Filing summary
Entity note: The supplied filing is Altus Midstream Company’s Form 10-Q, not a filing in the name of Kinetik Holdings Inc. It covers the quarter ended September 30, 2021; the filing identifies the company as ALTM.
Business context and reporting period
Altus owns gathering, processing and transmission assets in West Texas and interests in four Permian Basin pipeline ventures. Its operating business is consolidated through Altus Midstream LP. Apache held 76.9% of the partnership’s common units, and substantially all midstream service revenue came from Apache under fee-based agreements tied to Alpine High production. The company reported one operating segment.
Financial results and liquidity
- Third quarter 2021: Revenue was $34.5 million, down from $40.2 million a year earlier; operating income was $14.6 million versus $18.9 million. Operating margin, calculated as operating income divided by revenue, was approximately 42.2%, compared with 47.2%.
- Third-quarter earnings: Consolidated net income was $49.7 million versus $31.2 million. Net income attributable to Class A shareholders was $5.2 million ($1.40 basic EPS; $1.26 diluted), versus $2.9 million ($0.77 basic; $0.32 diluted). Equity-method income and noncash gains on the preferred-unit embedded derivative contributed materially to consolidated earnings.
- Nine months ended September 30: Revenue was $104.3 million versus $113.2 million; operating income was $41.2 million versus $49.4 million. Consolidated net income was $146.0 million versus $21.9 million, while Class A shareholder income was $17.1 million versus a $6.1 million loss.
- Adjusted EBITDA (non-GAAP): $69.5 million for the quarter versus $52.9 million; $203.8 million for nine months versus $143.1 million. The filing attributes much of the increase to the Permian Highway Pipeline entering service in January 2021. Adjusted EBITDA is not a GAAP measure.
- Operations: Average natural-gas throughput was 452 MMcf/d in the quarter versus 531 MMcf/d, and 447 MMcf/d for nine months versus 514 MMcf/d.
- Cash flow: Nine-month operating cash flow was $158.4 million versus $137.4 million. Investing activities provided $1.2 million, compared with using $301.3 million in the prior-year period, largely reflecting lower equity-method contributions. Cash increased $84.8 million to $109.0 million.
- Debt and liquidity: Long-term debt was $657.0 million, up from $624.0 million at year-end 2020. The $800 million revolving facility had $141 million of available committed capacity, after $657 million drawn and a $2 million letter of credit. The company reported a leverage ratio below 4.00:1.00 and compliance with facility covenants.
Material changes versus the prior comparable period
- Lower Apache throughput drove affiliate midstream revenue declines of $4.4 million in the quarter and $12.8 million for nine months.
- Equity-method income increased to $32.5 million for the quarter and $82.6 million for nine months, primarily reflecting the Permian Highway Pipeline’s operations.
- Nine-month operations and maintenance expense declined $4.7 million, mainly due to efficiencies after the transition to the centralized Diamond cryogenic complex; higher power and repair costs partly offset savings.
- The company revised prior-period financial statements for an immaterial warrant-accounting error and an unrelated immaterial equity-method income error. The revision changed comparative earnings; management said the related material weakness in internal control had been remediated as of September 30, 2021.
Outlook, commentary, risks and unusual items
- Management expected minimal remaining 2021 capital needs for existing infrastructure and estimated $2–$4 million of pipeline-venture capital contributions for the rest of 2021. It stated that current financial resources were expected to cover planned capital needs and dividends, while noting projections remained dynamic.
- In October 2021, Altus announced an all-stock combination with BCP Raptor Holdco, parent of EagleClaw Midstream and related businesses. Consideration was 50 million Class C shares and corresponding partnership units; closing was expected in the first quarter of 2022, subject to shareholder, regulatory and other conditions. Completion was not assured.
- Also in October, Altus entered a new Apache gas processing agreement with modified fees for future volumes, intended to be more consistent with market practices and support potential new business. The filing provides no quantified revenue or earnings forecast from the revised terms.
- Unusual items included an estimated $9.7 million power credit recognized in the first half of 2021 following the Texas freeze and power-price dislocation, and noncash fair-value gains on the preferred-unit embedded derivative of $4.0 million for the quarter and $18.5 million for nine months.
- Key risks include dependence on Apache and production volumes without minimum-volume commitments; commodity-price effects on customer drilling and operating costs; COVID-19 uncertainty; variable-rate debt exposure; customer credit risk; environmental and regulatory risks; and the BCP transaction’s closing, integration and dilution risks. A 1 percentage-point interest-rate increase was estimated to raise annual interest expense by approximately $1.7 million.
- No material pending litigation, environmental claims, or loss-contingency accruals were reported. The board declared a $1.50-per-share dividend in November 2021, payable December 30, 2021.
Investor verification priorities
- Confirm the issuer identity: the supplied document names Altus Midstream Company, not Kinetik Holdings Inc.
- Review Apache concentration, declining throughput, and the absence of minimum-volume commitments; assess whether the revised processing agreement or third-party business changes that exposure.
- Separate recurring operating performance from equity-method earnings, embedded-derivative fair-value movements, and the one-time power credit.
- Verify the BCP transaction’s approvals, closing conditions, share issuance and expected effects on ownership, leverage and cash flows.
- Check revolving-credit availability, covenant headroom, preferred-unit distribution and redemption terms, and the sustainability of common dividends.