SEC Filing Summary
Entity discrepancy: The request identifies Kinetik Holdings Inc., but the supplied filing is Altus Midstream Company’s Form 10-K (ticker ALTM). The filing does not provide Kinetik Holdings’ financial results. This summary covers the filing actually supplied.
Business Context and Reporting Period
Annual report for the fiscal year ended December 31, 2021, signed February 22, 2022. Altus owns natural-gas gathering, processing and transmission assets in West Texas and equity interests in four Permian Basin pipelines. Apache Corporation was its principal customer, service provider and majority owner. Altus reported one operating segment and had no employees of its own.
In October 2021, Altus announced an all-stock combination with BCP Raptor Holdco, parent of EagleClaw Midstream. The proposed transaction contemplated issuing 50 million Class C shares and corresponding partnership units; closing was expected in the first quarter of 2022, subject to customary conditions.
Financial and Operating Results
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $160.6 million | $148.4 million |
| Operating income | $65.6 million | $61.6 million |
| Operating margin | 40.8% | 41.5% |
| Net income, including noncontrolling interests | $99.2 million | $81.7 million |
| Net income (loss) attributable to Class A shareholders | $(13.9) million | $2.8 million |
| Adjusted EBITDA | $283.8 million | $191.2 million |
| Cash provided by operating activities | $209.7 million | $164.3 million |
| Capital expenditures | $4.6 million | $30.0 million |
| Cash and cash equivalents at year-end | $132.0 million | $24.2 million |
| Debt at year-end | $657.0 million | $624.0 million |
| Available committed borrowing capacity | $141.0 million | $176.0 million |
| Average natural-gas throughput | 440 MMcf/d | 499 MMcf/d |
Midstream-services revenue from Apache was $142.7 million, down from $144.7 million. Total revenue rose 8.2%, reflecting product sales, including excess recovery volumes under a revised Apache processing agreement. Throughput declined about 12%. The filing reports no clear consolidated gross-margin figure; operating margin above is calculated from reported revenue and operating income.
Operating cash flow increased by $45.4 million. Cash rose by $107.8 million during 2021. Investing cash flow was positive $8.8 million, compared with negative $338.4 million in 2020, primarily reflecting much lower contributions to pipeline investments. Financing cash flow was negative $110.7 million, including $46.2 million of preferred-unit distributions, $75.0 million distributed to Apache, and $22.5 million of Class A dividends.
The $800 million revolving facility matures in November 2023, subject to extension options. Altus had $657 million borrowed and a $2 million letter of credit outstanding. Its leverage ratio was below the 4.00:1.00 threshold at year-end, and it reported compliance with credit-facility covenants.
Material Changes and Unusual Items
- Adjusted EBITDA increased 48% to $283.8 million, helped by higher equity-method pipeline income, including PHP’s first full year of operations. This non-GAAP measure is not equivalent to operating cash flow or net income.
- Altus recorded a $160.4 million impairment of its EPIC crude-oil pipeline investment, reducing its reported carrying value to zero.
- A noncash $82.1 million gain on the embedded derivative associated with preferred units materially affected reported earnings; the prior-year result included a $36.1 million loss.
- A $9.7 million credit related to unused contracted power volumes during the February 2021 Texas freeze increased other income.
- The revised Apache gas-processing agreement generated $13.4 million of excess-recovery revenue in the fourth quarter. Product-sale revenue and associated product costs were substantially offsetting.
- Net income including noncontrolling interests was positive, but the Class A shareholder result was a $13.9 million loss, mainly reflecting preferred-unit allocations and other ownership interests.
- On January 14, 2022, Apache exchanged 12.5 million partnership units for 12.5 million additional Class A shares; Apache’s corresponding Class C shares were cancelled. This occurred after the reporting date.
Outlook, Risks and Contingencies
Management expected 2022 spending on existing infrastructure and pipeline investments to be minimal and believed operating cash flow and pipeline distributions could cover capital needs, preferred distributions and planned quarterly dividends. The company said these projections remained subject to change, including because of COVID-19 uncertainty and the pending BCP transaction. The board’s future dividend decisions were not assured; Altus paid $1.50 per Class A share each quarter in 2021.
- Customer concentration: Substantially all midstream-services revenue came from Apache. Service agreements have no minimum-volume commitments, and Alpine High development activity had previously been materially reduced.
- Transaction execution: The BCP combination remained conditional. Failure or delay could affect trading value, incur costs or damages, and complicate integration; expected synergies were not assured.
- Preferred-unit obligations: Preferred units carry a 7% annual distribution rate, increasing to 10% after the fifth anniversary under stated terms, and have senior distribution and liquidation rights. Redemption and exchange provisions can affect liquidity and dilute shareholders.
- Debt and rates: Revolver borrowings bear variable interest; a 1 percentage-point rate increase was estimated to add about $6.7 million to annual interest expense. The filing also discusses the LIBOR transition.
- Asset valuation: EPIC impairment estimates rely on Level 3 assumptions, and further impairments could arise if throughput, tariffs or costs differ from forecasts.
- Other exposures: The filing cites environmental and pipeline-safety regulation, climate-related policy, severe weather, cyberattacks, competition, third-party pipeline access and counterparty credit risk. No material litigation or environmental loss-contingency accruals were reported at year-end.
Important Facts for Investors to Verify
- Confirm the intended issuer: the supplied 10-K is for Altus Midstream Company, not Kinetik Holdings Inc.
- Check the subsequent outcome and final terms of the BCP transaction, including issued shares, ownership changes and realized synergies.
- Review current Apache throughput, customer concentration and any replacement or third-party contracts; the existing Apache agreements lack minimum volumes.
- Assess the EPIC impairment assumptions and whether the investment’s reported zero carrying value or pipeline outlook has changed.
- Evaluate cash available after preferred-unit distributions, debt service and dividends, as well as revolver capacity, covenant headroom and refinancing needs.
- Distinguish GAAP earnings and cash flow from Adjusted EBITDA, and account for the derivative gain, power credit and preferred-unit allocations when assessing recurring performance.