Filing identity and reporting period
The supplied filing is Altus Midstream Company’s Form 10-Q for the quarter ended June 30, 2019, filed August 1, 2019. It does not identify Kinetik Holdings Inc.; confirm the filing is for the intended issuer before relying on this summary.
Altus owns gas gathering, processing and transmission assets in West Texas’s Permian Basin and interests in pipeline projects. Apache Corporation was its sole customer, and the majority owner of Altus Midstream LP.
Financial and operating results
| Metric | Q2 2019 | Q2 2018 |
|---|---|---|
| Revenue | $24.1 million | $12.5 million |
| Operating loss | $4.9 million | $7.5 million |
| Net loss including noncontrolling interests | $5.5 million | $11.6 million |
| Net loss attributable to Class A shareholders | $2.3 million; $0.03 per share | $11.6 million; $0.06 per share |
| Adjusted EBITDA | $4.1 million | $(2.3) million |
| Average natural gas throughput | 363 MMcf/d | 259 MMcf/d |
For the six months ended June 30, revenue was $58.0 million versus $24.6 million; net income including noncontrolling interests was $0.2 million versus a $24.2 million loss; Class A shareholders’ net loss was $1.2 million versus $24.2 million; and Adjusted EBITDA was $16.2 million versus a $6.1 million loss. Six-month operating cash flow was $21.7 million. Investing cash outflow was $697.7 million, mainly for capital spending and pipeline interests; financing cash inflow was $603.0 million. Cash decreased $73.0 million to $376.9 million.
At June 30, cash was $376.9 million, total assets $2.44 billion, and total liabilities $202.0 million. Reported debt of $23.3 million was a finance-lease obligation; no revolving-facility borrowings or letters of credit were outstanding. The company had $650 million of committed borrowing capacity. The balance sheet also included $520.9 million of redeemable preferred-unit interest and $1.27 billion of redeemable Apache noncontrolling interest.
Material changes and developments
- Quarterly revenue nearly doubled year over year, primarily reflecting higher service rates under agreements effective in 2018 and greater throughput. The company said Apache’s deferral of some Alpine High gas volumes, beginning in April 2019 in response to regional price weakness, adversely affected Q2 volumes and revenue.
- Operating expenses rose with volumes and assets placed in service: Q2 operations and maintenance increased to $14.0 million from $11.2 million, and depreciation and accretion rose to $9.1 million from $5.2 million.
- In June, Altus Midstream LP issued 625,000 Series A preferred units for $625 million gross and received approximately $611 million net. The units carry a 7% annual distribution, rising to 10% after five years under specified terms; they have senior distribution and liquidation rights and may be exchanged for Class A shares under specified conditions.
- Altus held interests in Gulf Coast Express (16%), EPIC Crude (15%) and Permian Highway (26.7%). After quarter-end, on July 31, it closed a purchase of a 33% interest in the in-service Shin Oak NGL pipeline for approximately $441 million.
Outlook, risks and contingencies
Management expected the second cryogenic processing train to enter service in July 2019 and the third in Q4 2019; it also anticipated Gulf Coast Express and the third train would be in service by Q4. Management stated that, based on its plan and assumptions, operating cash flow could exceed investment expenditures by year-end 2020. It expected ongoing construction, operating and pipeline investment needs to require significant capital.
Preferred-unit distributions, redemption rights and potential exchange into discounted Class A shares may restrict cash available for common-unit distributions and create dilution. Preferred distributions may be paid in kind through 2020; the initial approximately $2.2 million distribution was subsequently elected to be paid in kind. The company’s revenue depended entirely on Apache and dedicated-acreage production, with no minimum-volume or firm-transportation commitments. Commodity prices can therefore affect Altus indirectly through customers’ production decisions. Environmental regulation and credit, liquidity, construction and execution risks also apply.
Altus reported compliance with its credit-facility terms and no accrued loss contingencies or pending or threatened legal proceedings known to it. Management said claims and litigation were not expected to have a material adverse effect. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Confirm issuer identity: the filing is for Altus Midstream Company, not Kinetik Holdings Inc.
- Review Apache’s production plans and the concentration risk from Altus’s sole customer, especially given the reported volume deferrals.
- Verify the funding, expected returns and cash requirements for Shin Oak and the remaining pipeline and construction commitments.
- Examine preferred-unit distribution, redemption and exchange terms, including potential dilution and restrictions on common distributions.
- Assess whether management’s year-end 2020 operating-cash-flow outlook and plant commissioning expectations were achieved; the filing provides no numerical revenue or earnings guidance.