Filing summary
Issuer and period: The supplied filing identifies the registrant as Altus Midstream Company (NASDAQ: ALTM), not Kinetik Holdings Inc. It is a Form 10-Q for the quarter ended March 31, 2019, filed May 2, 2019. The summary below reflects the filing as supplied; confirm issuer and filing identity before relying on it.
Business context
Altus owns gas gathering, processing and transmission assets in West Texas’s Permian Basin, serving Apache Corporation’s Alpine High production. Apache was the company’s sole customer in the quarter. The filing presents the business combination as a reverse recapitalization, so historical operating results reflect the Altus Midstream entities.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $33.8 million | $12.1 million |
| Operating income (loss) | $4.2 million | $(7.6) million |
| Net income (loss), including noncontrolling interest | $5.7 million | $(12.6) million |
| Net income (loss) attributable to Class A shareholders | $1.1 million; $0.01 per share | $(12.6) million; $(0.09) per share |
| Adjusted EBITDA (non-GAAP) | $12.1 million | $(3.9) million |
| Operating cash flow | $10.1 million | No cash flow reported |
Revenue rose $21.7 million, primarily from increased Apache throughput. Average gas throughput and processing volumes each increased to 564 MMcf/d from 206 MMcf/d. Operations and maintenance expense increased to $16.4 million from $11.0 million; general and administrative expense rose to $3.0 million from $1.6 million; depreciation and accretion increased to $7.7 million from $3.7 million. Reported operating margin was approximately 12.5%, compared with a loss margin of approximately 62.6% in Q1 2018.
Cash and equivalents were $177.4 million at quarter-end, down from $449.9 million at December 31, 2018. Investing cash outflow was $282.6 million, including $164.5 million of capital expenditures and $118.0 million for equity-method interests. Debt was $29.0 million, entirely a current finance-lease obligation. The $450 million revolving facility was undrawn; the filing states Altus was in compliance with its covenants. Total liabilities were $135.5 million. Apache’s 76.9% limited-partner interest was reported as $1.5 billion of redeemable noncontrolling interest.
Outlook, risks and notable items
- Management expected operating cash flow to exceed investment spending by year-end 2021, based on its then-current plan and assumptions. It anticipated further asset-development investment of approximately $325 million in 2019, $185 million in 2020 and $200 million in 2021.
- Management expected three cryogenic processing plants, with combined nameplate capacity of approximately 600 MMcf/d, to enter service during 2019. It also expected to exercise the three remaining pipeline options in late 2019 and early 2020, with approximately $1.6 billion of associated total capital spending anticipated: approximately $1.3 billion in 2019 and $340 million in 2020.
- The filing warns that planned development and pipeline investments exceed cash on hand and expected operating cash flow, creating a need for financing. Failure to obtain funding could impair expansion plans, pipeline-option exercises or ongoing operations.
- Revenue depends on Apache’s production and its right to market gas from dedicated acreage; the service agreements have no minimum-volume or firm-transportation commitments. Reliance on one customer is a significant concentration risk.
- Services are fee-based, with no direct commodity-price exposure, but lower commodity prices may reduce customer development and throughput. The filing also cites customer credit risk, environmental and regulatory exposure, and possible increases in operating costs as infrastructure expands.
- Altus exercised its option for a 15% interest in the EPIC crude oil pipeline for $51.8 million during the quarter. An April 23, 2019 exhibit is a side letter with Apache concerning waiver of direct G&A costs; the supplied filing text does not provide the waiver’s terms or financial effect.
Important facts for investors to verify
- Confirm that this Altus Midstream filing, rather than a Kinetik Holdings filing, is the intended document.
- Review Apache’s production plans, throughput trends, and the terms and durability of the dedicated-acreage service agreements.
- Verify updated spending forecasts, remaining pipeline-option commitments, project timing and costs, and available funding sources.
- Assess the revolver’s covenant conditions and commitment step-up requirements, as well as Apache’s redemption rights over its partnership units and the potential dilution or cash demands they could create.
- Check the April 23, 2019 G&A waiver’s terms and subsequent disclosures for changes to the quarter’s outlook or risk profile.