What Kinetik (KNTK) Said on Its Q3 Earnings Call

Key Points

• Kinetik expects full-year 2026 adjusted EBITDA at the high end of guidance after third-quarter adjusted EBITDA of $278 million and record processed gas volumes of 1.94 billion cubic feet per day. October volumes averaged 2.14 billion cubic feet per day, with fourth-quarter volumes targeted at about 2.2 billion.
• The company raised planned capacity for its KL2 processing project to 380 million cubic feet per day without increasing its roughly $260 million cost; the facility is expected to start up in mid-2028. Management expects higher-margin volumes and improved NGL contract terms to make the 2027 margin benefit more than 50% above its prior estimate of about $40 million annually.
• Kinetik expects 2026 capital spending to be about 5% below its prior estimate of roughly $560 million and anticipates ending the year near the low end of its leverage range. With dividend coverage at 1.6 times, management expects to recommend a fourth-quarter dividend increase at the high end of its 3%–5% annual target.

Kinetik NYSE: KNTK expects full-year 2026 adjusted earnings before interest, taxes, depreciation and amortization to land at the high end of its guidance range after record processed gas volumes and stronger-than-expected third-quarter results.

The midstream company reported third-quarter adjusted EBITDA of $278 million, distributable cash flow of $214 million and free cash flow of $88 million. Capital expenditures totaled $131 million.

President and Chief Executive Officer Jamie Welch said producer activity improved as the effects of Waha price-related curtailments diminished. Management also expects higher-margin volumes, expiring natural gas liquids contracts and new processing infrastructure to support growth in 2027 and beyond.

Processing volumes rise as curtailments ease

Kinetik processed 1.94 billion cubic feet of natural gas per day in the third quarter, with an estimated 25 million cubic feet per day shut in on average because of Waha prices. Midstream Logistics adjusted EBITDA rose 34% from a year earlier to $204 million.

Chief Financial Officer Trevor Howard said sequential results benefited from higher processed volumes, strong system performance and favorable commodity margin realization. Gulf Coast marketing margin declined as expected as Waha natural gas prices moved into positive territory.

Pipeline Transportation adjusted EBITDA fell 18% year over year to $79 million. Howard attributed the decline primarily to the late-2025 sale of Kinetik’s interest in EPIC Crude, higher fuel costs at Permian Highway Pipeline and lower throughput on the Shin Oak NGL pipeline. Shin Oak volumes nevertheless continued to exceed the company’s original budget expectations, he said.

Processed volumes remain on track toward a fourth-quarter target of approximately 2.2 billion cubic feet per day, Howard said. Welch told analysts that October volumes averaged 2.14 billion cubic feet per day, about 200 million above the third-quarter average.

Expansion plans and 2027 margins

Kinetik increased the planned capacity of its Kings Landing II, or KL2, processing project to 380 million cubic feet per day from 300 million, while keeping its expected cost at approximately $260 million. Welch said lower-than-expected equipment costs allowed the company to add residue compression and maintain project economics. The facility remains scheduled to enter service in mid-2028.

Management expects the integrated system to reach full utilization by the end of 2027 despite smaller capacity projects. The first phase of the ECCC expansion is expected to help move additional volumes south for processing until KL2 enters service. Howard said the pipeline could later move volumes north as KL2 adds capacity.

Kinetik is also procuring equipment for a subsequent 400 million-cubic-feet-per-day processing facility. Welch said its timing and location will depend on producer development and commercial opportunities. He estimated that a new 400-million-cubic-feet-per-day plant could cost $200 million to $250 million, depending on location and assuming power is available.

Since August, Kinetik has signed new and amended gathering and processing agreements covering more than 30,000 gross dedicated acres in New Mexico and Texas, with first flows expected in the second and third quarters of 2027. Some acreage is prospective for the Woodford formation, which Welch described as a potential source of long-term gas volume growth.

Welch said most expected 2027 growth should come from higher-margin, low-pressure development. Expiring legacy Lone Star NGL contracts and replacement agreements are also expected to lift margins. He said the company now expects the 2027 benefit to be more than 50% above the roughly $40 million annual illustration it had previously provided, reflecting volumes arriving sooner and better-than-expected recontracting rates.

Capital spending and shareholder returns

Kinetik expects 2026 capital expenditures, including maintenance spending, to come in approximately 5% below its earlier estimate of about $560 million. Howard cited project execution, operating efficiencies, cost management and the timing of some payments now expected in 2027.

At quarter-end, net debt was approximately $3.9 billion, liquidity was $1.1 billion and leverage was 3.7 times. Management expects to exit the year near the low end of its 3.5-to-4.0-times leverage range, measured using annualized quarterly EBITDA.

Dividend coverage improved to 1.6 times from 1.5 times in the second quarter. Howard said the company wants to sustain coverage of at least 1.6 times for several quarters before growing the dividend more closely in line with its earnings outlook. For the fourth-quarter dividend expected to be declared in January, management anticipates recommending an increase at the high end of its targeted annual 3% to 5% range.

Welch said growth capital is likely to remain elevated as the company advances projects. He added that, given valuations for existing assets, Kinetik’s focus remains on organic investment, although it continues to review acquisition opportunities. Howard said share repurchases remain an option under the company’s $500 million program, of which about 40% has been used.

About Kinetik (NYSE:KNTK)

Kinetik Holdings Inc is a midstream energy company that provides infrastructure and services for the gathering, processing, transportation and treatment of natural gas, crude oil and natural gas liquids. Its operations are focused primarily on the Permian Basin, where it connects hydrocarbon production to processing facilities, pipelines and downstream markets.

The company's assets include natural gas gathering and processing systems, crude oil gathering infrastructure, natural gas liquids services and long-haul pipeline interests.

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