Kinetik Holdings Inc. (KNTK) Q4 2025 Earnings Call Transcript
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Overview
The company shows strong potential with projects like Kings Landing and the ECCC pipeline, promising growth in Delaware North and South, and strategic agreements like the European LNG pricing. However, curtailments and commodity exposure pose risks. The Q&A reveals positive analyst sentiment towards growth and strategic moves, but concerns over vague management responses. Overall, the company's proactive steps in securing capacity and optimizing operations, along with a positive EBITDA outlook, suggest a positive stock price reaction. Given the market cap, the stock is likely to experience a moderate positive movement.
Key Financial Performance
Adjusted EBITDA (Q4 2025) $252 million, year-over-year growth driven by gas volume growth, Gulf Coast marketing gains, and a one-time operating expense benefit, partially offset by Waha price-related production shut-ins.
Distributable Cash Flow (Q4 2025) $152 million, no specific year-over-year change or reasons mentioned.
Free Cash Flow (Q4 2025) Negative $12 million, no specific year-over-year change or reasons mentioned.
Midstream Logistics Adjusted EBITDA (Q4 2025) $173 million, up 15% year-over-year due to gas volume growth, Gulf Coast marketing gains, and a one-time operating expense benefit, partially offset by Waha price-related production shut-ins.
Pipeline Transportation Adjusted EBITDA (Q4 2025) $84 million, down year-over-year due to the EPIC Crude divestiture that closed on October 31.
Proceeds from EPIC Crude Sale Approximately $500 million, used to pay down borrowings at the revolving credit facility, improving liquidity and deleveraging the balance sheet.
Adjusted EBITDA (Full Year 2025) $988 million, slightly above the midpoint of revised guidance, no specific reasons for year-over-year change mentioned.
Capital Expenditures (Full Year 2025) $497 million, in line with revised guidance, no specific reasons for year-over-year change mentioned.
Class A Common Stock Repurchase (Full Year 2025) $176 million, no specific year-over-year change or reasons mentioned.
Leverage (End of 2025) 3.8x, no specific year-over-year change or reasons mentioned.
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Operating Highlights
Kings Landing processing capacity: Doubled processing capacity in Delaware North with 99.8% run time and strong ethane recoveries.
Kings Landing sour gas conversion project: Expected to increase acid gas injection capacity to over 31 million cubic feet per day by year-end 2026.
ECCC Pipeline: Completion remains on schedule for next quarter, linking Eddy and Culberson Counties to Delaware South.
Behind-the-meter gas-fired power generation project: 40-megawatt gas turbine project at Diamond Cryo facility, requiring less than $25 million, expected in service by late 2026.
Amended gas gathering and processing agreements: Extended terms into mid-2030s with fixed fee structures, increasing expected EBITDA from 2026.
New agreements with CPV and INEOS: Demonstrated ability to create differentiated pricing solutions across power generation and international gas markets.
Lea County agreement: Finalizing a new agreement for low and high-pressure gathering and processing services with a large existing customer.
Operational cost reduction initiatives: Focus on reducing operating costs to enhance profitability and competitiveness.
Waha exposure management: Amendments to G&P agreements and utilization of Gulf Coast transport capacity to offset financial impacts of Waha price volatility.
Capital allocation framework: Shifted to a growth-oriented framework with high-return projects, annual dividend increases, and disciplined leverage management.
EPIC Crude divestiture: Proceeds used to pay down borrowings, improving liquidity and deleveraging balance sheet.
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Risk or Challenges
Commodity price volatility: The company faced challenges due to fluctuating commodity prices, which impacted financial performance and created uncertainty in revenue projections.
Macroeconomic uncertainty: Broader economic conditions created challenges for the company, affecting customer development activity and overall business stability.
Inflationary pressures: Rising costs due to inflation negatively impacted the company's operations and profitability.
Waha price-related production shut-ins: The company experienced production curtailments due to low Waha natural gas prices, particularly during pipeline maintenance seasons.
Operational execution risks: The company emphasized the need for consistent execution and disciplined capital allocation to rebuild credibility and meet financial targets.
Supply chain and project execution risks: Potential risks related to the timely delivery and execution of projects, such as the Kings Landing sour gas conversion and ECCC pipeline completion.
Leverage and financial health: The company is targeting a leverage ratio of 3.5x to 4x, but elevated growth capital budgets could strain financial flexibility.
Regulatory and environmental compliance: The company faces challenges in managing sour gas content and acid gas injection, which require compliance with environmental regulations.
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Guidance & Outlook
2026 adjusted EBITDA: Expected to be between $950 million to $1.05 billion, representing over 7% growth year-over-year when adjusting for the sale of EPIC Crude.
Processed gas volumes: High single-digit growth expected across the system, outpacing broader Permian production growth. Gas process volumes are expected to exceed 2 billion cubic feet per day in the second half of 2026.
Capital expenditures for 2026: Expected to be between $450 million to $510 million, with approximately 70% allocated to New Mexico projects, including the ECCC pipeline, gathering investments in Eddy and Lea Counties, and the Kings Landing sour gas conversion project.
Waha price-related production shut-ins: Approximately 100 million cubic feet per day of expected shut-ins, most pronounced during pipeline maintenance periods in the fall and spring.
Dividend increases: Planned annual increases of 3% to 5% until dividend coverage reaches 1.6x, after which increases will track earnings growth.
Leverage target: Targeting leverage between 3.5x and 4x to maintain financial health and balance sheet resiliency.
Long-term natural gas demand: Permian natural gas production is expected to grow nearly 4% annually through 2030, supported by rising gas-to-oil ratios, attractive gas-rich plays, and accelerating domestic natural gas demand. LNG capacity expansions on the U.S. Gulf Coast are expected to increase gas demand by nearly 12 billion cubic feet per day through 2030.
Behind-the-meter power generation project: A 40-megawatt gas turbine project at the Diamond Cryo facility is expected to be in service in late 2026, requiring less than $25 million of capital and providing a scalable, cost-efficient power solution.
Kings Landing sour gas conversion project: Expected to be in service by year-end 2026, increasing total permitted acid gas injection capacity across Delaware North processing complexes to over 31 million cubic feet per day.
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Shareholder Return Plan
Annual Dividend Increase: The company plans to increase the dividend annually by 3% to 5% until the dividend coverage reaches 1.6x. Upon achieving this, dividend increases will align with earnings growth.
Share Repurchase: The company will pursue share repurchases opportunistically. However, due to elevated capital expenditures, buybacks will be lower in the near term but are expected to increase over time as free cash flow grows.
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Key Q&A
Q:What is giving the company renewed confidence heading into 2026 and the EBITDA range for this year?
A:The company has restructured two large legacy Durango Midstream contracts, opening opportunities in sour gas for the Northern Delaware. There is significant commercial activity and momentum in the region. The company is focusing on organic growth and capital allocation strategies, including sour gas treating and Gulf Coast pricing for Northern Delaware Basin customers.
Q:How is the company thinking about growth beyond 2026, and what impact could Permian gas egress have?
A:The company expects 7% same-store sales growth for EBITDA this year. They see tremendous setup for 2027 with projects like Hugh Brinson Phase 2, Eiger Express, and Desert Southwest coming online. These projects will relieve Waha pricing pressures and support growth. NGL recontracting is also expected to be conservative but promising.
Q:What is the status of curtailed volumes and expectations for 2026?
A:The company had 170 million cubic feet per day of curtailments in Q4, with 50 million cubic feet per day brought back online. For 2026, they forecast 100 million cubic feet per day of curtailments. Delaware North is expected to grow 35% year-on-year, while Delaware South is expected to grow 3% (10% normalized for curtailments).
Q:What is the progress on Kings Landing 2 and its impact on AGI capacity?
A:The company is finalizing commercial negotiations for Kings Landing 2 and expects an announcement in 2026. The first phase of AGI capacity will come online by the end of this year, with incremental capacity added through companion wells, ultimately reaching 31 million cubic feet per day.
Q:What is the company's approach to commodity sensitivity and hedging exposure to Gulf Coast pricing?
A:The company has converted some contracts from commodity to fixed fee, but marketing contributions from Gulf Coast transport hedges keep commodity exposure elevated. They expect this to reduce by 2027. The company uses Gulf Coast capacity as a commercial tool to secure new business and hedge against Waha price volatility.
Q:What is the purpose of the 40-megawatt behind-the-meter project, and are there plans for expansion?
A:The project is for self-consumption to reduce electricity costs and improve reliability. The company may expand to a combined cycle facility to sell power back to the grid if opportunities arise. The project involves $25 million in capital and is expected to be in service by year-end.
Q:What is included in the growth CapEx number, and how should it be viewed?
A:The $480 million capital backlog includes $240 million for regular way capital (low-pressure gathering, compression, and maintenance). Non-recurring items include trunk lines, Kings Landing sour conversion, and optimization projects in Delaware South. The 40-megawatt project is also included.
Q:What is the expected cadence of EBITDA growth by quarter for this year?
A:The company expects upward-sloping EBITDA growth, with Q1 and Q2 normalized at $230-$240 million and Q3 and Q4 at $260-$270 million to achieve the full-year $1 billion EBITDA target.
Q:What steps has the company taken to manage Waha price volatility and curtailments?
A:The company secured additional Gulf Coast capacity, restructured contracts to protect volumes, and adopted a more conservative forecast for curtailments. They also conducted a comprehensive review of their business to optimize costs and operations.
Q:How does the company view strategic interest and shareholder value?
A:The company is open to evaluating opportunities that maximize shareholder value. They are committed to their fiduciary responsibilities and will consider offers that provide more value than they can create independently.
Q:What is the current utilization and ramp trajectory for Kings Landing?
A:Kings Landing is operating at 65%-70% utilization and is expected to reach 200 million cubic feet per day by the second half of the year, with an exit rate of around 2 Bcf per day of inlet.
Q:What is the company's long-term growth outlook and factors influencing it?
A:The company aims for above-average growth, with a focus on deeper zones, gas quality improvements, and exploratory benches. Growth is dependent on commodity prices, gas activity, and Waha pricing relief from new egress projects.
Q:What is driving growth in the Delaware South footprint?
A:Growth is driven by deconsolidation, longer-dated inventory development, and deeper gas-focused zones. The company is leveraging Gulf Coast capacity to secure commercial deals and capture market share.
Q:What is the timeline for NGL recontracting and expected outcomes?
A:The company is receiving inbounds and evaluating options for NGL recontracting. They will make decisions based on the best interests of stakeholders and communicate updates as they occur.
Q:How does the 40-megawatt project benefit the company operationally?
A:The project reduces electricity costs, improves reliability, and provides a hedge against negative Waha gas prices. It also supports operational efficiency and may be replicated across other facilities.
Q:What is the company's view on Permian well recovery improvements?
A:The company agrees that technological advancements like lightweight proppants and nanosurfactants could improve Permian well recoveries. They are optimistic about exploratory benches and gas quality improvements driving growth.
Q:Review of Unclear Management Responses
A:Management avoided providing specific timelines or details for NGL recontracting and Kings Landing 2 commercial negotiations. They also used vague language regarding long-term growth rates and strategic interest evaluations, emphasizing general optimism without concrete data.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Crude divestiture
ECCC
EPIC Crude
GORs
GP agreement
Gas
PHP
West Texas
allocation framework
capacity Delaware
cash return
change distribution
conversion project
cost structure
customer alignment
distribution policy
dividend increase
expenditure capital
fall
fee
gas demand
gas power
gas production
gathering processing
link
maintenance
pressure gathering
price production
price volatility
production in
relief
spring
supply demand
takeaway
term agreement
utilization
win
KNTK Transcript
Kinetik Holdings Inc. (KNTK) Q4 2025 Earnings Call Transcript
Positive2-26
The company shows strong potential with projects like Kings Landing and the ECCC pipeline, promising growth in Delaware North and South, and strategic agreements like the European LNG pricing. However, curtailments and commodity exposure pose risks. The Q&A reveals positive analyst sentiment towards growth and strategic moves, but concerns over vague management responses. Overall, the company's proactive steps in securing capacity and optimizing operations, along with a positive EBITDA outlook, suggest a positive stock price reaction. Given the market cap, the stock is likely to experience a moderate positive movement.
Kinetik Holdings Inc. (KNTK) Q3 2025 Earnings Call Transcript
Unknown11-7
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%.
Kinetik Holdings Inc. (KNTK) Q2 2025 Earnings Call Transcript
Unknown8-8
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.
Kinetik Holdings Inc. (NASDAQ:KNTK) Q1 2025 Earnings Call Transcript
Positive5-9
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.
KNTK Slides
Kinetik Q4 2025 slides: profitability surges despite revenue headwinds2026-02-25
Kinetik Q3 2025 slides: guidance cut amid commodity headwinds, strategic projects advance2025-11-05
Kinetik Q2 2025 slides: Steady growth amid project delays, guidance lowered2025-08-06
Kinetik Q1 2025 slides: Adjusted EBITDA up 7%, affirms full-year guidance2025-05-07
KNTK Report
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