In a series of transactions:
- Kinetik agreed to acquire Durango Permian LLC
(“Durango”), which expands its operations in Eddy and Lea
Counties, New Mexico, the most active counties in the Permian Basin
(“Durango Acquisition”). The Durango Acquisition increases
Kinetik’s processing capacity by 420 million cubic feet per day,
doubles gathering pipeline mileage, and adds over 60 new customers,
many of whom are private, including one of the most active
producers in the Delaware Basin.
- Kinetik executed a new 15-year low-pressure and high-pressure
gas gathering and processing agreement with one of its largest
customers, which has a substantial presence throughout Eddy County
(“New Eddy County Agreement”).
- These transactions significantly enhance Kinetik’s position in
New Mexico, providing new access to highly economic and active
areas of the Delaware Basin, and reinforce Kinetik’s value
proposition as a pure-play midstream company across the entire
Delaware Basin.
- As one funding source for the Durango Acquisition and capital
for the New Eddy County Agreement, Kinetik has agreed to sell its
16% equity interest in Gulf Coast Express pipeline (“GCX”)
to an affiliate of ArcLight Capital Partners LLC (“GCX
Sale”) for $540 million, or approximately 10.4 times 2024
expected EBITDA.
- Consideration for the Durango Acquisition includes
approximately $315 million of cash (excluding any contingent
consideration) and 11.5 million Kinetik Class C common stock issued
to the owner of Durango in two installments (3.8 million shares at
closing and 7.7 million shares on July 1, 2025).
- On closing of these transactions, Kinetik’s 3.5x leverage
target is achieved.
- The transactions are expected to be over 10% accretive to free
cash flow per share starting in the second half of 2025, with the
level of accretion increasing thereafter, which coincides with an
expected acceleration of capital returns to shareholders.
Kinetik Holdings Inc. (NYSE: KNTK) (“Kinetik” or the
“Company”) today announced it has entered into a series of
agreements under which Kinetik will (i) acquire Durango for an
aggregate $765 million of cash and equity with up to $75 million of
contingent consideration tied to the capital cost for the Kings
Landing complex (“Kings Landing”), which is currently under
construction, (ii) provide low-pressure and high-pressure natural
gas gathering and processing services under a newly executed,
15-year agreement with a large existing Kinetik customer in Eddy
County, New Mexico, an approximately $200 million capital
investment through 2026, and (iii) divest its 16% equity interest
in GCX for 100% cash for a total of $540 million.
“Following on from our tremendous success with our recent Lea
County, New Mexico system expansion, we are delighted to now
announce this series of strategic transactions that further our
expansion into New Mexico and significantly increase our footprint
across the Northern Delaware Basin,” said Jamie Welch, Kinetik’s
President & Chief Executive Officer.
“The Durango Acquisition and New Eddy County Agreement together
represent approximately $1 billion of new investment. The structure
for the Durango Acquisition has approximately 60% upfront
consideration with 40% of the consideration deferred until July
2025, which is after the expected Kings Landing in-service date.
Following the Durango Acquisition and the expected completion of
Kings Landing, Kinetik will own and operate over 2.4 billion cubic
feet per day of processing capacity, entirely in the Delaware
Basin, and approximately 4,600 miles of pipelines across eight
counties. Proceeds from the GCX Sale and the aggregate issuance of
$450 million of Kinetik Class C shares, in two installments, will
be reinvested into projects at a mid-single digit EBITDA multiple.
These actions efficiently and accretively recycle cash proceeds
from a non-operated asset into highly strategic, operated assets.
Additionally, the Durango Acquisition and New Eddy County Agreement
offer full control of plant products including more than 350
million cubic feet per day of residue gas and well over 60,000
barrels per day of natural gas liquids, providing significant
additional upside value via system optimization, modifications to
existing commercial contracts, and integration with our Pipeline
Transportation segment.”
Durango Acquisition
Kinetik will acquire Durango with the following forms of
consideration and consideration terms:
- Upfront Consideration: $315 million cash consideration
and approximately 3.8 million shares of Kinetik Class C common
stock (and its subsidiary, Kinetik Holdings LP, will issue
corresponding common units) to Durango Midstream, LLC, an affiliate
of Morgan Stanley Energy Partners (“Durango Seller”) at
transaction closing, expected in June 2024. The Kinetik stock
issued at closing will be subject to a 364-day lock-up period.
- Deferred Consideration: Kinetik will issue an additional
7.7 million shares of Kinetik Class C common stock (and its
subsidiary, Kinetik Holdings LP, will issue corresponding common
units) to the Durango Seller on July 1, 2025.
- Contingent Consideration: Up to $75 million contingent
consideration tied to the actual capital cost of Kings Landing,
subject to adjustment for any costs in excess of Durango
management’s budget. Any contingent consideration would be paid in
cash within three months after the Kings Landing in-service
date.
Durango’s assets, located in Eddy, Lea and Chaves Counties, New
Mexico, include approximately 2,400 miles of gas gathering
pipelines and approximately 220 million cubic feet per day of
processing capacity. Durango is currently constructing Kings
Landing, a new 200 million cubic feet per day greenfield processing
complex in Eddy County, New Mexico, which is expected to be
completed in April 2025, increasing Durango’s processing capacity
to 420 million cubic feet per day. Kinetik estimates an additional
$78 million of net capital expenditures required to complete Kings
Landing construction. Kinetik expects Durango’s current assets
generate $75 million of Adjusted EBITDA in 2024, in-line with
Adjusted EBITDA generated in 2023. The initial set-up valuation for
the Durango Acquisition is approximately 6.5 times 2024E EBITDA,
stepping down to approximately 5.5 times EBITDA once Kings Landing
is operational. The transaction is expected to close in the second
quarter of 2024 following satisfaction of customary closing
conditions, including under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (“HSR”).
New Eddy County Agreement
Kinetik entered into a 15-year agreement to provide low-pressure
and high-pressure gas gathering and processing services with one of
its largest existing customers, which has a significant presence in
Eddy County, New Mexico. Kinetik will construct low-pressure and
high-pressure gathering infrastructure, which is expected to be
approximately $200 million of aggregate capital through 2026.
Kinetik anticipates an approximately 5 times run-rate EBITDA
investment multiple. The contract will commence at year-end,
starting with gathering services and extend to processing services
starting in the second quarter of 2025.
GCX Sale
Kinetik entered into a definitive agreement to divest and
directly transfer its 16% equity interest in GCX to an affiliate of
ArcLight Capital Partners LLC for a total expected sale price of
$540 million in cash. The purchase price is comprised of $510
million in upfront cash and an additional $30 million deferred cash
payment due upon a final investment decision on a capacity
expansion project. The transaction does not require HSR approval
and is expected to close in the next few weeks.
2024 Guidance
Kinetik expects to update its 2024 Adjusted EBITDA and Capital
Expenditures Guidance following the close of the Durango
Acquisition.
Conference Call and Webcast
Kinetik will host a conference call Thursday, May 9, 2024 at
3:30 pm Central Daylight Time (4:30 pm Eastern Daylight Time) to
discuss the strategic transactions. To access a live webcast of the
conference call, please visit the Investors section of Kinetik’s
website at www.ir.kinetik.com. A replay of the conference call will
also be available on the website following the call.
Investor Presentation
An updated investor presentation will be available under Events
and Presentations in the Investors section of the Company’s website
at www.ir.kinetik.com.
About Kinetik Holdings Inc.
Kinetik is a fully integrated, pure-play, Permian-to-Gulf Coast
midstream C-corporation operating in the Delaware Basin. Kinetik is
headquartered in Houston and Midland, Texas. Kinetik provides
comprehensive gathering, transportation, compression, processing
and treating services for companies that produce natural gas,
natural gas liquids, crude oil and water. Kinetik posts
announcements, operational updates, investor information and press
releases on its website, www.kinetik.com.
Forward-looking statements
This news release includes certain statements that may
constitute “forward-looking statements” for purposes of the federal
securities laws. Forward-looking statements include, but are not
limited to, statements that refer to projections, forecasts or
other characterizations of future events or circumstances,
including any underlying assumptions. The words “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intends,”
“may,” “might,” “plan,” “seeks,” “possible,” “potential,”
“predict,” “project,” “prospects,” “guidance,” “outlook,” “should,”
“would,” “will,” and similar expressions may identify
forward-looking statements, but the absence of these words does not
mean that a statement is not forward-looking. These statements
include, but are not limited to, statements about the Company’s
future business strategy and other plans, expectations, and
objectives for the Company’s operations, including statements about
strategy, synergies, expansion projects and future operations, and
financial guidance; return of capital to shareholders and the
timing thereof; the Company’s leverage and financial profile; and
the consummation of the Durango Acquisition and GCX Sale and timing
thereof, the funding for the Durango Acquisition and capital
required under the New Eddy County Agreement, expected results of
the transactions discussed herein, including reinvestment in new
projects and the returns thereon. While forward-looking statements
are based on assumptions and analyses made by us that we believe to
be reasonable under the circumstances, whether actual results and
developments will meet our expectations and predictions depend on a
number of risks and uncertainties which could cause our actual
results, performance, and financial condition to differ materially
from our expectations. See Part I, Item 1A. Risk Factors in our
Annual Report on Form 10-K for the year ended December 31, 2023.
Any forward-looking statement made by us in this news release
speaks only as of the date on which it is made. Factors or events
that could cause our actual results to differ may emerge from time
to time, and it is not possible for us to predict all of them. We
undertake no obligation to publicly update any forward-looking
statement whether as a result of new information, future
development, or otherwise, except as may be required by law.
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version on businesswire.com: https://www.businesswire.com/news/home/20240509676041/en/
Kinetik Investors: (713) 487-4832 Maddie Wagner (713) 574-4743
Alex Durkee www.kinetik.com
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