Kinetik - Q4 2025

Transcript

Operator (participant)

Hello, everyone, thank you for joining the Kinetik fourth quarter 2025 results. My name is Claire, I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad. I will now hand over to Alex Durkee from Kinetik Holdings to begin. Please go ahead.

Alex Durkee (Director of Investor Relations)

Good morning, and welcome to Kinetik's fourth quarter and full year 2025 earnings conference call. Our speakers today are Jamie Welch, President and Chief Executive Officer, and Trevor Howard, Senior Vice President and Chief Financial Officer. Other members of our senior management team are also in attendance for this morning's call. As a reminder, today's discussion will include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of these factors, please refer to our SEC filing. We will also reference certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures can be found in our earnings materials and on our website. With that, I will turn the call over to Jamie.

Jamie Welch (President and CEO)

Thank you, Alex. Good morning, everyone. 2025 was a challenging year for the energy industry in Kinetik. Commodity price volatility, macroeconomic uncertainty, tempered customer development activity and inflationary pressures tested our business. Our financial results underperformed expectations. It was also a year of important strategic progress. Progress that strengthened our core business, deepened customer alignment, and positioned us for a bright future. Our team is keenly aware that 2026 is our rebuilding year, a year to reestablish credibility through consistent execution, disciplined capital allocation, and transparent communication. Despite the challenging operating conditions, we still managed to deliver year-over-year EBITDA growth and executed on several foundational initiatives. We closed the bolt-on acquisition of the Barilla Draw gathering assets, enhancing our Delaware South footprint and expanding our systems capture area.

We achieved full commercial in-service at Kings Landing, a multi-year strategic build that doubled our processing capacity in Delaware North. Kings Landing is performing exceptionally well, with a 99.8% runtime, strong ethane recoveries and reliable performance even through the recent Winter Storm Finn. This reliability is critical as inlet volumes rise and eventually sour gas content increases. We also reached FID on the Kings Landing sour gas conversion project that is expected in-service by year-end 2026. That project will ultimately increase our total permitted acid gas injection capacity across our Delaware North processing complexes to over 31 million cubic feet per day, enabling us to meaningfully scale sour gas handling across the northern Delaware Basin. Completion of the ECCC pipeline remains on schedule for in-service next quarter.

ECCC is a critical link between Eddy and Culberson counties and unlocks additional growth by providing Delaware North with direct access to our latent processing capacity in Delaware South. Yesterday, we announced that we reached FID on our first behind-the-meter gas-fired power generation project at the Diamond Cryo facility. We have purchased a 40 MW gas turbine scheduled to arrive in West Texas during the second quarter. The project requires less than $25 million of capital, is expected to be in service in late 2026, and provides a scalable, cost-efficient power solution that can be replicated at several of our other processing facilities in Delaware South. Continuing to execute on initiatives that reduce our operating cost structure, thereby making our existing assets more profitable and our business more competitive, is a key focus for our team going forward. 2025 was also a year of meaningful commercial advancement.

We amended gas gathering and processing agreements with our two largest legacy Durango Midstream customers, extending terms into the mid-2030s and enhancing long-term cash flow visibility through fixed fee structures, treating fees, and control of residue gas and NGLs. Importantly, these amended agreements increase expected EBITDA beginning in 2026, strengthen long-term customer alignment, and position Kinetik to grow alongside these producers as development increasingly shifts towards more sour gas benches. A GMP agreement in Delaware South was amended to shift the residue gas price point from Waha to premium Gulf Coast markets, improving this customer's natural gas price realizations and reducing our indirect exposure to in-basin price volatility via price-related production curtailment. These types of commercial refinements underscore our focus on creating win-win outcomes that enhance system utilization and long-term value.

We also executed long-term agreements with CPV and INEOS, demonstrating our ability to create differentiated pricing solutions across power generation and international gas markets. Our commercial success has continued into this year, as we're finalizing a new agreement for low and high-pressure gathering and processing services in Lea County with one of our large existing customers. We are reminded daily that location, a low-cost structure, and connectivity determine the winners in midstream. The Texas and New Mexico natural gas supply and demand forces at play today reinforce a very attractive thesis for our business. Kinetik strategically sits at the crossroads of rising low-cost natural gas supply and rapidly growing demand along the U.S. Gulf Coast, for which our system is a critical link in the energy value chain.

Permian natural gas production is expected to grow nearly 4% annually through 2030, supported by rising GORs, attractive gas-rich plays, and accelerating domestic natural gas demand. Gas-to-oil ratios, especially in the Delaware, are climbing steadily as development moves into gaseous zones. Delaware Basin GORs are projected to increase nearly 70% over the next couple of decades. At the same time, highly productive gas-rich plays like the Barnett, Woodford, and Alpine High are becoming increasingly attractive as producers delineate and prove out the resource and gas fundamentals improve. Permian gas takeaway capacity remains a critical component of the outlook. The industry is bringing online approximately 5 billion cubic feet per day of incremental egress by the first quarter of next year, representing nearly 20% of current Permian natural gas production volume.

While we still anticipate Waha gas price volatility during the spring and fall pipeline maintenance seasons, takeaway gas pipeline utilization near 90% should provide pricing relief at Waha. Additional projects like Eiger Express and Desert Southwest, slated to come online in 2028 and 2029, further strengthen the Waha price relief narrative. Accelerating ERCOT power generation demand, driven largely by data centers, creates substantial upside for gas-fired power generation, especially in West Texas. Further downstream, the U.S. Gulf Coast remains the most attractive natural gas demand story globally, with LNG capacity expansions expected to increase gas demand by nearly 12 billion cubic feet per day through 2030. Before turning the call to Trevor, I'd like to reiterate that we recognize the importance of restoring investor confidence this year.

Our priorities for 2026 are clear: meet or exceed our financial estimates, tighten operating cost discipline, deliver projects on time and on budget, play offense regarding our Waha exposure. Examples include amendments of existing G&P agreements, as mentioned earlier, potentially being part of the solution for new takeaway capacity options and creative sales agreements. Lastly, convert our commercial opportunities pipeline into long-term agreements, which would result in the FID of additional system investments at compelling multiples. We enter 2026 with momentum, a strong system, and a clear mandate. While I am incredibly proud of our team's success to date, there is a huge opportunity to meaningfully and accretively continue to grow our business. To capture that opportunity, we need to operate at a higher level in 2026, and I know we have the right people to do just that.

With that, I will turn it over to Trevor.

Trevor Howard (SVP and CFO)

Thanks, Jamie. In the fourth quarter, we reported adjusted EBITDA of $252 million. We generated distributable cash flow of $152 million, and free cash flow was -$12 million. Midstream logistics delivered $173 million of adjusted EBITDA, up 15% year-over-year, 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. Pipeline transportation generated $84 million of adjusted EBITDA, down year-over-year due to the EPIC Crude divestiture that closed on October 31st. The approximately $500 million of proceeds received from the EPIC Crude sale were used to pay down borrowings at the revolving credit facility, improving liquidity and de-leveraging the balance sheet, both important for our revised capital allocation framework.

Additionally, distributions from PHP were down approximately $31 million in the fourth quarter versus the third quarter due to a change in distribution policy, resulting in a portion of the fourth quarter distribution being paid at the beginning of January. This change in the distribution policy has no further consequence, nor is it a reflection on PHP's financial performance. For the full year, adjusted EBITDA was $988 million, slightly above the midpoint of revised guidance. Capital expenditures were $497 million, in line with revised guidance. We repurchased $176 million of Class A common stock and exited the year at 3.8 times leverage. Turning to the financial guidance issued yesterday, we expect 2026 adjusted EBITDA of $950 million to $1.05 billion.

The midpoint of $1 billion represents over 7% growth year-over-year when adjusting for the sale of EPIC Crude. Within the midstream logistics segment, key assumptions include high single-digit growth in processed gas volumes across the system, outpacing broader Permian production growth. Approximately 100 million cubic feet per day of expected Waha price-related production shut-ins. These are most pronounced during pipeline maintenance periods in the fall and spring. Gas process volumes exceeding 2 billion cubic feet per day in the second half of this year, supported by ECCC in service and Kings Landing ramping to full utilization. Approximately 84% of fixed-fee gross profit and flat to slightly down operating expenses relative to our third quarter 2025 run rate.

Since we still expect substantial volatility at Waha this year, I would like to spend a bit of time on how we approach guidance with utilization of our Gulf Coast transport capacity to offset the financial impact of anticipated production shut-ins. We believe our guidance is appropriately risked based on the following. We saw the extent to which curtailments could impact the business in the fall of 2025 and assumed similar levels in our forecast. We are modeling strip pricing, which suggests depressed Waha pricing for most of the year, especially during the spring and fall pipeline maintenance seasons. While we are planning for material price-related shut-ins, we are also expecting marketing contributions as a financial offset. Given the magnitude of the Waha to Gulf Coast Hub natural gas price differential, we have approximately 40% of our transport spread exposure hedged.

Our 2026 adjusted EBITDA guidance also reflects the full year impact of the EPIC Crude divestiture, as well as margin and volume adjustments at Chinook within the pipeline transportation segment. Moving to 2026 capital expenditures guidance, we expect $450 million-$510 million of capital expenditures, with approximately 70% of capital spent in New Mexico, including the ECCC pipeline, gathering investments in Eddy and Lea counties, and the Kings Landing sour gas conversion project. Our Delaware South budget includes the behind-the-meter power generation project, regular way low pressure gathering and compression capital to service existing agreements, and a handful of optimization projects that will increase processing capacity at several of our Delaware South processing complexes. I would like to discuss our revised capital allocation framework and how we're positioning the company for long-term value creation.

Over the past year, we've shifted from a balanced all-of-the-above capital allocation model to a growth-oriented framework, aligned with multi-year visibility and high return opportunities. Our updated capital allocation framework reflects a structural opportunity to reinvest in projects that generate highly attractive rates of return and enhance our overall strategic and integrated enterprise value. All the while, we plan to modestly increase capital returns to shareholders via annual dividend increases and remain disciplined around leverage and balance sheet resiliency. As growth projects come online and cash flow steps up, we expect to accelerate cash returns to shareholders. There are a few elements I want to highlight. First, elevated growth capital budgets are expected, driven by high return projects supported by our system footprint, operational reliability, and long-term commercial agreements. Second, we will target leverage between 3.5 and four times.

The scale of the opportunity set requires disciplined project high grading in order for us to operate within this range, which we believe appropriately protects our company's financial health. We plan to increase the dividend annually by 3%-5% until our dividend coverage reaches 1.6 times. Upon achievement of 1.6 times, dividend increases should track earnings growth. We will pursue share repurchases opportunistically. With elevated CapEx, buybacks will naturally be lower in the near term, but over time, they will become an additional mechanism for incremental cash returns as free cash flow applies. We will preserve balance sheet flexibility with investment-grade ratings remaining an objective, but not at the expense of alternative compelling returns. Before we start Q&A, I would like to pass the call back to Jamie.

Jamie Welch (President and CEO)

Thanks, Trevor. I want to briefly address recent M&A conjecture. As a reminder, we do not comment on market rumors or speculation, and we won't be doing so today. What I will reiterate is this: we operate in an industry where assets of scale, integration, and durability are highly strategic. We swim with other large players and recognize that the broader landscape is constantly evolving. Against that backdrop, our focus remains on executing our strategy and driving near and long-term shareholder value. We are incredibly excited about what lies ahead in 2026 and beyond, and believe we're well positioned to drive multi-year growth. With that, we can open the line for questions.

Operator (participant)

Thank you. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Spiro Dounis from Citi. Your line is now open. Please go ahead.

Spiro Dounis (Director and Senior Equity Analyst)

Thanks, operator. Good morning, guys. I want to start with the outlook here. Good morning, Jamie. Noticeable difference in tone this call from the last call. I'm just curious, what's giving you this, what seems like renewed confidence as you're heading into 2026, and why are you so confident in the EBITDA range this year?

Jamie Welch (President and CEO)

Spiro, it's Jamie. First off, thanks for the question. Look, I think, we obviously, you know, had our bumps and bruises last quarter, for 2025, we licked our wounds, we've basically been head down, focused on execution ever since. I think with the restructuring of the two large legacy Durango Midstream contracts, they were really critical to get over the finish line, we did it. That opens up a tremendous window of opportunity as it relates to sour gas benches and sour gas just generally for the Northern Delaware. It is also apparent that there is a lot of, yeah, activity in around the Northern Delaware that has been emerging for some time, but is now really getting significant momentum.

There is probably more in-house commercial activity today than we've had for multiple years in the context of just things that are actually happening that obviously can really move the needle. That obviously creates the realignment and the refresh on the capital allocation strategy. You know, the sort of the organic growth first is obviously what we see here as being sort of our critical threshold going forward. If you hear it, you know, I think we are genuinely excited, and what we bring to the table in the north is a function of the following: we bring not just sour gas and the ability of sour gas treating with obviously the acid gas conversion project going on at Kings Landing. The prospect in the near term for Kings Landing 2.

Just as importantly, as we start to have folks emphasize and focus on co-development, the ability to give Gulf Coast pricing for Northern Delaware Basin customers, that has been something nonexistent. That really, I think the entire package provides a compelling proposition, even at a, you know, in a 60s dollar WTI price.

Spiro Dounis (Director and Senior Equity Analyst)

Got it. That's helpful. Thanks for that. Maybe sticking on this sort of line of questioning around the outlook and looking beyond 2026. I hate to be in the what have you done for me lately camp, but you know, the dividend guidance of 3%-5% growth to get up to 1.6x coverage does imply that you expect to be growing beyond that 3%-5% range, and there's quite a few things impacting you at the end of 2026 that really don't benefit you till 2027. In that context, how are you thinking about growth beyond this year? How much could get unlocked by Permian gas egress coming online alone? Maybe if you just could update us on the latest thinking around NGL recontracting.

Jamie Welch (President and CEO)

Sure. I'll start. I'm sure Trevor will jump in. Look, a viewpoint would be as follows: we said this year is a 7% growth when you basically normalize by excluding EPIC. Same-store sales growth, 7% year-on-year for EBITDA. We have a trajectory that is on the incline over the course of this year and towards the back end of the year, you know, the coverage ratio is right around 1.5 times. While we won't talk specifically about 2027, we think with set up is tremendous, really tremendous. I think as far as, yeah, what I would say is egress.

Look, 5.3 Bcf a day, I think by the time phase 2 of Hugh Brinson comes online, that's about almost 20% of your overall current net Permian gas production. That's a nice shot in the arm. That is a very, very constructive element. you know, on top of that, obviously, you know, following within short order, because it's, you know, this is the first time I can remember where we have follow-on egress projects already literally working through the system in construction, and that is Eiger Express and obviously, Desert Southwest. you come into 2027, into 2028, late, probably fourth quarter, you're thinking Eiger Express. In 2029, you're thinking Desert Southwest, you're really gonna be that's gonna be a much more constructive situation.

I think honestly, Spiro, I think our viewpoint is, I know a lot of our customers and some of our other peers have talked about the Barnett, Woodford. I think those types of gassier zones are really going to play off the overall construct, constructive element around Waha pricing that we start to see with this egress relief. By the way, you did ask about NGLs.

Spiro Dounis (Director and Senior Equity Analyst)

Sure.

Jamie Welch (President and CEO)

Look, I would say on NGLs, yeah, look, in the context of this, we're obviously, we've got a couple of contracts that roll off this year in the Delaware South area that is obviously well known to everybody. We're very excited by the, you know, what we see around us right now. Obviously, you've got five or six, very active, large, integrated NGL players aggressively looking for market share and obviously being very aggressive around rates. I think, you know, our expectation is probably more on the conservative side relative to what actually may occur. Yeah, obviously more to come over the, over the course of this year and as we, as we look to get things tied down.

Spiro Dounis (Director and Senior Equity Analyst)

Helpful as always. Thank you, Jamie.

Trevor Howard (SVP and CFO)

Thanks, Spiro.

Operator (participant)

Thank you. Our next question comes from John Mackay from Goldman Sachs. Your line is now open. Please go ahead.

John Mackay (Analyst)

Hey, good morning, team. Thank you for the time. Why don't we pick up on a couple of these things? I wanted to talk about the kind of ex curtailment volume guidance or, you know, volume number you disclosed for fourth quarter. Could you talk about kind of how much of those curtailed volumes have come back? What are you kind of specifically expecting for 2026? Yeah, maybe just a little more color on the trajectory there. Thanks.

Trevor Howard (SVP and CFO)

Yeah, thanks for the question, John. This is Trevor. What I would say is that we had 170 million cubic feet a day on average of curtailments in the fourth quarter. We alluded to really three contract amendments. We had one in Delaware South and we had two at Delaware North. We estimate that has brought back online about 50 million cubic feet a day when you normalize for those two agreements. Really the preponderance of the remaining shut-ins pertains to our gas-focused customer, which is Apache in the Alpine High area. With where Waha prices are right now, I think it's safe to assume that, you know, we are at a level that does not make sense to continue to flow.

What we have assumed in our forecast is, on average for calendar year 2026, about 100 million cubic feet a day of curtailments. I'm glad that you did bring that up. We did mention that volumes across our entire system in 2026 are up high single digits year-on-year. What's interesting about that is if you just were to bifurcate it between Delaware North and Delaware South, we're at about 35% year-on-year in Delaware North, which makes sense, just given the fact that we had a massive increase with Kings Landing coming online, that doubled processing capacity in the third quarter of 2025.

Interestingly, and I think it's just not widely talked about, you know, by the investing community, is Delaware South has grown at 3%, but if you were to normalize for the curtailments, it'd be growing at 10%, which is, you know, above Permian Basin average volume expectations. Kind of echoing on comments from Jamie on the previous question, we're incredibly excited about what we're seeing both at Delaware North and Delaware South. We think that the forecast that we have is appropriately risked, the current macro that we anticipate, you know, really through the balance of the year. When you look at the Waha forwards, we're not expecting things really to get better until or the market's not expecting things to get better until December.

It's effectively what we have done with our forecast as we look at 2026.

John Mackay (Analyst)

I appreciate the color, Trevor, thank you. Can we, second one, just on Kings Landing 2? I think the line from you guys is, you know, continuing to finalize commercial negotiations. Can you tell us a little bit more about that? Maybe how much of that factors into the AGI capacity ramping up? Just walk us through some of those moving pieces.

Jamie Welch (President and CEO)

Sure. John, it's Jamie. As it relates to KL2, you know, we continue to progress. I would say the restructurings that were done of the two largest legacy Durango Midstream customers is a significant positive. There are some other activities, as I said, you know, the amount of commercial discussions and activity going on right now is probably the greatest, most significant it's been for several years, and we're anticipating that, you know, we will obviously land a number of those planes. With that being the case, I would expect that at some point over the course of 2026, we'll have an announcement on KL2. We have already factored into our construction capital budget that we actually have included an amount on the basis that we're anticipating that we will actually FID it.

There would be no revision to the capital budget if we did. I would say, you know, the overall AGI capacity, first phase comes online by the end of this year. If you recall, I think we've talked about this before, there is a requirement that you have a companion well, so you drill an AGI well, but in New Mexico, you need to have a companion well. That companion well obviously will give us incremental capacity over and above what we have with our first AGI well, which will add, I believe it is, another 4 BCf, 4 million cubic feet a day of capacity, and then we will step up ultimately up to 24 and 30, then we're at 31 in total, as shown, I think, in the, in the materials.

John Mackay (Analyst)

That's clear. Thank you.

Operator (participant)

Thank you. Our next question comes from Gabe Moreen from Mizuho. Your line is now open. Please go ahead.

Gabriel Moreen (Managing Director and Senior Equity Research Analyst)

Morning, team. Could I ask a little bit about the commodity sensitivity first around? I think you mentioned getting more fee-based with these renegotiations at Durango, but it looks like from the pie chart, the fixed fee versus commodity hasn't really moved that much. I'm just wondering if that moves kind of in the future in maybe out years. The second would just be around some of the kind of creative solutions, Jamie, that you referenced on Permian egress. Giving customers exposure to Gulf Coast pricing, I'm just wondering about your confidence level in terms of hedging your own exposure to that, whether that's PHP or some of the capacity I think that you had mentioned that you lined up last quarter going forward.

Trevor Howard (SVP and CFO)

Gabe, thanks for the question. This is Trevor. On your first one, relating to just the percentage of overall gross margin being contributed from commodity, what I would say is that it remains elevated relative to what you would expect with the conversion of really one primary contract from commodity to fixed fee. That's because just the marketing contributions associated with our Gulf Coast transport hedge. We expect that in 2026, and then in 2027 thereafter, we expect that to, you know, effectively go away. Therefore, we include that in our commodity that you see on page 9 of our earnings slides. Again, that should reduce back to, you know, a lower level come 2027.

Kris Kindrick (SVP of Commercial)

Gabe, this is Kris. On the kind of creative commercial structuring, I mean, we've talked about this for a couple of quarters. You know, we've been able to use the Gulf Coast capacity as lever and a commercial tool to get new business, and as Jamie alluded to, it was important in restructuring these contracts. A lot of these customers need to get out of Waha, we provide a good solution for that. Looking forward, it's obviously been a good hedge for us for the shut-ins, as we showed in the fourth quarter, and that'll continue to be the case. You know, we're optimistic that Waha is relieved with the 5 Bcf coming online and the additional pipelines, but, in the event, it's not, we're setting ourselves up to win with our capacity position, capitalize that on future opportunities as well.

Gabriel Moreen (Managing Director and Senior Equity Research Analyst)

Thanks, Kris and Trevor. Maybe if I could just follow up on the 40 MW behind-the-meter project. Can you talk about whether you at all are shopping some of that power to potential third parties, and you're viewing that as being all used for your own account in terms of getting kind of the returns you need? I think, Jamie, you mentioned potentially pursuing others. Can you just talk about the decision points about pursuing that timeline, capital involved, et cetera?

Jamie Welch (President and CEO)

Sure. Gabe, the 40 MWs is for self-consumption, so everything is for Diamond. We have the ability to actually, we can convert it to a combined cycle facility and therefore, and increase it by up to 60 MWs. We, if we decided to do that, we would do that because we saw a significant opportunity, just given the price of power, and we could look to sell that power back into the grid. None of that's factored into our numbers. We're just looking at on the most rawest and just plain vanilla terms, which is $25 million in capital. You know, there's a, it's a very attractive project, you know, very low multiple, sort of investment.

We've been talking about this a while. It was good to get it over the finish line, and we look to having it in service by the end of the year.

Gabriel Moreen (Managing Director and Senior Equity Research Analyst)

Thanks, sir.

Operator (participant)

Thank you. Our next question comes from Michael Blum from Wells Fargo. Your line is now open. Please go ahead.

Michael Blum (Managing Director and Senior Equity Analyst)

Thanks. Good morning, everyone. I'm wondering, can you provide.

Trevor Howard (SVP and CFO)

Hey, Michael.

Michael Blum (Managing Director and Senior Equity Analyst)

Can you provide a little more detail on what's in growth CapEx number, particularly what you're calling rich gas opportunities in New Mexico, optimization and field CapEx? Should we think of that as kind of normal course recurring items that we should expect to see in growth CapEx going forward?

Trevor Howard (SVP and CFO)

Thanks for the question, Michael. It's Trevor. If you go to page 10 of our earnings slides, we try to lay it out a little bit differently this year, just to help address one of the questions that you had noted, which was, you know, what's more lumpy in nature and then what's regular way business? If you look at the right pie chart, we laid it out as field and maintenance, right? Low pressure gathering, compression, and then maintenance that we have to do every single year. That's about 50% of our total $480 million capital backlog. About $240 million is what I would say is regular way capital going forward.

It's not necessarily, it's not to be viewed as a maintenance number in terms of holding things flat. We have volumes that are expected to grow 8% per annum. As you think about, like, a true maintenance number, it would be lower than that. On the trunk line side, we do have a few completions of trunk lines in Delaware North and Delaware South that provide a little bit more connectivity to the system that are not recurring in nature. We also have the ECCC, which we will complete in the second quarter of this year. On the facility side, that is primarily the Kings Landing sour conversion. We also have a few optimization projects down at Delaware South that increase processing capacity at several of our facilities.

Again, that's necessary to facilitate the growth that we see on the system, but more so viewed as, I'd say, you know, one time in nature, not necessarily ongoing.

Jamie Welch (President and CEO)

The BTM project, too, right?

Trevor Howard (SVP and CFO)

Yeah, that too.

Michael Blum (Managing Director and Senior Equity Analyst)

Great. That's very helpful. Appreciate that. Then I guess maybe to go back to an earlier point as we think about the cadence of EBITDA by quarter. You mentioned it's gonna be kind of upward sloping. I'm wondering if you could give us a sense of what exit rate EBITDA in Q4 could look like. Thanks.

Trevor Howard (SVP and CFO)

Yeah. This is Trevor again. I would say that, you know, Jamie's comments earlier, on just dividend coverage, just to expand on that, I think he mentioned that would be approximately 1.5 dividend coverage exiting the year. You know, it's really a bit of a tale of two halves. If I were to just normalize the fourth quarter numbers for a few things, I'd point out that, you know, fourth quarter 2025 included about $5 million of EBITDA from EPIC Crude. We also had an OpEx benefit, and collectively, those two would bring us down by about $15 million. We've talked about this on prior calls. Enterprise has also talked about this, but with Bahia online, we're expecting a shift in volumes from Chinook over to Bahia.

You know, $3 million-$4 million on a quarterly basis. On a normalized basis, you're kind of in that $230 million-$240 million zip code for the first two quarters, in order to hit the full one year, billion, or excuse me, the full year, $1 billion of EBITDA, you're at $260 million-$270 million in the third and fourth quarters.

Michael Blum (Managing Director and Senior Equity Analyst)

Thank you.

Operator (participant)

Thank you. Our next question comes from Julien Dumoulin-Smith from Jefferies. Your line is now open. Please go ahead.

Robert Mosca (Associate and Equity Research Analyst)

Hi. Good morning, everyone. This is Robert Mosca on for Julien. 4Q looked pretty successful in terms of your ability to manage around Waha. Can you speak to what was different in 4Q than prior periods? And can you highlight some of the additional steps you've taken in 2026 to manage around that volatility, whether it's the GMP contract restructuring or maybe even taking out capacity on third-party pipe?

Trevor Howard (SVP and CFO)

Yeah. Look, I'd say to answer your question, you just hit on two of them. We're able to secure additional Gulf Coast capacity that was critical for the fourth quarter. The second aspect is we've restructured or amended three contracts that, you know, for about a third of the volumes that we saw shut in, we view that as, you know, protected those volumes from resuming their shut-ins in 2026 and thereafter. We've taken, you know, necessary steps to help address a portion of the shut-in risk. What I would also say is just from an expectations perspective, taking a bit of a more heavy hand on what our belief is and on curtailments.

Like I had mentioned earlier in my prepared remarks, we took basically fourth quarter 2025, shut-ins, and we rolled that forward, especially in the maintenance months in the spring, and the fall. I'd say that those are really the three items, that are significant changes, from prior quarters before fourth quarter 2025. You know, in terms of, like, the transport hedge being an offset for shut-ins, relative to our internal expectations, they matched effectively flat. You know, the additional curtailments that we saw relative to our forecasts, as we mentioned, our, in our disclosure, we're down by about 8% on volumes, but relative to the Gulf Coast marketing gains, it effectively was a nice, perfect offset.

Jamie Welch (President and CEO)

Hey, Rob, it's Jamie. Look, I would say just a couple of other things. Obviously, fourth quarter, we had a full, we had the full quarter of KL, right? That obviously is good. KL has operated so well, really well. Even through Winter Storm Fern, it has operated fantastically, and a lot of credit goes to the operations engineering team. I think as it relates to, you know, how we put this into a 2026, you heard Trevor say, 170 million cubic feet a day was our average shut-in for fourth quarter of last year. That is a hell of a lot of gas. That's almost a cryo, and that was our shut-in. We have said, well, on average, for the full year, this year, it's 100.

I would say between what we've done on the forecasting side and really, I would say, being very granular and really challenging ourselves on shut-ins, timing for developments, looking at OpEx, which we talked about la, last quarter, looking at controllable costs, looking at what we can do on the compression side, I think we've done a wholesale, bottoms-up, ground-up overview of our business and come up with a forecast that we really feel is really well battle-tested.

Robert Mosca (Associate and Equity Research Analyst)

No, got it. That's really helpful color, guys. I appreciate it. You know, maybe without asking you to comment on specifics, just wondering if you could speak to how yourselves, the board, think about inbound strategic interest more broadly, and how you'd expect to derive value for Kinetik shareholders from any synergies that could arise if something were to come to fruition?

Jamie Welch (President and CEO)

Look, we're always willing to evaluate opportunities that maximize shareholder value. We've said this from day 1. There has been no change since February 22, 2022. If someone comes in and can provide more value than we believe we can create ourselves, then, you know, we understand our fiduciary and our responsibilities to all of our shareholders and all of our stakeholders. Simple as that. There's nothing more, nothing less. It's really that simple.

Robert Mosca (Associate and Equity Research Analyst)

Got it. Appreciate the time this morning, everyone.

Jamie Welch (President and CEO)

No problem.

Operator (participant)

Thank you. Our next question comes from Jeremy Tonet from JPMorgan. Your line is now open. Please go ahead.

Jeremy Tonet (Executive Director and Senior Equity Research Analyst)

Hi, good morning.

Jamie Welch (President and CEO)

Good morning, Jeremy.

Jeremy Tonet (Executive Director and Senior Equity Research Analyst)

I was just wondering, I'm not sure how much you said specifically on the KL ramp, but just could you refresh me, I guess, where it stands now, how you see, I guess, that ramp transpiring over the course of the year, given the macro dynamics you laid out there?

Jamie Welch (President and CEO)

Yeah, sure. 65%, 70% utilization. Expect the second half of this year to get to the 200, 'cause I think we said exit around 2 Bcf a day of inlet. you know, our expectation is that this thing is gonna ramp.

Jeremy Tonet (Executive Director and Senior Equity Research Analyst)

Got it.

Jamie Welch (President and CEO)

Did that answer?

Jeremy Tonet (Executive Director and Senior Equity Research Analyst)

Yeah, and just want to get back, I guess, towards, you know, if I try to think about the business growth normalized here, right? I think, you know, as you talk about the first quarter, you talk about the fourth quarter, if it, you know, there's other factors in play, such as shut-ins, but going from 230 to 270 would be something like 17% growth, and that's not normalized for factors you mentioned. Just wondering, as you, as you look forward, I mean, if you take a 270 annualized for, you know, 2027, which I imagine is upside for given the factors you laid out there, you know, that points to something north of 7% growth.

Just wondering how you think about, I guess, the normalized EBITDA growth for this business over time, granted, there will be lumpy years.

Jamie Welch (President and CEO)

Look, yeah, you know, we have tried and I suppose we've been more circumspect with our words. You know, we said originally that this was a business that could grow at a 10% EBITDA CAGR. We said, "Listen, we obviously didn't do that in 2024 to 2025, and 2026 is only 7%." I still think what we see gives us a lot of confidence around, we think, yeah, above average growth. Now, it's so dependent on so many factors. Tell me what Kaplani prices are, tell me how gas prices are reacting, tell me how much activity is gonna be out of the Barnett Woodford, out of the Penn shales. You know, it really is so dependent on so many different factors.

I think our viewpoint is, rather than being wedded or bound to a specific, "This is the growth rate to anticipate," our growth rate, we think, is gonna be, you know, above average, and we feel very good about sort of what the line of sight between now and to 2028.

Trevor Howard (SVP and CFO)

Jeremy, this is Trevor. I just expand on that, Jamie's comments. Look, we put a target out there at the beginning of last year. As we think about internally, just arrows on a page, what has changed since 12 months ago? Clearly, commodity prices are down and things have slowed in the Permian, in terms of just an absolute, just rig count perspective. But we are seeing longer lateral lengths, drilling efficiencies, lateral footage really is kind of holding. Productivity gains are also resulting in just more volumes per pad, which really is from a capital efficiency perspective for midstream, it's actually fantastic. I'd say that macro, clearly, arrows on a page is down, but it does feel like we are starting to see the light at the end of the tunnel on this oversupply narrative.

Also with respect to WAHA, you know, the cavalry is coming with nearly 11 Bcf a day that's gonna be coming online over the next several years. You know, part of why we are now comfortable with revising our capital allocation framework is we've been almost operating Delaware North or the Durango asset for two years now, and we are gaining increasing confidence in the opportunity set up there. As we look at it internally from 12 months ago, we're more bullish on the opportunity set across our entire business. You know, down in Delaware South, we've talked about this in the past, the deconsolidation theme continues to drive volumes on our system. You know, I had mentioned earlier that that system normalized growing at 10%, I think, you know, is surprising to most folks.

As Jamie had mentioned earlier, we're starting to see the deeper zones get tested in the south. You know, it's still very early days, and there's a lot of science work that needs to go into it, but it's no longer, you know, things that are happening on the eastern side of the basin or a story in the Midland. You know, we have seven wells on the schedule in 2026 that are in the deeper zones, and they contribute a lot of gas. If that story continues to be, or if it continues to progress in 2027, it's very exciting. Not gonna give an exact number, but again, that's just how we think about it in terms of arrows on a page.

Jamie Welch (President and CEO)

I think, hey, Jeremy, the one other thing I would just amplify on what Trevor said, we have been almost two years now running Durango. I think most importantly, Kings Landing has been, whilst it was delayed from a timing standpoint, has been an unqualified, you know, success. Operationally, it has been exemplary. It has given a lot of conviction and a lot of confidence to the producers up there. We FID the sour gas conversion project. We have stuck to our commitments and our words to our producers, and in turn, the amount of support that we're getting is real. That I think, it is a symbiotic relationship that we have with our producers.

They are partnerships, and this, I think, is we've held up our end of the bargain, and now we're seeing our customers come to the party and come to the fore as far as their level of activity and what we're seeing.

Jeremy Tonet (Executive Director and Senior Equity Research Analyst)

Got it. That's helpful. I'll leave it there. Thanks.

Jamie Welch (President and CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from Theresa Chen, from Barclays. Your line is now open. Please go ahead.

Theresa Chen (Managing Director and Senior Equity Analyst)

Hi, Trevor. I want to go back to your comments about the Delaware South footprint. Can you elaborate on what exactly your customers are seeing or unlocking on the resource front here, that may not be easily discernible outside looking in? What's driving the growth? How durable is it? Is it just the pace of deeper zone development, or what has surprised you to the upside versus your original expectations?

Trevor Howard (SVP and CFO)

Yeah, I'll also let Kris Kindrick jump in here, but just to hit in terms of the numbers itself, the commercial team has done a great job to continue to expand our business with our customers, in, you know, the northern part of the Delaware South system, which extends into New Mexico and southern Lee County. That needs no introduction in terms of just the rock quality and what we're seeing there. Even further south, we've always said that the rock is great and it's good, it's just longer dated inventory relative to what we're seeing up in New Mexico with the majors and the large cap independent E&Ps. They've held onto it for a handful of years.

We have seen deconsolidation with either asset sales or farm-ins, or even just, you know, 1,280 acre units that are, that have been, picked off by some folks. But again, we're starting to see this become more and more of a theme. I can think of three right now that we've had in the second half of 2025, where they are existing dedications that are held by folks that had no plans to drill in the next few years, and they are now with operators where this is their sole focus, and they're getting after it. Kris, anything to add there?

Kris Kindrick (SVP of Commercial)

You know, Theresa, this is Kris. To echo on what Trevor said, a lot of the deeper benches, as we know, are more gas focused, so a lot of that's gonna be dependent on what Waha does. We have the capacity coming on into this year, next year, so a higher Waha price will provide a lot of conviction. On the other hand, though, if it does get volatile with the additional gas and Waha gets depressed, we have the Gulf Coast capacity to couple that capacity with commercial deals. We made the comment earlier, we want to win in both scenarios. We're gonna continue to employ that strategy. We're excited the resource is there, and we're gonna capture our share of the market.

Theresa Chen (Managing Director and Senior Equity Analyst)

Got it. On the NGL recontracting front, understanding that there will be more details to come as you execute through, but with multiple contracts rolling over the next few years, two in this year in particular, I believe, can you talk about the timeline of commercial discussions on this, and when would you expect to have more clarity on the economics and related cost savings?

Jamie Welch (President and CEO)

Hard to give an exact calendar date of how this all progresses. You know, obviously, there's a lot of inbounds that have come to us because it's not a state secret that these contracts obviously expire. We're accumulating information, we're accumulating data, we're receiving inbounds and ideas and concepts, and we will make our, you know, we'll make our decisions as we, you know, as we think that we've come to the right place, the right decisions for the right reasons. That's what we'll do. You know, I, we really can't say it's gonna happen by this date. I think that would be, you know, unrealistic. Look, as soon as we've done something, do not worry, we will recognize that we will communicate it to the street.

Theresa Chen (Managing Director and Senior Equity Analyst)

Thank you.

Jamie Welch (President and CEO)

Thanks, Theresa.

Operator (participant)

Our next question comes from Manav Gupta from UBS. Your line is now open. Please go ahead.

Manav Gupta (Senior Equity Analyst)

Good morning. I just wanted to go back a little into the power solutions. I mean, it looks like a very attractive project, but from our perspective, it also looks like a cost reduction initiative and something which stabilizes your operations, reduces your dependence on third-party electricity. If you could talk a little bit about how internally it helps you out, besides a very good, attractive multiple.

Jamie Welch (President and CEO)

Manav, you actually hit all of the key points. Obviously, for us, the important thing is reliability. We need if we're gonna self-generate, we need to have absolute assurance that we have the grid as the backup. Obviously, we realize that with Waha being challenged from a pricing standpoint, if we're able to self-generate ourselves on a highly reliant, reliable basis, then it is extremely attractive. If we I mean, I'll put it in this context: It's as simple as if gas prices, if Waha gas price is negative and we're producing electricity ourselves, you can presume your electricity cost is effectively zero for that amount of electricity that you've just generated. It's as simple as that.

In OpEx, when you think about the big items on OpEx, you really think about three: salaries and benefits, you think about compression, and you think about electricity. They are your three biggest components. I said before, Manav, you know, we really looked at salaries and benefits because obviously contractors also fit into that category and really tried to actually be very, I would say, very discerning and very focused on trying to reduce those costs. On compression, we've really looked at our compression fleet and worked out where we can optimize it, and the third element obviously is evidenced by this capital project, which we're gonna, you know, this beta test we're gonna do with Diamond Cryo.

We are really excited by what it will show us and what it will tell us, and if it is as successful as we think it will be, we can replicate this across several of our facilities in the Delaware South or Texas area.

Manav Gupta (Senior Equity Analyst)

Perfect. That's very helpful. The point on negative, yeah. Please go on. Sorry.

Tyler Milam (SVP of Crude, Water and New Energy Ventures)

Oh, sorry. Yeah, no, this is Tyler. Hey, just to echo on to Jamie's comment there, that yes, the foundational investment thesis is exactly what Jamie had mentioned to or alluded to. We got, there was an earlier question about additional kind of upside. Because we have such a focus on operational reliability and insurance, that's kind of the first step. There are, as you know, lots of parties out there with a lot of electrical demand. There are conversations that I do think, in the future is definitely an opportunity, and that's definitely an objective, potentially in the future, for depending on how this goes. The other sites, this is very replicatable.

Sourcing additional units is something that we feel confident in as well for those future projects, so.

Manav Gupta (Senior Equity Analyst)

Perfect. My quick follow-up here is, when we are talking to the upstream producers, not only are they saying Permian is the best rock, but they're also saying the recovery in Permian will rise over a period of time, and we are seeing some of the major players bring in lightweight proppants. Some are bringing in these nano surfactants. When you talk to these upstream producers who are basically adding to a lot of technology in terms of how they are drilling for Permian, do you also somewhere agree with them that the recoveries on the Permian wells could increase as more technology comes in, and that would be a major upside for somebody like Kinetik?

Kris Kindrick (SVP of Commercial)

Hey, Manav, this is Kris. That's a great comment and great question. We tend to agree. I think you look at the history of the Permian, and we've seen well improvement, performance improve over time, and that's gonna continue to happen. I mean, some of our peers have made comments that they're seeing revisions higher. That's largely in the Delaware Basin. We're seeing that as well. The opportunity set's large, the pie is large. Kinetik will, just given our geographic footprint and our strategy, we'll be in a good position to capture the market there.

Trevor Howard (SVP and CFO)

The one thing that I would add to Kris's comments, it doesn't directly answer your question, but I had mentioned this in some of my earlier comments, is the efficiencies that we're seeing, in terms of higher well density as well as days drilled coming down, that is a direct benefit to a company like Kinetik, where just the capital efficiency to go build for these particular pads has reduced from, you know, our business five years ago or even 10 years ago. That's one nice benefit to our business. It also allows for, I'd say, a little bit more visibility into our business, just given the size and the capital commitment for a 25 well pad. That's pretty significant. Again, that requires a lot of planning in advance.

This is planning or we're planning now in 2027, 2028 for these types of packages, which is, you know, a pretty massive step change again, from the business that we had in the 2010s. What I'd also say is not necessarily. We hear anecdotally from our customers on, you know, lightweight proppant and nano surfactants, but really more so our conversations are around exploratory benches. That, again, is a very nice theme for a gas midstream player. What we're seeing is that gas quality issues are gonna continue to increase, and then gas rates on these new benches are substantially higher.

We've been on this trend for a few years now, and it does feel like, you know, it's finally converting over into wells on the system, and we're incredibly excited about it.

Manav Gupta (Senior Equity Analyst)

Thank you so much.

Operator (participant)

Thank you. We currently have no further questions, and I would like to hand back to Jamie Welch for any closing remarks.

Jamie Welch (President and CEO)

Thanks, everyone, for your time this morning. We look forward to talking to you over the course of the next several quarters. Please reach out if there are any questions.

Operator (participant)

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.