period in 2023. 35 Table of Contents Key Performance Metrics Adjusted EBITDA Adjusted EBITDA is defined as net income including noncontrolling interests adjusted for interest, taxes, depreciation and amortization, 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, fair value adjustments for contingent liabilities, 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. We believe that Adjusted EBITDA provides a meaningful understanding of certain aspects of earnings before the impact of investing and financing charges and income taxes. Adjusted EBITDA is useful to an investor in evaluating our performance because this measure: • is widely used by analysts, investors and competitors to measure a company’s operating performance; • is a financial measurement that is used by rating agencies and other parties to evaluate our credit worthiness; and • is used by our management for various purposes, including as a basis for strategic planning and forecasting. Adjusted EBITDA is not defined in GAAP The GAAP measure used by the Company that is most directly comparable to Adjusted EBITDA is net income including noncontrolling 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. The Company’s definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies in the industry, thereby diminishing its utility. Reconciliation of non-GAAP financial measure Company management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measure, understanding the differences between Adjusted EBITDA as compared to net income including noncontrolling 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. 36 Table of Contents 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 September 30, Nine Months Ended September 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 $ 83,654 $ 43,131 94 % $ 228,009 $ 119,098 91 % Add back: Interest expense 66,029 45,009 47 % 167,545 130,443 28 % Income tax expense 8,260 1,303 NM 21,261 2,030 NM Depreciation and amortization expenses 87,583 69,935 25 % 236,250 208,271 13 % Amortization of contract costs 1,655 1,655 — % 4,965 4,965 — % Proportionate EMI EBITDA 88,229 78,585 12 % 262,553 224,933 17 % Share-based compensation 15,171 12,502 21 % 52,868 43,340 22 % Loss on disposal of assets — 2,927 (100 %) 4,090 15,166 (73 %) Loss on debt extinguishment — — — % 525 — 100 % Commodity hedging unrealized loss — 8,259 (100 %) — 616 (100 %) Contingent liability fair value adjustment 1,400 — 100 % 1,400 — 100 % Integration costs 2,540 21 NM 5,091 985 NM Acquisition transaction costs 31 378 (92 %) 3,538 648 NM Other one-time cost or amortization 3,717 2,662 40 % 8,448 7,545 12 % Warrant valuation adjustment — 4 (100 %) — — — % Deduct: Interest income 572 293 95 % 1,459 314 NM Warrant valuation adjustment — — — % — 73 (100 %) Commodity hedging unrealized gain 8,817 — 100 % 1,935 — 100 % Gain on sale of equity method investment 29,953 — 100 % 89,837 — 100 % Equity income from EMI's 53,244 50,754 5 % 169,668 146,828 16 % Adjusted EBITDA $ 265,683 $ 215,324 23 % $ 733,644 $ 610,825 20 % NM - not meaningful Adjusted EBITDA increased by $50.4 million, or 23%, to $265.7 million for the three months ended September 30, 2024, compared to $215.3 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, $49.2 million of the increase was due to increased total operating revenue of $66.1 million, partially offset by increased cost of sales (exclusive of depreciation and amortization), operating expenses, ad valorem taxes and general and administrative expense of $16.9 million. The remaining increases were primarily driven by higher proportionate EMI EBITDA of $9.6 million and higher non-cash amortizations or other one-time costs of $8.6 million. These increases were partially offset by a decrease of $17.1 million related to unrealized commodity hedging activities. Adjusted EBITDA increased by $122.8 million, or 20%, to $733.6 million for the nine months ended September 30, 2024, compared to $610.8 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, $69.3 million of the increase was due to increased total operating revenue of $189.7 million, partially offset by increased cost of sales (exclusive of depreciation and amortization), operating expenses, ad valorem taxes and general and administrative expenses of $120.3 million. The increase was also driven by (i) higher proportionate EMI EBITDA of $37.6 million primarily related to the expanded capacity at PHP that was placed into service during December 2023 and (ii) increases related to stock based compensation of $9.5 million and integration, transaction and other one-time costs of $7.9 million, which was mainly related to the Durango Acquisition completed in June 2024. 37 Table of Contents 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 and nine months ended September 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 September 30, Nine Months Ended September 30, 2024 2023 % Change 2024 2023 % Change (In thousands, except percentages) Midstream Logistics $ 173,623 $ 140,443 24 % $ 464,165 $ 396,800 17 % Pipeline Transportation 96,134 78,902 22 % 285,191 226,027 26 % Corporate and Other (1) (4,074) (4,021) 1 % (15,712) (12,002) 31 % Total Segment Adjusted EBITDA $ 265,683 $ 215,324 23 % $ 733,644 $ 610,825 20 % (1) Corporate and Other represents those results that: (i) are not specifically attributable to a reportable segment; (ii) are not individually reportable or (iii) have not been allocated to a reportable segment for the purpose of evaluating their performance, including certain general and administrative expense items. Midstream Logistics Segment Adjusted EBITDA increased by $33.2 million to $173.6 million for the three months ended September 30, 2024, compared to $140.4 million for the same period in 2023. The increase was primarily due to the increased total operating revenue of $57.9 million, partially offset by increased operating expense and ad valorem taxes of $12.7 million and a decrease of $17.1 million related to unrealized commodity hedging activities. 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. Midstream Logistics Segment Adjusted EBITDA increased by $67.4 million to $464.2 million for the nine months ended September 30, 2024, compared to $396.8 million for the same period in 2023. The increase was primarily due to the increased total operating revenue of $165.7 million, partially offset by increases in cost of sales (exclusive of depreciation and amortization) of $70.7 million and operating expense and ad valorem taxes of $26.2 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 $17.2 million to $96.1 million for the three months ended September 30, 2024, compared to $78.9 million for the same period in 2023. The increase was primarily driven by higher proportionate EMI EBITDA of $9.6 million due to increased profitability at PHP related to expanded capacity that was placed into service starting in December 2023. The increase was also driven by the increase in operating revenue of $8.2 million primarily related to the Delaware Link Pipeline going into service during October 2023. 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 $59.2 million to $285.2 million for the nine months ended September 30, 2024, compared to $226.0 million for the same period in 2023. The increase was primarily driven by higher proportionate EMI EBITDA of $37.6 million due to increased profitability at PHP related to expanded capacity that was placed into service starting in December 2023. The remaining increase was driven by increased operating revenue of $23.9 million primarily related to the Delaware Link Pipeline going into service during October 2023. 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 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. 38 Table of Contents Under certain clauses of our transportation services agreements with third party pipelines to transport natural gas and NGLs, if we fail to ship a minimum throughput volume, then we will pay certain deficiency payments for transportation based on the volume shortfall up to the MVC amount. Capital Resources and Liquidity The Company’s primary use of capital since inception has been for the initial construction of gathering and processing assets, as well as the acquisitions of businesses and EMI pipelines and associated subsequent construction costs. For 2024, the Company’s primary spending requirements are related to the business 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 nine months ended September 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. A/R Facility Pursuant to the A/R Facility, the Company and certain of its subsidiaries continuously transfer receivables to Kinetik Receivables and Kinetik Receivables transfers receivables that meet certain qualifying conditions to third-party purchasers in exchange for cash. These receivables are held by Kinetik Receivables and are pledged to secure the collectability of the sold receivables and are accounted for as secured borrowings. The amount available for borrowing 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 September 30, 2024, eligible accounts receivable of $150.0 million was pledged to the A/R Facility as collateral. 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 during the second quarter 2024, lowering the remaining balance to $1.00 billion. As a result, the maturity of the Term Loan Credit Facility extended to December 8, 2026. 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 nine months ended September 30, 2024 and 2023, capital spending for property, plant and equipment totaled $155.8 million and $245.8 million, respectively, intangible asset purchases totaled $7.7 million and $15.1 million, respectively, and contributions to EMI totaled $3.3 million and $202.7 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. For further information on EMIs, refer to Note 6—Equity Method Investments in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. 39 Table of Contents Cash Flow The following tables present cash flows from operating, investing and financing activities during the periods presented: Nine Months Ended September 30, 2024 2023 (In thousands) Cash provided by operating activities $ 493,356 $ 405,585 Cash used in investing activities $ (65,909) $ (582,600) Cash (used in) provided by financing activities $ (411,519) $ 170,689 Operating activities . Net cash provided by operating activities increased by $87.8 million for the nine months ended September 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 interests of $108.9 million; (ii) a decrease in adjustments related to non-cash items of $20.8 million, which was mainly driven by a gain of $89.8 million recognized on the GCX Sale and an increase in equity in earnings from EMI of $22.8 million, partially offset by increases in distribution from EMIs of $17.8 million, deferred income taxes of $18.1 million, depreciation and amortization expense of $28.0 million and a decrease in favorable derivative activities adjustments of $26.8 million and (iii) a decrease in working capital of $0.4 million. Investing activities . Net cash used in investing activities decreased by $516.7 million for the nine months ended September 30, 2024 compared with the same period in 2023. The decrease was primarily driven by cash proceeds from the GCX Sale of $524.4 million, lower capital expenditures of $97.3 million and a reduction of investments in EMIs of $199.5 million as the PHP expansion project was completed and put into service in December 2023, partially offset by net cash used in the Durango Acquisition and net cash used in the acquisition of additional equity interests in EPIC. Financing activities . Net cash used in financing activities was $411.5 million for the nine months ended September 30, 2024, which was primarily comprised of net payments on the Partnership’s Term Loan, Revolving Credit Facility and A/R Facility of $138.6 million and cash dividend of $272.9 million paid to the holders of Class A Common Stock and Common Units, compared with net cash provided by financing activities of $170.7 million for the nine months ended September 30, 2023, which was primarily comprised of net proceeds from the Partnership’s Revolving Credit Facility of $235.0 million and cash dividend of $58.6 million paid to the holders of Class A Common Stock and Common Units. Significant increase in cash dividend paid in the first nine months 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. Dividend During the nine months ended September 30, 2024, the Company made cash dividend payments of $272.9 million to holders of Class A Common Stock and Common Units and $75.2 million was reinvested in shares of Class A Common Stock by the Reinvestment Holders. On October 17, 2024, the Board declared a cash dividend of $0.78 per share on the Company’s Class A Common Stock which will be payable to stockholders on October 28, 2024. The Company, through its ownership of the general partner of the Partnership, declared a distribution of $0.78 per Common Unit from the Partnership to the holders of Common Units, which will be payable on November 7, 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 nine months ended September 30, 2024, the Company did not repurchase any of its outstanding shares. 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 Part I, Item 1A.—”Risk Factors— Risks Related to Ownership of our Common Stock” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed on March 5, 2024. 40 Table of Contents Liquidity The following table presents a summary of the Company’s key liquidity indicators at the dates presented: September 30, December 31, 2024 2023 (In thousands) Cash and cash equivalents $ 20,438 $ 4,510 Total debt, net of unamortized deferred financing cost $ 3,429,689 $ 3,562,809 Available committed borrowing capacity $ 730,400 $ 643,400 Total debt and available credit facilities There is no assurance that the financial condition of banks with lending commitments to the Company and its subsidiaries will not deteriorate. The Company closely monitors the ratings of the banks in the Company’s bank group. Having a large bank group allows the Company to mitigate the potential impact of any bank’s failure to honor its lending commitment. Off-Balance Sheet Arrangements As of September 30, 2024, there were no off-balance sheet arrangements. Critical Accounting Policies and Estimates There have been no significant changes to our critical accounting policies and estimates from those disclosed on our Annual Report on Form 10-K for the year ended December 31, 2023. Please refer to information regarding our critical accounting policies and estimates included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Commission on March 5, 2024. 41 Table of Contents