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01/11 07:33
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlighted several negative factors, including delays in Kings Landing start-up, commodity price volatility, and production curtailments, which negatively impacted EBITDA. Although there are long-term growth plans, the Q&A section revealed management's lack of clarity on key issues, such as Kings Landing 2 and Waha exposure. The market cap suggests moderate sensitivity to these factors. Overall, the negative impacts and management's evasive responses outweigh the positive aspects, likely leading to a stock price decline of -2% to -8%.
Adjusted EBITDA $243 million for the third quarter, down 13% year-over-year. The decrease was driven by lower commodity prices, lower Kinetik marketing contributions, higher cost of goods sold, and higher operating expenses, partially offset by increased volumes across Delaware North and South assets.
Distributable Cash Flow $158 million for the third quarter. No year-over-year change or reasons for change were mentioned.
Free Cash Flow $51 million for the third quarter. No year-over-year change or reasons for change were mentioned.
Midstream Logistics Segment Adjusted EBITDA $151 million for the quarter, down 13% year-over-year. The decrease was due to lower commodity prices, lower Kinetik marketing contributions, higher cost of goods sold, and higher operating expenses, partially offset by increased volumes.
Pipeline Transportation Segment Adjusted EBITDA $95 million for the quarter. No year-over-year change or reasons for change were mentioned.
Capital Expenditures $154 million for the quarter. No year-over-year change or reasons for change were mentioned.
Full-Year Adjusted EBITDA Guidance Revision Revised to $965 million to $1.005 billion. The revision was due to delays in the Kings Landing start-up, sustained commodity price volatility, macroeconomic uncertainty, and the EPIC crude sale closing.
Impact of Delays in Kings Landing Start-Up Reduced full-year earnings by approximately $20 million due to slower-than-anticipated timing to reach full commercial service.
Impact of Commodity Price Volatility Negatively impacted full-year adjusted EBITDA expectations by nearly $30 million versus original guidance, excluding Gulf Coast marketing impacts. Lower average commodity prices affected pricing of commodity contracts and plant product mix, impacting margin contributions.
Impact of Production Curtailments Negatively impacted full-year earnings by approximately $20 million. Curtailments were driven by lower prompt-month crude pricing and significantly negative Waha natural gas prices.
Impact of Lower Crude and Natural Gas Liquids Pricing Negatively impacted full-year 2025 EBITDA by approximately $30 million. Lower pricing deferred or changed customers' development plans across the system.
Kings Landing Project: Brought to full commercial service in September, adding organic processing capacity in New Mexico. The plant processes over 100 million cubic feet per day, in line with expectations.
Acid Gas Injection Project: Reached FID on the project at King's Landing, expected to be operational by late 2026. This will increase total asset gas capacity and handle high levels of H2S and CO2 gas.
CPV Basin Ranch Energy Center Connection: Finalized an agreement to connect to a 1,350-megawatt power center in Texas at no capital cost, creating an efficient pipeline outlet for residue gas.
European LNG Pricing Agreement: Executed a 5-year agreement with INEOS at Port Arthur LNG starting in 2027, providing exposure to European TTF index pricing.
Expanded Takeaway Capabilities: Secured additional firm transport capacity to the U.S. Gulf Coast commencing in 2028, enhancing access to premium markets.
Operational Challenges: Faced delays in bringing King's Landing online, reducing full-year earnings by $20 million. Sustained commodity price volatility and curtailments also impacted earnings.
Cost Reduction Initiatives: Plans to aggressively reduce controllable costs and improve forecasting using AI tools and machine learning.
Strategic Infrastructure Projects: Advancing projects like the ECCC pipeline and sour gas treating to support long-term growth.
Capital Allocation: Focused on disciplined capital deployment, reducing debt, and maintaining shareholder returns through dividends and share repurchases.
Commodity Price Volatility: Challenging commodity price environment, particularly in September, has negatively impacted financial performance. Lower crude and natural gas liquids pricing, as well as negative in-basin natural gas pricing, have deferred or changed customer development plans, reducing EBITDA by approximately $30 million.
Operational Delays: The delay in bringing King's Landing fully online reduced full-year earnings by approximately $20 million. Timing and pace of volume contributions fell short of expectations.
Producer Curtailments: Producer-directed actions from commodity price volatility and broader production shut-ins have negatively impacted earnings by approximately $20 million. In October, 20% of volumes were curtailed, with half from oil-focused producers.
Takeaway Constraints: Waha natural gas price-related shut-ins and takeaway constraints have been a challenge. Relief is expected only by 2026 with new pipeline projects.
Macroeconomic Uncertainty: Sustained macroeconomic uncertainty has led to cautious producer behavior, reflected in a 20% decline in Delaware Basin rig count and flat natural gas volume projections for 2026.
Integration Challenges: Integration of the Delaware North system has faced challenges, including delays in project execution and operational inefficiencies.
Inflationary Pressures: Inflationary headwinds have increased costs, impacting financial performance.
Divestiture Impact: The divestiture of EPIC Crude has reduced full-year adjusted EBITDA contributions, impacting financial results.
Kings Landing Processing Plant: The Kings Landing processing plant was brought to full commercial service in September 2025. Over the remainder of the year, gathering system modifications will be performed to segregate sweet gas and direct it to Kings Landing while keeping sour gas flowing to other facilities. The company anticipates the return of shut-in PDP and curtailed volumes, enabling customers to resume development of new wells after over two years of curtailments.
ECCC Pipeline: The ECCC pipeline connecting Delaware North to Delaware South is expected to be in service during the second quarter of 2026.
Acid Gas Injection Project at Kings Landing: The acid gas injection project at Kings Landing has reached FID. The project is expected to receive permits from New Mexico regulators before the end of 2025 and is anticipated to be in service by late 2026. This will increase total asset gas capacity and support future development plans.
Permian Basin Power Generation Opportunity: Kinetik finalized an agreement with Competitive Power Ventures to connect its residue gas pipeline network to a 1,350-megawatt power generation center in Texas. This connection will be made at no capital cost to Kinetik and serves as a blueprint for future collaborations.
European LNG Pricing Agreement: Kinetik executed a 5-year European LNG pricing agreement with INEOS at Port Arthur LNG, starting in early 2027. The gas will be priced monthly based on the European TTF index, providing customers with diversified exposure to international pricing.
Additional Firm Transport Capacity: Kinetik secured additional firm transport capacity to the U.S. Gulf Coast, commencing in 2028, to enhance customer access to premium markets and address takeaway constraints at the Waha Hub.
2025 Adjusted EBITDA Guidance: The full-year adjusted EBITDA guidance range has been updated to $965 million to $1.005 billion, reflecting delays in Kings Landing's start-up, commodity price volatility, and other factors.
Capital Expenditures Guidance: Full-year capital expenditures guidance has been tightened to $485 million to $515 million, reflecting heightened visibility and the FID of the Kings Landing acid gas injection project.
Dividend Growth: Kinetik has returned nearly $1.8 billion to shareholders since the merger in February 2022. The company emphasizes its commitment to continued shareholder returns via dividend growth.
Share Repurchases: Kinetik has highlighted its strategy of returning value to shareholders, which includes share repurchases as part of its broader capital allocation priorities.
The earnings call highlighted several negative factors, including delays in Kings Landing start-up, commodity price volatility, and production curtailments, which negatively impacted EBITDA. Although there are long-term growth plans, the Q&A section revealed management's lack of clarity on key issues, such as Kings Landing 2 and Waha exposure. The market cap suggests moderate sensitivity to these factors. Overall, the negative impacts and management's evasive responses outweigh the positive aspects, likely leading to a stock price decline of -2% to -8%.
The earnings call presented mixed signals: strong strategic project progress and optimistic guidance were tempered by rising operating costs and competitive pressures. The Q&A highlighted management's confidence in achieving financial targets despite delays, yet uncertainties remain in buybacks and sour gas implications. The market cap suggests moderate stock price sensitivity, leading to a neutral sentiment prediction.
The earnings call reveals strong financial performance with a 7% YoY EBITDA growth and a $500 million share repurchase program, signaling confidence in future growth. Despite macroeconomic uncertainties, strategic project completions and optimistic guidance support positive sentiment. The Q&A section highlights growth drivers and a flexible capital allocation strategy, although vague responses on macro impacts slightly temper enthusiasm. Given the company's small-cap status, the stock is likely to respond positively, with a potential price increase of 2% to 8% over the next two weeks.
The earnings call presents a mixed but generally positive outlook. Strong financial performance, a significant share repurchase program, and strategic project progress are positives. However, macroeconomic uncertainty and commodity price headwinds pose risks. The Q&A reveals management's confidence in growth drivers and hedging strategies, despite some evasive answers. Considering the company's market cap and strategic initiatives, the stock price is likely to see a moderate positive reaction, falling in the 'Positive' category (2% to 8%).
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