Business Context and Reporting Period
Company: Kinetik Holdings Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: May 9, 2024
Reporting Period: Events occurring on May 9, 2024.
Business Overview: The filing details two material definitive agreements entered into on the same day: the acquisition of Durango Permian, LLC and the divestiture of a 16% interest in Gulf Coast Express Pipeline LLC.
Key Financial Metrics and Transaction Values
This filing reports on specific transaction values rather than periodic financial performance metrics (e.g., revenue, EBITDA, cash flow). The filing text does not provide clear values for the company's overall revenue, profit, or liquidity position outside of these specific deal terms.
| Transaction | Total Consideration | Cash Component | Equity/Other Component |
|---|---|---|---|
| Durango Acquisition (Purchase of Durango Permian, LLC) |
~$765 million | $315 million (at closing) | ~3.8 million Class C shares (at closing) ~7.7 million Class C shares (July 1, 2025) $75 million earn-out (contingent) |
| GCX Sale (Sale of 16% GCX interest) |
$540 million | $510 million (at closing) | $30 million earn-out (contingent on capital project approval) |
Material Changes and Transaction Details
- Durango Acquisition: Kinetik agreed to purchase all membership interests of Durango Permian, LLC from an affiliate of Morgan Stanley Energy Partners. The deal includes a $75 million earn-out contingent on the Kings Landing gas processing complex being placed into service. Closing is expected in Q2 2024, subject to regulatory approval (HSR Act).
- GCX Sale: Kinetik agreed to sell its 16% membership interest in Gulf Coast Express Pipeline LLC to an affiliate of ArcLight Capital Partners. Closing is expected in Q2 2024.
- Equity Issuance: The Durango deal involves the issuance of unregistered Class C Common Stock and OpCo Units, relying on Section 4(a)(2) of the Securities Act. These securities are redeemable for Class A Common Stock.
- Corporate Governance: The Durango Seller will receive board observer rights and registration rights for the shares received. A 364-day lock-up period applies to the securities issued to the Durango Seller.
Guidance, Outlook, and Risks
Outlook and Timing: Both transactions are expected to close in the second quarter of 2024. The Durango Acquisition is subject to customary closing conditions, including regulatory approval under the Hart-Scott-Rodino Antitrust Improvements Act.
Risks and Contingencies:
- Regulatory Risk: The Durango Acquisition requires HSR Act approval.
- Contingent Consideration: A portion of the purchase price for both deals is contingent on future events (Kings Landing Project placement into service for Durango; capital project approval for GCX).
- Capital Costs: The Kings Landing Earnout is subject to adjustments for capital costs associated with the project.
Investor Verification Checklist
- Verify the final closing dates for both the Durango Acquisition and GCX Sale, as they are currently projected for Q2 2024.
- Monitor regulatory filings for the status of the Hart-Scott-Rodino (HSR) approval required for the Durango deal.
- Track the construction progress of the Kings Landing gas processing complex to assess the likelihood of the $75 million earn-out.
- Review the terms of the Registration Rights Agreement regarding the potential underwritten offering of the Class C shares issued to the Durango Seller.
- Confirm the exact number of Class C shares to be issued, as the filing states "approximately" 3.8 million and 7.7 million shares.