Doug Irwin

Doug Irwin questioned Kodiak's risk appetite for ordering compression capacity on spec given potential two-year lead times and inquired about the company's capacity to invest in the newly acquired power business.

Answer

Mickey McKee, President and CEO, acknowledged taking on slightly more risk with spec ordering for engines and shop space, but noted this is mitigated by not committing 100% of CapEx upfront. John Griggs, EVP and CFO, added that this aligns with their macro outlook and customer development plans, making it a low-risk proposition. Mr. McKee confirmed the full intention to grow the DPS business, leveraging Kodiak's operational expertise and balance sheet, with plans to acquire and deploy additional megawatts this year and provide more comprehensive long-term growth guidance post-closing.

Doug Irwin inquired about Kodiak Gas Services' risk appetite for ordering compression capacity on spec, given the potential for 2-year lead times, and how this strategy might be evolving. He also asked about the company's capacity to invest in the newly acquired power business in the near term, considering the guidance provided for the core compression business.

Answer

President and CEO Mickey McKee confirmed a slightly increased risk appetite for spec ordering, noting that while it's a different conversation than six months ago, they don't commit 100% of the CapEx cost two years out. EVP and CFO John Griggs added that spec orders align with their macro view of market growth and sophisticated customer development plans, making it a low-risk proposition. Mr. McKee stated that Kodiak fully intends to grow the DPS power business, leveraging operational expertise and balance sheet strength, and plans to acquire additional megawatts this year, with more detailed guidance post-closing.

Doug Irwin of Citigroup inquired about the outlook for 2026 CapEx and fleet additions, the potential for more non-core asset sales, and the intended use of any proceeds from such sales.

Answer

President & CEO Mickey McKee stated it was premature to provide a specific 2026 CapEx figure but noted that confidence in the backlog is consistent with prior years. EVP & CFO John Griggs added that the company will continue to high-grade its fleet through minor asset sales, describing future divestitures as "pruning around the edges," with proceeds being redeployed into large horsepower units or other capital return initiatives.

Douglas Irwin of Stifel asked about the remaining variables in the 2025 guidance and how the current macroeconomic environment might impact results. He also inquired about a potential shift toward outsourced horsepower and whether demand differs between upstream and midstream customers.

Answer

CEO Mickey McKee identified the ongoing recontracting strategy and future expense management, including potential tariff impacts, as the key variables for 2025 guidance. He noted that while a significant shift to outsourcing compression hasn't occurred yet, it could materialize as customers finalize their 2026 capital budgets in the current environment.

Douglas Irwin asked about the potential to increase the pace of fleet additions in 2026 as one-time CapEx declines and whether high demand visibility allows for more opportunistic share repurchases.

Answer

CEO Mickey McKee stated that an accelerated pace of new unit growth in 2026 is 'probably likely' if market demand persists, given lower anticipated one-time capital needs. Regarding buybacks, McKee confirmed the topic is 'certainly top of mind' and that the company would be analyzing its options.

Douglas Irwin asked about the outlook for gross margins in 2025 and how Kodiak is balancing share buybacks against the need for increased share liquidity.

Answer

CFO John Griggs stated that while specific 2025 margin guidance will come later, the company aims to push the Contract Services gross margin beyond the current 66% through continued repricing, synergies, and cost management. CEO Mickey McKee added that share repurchases are being considered, especially in conjunction with future offerings from EQT, but any buybacks will be managed to ensure the company meets its year-end 2025 leverage target of 3.5x.

Doug Irwin inquired about Archrock's 2026 growth capital expenditure guidance, specifically asking how much organic horsepower it translates to and the expected cadence of fleet additions throughout the year. He also asked about current lead times for equipment and their impact on future build jobs, pricing power, and gross margin trends.

Answer

Doug Aron, Chief Financial Officer, stated that the CapEx should add approximately 170,000 horsepower in 2026, with about 60% expected in the first half. Brad Childers, President and Chief Executive Officer, noted that lead times for large horsepower gas drive equipment from Caterpillar are extended to 110-120 weeks, but Archrock is booked for 2026 and already booking into 2027. He added that while price increases are expected in 2026, they will be more modest as the industry has caught up with inflation and current demand is well-priced.

Doug Irwin asked about Archrock's growth capital expenditure guidance, specifically how much organic horsepower it translates to for 2026, and the expected cadence of fleet additions throughout the year. He also inquired about current lead times for equipment, their impact on future build jobs, and how this might affect pricing power and gross margin trends in a tighter market.

Answer

Doug Aron, Chief Financial Officer, stated that the CapEx should translate to approximately 170,000 horsepower delivered in 2026, with about 60% expected to start up in the first half. Brad Childers, President and Chief Executive Officer, noted that lead times, particularly for large horsepower Caterpillar engines, have extended to 110-120 weeks. He confirmed that Archrock is 85% booked for 2026 and has started booking for 2027. While expecting modest price increases on the installed base in 2026, he indicated that the current market is well-priced, leading to high profitability.

Doug Irwin asked about the impact of recent LNG project FIDs and data center announcements on Archrock's customer discussions and multi-year growth outlook, including potential shifts in basin focus. He also inquired if the extended time units spend on location translates into demand for longer-duration contracts and the company's preferred mix of contract lengths.

Answer

President and CEO Brad Childers confirmed an acceleration in demand driven by global power shortages, robust LNG exports, and significant incremental demand from AI data centers. He stated this translates into strong immediate and long-term demand for units, supporting a minimum $250 million CapEx for 2026. Regarding contract duration, Mr. Childers noted units staying on location for over six years, primarily due to large horsepower installations in midstream infrastructure. While contract terms remain 3-5 years, new contracts lean towards the higher end, but Archrock is not actively driving a shift in duration.

Doug Irwin inquired if the recent uptick in LNG project FIDs and data center announcements has accelerated customer discussions and how this momentum impacts Archrock's multi-year growth outlook, particularly regarding basin-specific growth. He also asked if the extended time units stay on location translates into increased demand for longer-duration contracts or a shift towards the higher end of the typical three-to-five-year range.

Answer

Brad Childers (President and CEO) confirmed an acceleration in demand for pipes, LNG facilities, and data centers, driven by the global need for power and underinvestment in infrastructure. He noted this translates into excellent immediate, interim, and long-term demand, supporting a minimum of $250 million in 2026 CapEx. Childers stated that while contract terms remain in the three-to-five-year range, the shift to large horsepower and midstream positioning means units stay on location longer (over six years), leading to greater stability and often moving towards the higher end of contract durations. He emphasized strategic master services agreements provide long-term relationships beyond individual contract terms.

Doug Irwin asked about Archrock's capital allocation priorities, specifically the balance between share buybacks and dividend growth. He also requested a breakdown of the updated 2025 guidance to distinguish between recurring operational performance and non-recurring gains.

Answer

President & CEO D. Bradley Childers stated that dividend growth is expected to be consistent with profit growth, while buybacks are used opportunistically based on market price. CFO Doug Aron detailed the $20 million EBITDA guidance increase, attributing approximately $13 million to operational outperformance in contract compression and AMS, $4 million to asset sale gains, and $3 million to other income, which was partially offset by the Floco asset sale.

Doug Irwin from Citigroup Inc. asked about Archrock's capital allocation strategy, specifically the balance between share buybacks and dividend growth. He also requested a breakdown of the updated 2025 guidance to distinguish between recurring operational outperformance and non-recurring items like asset sale gains.

Answer

President & CEO D. Bradley Childers stated that both dividends and buybacks are key tools, with dividend growth expected to be consistent and buybacks used opportunistically based on market price. SVP & CFO Doug Aron broke down the $20 million EBITDA guidance increase, attributing approximately $13 million to operational outperformance in contract compression and aftermarket services, with the remainder from a $4 million gain on asset sales and $3 million in other income, partially offset by the sale of the gas lift business.

Doug Irwin from Citigroup Inc. asked about Archrock's capital allocation strategy, specifically the balance between share buybacks and dividend growth. He also requested a breakdown of the updated guidance to distinguish recurring operational outperformance from nonrecurring items.

Answer

President & CEO D. Bradley Childers stated that continued profit growth supports both consistent dividend increases and opportunistic share buybacks, which are activated when the market price presents a value opportunity. SVP & CFO Doug Aron detailed the $20 million EBITDA guidance increase, attributing approximately $13 million to recurring operational outperformance in both business segments and the remaining $7 million to nonrecurring gains on asset sales and other income.

Douglas Irwin requested details behind the sub-7x multiple for the NGCS acquisition and asked about the difference in compression intensity between the Permian and dry gas basins like the Haynesville.

Answer

CFO Douglas Aron explained the guided multiple is based on a forward run-rate and does not include any synergies, offering potential upside. President and CEO D. Childers confirmed the Permian has the highest compression intensity but noted that Archrock's small exposure to the Haynesville and broad operational footprint in other basins would mitigate the impact of any potential activity shift away from the Permian.

Douglas Irwin of Citi inquired about the key assumptions driving the high and low ends of Archrock's 2025 guidance range and asked about demand opportunities in basins outside of the Permian.

Answer

President and CEO Brad Childers explained the guidance range is influenced by the success of implementing price increases, managing costs, and the timing of new horsepower deployment. He noted that while the Permian consumes 60-70% of new capital, Archrock sees incremental growth in the Haynesville, Bakken, and Northeast. CFO Doug Aron added that the guidance range is intentionally tight for this early in the year.

Douglas Irwin from Citi requested directional guidance on the CapEx run rate for 2025 for the combined business and asked about the company's thinking on the mix between dividend growth and share buybacks for capital returns.

Answer

President and CEO D. Childers stated it was too early to provide 2025 CapEx guidance but reiterated a disciplined, high-return investment approach. Regarding capital returns, Childers emphasized balancing abundant growth investment opportunities against share buybacks, noting the company is not price-insensitive and is focused on supporting the expansion needs of its blue-chip customers.

Doug Irwin with Citigroup inquired about USA Compression Partners' 2026 growth capital expenditure guidance, seeking a breakdown between organic growth and J-W Power backlog, and clarification on whether this CapEx level represents a future run rate given extended lead times. He also asked about the impact of balance sheet improvements and the J-W acquisition on distribution coverage and potential distribution growth.

Answer

Chris Paulsen, SVP, CFO, and Treasurer, detailed that approximately $205 million of the growth capital is for the compression business, with $150 million for new units (105,000 hp), and nearly $40 million for other capital. He noted that 2026 growth is around 2% of active horsepower and discussed how the J-W manufacturing entity provides flexibility for 2027 planning amidst long lead times. Paulsen also explained that balance sheet actions and the J-W acquisition improved the company's leverage trajectory, targeting 3.75x debt to EBITDA. He stated that normalized distribution coverage was 1.55x in Q4 2025, projected to reach 1.6x+ in 2026, prompting future discussions with unitholders about distribution growth.

Doug Irwin asked for a breakdown of the $250 million growth capital expenditure guidance, distinguishing between organic growth and backlog inherited from J-W Power, and inquired if this level represents a future run rate for CapEx given the two-year lead times for new equipment.

Answer

Chris Paulsen, SVP, CFO, and Treasurer, detailed that approximately $205 million of growth capital is for the compression business (with $150 million for new units) and nearly $40 million for other capital like vehicles and IT. He noted that this year's growth is around 2% of active horsepower and discussed the challenges of 2027 planning due to long lead times, highlighting the flexibility provided by their manufacturing entity and the potential for 1.5%-2% growth in future years. Irwin's follow-up question addressed the impact of balance sheet improvements and the J-W Power acquisition on distribution coverage and potential distribution growth. Paulsen confirmed the balance sheet is on track, targeting 3.75x debt to EBITDA in the near term, and mentioned an improved normalized distribution coverage of 1.55x for Q4, aiming for 1.6x+ next year, which will prompt discussions with unitholders about distribution growth.

Doug Irwin of Citi inquired about the trajectory of gross margins, noting that recent price increases seemed to be offset by higher operating expenses, and asked about the potential for new, higher-margin horsepower to improve them.

Answer

Christopher Wauson, VP & COO, explained that margins historically fluctuate between 65% and 67% and are expected to return to this range. He noted that while the company is incurring higher overtime costs to fill staffing needs, these are temporary and margins should normalize as the year progresses.

Doug Irwin inquired about the future trajectory of gross margins, considering the impact of increased operating expenses versus higher pricing on new horsepower. He also asked about the current mix of long-term versus month-to-month contracts in the Northeast and the potential to secure more long-term agreements.

Answer

Chief Operating Officer Christopher Wauson explained that gross margins, typically ranging from 65% to 67%, were impacted by temporary overtime costs which are being addressed through active recruitment. He anticipates margins will normalize to historical levels. Wauson also noted that 25-30% of their Northeast business is month-to-month, presenting an opportunity to improve revenue per horsepower as those contracts are renewed in Q3 and Q4.

Douglas Irwin of Stifel asked about USA Compression's 2025 guidance, noting the Q1 run-rate suggests the midpoint is achievable and questioned if results were trending toward the upper half. He also inquired about the growth outlook for 2026 given the current macroeconomic environment.

Answer

Christopher Paulsen, Chief Financial Officer, confirmed that USAC is maintaining its 2025 guidance range of $590 million to $610 million. He explained that new horsepower additions are back-end loaded to Q4 with minimal impact on 2025 results, keeping them on track for the midpoint. Regarding 2026, Paulsen noted that while it's too early for a definitive outlook, customer interest remains strong with RFPs for 2026 already being processed, supported by industry consolidation and stronger customer balance sheets.

Douglas Irwin asked about the strategy of converting idle units to active status, questioning if persistent higher costs might alter the approach versus new builds. He also asked new CEO Clint Green about his forward-looking perspective on the business and any potential strategic shifts.

Answer

COO Eric Scheller explained that record-high utilization, particularly for large horsepower units, drives the conversion strategy. He noted that increased costs stem from higher fleet churn and the need to upgrade returned units to meet different regional operational and environmental standards. President and CEO Clint Green expressed excitement about the company's opportunities, highlighting dual-drive technology and potential tailwinds from LNG export policy changes.

Doug Irwin followed up on capital expenditures, asking about the projected CapEx trend for 2026 now that Libby 2 is operational and how potential reductions might impact flexibility for debt repayment or unit buybacks from DK.

Answer

President Avigal Soreq indicated that the company is still finalizing its budgeting and planning for the upcoming year, promising to provide detailed guidance on capital expenditures during the next earnings call.

Doug Irwin inquired about producers' increasing activity on Delek Logistics' acreage ahead of Libby 2's commissioning, seeking clarification on the treating capacity ramp at year-end and the benefits of the sour gas offering across the broader gathering system. He also followed up on the 2026 CapEx outlook, particularly regarding flexibility for debt reduction or unit buybacks from DK.

Answer

President Avigal Soreq highlighted strong crude and water performance, the success of their Permian Basin strategy, and increased guidance, noting no material change in drilling activity but growing synergies. EVP Reuven Spiegel added that Libby 2's startup was above expectations, on time and budget, and that accelerated sour programs were implemented due to producer needs, leading to high confidence in filling Libby 2 and earlier expansion of processing capacity. Regarding CapEx, Avigal Soreq stated that 2026 planning and budgeting are ongoing, with guidance to be provided on the next earnings call.

Doug Irwin of Citi inquired about the Libbey II processing plant's current volume ramp following its commissioning and the potential timing and scope of future expansions, including sour gas treating capacity. He also asked for Delek's perspective on a recent competitor asset sale in the Delaware Basin and the broader competitive landscape for sour gas treating.

Answer

President and CEO Avigal Soreq, along with EVP Reuven Spiegel, confirmed the Libbey II plant is operational and expected to reach full capacity by year-end 2025. Spiegel noted the current focus is on developing sour gas treating and acid gas injection capabilities. Regarding the competitive landscape, Soreq and EVP Mohit Bhardwaj viewed the high valuation of a recent asset sale (Northwind) as a positive reaffirmation of their strategy, highlighting that DKL's comprehensive system includes gathering, treating, and processing, offering a more complete solution than competitors.

Doug Irwin of Citi inquired about the new Libbey II processing plant, asking for current volume trends post-commissioning and the potential timing and scope of future expansions, including sour gas treating capacity. He also asked for a comparison of DKL's Delaware Basin assets to recently transacted properties and the broader competitive environment.

Answer

President, CEO & Director Avigal Soreq and EVP Reuven Spiegel explained that the Libbey II plant is operational and expected to ramp to full capacity by year-end, reaffirming full-year guidance. They noted that future expansion plans are under consideration but will be announced when finalized. Regarding the competitive landscape, Avigal Soreq and EVP Mohit Bhardwaj highlighted that a recent high-multiple transaction in the area affirms the value of DKL's assets and that DKL's comprehensive system (gathering, treating, and processing) offers a superior value proposition compared to competitors with only treating capacity.

Doug Irwin of Citi inquired about the new Libbey II processing plant, asking for current volume trends post-commissioning and the potential timing of future expansions. He also asked for Delek's perspective on a recent competitor asset sale in the Delaware Basin and the broader competitive environment for sour gas treating.

Answer

President & CEO Avigal Soreq and EVP Reuven Spiegel explained that the Libbey II plant is operational and expected to ramp to full capacity by year-end, reaffirming full-year guidance. They noted a focus on developing sour gas capabilities. Regarding a competitor's asset sale, Soreq viewed the high valuation as a positive benchmark for DKL's assets. EVP Mohit Bhardwaj added that DKL's comprehensive system, which includes processing, is superior to the competitor's treating-only assets.

Doug Irwin of Citi inquired about the volume ramp-up at the newly commissioned Libbey II gas plant, the potential timing for future expansions, and Delek's competitive position in sour gas treating, especially in light of recent M&A activity in the Delaware Basin.

Answer

President & CEO Avigal Soreq, EVP Reuven Spiegel, and EVP Mohit Bhardwaj responded. They confirmed the Libbey II plant is ramping up and expected to reach full capacity by year-end, supporting their annual EBITDA guidance. They are now focusing on sour gas capabilities. Regarding a recent competitor asset sale, management viewed the high valuation as a positive benchmark, emphasizing that Delek's integrated system, which includes gathering, treating, and processing, is more comprehensive than the acquired asset.

Douglas Irwin of Citigroup inquired about the specifics of the recent intercompany agreements with parent company DK, the outlook for further deconsolidation, and the current sentiment from third-party producers given the macro environment, including details on the contracting mix for newly acquired water assets.

Answer

EVP Robert Wright explained the intercompany transaction was a recontracting effort to clean up agreements, moving refining-related activities to DK and midstream activities to DKL, which increased third-party EBITDA to approximately 80% with no material impact on net EBITDA. President Avigal Soreq and EVP Reuven Spiegel added that producer activity remains strong, with stable volumes in the Midland Basin and significant growth opportunities in the Delaware Basin, driven by their unique combined offering for crude, gas, and water, including new sour gas handling capabilities. They confirmed contracts have limited direct commodity exposure with strong counterparties.

Douglas Irwin of Citigroup inquired about the drivers for the high and low ends of the new 2025 EBITDA guidance and asked about the execution plan for the $150 million share buyback, including its funding and near-term leverage impact.

Answer

President Avigal Soreq explained that the new guidance aims to provide clarity after numerous transactions and highlight the company's value. He noted the buyback is accretive, given the ~7% cost of debt versus the ~11% equity yield, and supports the strategic deconsolidation from sponsor Delek US (DK). EVP Reuven Spiegel added that the buyback is a two-year program, contingent on market conditions, compliance with covenants, and maintaining leverage targets.

Douglas Irwin of Citigroup Inc. inquired about the new gas processing plant, asking for updates on its progress, timing, and potential sour gas opportunities. He also asked about the recent dip in Midland's volumes and for details on the new acreage dedication.

Answer

President Avigal Soreq and SVP Odely Sakazi responded. Sakazi confirmed the plant is on schedule for completion in the first half of 2025 and on budget, with major equipment already on site. Both executives highlighted significant sour gas opportunities, leveraging existing permits from the Triber acquisition. Regarding Midland volumes, Sakazi attributed the temporary dip to project timing and producer consolidation, projecting a recovery to ~190M by year-end and growth above 200M in 2025, supported by a new 50,000-acre dedication.

Doug Irwin from Citigroup Inc. asked for clarification on full-year guidance, given strong first-half performance, and questioned the strategy for future share buybacks, including Chevron's participation and the impact of public share liquidity.

Answer

CFO Michael Chadwick and President & COO John Gatling noted that while H1 was strong, guidance is maintained due to planned second-half maintenance and weather contingencies. CEO Jonathan Stein confirmed the return of capital strategy is unchanged, expecting proportional participation in buybacks from Chevron and affirming that public float is sufficient for the program.

Doug Irwin from Citi asked for clarification on the full-year guidance, noting that first-half performance was tracking above the midpoint, and also inquired about Chevron's expected participation in future share buybacks.

Answer

President & COO John Gatling and CFO Michael Chadwick clarified that while Q2 was exceptionally strong, the second half includes higher planned maintenance and a contingency for winter weather, justifying the decision to maintain the current guidance range. CEO Jonathan Stein stated there is no change to the buyback strategy and expects Chevron to participate proportionally over time, noting that public share liquidity is sufficient for the program.

Douglas Irwin from Citi inquired about the potential for gas growth in the Bakken given rising GORs, particularly in a flat crude production scenario. He also asked for a breakdown of the company's $1.25 billion financial flexibility between leverage capacity and excess cash flow.

Answer

President and COO John Gatling acknowledged that GORs are expected to increase as wells mature, leading to gas volume growth, a trend consistent with broader basin forecasts. CFO Jonathan Stein clarified that the $1.25 billion in financial flexibility through 2027 is composed of roughly half from leverage capacity as debt falls and half from growing excess free cash flow.

Douglas Irwin asked for more color on what is driving the near-term increase in the CapEx budget for 2025 and the slight overage in 2024. He also questioned what longer-term growth CapEx might look like beyond 2027 and if a significant step-down is expected. Additionally, he inquired about the capital allocation program and how potential changes at the sponsor level might affect the attractiveness of buybacks.

Answer

President and COO John Gatling explained that higher near-term CapEx is driven by accelerated activity to keep pace with Hess's drilling efficiencies and includes initial spending on the new Capa Gas Plant. He anticipates a 'step down' in CapEx post-2027. CFO Jonathan Stein added that this declining capital profile, combined with growing EBITDA, will enhance free cash flow through the decade. Stein also affirmed the commitment to the capital return framework, stating it would not fundamentally change and that they might consider including the public in future repurchases as the public float grows.

Douglas Irwin asked if Hess Corporation's accelerated upstream drilling could pull forward HESM's volume growth into 2025. He also inquired about the 2025 CapEx outlook, noting that some capital appeared to have been pulled forward into 2024.

Answer

President and COO John Gatling responded that Hess's faster drilling provides greater certainty for achieving the guided ~10% volume growth through 2026, positioning HESM well for 2025. Both Gatling and CFO Jonathan Stein clarified that the higher 2024 CapEx reflects timing shifts within multiyear projects, and the overall capital outlook through 2026 remains consistent, though spending may shift between years.