Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kinetik Holdings Inc (KNTK, Financial) reported a 13% year-over-year increase in adjusted EBITDA, reaching over $234 million for the second quarter.
- The company successfully completed the GCX divestiture and Durango acquisition, enhancing its strategic position in the Delaware Basin.
- Kinetik Holdings Inc (KNTK) expanded its operations into the Northern Delaware Basin, with nearly 20% of its volumes now sourced from New Mexico.
- The company has sanctioned pre-FID work for Kings Landing II, which will double the processing capacity at the Kings Landing Processing Complex.
- Kinetik Holdings Inc (KNTK) revised its 2024 guidance upwards, reflecting strong business performance and successful transactions.
Negative Points
- The company faced wellhead volume curtailments due to Waha Hub pricing, impacting gas volumes by approximately 140 million cubic feet per day.
- Only two months of contribution from GCX were included in the second quarter results, affecting the pipeline transportation segment.
- The company is experiencing challenges with egress solutions in the Permian Basin, with Waha pricing remaining weak.
- Kinetik Holdings Inc (KNTK) anticipates significant capital expenditures, with guidance increasing to between $260 million to $300 million for the full year.
- The integration of Durango requires substantial investment in preventative maintenance, facility upgrades, and capacity expansions.
Q & A Highlights
Q: Can you provide more details on the $100 million CapEx related to Durango? Is it growth capital or maintenance?
A: Jamie Welch, President and CFO, explained that the $100 million is primarily growth capital, including Kings Landing I and a 20-inch backbone pipeline across the system. Only about $5 million is for remedial maintenance, with a similar amount for general maintenance.
Q: What is the competitive landscape and opportunity set in New Mexico following the Durango acquisition?
A: Jamie Welch highlighted that the opportunity in New Mexico is greater than anticipated, with significant potential in both the northern Delaware basin and the shelf. This has accelerated plans for Kings Landing II, as Kings Landing I is expected to be fully utilized sooner than expected.
Q: How does the current Permian egress situation affect Kinetik, and what is the outlook for Waha pricing?
A: Jamie Welch noted that the Permian Highway Pipeline (PHP) has been beneficial, providing Gulf Coast pricing to customers. However, Waha pricing remains weak, and while the Matterhorn project will help, more egress solutions are needed for the Permian.
Q: With the shift towards a GMP asset base, how does Kinetik plan to maintain its integrated profile?
A: Jamie Welch stated that Kinetik is focused on shorter-dated conversion cycles for capital deployment, emphasizing intrabasin opportunities that provide immediate cash flow. The company aims to maintain a balanced asset mix, despite the GMP uplift.
Q: What is the outlook for free cash flow, and can Kinetik maintain positive free cash flow over multiple years?
A: Jamie Welch expressed confidence in maintaining positive free cash flow, highlighting strong top-line growth and disciplined capital deployment. The company expects double-digit EBITDA growth over the next several years, supporting its free cash flow objectives.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
