Business Context and Reporting Period
Company: Kinetik Holdings Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: June 24, 2024
Event: Consummation of the acquisition of Durango Permian, LLC (the "Durango Acquisition") from Durango Midstream LLC, an affiliate of Morgan Stanley Equity Partners.
Key Financial Metrics and Transaction Details
This filing details a material definitive agreement and asset acquisition rather than periodic financial performance. Key transaction metrics include:
- Total Aggregate Purchase Price: Approximately $765 million.
- Cash Consideration at Closing: Approximately $315 million.
- Equity Consideration at Closing: Approximately 3.8 million OpCo Units and an equivalent number of Class C Common Stock shares.
- Deferred Equity Consideration: Approximately 7.7 million OpCo Units and an equivalent number of Class C Common Stock shares, issuable on July 1, 2025.
- Contingent Earnout: Up to $75 million in cash, contingent upon the Kings Landing gas processing complex in Eddy County, New Mexico, being placed into service. This amount is subject to reduction based on actual capital costs.
Note: The filing does not provide standalone revenue, profit, cash flow, margin, debt, or liquidity metrics for the Company or the acquired entity. Pro forma financial information is scheduled to be filed by amendment within 71 calendar days.
Material Changes and Agreements
The primary material change is the expansion of the Company's asset base through the Durango Acquisition. Additional material agreements executed on June 24, 2024, include:
- Observer Rights Agreement: Durango Seller is entitled to appoint one observer to the Company's board of directors. This right persists while the seller is entitled to receive Deferred Consideration and until they cease to hold at least 6,000,000 shares of Class A or Class C Common Stock.
- Registration Rights Agreement: The Company agreed to file a registration statement within 180 days of closing for the resale of Registrable Securities (Class A Common Stock issuable upon exchange of Class C Common Stock and OpCo Units). Durango Seller holds demand rights for underwritten offerings expected to raise at least $100 million and customary "piggyback" rights.
- Lock-Up Period: Durango Seller agreed not to sell, transfer, pledge, or hedge the OpCo Units and Class C Common Stock issued at closing for approximately one year, subject to customary exceptions.
Outlook, Risks, and Contingencies
- Contingent Liability: The $75 million earnout is contingent on the operational status of the Kings Landing Project and is variable based on capital cost performance.
- Future Dilution: The issuance of deferred equity (7.7 million units/shares) in 2025 and the potential exercise of registration rights may impact share count and liquidity.
- Regulatory Disclosure: Financial statements of the acquired business and pro forma financial information are not included in this filing and will be provided in a future amendment.
Investor Verification Checklist
- Verify the final capital costs of the Kings Landing Project to determine the actual earnout payout amount.
- Monitor the filing of the pro forma financial information (due within 71 days) to assess the impact of the acquisition on the Company's financial position.
- Review the upcoming registration statement (due within 180 days) for details on the resale of Class C Common Stock and OpCo Units.
- Track the issuance of the deferred 7.7 million equity units scheduled for July 1, 2025.
- Confirm the appointment of the board observer and the duration of their tenure based on shareholding thresholds.