Executive Summary / Key Takeaways

• Kinetik Holdings is undergoing a significant transformation, strategically expanding its integrated midstream footprint in the prolific Delaware Basin, particularly in New Mexico, through accretive acquisitions and targeted organic projects.
• Recent transactions like the Durango and Barilla Draw acquisitions, coupled with key organic builds such as Kings Landing processing complex and the ECCC pipeline, are driving substantial processed gas volume growth and margin expansion, positioning the company for accelerated double-digit EBITDA growth.
• Operational and technological advantages, including efficient processing, treating capabilities for sour gas, system interconnectivity, and initiatives like behind-the-meter power generation, enhance Kinetik's competitive moat and contribute to cost optimization and improved financial performance.
• Despite facing macroeconomic headwinds, including commodity price volatility and potential activity slowdowns, Kinetik has reaffirmed its 2025 guidance, projecting meaningful EBITDA acceleration in the second half of the year and targeting a robust multi-year growth trajectory.
• With a strengthened balance sheet, having achieved its target leverage ratio, Kinetik is committed to a balanced capital allocation strategy, supporting high-return growth projects while increasing shareholder returns through annual dividend growth and a significantly expanded share repurchase program.

Kinetik Holdings Inc. stands at a pivotal juncture, leveraging its established presence in the Permian Basin to capitalize on the region's dynamic growth. As an integrated midstream energy company, Kinetik provides the essential infrastructure – gathering, transportation, compression, processing, and treating – required to bring natural gas, NGLs, and crude oil from the wellhead to market. Its operations are strategically centered in the Delaware Basin, a core engine of U.S. hydrocarbon production, with crucial access points to the high-demand markets along the U.S. Gulf Coast through its equity pipeline investments.

The company's current trajectory is deeply rooted in its strategic evolution, particularly following the February 2022 merger that consolidated its asset base and operations. This laid the groundwork for a focused expansion strategy aimed at becoming a market leader within the Delaware Basin. A key element of this strategy has been the aggressive push into the New Mexico-Delaware Basin, initiated with organic pipeline expansions in early 2024 and dramatically accelerated by the approximately $1 billion in strategic transactions announced in May 2024. The acquisition of Durango Permian in June 2024, the largest since the merger, significantly bolstered Kinetik's position in the Northern Delaware, diversifying its customer base and geographic reach. This move, partly funded by the divestiture of a non-core pipeline stake, underscored a commitment to capital efficiency and strategic alignment. The subsequent bolt-on acquisition of Barilla Draw assets in January 2025 further enhanced its multi-stream capabilities in the region.

Central to Kinetik's operational strength and competitive positioning is its differentiated technology and robust infrastructure. The company's processing systems are designed for efficiency, with management highlighting capabilities that offer 10-15% greater efficiency in compression and transportation compared to some alternatives, potentially leading to 5-10% lower operating costs per unit. Its processing speeds for gas and NGLs are noted as being 15-20% faster than some competitors. Furthermore, Kinetik's system benefits from redundancy and interconnectivity, contributing to improved reliability and potentially 5-10% lower downtime. The company also employs advanced monitoring technology and has demonstrated efficiency in water management, achieving 10% higher efficiency in this area.

Beyond existing capabilities, Kinetik is actively engaged in research and development initiatives aimed at enhancing its operational profile and addressing evolving industry needs. A significant focus is on sour gas treating, a critical capability in parts of the Northern Delaware Basin where gas quality presents challenges. Kinetik views its ability to handle high levels of H2S and CO2 as a key differentiator, positioning it alongside a select few peers with this expertise. The company received EPA approval for its MRV Plan for three acid gas injection wells in September 2024, enabling it to potentially benefit economically from captured CO2 through 45Q credits starting in 2025. This not only aligns with sustainability goals but also provides a competitive edge in serving producers operating in areas with complex gas streams.

Another forward-looking initiative is the exploration of a behind-the-meter gas-fired power generation facility in Reeves County, Texas. This project, potentially structured as a joint venture, aims to reduce ongoing electricity costs – an operating expense that has seen significant inflation – and capitalize on Waha natural gas price volatility. Management views this as an OpEx optimization strategy focused on self-consumption rather than selling into the grid, with potential for expansion into New Mexico if successful. These technological and operational strengths, coupled with strategic R&D, form a critical part of Kinetik's competitive moat, enabling it to offer superior service reliability, manage costs effectively, and capture higher margins, particularly in complex operating environments.

In the competitive landscape, Kinetik operates alongside major midstream players such as Kinder Morgan (KMI), Enterprise Products Partners (EPD), Energy Transfer (ET), and Plains All American Pipeline (PAA). While these larger entities possess greater scale and broader asset footprints, Kinetik differentiates itself through its deep focus and increasing scale within the Delaware Basin. Kinetik's strategy emphasizes a customer-first approach, rapid scalability, and regional interconnectivity, allowing for faster project execution and a more tailored service offering. This has enabled Kinetik to reportedly gain market share relative to the broader Delaware growth.

Financially, Kinetik's recent performance reflects the impact of its strategic moves and operational execution. For the three months ended March 31, 2025, the company reported total operating revenues of $443.3 million, a significant increase from $341.4 million in the prior-year period. This growth was primarily driven by contributions from the Durango and Barilla Draw acquisitions, leading to higher service and product revenues. Operating expenses also increased to $424.0 million from $315.3 million, largely due to the acquired operations and higher labor/utility costs. Despite this, Adjusted EBITDA for Q1 2025 rose to $250.0 million, up 7% from $233.6 million in Q1 2024. This growth was underpinned by increased processed gas volumes and margin expansion, particularly from the Northern Delaware assets. The Midstream Logistics segment, accounting for over 98% of operating revenues, saw its Adjusted EBITDA grow by 12.0% year-over-year in Q1 2025 to $160.2 million. The Pipeline Transportation segment's Adjusted EBITDA decreased slightly by 2.0% to $93.9 million, primarily due to the divestiture of GCX, partially offset by increased contributions from EPIC Crude.

Liquidity remains a focus, with the company's primary capital uses in 2025 centered on business acquisitions, budgeted CapEx for construction and maintenance (including the Kings Landing project), debt obligations, and dividends/share repurchases. As of March 31, 2025, Kinetik had $8.8 million in cash and cash equivalents. Total debt, net of unamortized deferred financing costs, stood at $3.72 billion. The company maintains access to capital through its credit facilities, including a Revolving Credit Facility with $692.4 million available borrowing base as of March 31, 2025, and an AR Facility which was recently increased to $250.0 million. Management believes cash from operations, EMI distributions, and available borrowing capacity will be sufficient to fund capital expenditures and planned dividends over the next 12 months. The company was in compliance with all debt covenants as of March 31, 2025.

Looking ahead, Kinetik's outlook is characterized by expected accelerated growth. The company has affirmed its full-year 2025 Adjusted EBITDA guidance range of $1.090 billion to $1.150 billion and capital guidance of $450 million to $540 million. Management anticipates a meaningful acceleration in EBITDA growth during the second half of 2025, targeting an annualized Adjusted EBITDA exit rate of approximately $1.2 billion in the fourth quarter. This ramp is expected to be driven by the commissioning of Kings Landing Cryo I in Q2 2025, which will unlock over 100 million cubic feet per day of currently curtailed volumes, along with increasing contributions from the Barilla Draw acquisition, the Eddy County project, and the Lea County agreement. While acknowledging a potential $20 million headwind from current commodity strip pricing and some customer activity being pushed into 2026, management remains confident in achieving the guided ranges, supported by the high percentage of fixed-fee contracts (approximately 83% of 2025 expected gross profit).

The longer-term outlook remains bullish, with management targeting a 10% compound annual Adjusted EBITDA growth rate through 2029. This growth is expected to be fueled by continued expansion at Kings Landing (including potential KL2), structural advantages from NGL contract roll-offs beginning in 2026, and ongoing OpEx optimization initiatives like the potential power generation project. The planned ECCC pipeline, expected in-service in Q1 2026, is a strategic piece of this future, designed to optimize the combined north/south system and enhance margin capture by facilitating sour gas processing in the north.

However, the investment thesis is not without risks. Commodity price volatility, influenced by global events and trade policies, remains a factor, potentially impacting product revenue and producer activity levels. Inflation and elevated interest rates could increase financing costs, although the company uses interest rate swaps to mitigate this. Tariffs on materials like steel could increase construction and maintenance costs. Credit risk from counterparties and potential environmental liabilities related to acquired assets are also considerations. Management is actively monitoring these factors and implementing measures to mitigate their impact, such as securing incremental Gulf Coast capacity and evaluating project timing based on market conditions.

Reflecting confidence in its growth trajectory and free cash flow generation, Kinetik has demonstrated a commitment to returning capital to shareholders. The company increased its quarterly cash dividend in November 2024 and declared a $0.78 per share dividend payable in May 2025. Furthermore, in May 2025, the Board approved a significant increase to the share repurchase program, bringing the total authorization to $500 million. This move signals management's belief that the current share price presents compelling value and underscores their balanced capital allocation approach, prioritizing strategic growth while enhancing shareholder returns.

Conclusion

Kinetik Holdings is executing a clear strategy to become a dominant force in the Delaware Basin midstream sector. By strategically expanding its footprint through targeted acquisitions and organic projects, particularly in the high-growth Northern Delaware, and leveraging its operational expertise and technological capabilities in areas like sour gas treating and system optimization, the company is positioned for a period of accelerated financial growth. While macroeconomic and basin-specific challenges persist, Kinetik's contractual profile, underwritten project backlog, and commitment to cost discipline provide a degree of resilience. The reaffirmed 2025 guidance and ambitious longer-term targets, coupled with a balanced capital allocation strategy that includes increasing shareholder returns, underscore management's conviction in the company's value proposition and future potential. For investors seeking exposure to the growth dynamics of the Permian Basin through an integrated and strategically expanding midstream player, Kinetik warrants close consideration.