Kinetik Q1 Earnings Call Highlights

Key Points

• Kinetik posted record Q1 2026 results, with adjusted EBITDA of $251 million, and reaffirmed its full-year EBITDA guidance of $950 million to $1.05 billion despite higher-than-expected curtailments from weak Waha gas prices.
• Marketing gains helped offset production shut-ins in the quarter, as Gulf Coast takeaway capacity and spread-based marketing more than compensated for about 170 MMcf per day of Waha-related curtailments.
• The company sees growth ahead from contracts and projects, including amended Durango agreements, the nearing completion of the ECCC Pipeline, and progress on Kings Landing, while maintaining a strong balance sheet at 3.9x leverage.

Kinetik NYSE: KNTK reported record first-quarter 2026 earnings and affirmed its full-year adjusted EBITDA outlook, as Gulf Coast gas marketing gains and stronger commodity prices helped offset higher-than-expected production curtailments tied to weak Waha natural gas prices.

President and CEO Jamie Welch said the company’s first-quarter performance reflected execution across its commercial, operational and financial priorities. He also said Kinetik remains “incredibly well-positioned” despite a changed macroeconomic backdrop since the company reported fourth-quarter 2025 results.

Senior Vice President and CFO Trevor Howard said adjusted EBITDA totaled $251 million, a quarterly record and above the high end of the range discussed on the prior earnings call. Distributable cash flow was $181 million, and free cash flow was $101 million.

Marketing Gains Offset Waha-Driven Curtailments

Kinetik’s Midstream Logistics segment generated a record $179 million of adjusted EBITDA, up 12% from the prior year on essentially flat volumes. Howard said the result reflected the benefit of Gulf Coast takeaway capacity contracted late last year. Spread-based marketing gains more than offset about 170 MMcf per day of Waha price-related production shut-ins during the quarter, turning what would have been a volume headwind into a margin tailwind.

Howard said first-quarter outperformance also reflected stronger system operating performance, higher condensate and NGL recoveries, higher fee-based margins, stronger commodity prices and slightly lower unit operating costs than budgeted. The Pipeline Transportation segment generated $78 million of adjusted EBITDA, down year over year due to the EPIC Crude divestiture that closed Oct. 31 and lower throughput volumes on Chinook.

The company now expects low- to mid-single-digit percentage growth in processed gas volumes for 2026, down from its earlier expectation for high-single-digit growth. Howard said the revised outlook reflects approximately 220 MMcf per day of average curtailments for the year, compared with the company’s prior assumption of 100 MMcf per day.

“The reduction in volume growth expectations is driven by our assumptions on price-related shut-ins, which are temporary in nature,” Howard said.

Welch said Waha pricing has been unusually volatile, noting that as of May 7, Waha had been above zero for only 13 days in the year, with six of those days tied to Winter Storm Fern. He said the company had initially expected 2026 to be “the tale of two halves,” but negative Waha pricing into October was “truly hard to fathom.”

Guidance Affirmed as Commodity Prices Improve

Kinetik reaffirmed its 2026 adjusted EBITDA guidance range of $950 million to $1.05 billion. Howard said improved commodity margins and Gulf Coast marketing opportunities are expected to partially offset lower volume expectations from temporary shut-ins.

The company also maintained its 2026 capital expenditures guidance range of $450 million to $510 million. First-quarter capital spending, including growth and maintenance, was $91 million, and Howard said remaining spending is expected to be fairly evenly weighted across the rest of the year.

Howard said Kinetik continues to expect second-quarter adjusted EBITDA in the range of $230 million to $240 million and third- and fourth-quarter results in the range of $260 million to $270 million each. He said the back-half ramp is not based on a return of curtailed volumes, which the company expects to persist until December, but on new gas packages coming online across the system, particularly in New Mexico during the third quarter and in Texas during the fourth quarter.

Howard said commodity prices have improved since the company’s February guidance assumptions. He estimated that current forward pricing, excluding Gulf Coast marketing spread, would add about $20 million to full-year 2026 adjusted EBITDA. Kinetik has added hedges and estimates its equity volume exposure is about 75% hedged for propane and butane and about 85% hedged for crude and C5-plus volumes.

Durango Contract Amendments Extend Visibility

Welch said Kinetik’s commercial team added new customers across gas, crude and water services while continuing to revise commercial terms and extend legacy Durango contracts. During the quarter, the company completed a significant amendment with a large existing New Mexico customer that expanded dedicated acreage by about 25%, consolidated multiple agreements into one contract and extended terms through 2039.

Welch said approximately 75% of legacy Durango gas processing volumes have now been amended over the past four months. He said the new and amended agreements extend terms into the mid- and late 2030s, increase margin, expand dedicated acreage, broaden services, provide downstream control of plant products and improve long-term visibility across Kinetik’s New Mexico system.

During the question-and-answer session, Howard said the amended Durango agreements represent a modest uplift for 2026, about 1% to 2% of the base business, but they support future reinvestment and a potential Kings Landing expansion. He said the changes also reduced commodity exposure. When Kinetik acquired Durango, the system was about 60% fee-based and 40% commodity-based; Howard said the fee-based percentage has increased through restructurings, though it remains below the company’s Delaware South business, which is 85% to 90% fee margin.

Kings Landing and Power Opportunities Advance

Kinetik said it is nearing completion of the ECCC Pipeline, with service expected later in the quarter. Welch said ECCC will allow the company to move incremental “sweet” New Mexico volumes south for processing and provide more market optionality in Texas.

At Kings Landing, Kinetik received all required approvals from the Bureau of Land Management and the New Mexico Oil Conservation Division to proceed with its acid gas injection and sour gas conversion project for 20 MMcf per day of total acid gas capacity. Welch said long-lead materials have been ordered, construction is underway and the company plans to spud the first acid gas injection well this summer. Phase 1 remains on track for service by year-end 2026.

Welch said the project will allow Kinetik to handle elevated H2S and CO2 levels across all three Delaware North processing complexes, bringing total operational total acid gas capacity to 26.5 MMcf per day and permitted capacity above 31 MMcf per day.

Kinetik also continues to evaluate a Kings Landing processing capacity expansion. Welch said the company is “getting close” to a final investment decision on Kings Landing II but did not announce one on the call.

The company also signed a zero-capital-expenditure interconnection with Pecos Power, connecting its Delaware Link residue gas pipeline to the Pecos Power Plant in Reeves County. Welch described the returns as “infinite” because Kinetik is committing no capital, and said the deal provides fee revenue while creating incremental in-basin gas demand. Kris Kindrick, senior vice president of commercial, said power companies also want hourly services, which could provide additional margin if Kinetik can offer that flexibility.

Balance Sheet and 2027 Setup

Kinetik ended the quarter with leverage of 3.9 times, within its targeted range, and what Howard described as ample revolver capacity. He said the balance sheet and cash flow profile give the company flexibility to fund growth without compromising shareholder returns.

Management said the return of curtailed production and expected new takeaway capacity should support 2027. Howard said more than 5 Bcf per day of new Permian gas capacity is expected to enter service by early 2027, with another 6 Bcf per day anticipated across 2028 and 2029.

Welch said the company recently secured additional Gulf Coast pricing exposure starting in 2028 and has a European LNG price contract with INEOS beginning in early 2027. He said Waha is expected to remain discounted relative to other gas markets even after negative pricing conditions pass, making Gulf Coast and export-linked pricing important for customers.

Asked about 2027, Welch said it was premature to quantify growth, but said several factors were aligning positively, including a higher PDP base from deferred volumes, accelerated customer activity, NGL contract resets and the first full year of the Kings Landing sour gas conversion project.

About Kinetik NYSE: KNTK

Kinetik NYSE: KNTK is a publicly listed midstream energy company focused on the development, operation and management of natural gas infrastructure across the United States. The company's core business activities include the gathering, compression, processing, storage and transportation of natural gas, serving producers, utilities and industrial consumers. By integrating a suite of midstream services under a single platform, Kinetik aims to provide efficient, cost-effective and reliable solutions across the natural gas value chain.

The company was established in 2021 when assets were acquired from Talen Energy by a subsidiary of ArcLight Capital Partners, forming a comprehensive portfolio of pipelines, compression facilities and underground storage assets.

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