Company Reports

Kinetik and Diamondback announced that they were each boosting their stakes in the EPIC Crude to 27.5% from 15%. In exchange, the partners are increasing their minimum volume commitments and, in Kinetik's case, adding additional links between their gathering infrastructure and the pipeline. We now see volumes from nonoperated assets at 1.44 billion cubic feet equivalent per day in 2025, up from .99 Bcfe/d. As a result, we are increasing our fair value estimate to $43 from $40.

Kinetik Holdings is a midstream operator providing pipeline and gathering and processing services to exploration and production companies in the Permian Basin. In 2024, the volumes handled by its pipeline activities will evenly split between gas and natural gas liquids, with less than 10% from crude oil. Its gathering and processing services collect and process natural gas and NGLs in order to feed them into its own pipelines for sale at the local Waha hub. Alternatively, the molecules will be transferred to larger transit pipelines to access the larger and more lucrative international export demand for liquefied natural gas and from China for natural gas liquids.

Kinetik Holdings is a midstream operator providing pipeline and gathering and processing services to exploration and production companies in the Permian Basin. In 2024, the volumes handled by its pipeline activities will evenly split between gas and natural gas liquids, with less than 10% from crude oil. Its gathering and processing services collect and process natural gas and NGLs in order to feed them into its own pipelines for sale at the local Waha hub. Alternatively, the molecules will be transferred to larger transit pipelines to access the larger and more lucrative international export demand for liquefied natural gas and from China for natural gas liquids.

The second quarter was busy for no-moat Kinetik, as it completed the Durango acquisition and Gulf Coast Express sale. As we mentioned in our May 10 note, these deals do not provide a huge boost to fair value because they will require significant capital investment to tie into existing operations. What they allow is a much greater scale for Kinetik to increase fees by adding services and leverage for developing or buying into pipeline projects that take molecules out of the basin. This quarter offered few surprises, and we are leaving our $40 fair value estimate unchanged.

Kinetik Holdings is a midstream operator providing pipeline and gathering and processing services to exploration and production companies in the Permian Basin. In 2024, the volumes handled by its pipeline activities will evenly split between gas and natural gas liquids, with less than 10% from crude oil. Its gathering and processing services collect and process natural gas and NGLs in order to feed them into its own pipelines for sale at the local Waha hub. Alternatively, the molecules will be transferred to larger transit pipelines to access the larger and more lucrative international export demand for liquefied natural gas and from China for natural gas liquids.

No-moat Kinetik announced three separate transactions, amounting to the sale of the long-marketed 16% stake in the Gulf Coast Express (GCX) pipeline for $540 million and the acquisition of Durango Permian LLC that operates exclusively in the New Mexico side of the Permian basin. Notably, Kinetik is selling GCX and issuing equity at a 10 times EBITDA multiple while acquiring Durango at 5 times. These transactions will result in a net increase of 100 million cubic feet equivalent per day (mmcfe/d), but most importantly it will be wholly owned and operated giving the combined entity greater leverage in directing volumes to collect additional fees. Additionally, the operations are near but do not overlap with the existing footprint, which is set to triple the number of customers serviced from 30 to 90.

Kinetik Holdings is a midstream operator providing pipeline and gathering and processing services to E&P companies in the Permian Basin. In 2024, the volumes handled by its pipeline activities will evenly split between gas and natural gas liquids (NGLs) with less than 10% from crude oil. Its gathering and processing services collect and process natural gas and NGLs in order to feed them into its own pipelines for sale at the local Waha hub. Alternatively, the molecules will be transferred to larger transit pipelines to access the larger and more lucrative international export demand for liquefied natural gas (LNG) and from China for natural gas liquids.

No-moat rated Kinetik posted a surprise substantial miss on earnings per share per FactSet consensus driven by higher operation expenses and weather-driven outages. Even so, our fair value estimate remains unchanged at $39 as the pathway for the firm is clearer than ever with all major expansion projects now online and 50% of the year's capital plan deployed.

Kinetik Holdings is a midstream operator providing pipeline and gathering and processing services to E&P companies in the Permian Basin. In 2024, the volumes handled by its pipeline activities will evenly split between gas and natural gas liquids (NGLs) with less than 10% from crude oil. Its gathering and processing services collect and process natural gas and NGLs in order to feed them into its own pipelines for sale at the local Waha hub. Alternatively, the molecules will be transferred to larger transit pipelines to access the larger and more lucrative international export demand for liquefied natural gas (LNG) and from China for natural gas liquids.

After updating our model to reflect the 2023 results and refreshing commodity prices, we are increasing our Kinetik fair value estimate to $39 from $36. Our no-moat rating is unchanged. The fair value estimate increase is due to improving margins on delivered products in the midstream business and stronger-than-expected utilization. We see the cash being generated by the significant investments made over the last few years flowing into the business in 2024, driving down debt/EBITDA to 2.6 times in 2025 from 5.4 times in 2023. The EBITDA/interest expense is also improving to 6.3 times from 3.2 times over the same timeframe.

Kinetik Holdings is a midstream operator providing pipeline and gathering and processing services to E&P companies in the Permian Basin. In 2024, the volumes handled by its pipeline activities will evenly split between gas and natural gas liquids (NGLs) with less than 10% from crude oil. Its gathering and processing services collect and process natural gas and NGLs in order to feed them into its own pipelines for sale at the local Waha hub. Alternatively, the molecules will be transferred to larger transit pipelines to access the larger and more lucrative international export demand for liquefied natural gas (LNG) and from China for natural gas liquids.

The fourth quarter saw no-moat Kinetik bring online the Permian Highway expansion and new intra-basin Delaware Link pipeline to the market, supporting increased volumes throughout the network. With these completions, there is only the Shin Oak NGL pipeline remaining, slated for 2025. Overall, the results beat our expectations with volumes in the gathering and processing segment hitting higher levels of utilization than anticipated with the new assets. We plan to incorporate these operating and financial results in our model shortly, but after this first look our $36 fair value estimate and no-moat rating remain unchanged.

We initiate coverage on Kinetik Holdings with a $36 fair value estimate and no-moat rating. We think shares are fairly valued with few near-term catalysts for growth.

Kinetik Holdings is a midstream operator providing pipeline and gathering and processing services to E&P companies in the Permian Basin. In 2024, the volumes handled by its pipeline activities will evenly split between gas and natural gas liquids (NGLs) with less than 10% from crude oil. Its gathering and processing services collect and process natural gas and NGLs in order to feed them into its own pipelines for sale at the local Waha hub. Alternatively, the molecules will be transferred to larger transit pipelines to access the larger and more lucrative international export demand for liquefied natural gas (LNG) and from China for natural gas liquids.