Kinetik Holdings Inc. — FY 2023 Form 10-K Summary
Business context and reporting period
Kinetik is an integrated Permian Basin midstream company providing natural gas gathering and processing, crude oil services, produced-water gathering and disposal, and pipeline transportation. It reported for the fiscal year ended December 31, 2023; this is an annual filing, not a standalone fourth-quarter report. Its assets include approximately 2.0 Bcf/d of natural gas processing capacity and interests in four long-haul pipelines, alongside wholly owned NGL and Delaware Link pipelines.
Year-over-year comparisons require care: the 2022 financial statements include the acquired legacy ALTM business only from the February 22, 2022 transaction closing. The transaction was accounted for as a reverse merger, with BCP as accounting acquirer.
Financial and operating highlights
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Total revenue | $1,256.4 million | $1,213.5 million |
| Operating income | $159.3 million | $150.5 million |
| Net income, including noncontrolling interests | $386.5 million | $250.7 million |
| Adjusted EBITDA, non-GAAP | $838.8 million | $772.2 million |
| Cash provided by operating activities | $584.5 million | $613.0 million |
| Cash used in investing activities | $686.3 million | $286.1 million |
- Revenue increased 4%. Service revenue rose 6% to $417.8 million, primarily reflecting higher produced-water volumes. Product revenue rose 2% to $822.4 million as higher NGL and condensate sales volumes more than offset lower commodity prices.
- Operating income increased 6%; the operating margin was approximately 12.7%, compared with 12.4% in 2022. Operating expenses rose 18% to $161.5 million, including higher water operations, leased compression and electricity costs.
- Adjusted EBITDA increased 9%. Midstream Logistics segment adjusted EBITDA rose 5% to $543.2 million; Pipeline Transportation rose 16% to $311.1 million, helped by greater PHP ownership and a full year of contribution from acquired pipeline interests. Adjusted EBITDA is non-GAAP and includes proportionate EBITDA from equity-method pipelines.
- Net income included a $232.9 million income tax benefit, mainly from releasing the valuation allowance on federal deferred tax assets after reaching three-year cumulative profitability. The benefit is a major factor in the increase in reported net income.
- Net income attributable to Class A shareholders was $289.4 million; basic and diluted EPS were $5.25 and $2.52, respectively. Diluted EPS reflects assumed exchange of Common Units into Class A shares.
- Operating cash flow decreased $28.5 million. Investing outflows increased with capital spending, the PHP expansion contribution and a $125.0 million midstream-asset acquisition. Capital spending on property, plant and equipment was $312.9 million; intangible-asset purchases were $16.7 million.
Debt and liquidity
At December 31, 2023, gross debt was $3.594 billion and carrying value, net of deferred financing costs, was $3.563 billion, versus $3.395 billion gross debt at year-end 2022. Debt comprised a $1.2 billion term loan, $1.0 billion of 2030 notes, $800 million of 2028 notes and $594 million drawn on the $1.25 billion revolving facility. Cash was $4.5 million and available committed borrowing capacity was $643.4 million. The company reported compliance with its debt covenants.
In December 2023, Kinetik issued $800 million of 6.625% sustainability-linked notes due 2028 and used the proceeds, along with cash and revolver borrowings, in an $800 million term-loan repayment. The term-loan maturity was extended to June 2026, with a possible further six-month extension subject to conditions. The 2030 notes carry a 5.875% coupon. Interest expense increased 38% to $205.9 million. Two interest-rate swaps with $1.70 billion total notional were outstanding at year-end and mature in May 2025.
Changes, outlook, risks and unusual items
- Delaware Link entered commercial service in October 2023; the PHP expansion entered service in December, increasing its capacity to 2.65 Bcf/d and Kinetik’s ownership to approximately 55.5%.
- Management estimates 2024 capital expenditures of $125 million to $165 million, lower than 2023 as these major projects were completed. It expects operating cash flow, pipeline distributions and remaining revolver capacity to cover planned capital expenditures and the quarterly dividend over the next 12 months. No numerical Adjusted EBITDA or revenue guidance is provided in the filing.
- The Board declared a $0.75-per-share Class A dividend in January 2024, payable March 7, 2024. Future dividends depend on cash generation, capital needs, debt obligations and other factors.
- Material risks include concentration in the Permian/Delaware Basin; dependence on producer drilling and throughput; customer, counterparty and downstream-pipeline performance; commodity-price and interest-rate exposure; and competition. Environmental and regulatory risks include methane and emissions rules, pipeline safety requirements, and restrictions or seismicity-related limits on produced-water disposal.
- In 2023 the company repurchased 194,174 Class A shares for $5.8 million under a $100 million authorization. Apache Midstream sold 7.475 million shares in a secondary offering; Kinetik received no proceeds.
- The company is pursuing net-zero Scope 1 and 2 emissions by 2050, with 2030 intensity-reduction targets. Failure to meet specified sustainability targets could increase interest rates on certain debt; the 2028 notes may step up by as much as 0.25 percentage points beginning in June 2027.
- The company reported no accrued loss contingencies at year-end and no known unprovided environmental claims expected to have a material effect. It is pursuing collection of $19.6 million of receivables tied to Winter Storm Uri; no allowance was established. Management reported no cybersecurity threat known to have materially affected, or reasonably likely to materially affect, the company.
Important facts for investors to verify
- Review the full financial statements and notes for the tax valuation-allowance release, deferred tax asset realization assumptions and potential Section 382 limits on tax attributes.
- Reconcile reported net income and EPS with the noncash tax benefit, noncontrolling interests and potential Common Unit conversions; assess Adjusted EBITDA alongside GAAP results and its reconciliation.
- Verify debt balances, revolver availability, interest-rate exposure, swap terms, covenant headroom and the conditions for extending the term loan maturity.
- Assess customer and producer concentration, contract minimum-volume commitments, and the significance of the Winter Storm Uri receivables litigation and related-party transactions.
- Track 2024 capital spending, project contributions, throughput and the sustainability targets tied to financing costs; confirm that liquidity supports investment and distributions.