Earnings call transcript: Kinetik Holdings beats Q2 2025 EPS forecast

Kinetik Holdings Inc., a $6.6 billion market cap energy infrastructure company with a notable 7.51% dividend yield, reported its second-quarter 2025 earnings with an earnings per share (EPS) of $0.33, surpassing the forecasted $0.25 by 32%. Revenue fell short at $426.74 million against an anticipated $436.91 million. The company’s stock rose 2.96% in pre-market trading, reflecting investor optimism despite the revenue miss. According to InvestingPro, the company has maintained a consistent dividend growth track record, raising dividends for three consecutive years.

Key Takeaways

• Kinetik Holdings exceeded EPS expectations by 32%.
• Revenue fell short of forecasts by 2.33%.
• The stock price increased by 2.96% in pre-market trading.
• Revised 2025 EBITDA guidance lowered by 5%.
• Strategic infrastructure expansions underway, including Kings Landing complex.

Company Performance

Kinetik Holdings demonstrated robust performance in Q2 2025, with a notable increase in adjusted EBITDA and distributable cash flow. The company continues to expand its infrastructure, particularly in the Delaware Basin, and maintains a strong position in the sour gas treating market. Despite revenue falling short, the company’s strategic initiatives and financial metrics indicate resilience and growth potential.

Financial Highlights

• Revenue: $426.74 million, down from the forecasted $436.91 million.
• Earnings per share: $0.33, exceeding the forecast of $0.25.
• Adjusted EBITDA: $243 million, with a 3% year-over-year increase in key segments.
• Free Cash Flow: $8 million.
• Capital Expenditures: $126 million for Q2.

Earnings vs. Forecast

Kinetik Holdings reported an EPS of $0.33, beating the forecasted $0.25 by 32%. However, revenue was $426.74 million, 2.33% below the forecast of $436.91 million. The EPS beat reflects operational efficiencies, while the revenue miss may highlight challenges in market conditions or execution.

Market Reaction

Following the earnings announcement, Kinetik Holdings’ stock rose by 2.96% in pre-market trading, reaching $42.77. This increase suggests investor confidence in the company’s earnings performance and strategic direction, despite the revenue shortfall. The stock trades near its 52-week low of $39.33, significantly below its high of $67.60. InvestingPro analysis indicates the stock is currently overvalued based on its proprietary Fair Value model, with additional insights available in the comprehensive Pro Research Report covering this and 1,400+ other US stocks.

Outlook & Guidance

Kinetik Holdings revised its 2025 adjusted EBITDA guidance to $1,030-$1,090 million, a reduction of 5%. Despite this, the company expects strong performance in Q4 2025, with annualized adjusted EBITDA projected at $1,200 million. The company is also focusing on expanding its infrastructure and exploring new growth opportunities, including potential expansions and behind-the-meter power generation.

Executive Commentary

CEO Jamie Welch highlighted the company’s strategic initiatives, stating, "We continue to expect fourth quarter twenty twenty five annualized adjusted EBITDA of approximately $1,200,000,000." Welch also noted opportunities in the Permian Basin and emphasized the intrinsic value of company assets.

Risks and Challenges

• Commodity price volatility impacting financial forecasts.
• Execution risk in infrastructure projects like Kings Landing and ECCC pipeline.
• Market conditions affecting revenue targets.
• Exposure to fluctuating WTI, natural gas, and LPG prices.
• Potential delays in producer development plans impacting growth.

Q&A

During the earnings call, analysts inquired about non-gas liquid (NGL) recontracting opportunities, potential delays in producer development, and the company’s capital allocation strategy. Executives addressed these concerns, emphasizing the company’s focus on strategic growth and market positioning.

Full transcript - Kinetik Holdings Inc (KNTK) Q2 2025:

Carly, Call Coordinator: Good morning all, and thank you for joining us for the Kinesics second quarter twenty twenty five My name is Carly and I’ll be coordinating the call today. I’d now like to hand over to our host, Alex Durkey. The floor is yours.

Alex Durkey, Host/Moderator, Kinetic: Thank you. Good morning, and welcome to Kinetic’s second quarter twenty twenty five earnings conference call. Our speakers today are Jamie Welch, President and Chief Executive Officer and Trevor Howard, Senior Vice President and Chief Financial Officer. Other members of our senior management team are also in attendance for this morning’s call. The press release we issued yesterday, the slide presentation, and access to the webcast for today’s call are available at www.kinetic.com.

Before we begin, I would like to remind all listeners that our remarks, including the question and answer section, will provide forward looking statements and actual results could differ from what is described in these statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. We may also provide certain performance measures that do not conform to U. S. GAAP.

We’ve provided schedules that reconcile these non GAAP measures as part of our earnings press release. After our prepared remarks, we will open the call to Q and A. With that, I will turn the call over to Jamie.

Jamie Welch, President and Chief Executive Officer, Kinetic: Thank you, Alex. Good morning, everyone, and thanks for joining our call today. Kinetic’s second quarter results reflect our resilience and relentless focus on execution as we navigated through macroeconomic uncertainty and global geopolitical pressures. I am proud of what our team accomplished despite the noise that has continued to persist. During the quarter, we made significant progress across our portfolio of capital growth projects.

Starting with Kings Landing, commissioning of the complex commenced in June and has continued. Through the next six weeks, we will be fully testing and starting up the front end aiming plant, and we expect to have the necessary electric power to also fully load the facility. Taken together, we expect to ramp to full commercial in service by late September. In speaking with our producer customers in New Mexico, we continue to build conviction on just how highly economic the rock formation is in Northern Eddy and Lea Counties. However, much of the associated gas carries substantially higher CO2 and h two s content.

To support further development of the resource play, we have filed a permit for an acid gas injection well at Kings Landing to sequester the growing levels of c o two and h two s. Lead times for specialty equipment and materials can be upwards of a year, so our team has been prudent in identifying these items to jump start this process. We expect to receive approval to proceed by year end. Upon in service of the AGI well at Kings Landing, Kinetics total acid gas or tag capacity is expected to more than triple and further position us to be a best in class gas gatherer, treater, and processor with a differentiated service offering in Northern Eddy and Lee Counties. We look forward to sharing more as we progress this opportunity.

To support the conversion of Delaware North to a primarily sour gas system, e triple c pipeline is a critical component to move sweet rich gas from New Mexico to Texas and free up additional processing capacity in New Mexico. Construction has started, and we expect in service in the 2026. The proposed scope includes restarting our Sierra Grande processing facility and adding boost compression there. We have the ability to increase e triple c’s throughput capacity to approximately 300,000,000 cubic feet per day for sweet gas with system looping in Texas. Looking ahead, the investments we have made and continue to make across our system provide a multiyear earnings tailwind through the end of this decade.

First, Kings Landing is our beachhead position in the Northern Delaware. Our conviction continues to grow regarding expanding our footprint and volumes around this complex. Our commercial team has been very active advancing some really exciting opportunities. And with much of the pre FID work for a processing expansion at Kings Landing behind us and permitting for acid gas injection in progress, commercialization of an expansion and sour gas conversion remains on track. Our low and high pressure build out in Eddy County continues to perform better than expected with well results exceeding expectations.

Customers and other active producers continue to add inventory in the area, increasing the project earnings potential and duration. Acquired earlier this year, the Borilla Dror gas and crude gathering systems are performing well and are expected to contribute to earnings growth throughout the decade. Additionally, WellConnex and Lea County in the second half of this year will contribute additional volume increases. So based on the current estimates and with continued commercial success, we expect that additional processing capacity besides Kings Landing 2 is likely to be needed inside the next eighteen months as our Delaware South processing capacity is fully utilized with e triple c pipeline. We also remain focused on optimizing our cost structure.

In the past few years, we have experienced and managed meaningful cost inflation, especially with electricity and leased compression. And while we think the worst of it is behind us, it underpins our conviction to pursue the behind the meter power generation opportunity in Reeves County and the owned compression solution over the next several years. Both projects would compete for capital and provide long term structural solutions to offset these inflationary pressures. So before I turn the call over to Trevor to discuss second quarter results, I want to reiterate the opportunity set in front of us today. Our organic and inorganic growth pursuits over the past year and a half have positioned the company for accelerating growth as we head into 2026.

We continue to expect fourth quarter twenty twenty five annualized adjusted EBITDA of approximately $1,200,000,000 which represents 24% growth year over year. And this is just the beginning of a very bright multiyear earnings growth and free cash flow generation outlook that presents a compelling investment opportunity for existing and future shareholders. So with that, I’ll now turn the call over to Trevor.

Trevor Howard, Senior Vice President and Chief Financial Officer, Kinetic: Thanks, Jamie. In the second quarter, we reported adjusted EBITDA of $243,000,000 We generated distributable cash flow of $153,000,000 and free cash flow was $8,000,000 Looking at our segment results, our Midstream Logistics segment generated an adjusted EBITDA of $151,000,000 in the quarter, up 3% year over year on increased processed gas volumes from our Northern Delaware assets. This year over year increase was mostly offset by lower commodity pricing and higher OpEx, both of which I will cover in more detail shortly. Shifting to our Pipeline Transportation segment, we generated adjusted EBITDA of $97,000,000 up 3% year over year, which benefited from an increased ownership in EPIC and modest outperformance at PHP. The year over year increase was partially offset by no contributions from Gulf Coast Express following the sale of that stake in the 2024.

Total capital expenditures for the quarter were $126,000,000 With the updated in service timing for King’s Landing and the other impacts I just mentioned, we are revising our 2025 adjusted EBITDA guidance range to $1,030,000,000 to $1,090,000,000 Now I will walk through each of the impacts in more detail and the implications to guidance. First, we revised our full year processed gas volume growth assumption from 20% in February to mid teens to reflect the shift in timing of the King’s Landing startup and modest delays in producer development activity. For the remainder of the year, we expect a meaningful ramp in process gas volumes driven by the full commercial in service of King’s Landing in late September and step up in contributions from the Berea Draw, Carlsbad and Lea County volumes by year end. We anticipate exiting 2025 with processed gas volumes at approximately 2,000,000,000 cubic feet per day. Second, we have seen significant commodity price volatility since setting our initial guidance in February, creating a headwind in the second quarter and a change in our assumptions on market forward pricing.

On a weighted average basis, our revised guidance assumes a 10% decline in commodity prices versus our original guidance in February. Marking to market realized pricing and forward pricing, we estimate this decline to represent an approximately $20,000,000 impact versus our original adjusted EBITDA guidance. At current commodity prices, approximately 35% of our direct exposure is tied to the price of WTI, 20% to the price of natural gas, 25% to the price of LPGs and the remaining 20% to basis and commodity price spreads. We have significant hedges in place for the remainder of 2025 and a robust hedging program for 2026 and 2027. Moving on, operating costs continue to persist in the Permian.

We have seen substantial cost inflation across lease compression and electricity, two of our largest operating expense line items. Year over year unit cost per Mcf increased by approximately $0.10 in the quarter. With the commissioning and the start up of King’s Landing, unit costs per Mcf are expected to modestly step down as volumes come online. On a full year basis, we anticipate unit costs to be up approximately $06 year over year in 2025. While much of this increase was expected and included in our original guidance, we have experienced higher than budgeted operating costs as well as the need to retain lease compression units for new areas of development that we originally planned to release.

Taken together, these impacts led us to revise 2025 adjusted EBITDA guidance approximately 5% lower to $1,060,000,000 at the midpoint. Importantly, as Jamie discussed earlier, we continue to expect a meaningful acceleration in adjusted EBITDA growth through the remainder of the year and to reach annualized adjusted EBITDA of approximately $1,200,000,000 in the fourth quarter. Turning to capital guidance, we are tightening our range to be within $460,000,000 to $530,000,000 given our heightened visibility at this point in the year. We anticipate CapEx to be concentrated in the third quarter with the timing of King’s Landing completion and construction of the ECCC pipeline. That said, we now expect nearly 60% of 20 ’25 capital to be spent in the second half and nearly 45% in the third quarter alone.

Before I open up the line for Q and A, I will touch briefly on our finance related objectives. At the May, we completed a total refinancing of our bank debt, extending maturities on the Term Loan A and revolving credit facility. Our leverage ratio per our credit agreement stands at 3.6 times at the end of the second quarter. We also repurchased $173,000,000 of Kinetic Class A common stock since May, representing nearly 2.5% of our outstanding shares at an average share price of approximately $43 Our share repurchase program reflects our commitment to delivering value to shareholders, and I’m enthusiastic about utilizing it in light of the disconnect we see between the market price and intrinsic value of Kinetic stock. Our finance related objectives provide the framework to maximize shareholder value via our multiyear earnings growth and strong balance sheet, bolstered by strategic and accretive investment opportunities, annual dividend increases and opportunistic share repurchases.

I am excited with the progress that we had made in the quarter and look forward to delivering even more value to shareholders in 2025 and beyond. And with that, we can open up the line for Q and A.

Carly, Call Coordinator: Thank you very much. We’d now like to open the lines for Q Our first question comes from Jeremy Tonet from JPMorgan. Jeremy, your line is now open.

Jeremy Tonet, Analyst, JPMorgan: Hi, good morning.

Jamie Welch, President and Chief Executive Officer, Kinetic: Good morning, Jeremy.

Jeremy Tonet, Analyst, JPMorgan: Just wanted to start off if we could here. If we look at the exit rate for 2025 for 4Q there, just wondering if you could walk through the building blocks that get you there and the confidence level of exiting the year in that $1,200,000,000 run rate.

Jamie Welch, President and Chief Executive Officer, Kinetic: Sure. And look, a very valid and very good question. Look, you break down 1,200,000,000.0 think about it as 300,000,000 for the quarter. So we had $243,000,000 for the second quarter. And Trevor went through, we have already endured a lot of the operating cost impacts as it relates to high electricity pricing, higher compression leasing.

So really the building blocks from here to get from a $2.43, you’re to have a little bit of APA non curtailment and maybe in the fourth quarter. That’s what you should anticipate. Obviously, we had it in the second quarter as everyone knows. I think the biggest one is going to be Kayo and Durango, obviously. And then you’re going to have some incremental volumes.

We’ve had some volume shift from third quarter turn in line to fourth quarter, which has, I think, tempered a little bit of the overall growth rate on the volumetric side. So our exit rate remains pretty strong. However, because it’s now in the fourth quarter and not the third quarter, you don’t get that flow through as far as duration of that volume for this calendar year. So I think that the four buckets, everything else sort of stands pretty much as it is. And I think, you know, our degree of confidence look, King’s Landing, I think we have really taken a measured approach as it relates to making sure that the plant is running and that we’ve got the plumbing.

It’s as much about the plumbing and separating out the sour gas from the sweet gas, which to this point had all just been going whether it was to Daggerdraw or to Maljima. And now we have to separate free up space on the sour gas side, which is the Maljumar and Daggerdraw facilities. And for the less sour gas, send it to King’s Landing even though we have front end amine, we still don’t have an AGI. So we can’t handle really, really sour gas at that facility. So we have been very methodical.

I would say it’s probably taken us longer. We were probably a little overoptimistic on how quickly we could get it done as far as the replumbing of the gas. But I think our confidence level now, Jeremy, is really high. It’s really high. We know where the gas is.

We’ve spent so much time. So maybe it’s a little frustrating to get out of the blocks, a little slower than many of us would have liked, including ourselves. But I think the follow through and as we hit our stride, as we come out through the back end of this year, I think we will be the better for it.

Jeremy Tonet, Analyst, JPMorgan: Got it. Thank you for that. Just wanted to pivot to buybacks, a good amount in the second quarter. Is this a rate that we can expect to continue here? Or just wondering if you could provide more color on what that cadence could look like?

Jamie Welch, President and Chief Executive Officer, Kinetic: I think it’s a function of and Trevor can jump into this. It’s really a function of where our stock price is. We see the stock in the low 40s as being incredibly compelling. And so he is driven with more of a lead foot this past quarter starting obviously in May. And I think, look, we will take cues from the market.

We understand. We look at our capital allocation framework. We work out and we see where fundamental value is and where we really like the stock. And so we will basically be attuned to how that to what we see on the screen. Got it.

That’s helpful. I’ll leave it there. Thanks. Thanks.

Carly, Call Coordinator: Thank you very much. Our next question comes from Spiro Dounis from Citi. Spiro, your line is now open.

Spiro Dounis, Analyst, Citi: Good morning, everybody. I want start with NGL recontracting, if we could. I think it’s more of a 2026 tailwind, but curious if some of the NGL pipeline operators are eager to negotiate early and ensure some of those volumes stay on the system. In other words, could we see that recontracting tailwind maybe even coming earlier than expected?

Jamie Welch, President and Chief Executive Officer, Kinetic: Spiro, good morning. Look, it’s a really good question. Obviously, we all know that I think Enterprise said that they expect by here to start up in the fourth quarter. So that occurs. And obviously, between Enterprise, Targa and Transfer, obviously, OneOpen and DCP as well as MPLX now.

We have a much bigger grouping of NGL integrated players than probably ever before. And with, I would say, tempered enthusiasm and expectation on growth in the basin. With a lot of capacity to fill, we continue to see some pretty interesting overall indications and rates coming from different NGL service providers. You’re right. In our context, we have two contracts that roll off next year.

One is already you’ve got target steps into the shoes on one of them and the other is the other is basically free to decide. And then in ’twenty seven, we’ll start off with King’s Landing once we reach the two year in service mark. And then we follow-up from there. We’ve got literally almost serial expirations going on through almost the end of the decade and other contractual adjustments. So I really do think we’re going be able to capitalize on it.

We’ve always said that. And we’ll sort of see where that takes us. But I think it’s a good time to be on our side where you’ve got product. And there’s a lot of capacity in the marketplace and obviously a lot of people eager to fill that capacity.

Spiro Dounis, Analyst, Citi: Got it. That’s helpful, Jamie. Thank you. Second question, switching gears to King’s Landing two, and I apologize if I missed it in some of the prepared remarks. But could you describe maybe what inning you’re in there as you think about progressing towards FID?

And how we should think about some of the gating items? And sort of in that context, I think you talked about eighteen months is when you need it. Any sense on whether or not you could use offloads to sort of bridge that and push that CapEx out a little further?

Jamie Welch, President and Chief Executive Officer, Kinetic: So I think we’re sort of mixing a little bit of metaphors. On the eighteen months that was mentioned, it was actually in relation to processing capacity in Texas over and above what we have and over and above anything we decide to do on Kings Landing 2. On Kings Landing 2, the core building blocks of that particular project, one is clearly commercial. The other two is one, acid gas injection because it does need to be a sour plant. And that is a longer lead time item as it relates to both permitting as well as sourcing equipment.

The other obviously is electricity which is quite which can be a challenge and it seems almost more of a challenge than in New Mexico than it does in Texas. And so when you ask us about what inning we’re in, look, would say if you’re thinking that the inning concludes with an FID announcement, right, if the game did that if that’s the end of the ninth inning, I would say we are midway into our overall work stream. As far as we’ve already filed permit application for the acid gas injection. We’re well advanced on the electricity. The commercial guys have been working this for a long time.

You know, we’ve got some pretty big customers sitting behind the Durango system that I think with the advent of Kings Landing one and seeing for their own eyes that that capacity is there will give them the conviction, which thus far they’ve sort of been hesitant about, to actually go spend money on the drill bit and accelerate a development program. So we’re we have got everything moving together on various work streams, and I think it will all come together, you know, our hope and expectation certainly within the next I would certainly before year end.

Spiro Dounis, Analyst, Citi: Spiro, this is Chris. I wanted

Chris, Senior Management, Kinetic: to jump in quickly on the comment on offloads. We’re always going to look at optimizing our portfolio with capital and offloads. That’s why ECCC is so important. It allows us to get south where we have a number of more economic offload options. So we’ll continue to look at all those as options to optimize the portfolio.

Spiro Dounis, Analyst, Citi: Got it. Helpful as always. I’ll leave it there. Thank you, gentlemen.

Jamie Welch, President and Chief Executive Officer, Kinetic: Thank you.

Carly, Call Coordinator: Thank you very much. Our next question comes from Michael Baum from Wells Fargo. Michael, your line is now open.

Michael Baum, Analyst, Wells Fargo: Thanks. Good morning, everyone. I wanted to start with a macro question on the fundamentals. So I guess we’re seeing some Permian midstream players maintain guidance and tell us that basically producer activity is unchanged. And then we have others that are tweaking guidance lower like yourself and pointing to a weaker fundamental macro.

So just want to get your take on what’s going on from a macro perspective and then, of course, what’s going on in your neck of the woods specifically?

Jamie Welch, President and Chief Executive Officer, Kinetic: Sure. Good morning, Michael. I think we’re seeing a few things. Obviously, as a Permian pure play, I think there’s nowhere for us to literally run and hide. Right?

We don’t have any other basins. Can’t mask any declines in the Permian against increases in the Haynesville or other basins that may be more gas focused. What we’re seeing is, yeah, let’s I mean, we can knock down our big customers. PR, EOG, Katera, I mean, yeah, we can pretty much go through them all since we have almost 90 customers. But PR hasn’t changed rig cadence.

In fact, their overall performance on their wells has exceeded their own type curves and expectations. So they may move well pad from the third quarter or the fourth quarter to the following quarter or the 2026. That doesn’t change their guidance. It doesn’t change their fundamental view of the quality of the rock. If anything, what it does is show you that actually it’s even better than they anticipated.

But they’re not, you know, much like I think all of us right now. They look at their own probably stock price and say, look, should I keep capital in my pocket because I can save some dollars and I’m still gonna hit my guide on on overall BOEs. So I do think in Texas, we’ve always maintained the Texas position is more today. We see some spots of activity. Borrelia Drawer is one area.

But the Borrelia Drawer activity, honestly, Michael, Trevor and I would tell you, offsets some of the legacy Centennial activity that we saw the year before from Permian Resources. So we do see some give and take. Texas remains, think, more more of a not not the it’s not the prime and and the sort of ultra tier one acreage that we still see New Mexico. I think New Mexico holds for various reasons a lot more attraction and appeal from just maybe it’s a cost standpoint, maybe it’s administration standpoint that they think now is the time, basically getting while they’re going is good. And Texas you can pivot back to.

You can always pivot back to Texas because it’s very dynamic. It almost can be that it can very much be that production that just comes on very quickly. So I wouldn’t read too much into it that we’re seeing a huge slowdown as it relates to the overall level of activity. I think what we’re seeing is we’ve seen some shift in timing, but it’s timing. We are seeing quality of results and quality of from a type curve standpoint at or above our expectations.

We said to you that Carlsbad, which is another PR position, has been exceptional. Gorilla Draw has been very solid. So we’re really excited by what we have. And I think our viewpoint is, look, we will catch up and we’ll end up with some tailwinds in the face of what has been thus far, certainly for this year more headwinds on whether it’s commodity pricing or whether it’s in the context of just operation OpEx costs. Trevor, I don’t know if you’ve got anything you’d add to that?

Trevor Howard, Senior Vice President and Chief Financial Officer, Kinetic: Yes. The one thing that I’d add, thanks for the question Michael, is from where we sit from the beginning of the year prior to the $10.15 dollars sell off in WTI is we’re not seeing much of a change to the 2026. What I would say is that Jamie had mentioned there’s been some shifting of timing and some pads, both north and south. A lot of them what we’re finding is actually not necessarily for non economic reasons in terms of the primary driver. Sure, WTI goes into it.

But what we’re actually seeing is that what we need to do as a company is to get in front of our customers with infrastructure to facilitate the upcoming development plans that we’re seeing up in Delaware North. And that’s why getting ECCC completed is critical as Chris had mentioned earlier. We pointed to a potential expansion of that pipeline FID ing sometime in 2026. We’ve talked about Kings Landing 2. And really, I’d say that’s what we’re extremely focused on in terms of getting that across the finish line with an FID, because there is no real change to, I’d say, as we think about a broader portfolio of Delaware North plus Delaware South, what we’re really seeing from where we were at the beginning of the year.

If anything, we’ve actually seen a bit of an acceleration in certain areas that’s offsetting some of the, I’d say, timing shifts or delays that we’re seeing elsewhere.

Michael Baum, Analyst, Wells Fargo: Okay. Got it. Thanks. That’s a very helpful perspective. Appreciate it.

The other question I wanted to ask in the prepared remarks, if I heard it correctly and understood it correctly, seems like you’re seeing the gas is actually getting even, I guess, more sour, for lack of a better word, than even what you were anticipating. So just trying to understand, is that a potential upside case for you guys, whether that means you can either raise I don’t know if that means you can increase the treating fee or just you’re gonna see higher volumes on those fee the existing fee, but just want to just understand if there’s anything there on the upside case. Thanks.

Jamie Welch, President and Chief Executive Officer, Kinetic: So, Michael, you’re right. It is even more sour. I think the first and the second bone, in particular, are very sour. And therefore, the only way to actually manage that gas is with acid gas injection. So by the addition of acid gas injection at Kings Landing, we will, I think, triple the size of our tag capacity, treated acid gas, and we will be amongst the biggest in New Mexico in the context of tag tag capacity.

It will allow us depending upon, you know, from a tiering standpoint, it will allow us to obviously get an economically attractive return. But we are putting significant incremental investment in capital into infrastructure to allow us to be able to treat that gas and process that gas. So I think you will see, yes, it is more sour. Yes, you will have there’s probably more upside in the context of rates and fees depending upon just how sour.

Michael Baum, Analyst, Wells Fargo: Thank you.

Carly, Call Coordinator: Thank you very much. Our next question comes from Brandon Bingham from Scotiabank. Brandon, your line is now open.

Brandon Bingham, Analyst, Scotiabank: Hi. Thanks for taking the questions here. Wanted to go back to the building conviction in Northern New Mexico that you guys are have discussed and just if you could provide any incremental detail around some of the commercial momentum or just anything you’re seeing up there that’s really helping you build that conviction, in the area and then how that might kinda translate into any potential k o two FID timing?

Jamie Welch, President and Chief Executive Officer, Kinetic: Yeah. Sure. Brandon, it’s Jamie. And I’ll let Chris and Trevor jump in. Look, we have a number of customers up there, as you know, that we inherited with Durango.

The larger ones of which are Spur and newborn, they are both very eager to put incremental in capital to work on the drill bit and need, as Trevor pointed out, infrastructure. Kings Landing one is is just you just knock it down and just move on through. They need they want us to do the AGI because they very much see the most some of the most attractive rock being that as I mentioned as I just referred to Michael Blum’s question. First bone, second bone. Really sour gas, but it’s really attractive, and they really wanna get after it.

So right now, I feel like we are sprinting to keep up with our customers and their desires. We can’t, you know, I think Chris Kendrick would tell us, we we probably can’t sprint fast enough to make these guys thrilled and happy yet because they wanna spend the dollars tomorrow. And it and unfortunately, it takes us longer than tomorrow to actually have the infrastructure up and online.

Chris, Senior Management, Kinetic: Yeah, Brandon. This is Chris. Kinda echoing on what Jamie said. There’s a lot of activity in front of us, probably more so that we’ve seen in the last two years. And Jamie hit on New Mexico.

But even in Texas, we’re seeing opportunities. And now with ECCC online next year, we look at this as one combined system where we’re introducing volumes across the system. So it’s a huge growth opportunities across the majors, the independents, the private producers. 2026 is going to be an exciting year and not just for new packages of gas, but there’s some big developments on our existing acreage in 2026 So it’s an exciting time and the team’s doing a good job tackling these commercial prospects.

Brandon Bingham, Analyst, Scotiabank: Okay. Great. Thanks. And then maybe wanted to kinda touch on Epic a little bit. If there’s any updates there, maybe around timing of distributions or just how you’re thinking about it in general is, you know, one of your partners in it has discussed that it’s comfortably up for sale if they need to or or it’s something that they’re willing to sell.

So just kinda any updates on Epic and and anything you can share there?

Jamie Welch, President and Chief Executive Officer, Kinetic: Sure. So as far as, on the distributions, I believe the first distribution is going to partners this month. So I I believe that that’s been authorized and approved, which is great. And the the business is actually performing very, very well. As far as the designs of the various partners and certainly what one of probably the largest customer in that pipeline and what they may wanna do.

Look, I think from our vantage point, it’s like any asset. It has intrinsic and extrinsic value to us as a company. If in fact the value proposition of somebody else is at or above that value expectation from our end, then I think we would be remiss in not capitalizing on it. Right? We’re looking to create value for our stakeholders.

So, yeah, if someone shows up with the with the right number, then I think, yeah, we’re we’re not so wedded emotionally or otherwise to this asset to say that, oh, it’s a must have. It’s a non operated stake. So, you know, it’s not as core as other elements certainly of our business. Trevor, you have anything to add to that?

Trevor Howard, Senior Vice President and Chief Financial Officer, Kinetic: Nothing added. Think you had it.

Carly, Call Coordinator: Great. Thanks. Thank you very much. Our next question comes from Theresa Chen from Barclays. Theresa, your line is now open.

Theresa Chen, Analyst, Barclays: Good morning. On the topic of TAG capacity and the TAG market in general, with one of your midstream competitors announcing entry into Sargas treating recently via an acquisition in what seems like a similar area of service as your footprint, how do you think about competition within this space evolving over time?

Jamie Welch, President and Chief Executive Officer, Kinetic: Theresa, it’s Jamie. Thanks for the question. Look, it’s a good question. Obviously, MPLX buying Northland, yeah, obviously, is it it brings them now into the equation. Yeah.

To thus far, it has been more of the domain with enterprise buying opinion ourselves and obviously, Tiger with Red Hills. Right? So it’s part of the lucid complex. So look, there’s certainly more than enough volume and development for many, many players. And I think, you know, it’s not a case of where, if anything, we’re gonna see sour gas on the c o two h two s side, I think, continue to dramatically increase versus dramatically decrease.

And therefore, the market the overall size of the market is getting bigger, And therefore, I think there’s room for everybody. It still takes a long time to get into this business. Obviously, I think that was, if I’m not mistaken, one of the of the major principles for the enterprise acquisition opinion, which was when they looked at it, they said it was gonna take them three years otherwise. And from our vantage point, we said this all along. We said we like to see where the puck is going and we could see that SourGas was obviously really going to be on the front end.

And so the acquisition Durango gave us that entry point and we’ve obviously looked to capitalize on it. So I think there’s plenty of room for everybody. Do I expect it to continue to increase? Look, I think others will start to see for those that have the existing infrastructure and are able to capitalize on it, it will be a very attractive business. And for others, you know, they’ll they may look for entry points.

Theresa Chen, Analyst, Barclays: Understood. And within your own organization, given the commodity price volatility and the impact that it’s had year to date, how has your hedging strategy evolved, if at all? How do you view the impact of either absolute prices or spreads as we go through the next few months of 2025 and into 2026? And would you expect the net impact to be maybe more muted next year versus this year? How should we think about this?

Trevor Howard, Senior Vice President and Chief Financial Officer, Kinetic: Yes. Thank you for the question, Theresa. What I would say is that the year over year impact from 24,000,000 to 25,000,000 on pricing is approximately $20,000,000 So when we entered the year, we thought it was going to be flat on a year over year basis. And disclosed as we relative to our original guidance, it’s about a $20,000,000 headwind. What I would say is that, I’d say we’re more active and we’re reaching further out relative to, I’d say, historical norms to try to, I’d say, levelize these year over year impacts on margins on the commodity side.

So as we look forward into 2026, I would expect it to be relatively flat in terms of an impact on a year over year basis.

Theresa Chen, Analyst, Barclays: Thank you.

Carly, Call Coordinator: Thank you very much. Our next question comes from Keith Stanley from Wolfe Research. Keith, your line is now open.

Jamie Welch, President and Chief Executive Officer, Kinetic: Hi, good morning. Wondering

Trevor Howard, Senior Vice President and Chief Financial Officer, Kinetic: if

Alex Durkey, Host/Moderator, Kinetic0: you could give any early thoughts on where you see CapEx kind of evolving over the next couple of years? There’s there’s a lot of growth you’re talking about with K L two, maybe another plant in Texas, AGI capacity, power plant. Just how do you see CapEx kind of evolving next year and and into 2027?

Jamie Welch, President and Chief Executive Officer, Kinetic: Brilliant question, Keith. It is the it is the topic that I think that Trevor and I spend the most amount of time just thinking about because there’s a realization and there’s a reality to us and the size of our company that we can’t do everything we want. Right? We’ve said this on more than one occasion. We’re a company that wish we were a $5,000,000,000 $5,000,000,000 EBITDA company and not a just over $1,000,000,000 EBITDA company.

So I think we are recognizing and really trying to rationalize where do we need to spend capital, what’s that timing of capital. To us, what what are the core elements? I think if you ask us, I think Trevor would and I would tell you that, obviously, you get some really good bang for your buck on expansion of e triple c, you can do that pretty cost effectively. Kings Landing is pretty Kings Landing 2 is very important, particularly if you’re doing it in conjunction with the acid gas injection, and that is higher margin gas. And then you’ve got to think about, okay.

Well, what are you gonna do in Texas? Are you gonna have offloads for some time? So the conversation we have with the commercial team, do we think about bridging that then and sort of managing our overall capital bucket? But I think Trevor we’ve said what consistently 25%, 30% of EBITDA in the context of around 30% of EBITDA in the context of our overall capital allocation for reinvestment. If we I mean realizing that it’s not perfect for the percentage, but just to give a sense.

Trevor Howard, Senior Vice President and Chief Financial Officer, Kinetic: Yes, that’s right. And a little bit more elevated in years in which we’re building plants. But what I would say is, as Jamie pointed out in the beginning, in terms of just our financial profile, with the opportunity set that we have being top to bottom, east to west in the Delaware Basin is we got a lot of opportunities that we look at and it allows us to be a little bit more patient and diligent in picking the right lanes for us to allocate capital towards.

Jamie Welch, President and Chief Executive Officer, Kinetic: That’s helpful. That’s all for me. Thanks. Thank you.

Carly, Call Coordinator: Thank you very much. Our next question comes from Jackie Coultis from Goldman Sachs. Jackie, your line is now open.

Alex Durkey, Host/Moderator, Kinetic: Hi, good morning. Thank you so much for the time. Just a little bit on that point on capital allocation. With higher operating cost inflation, how are you thinking about the cost reduction plan effort, the compression deployment and behind the meter power and the timing of potentially implementing those projects, especially balancing out potential spending on those growth opportunities that you mentioned?

Jamie Welch, President and Chief Executive Officer, Kinetic: So Jackie, think we look at it as follows. As it relates to compression, compression you can leg in. You can do a little bit. It’s more about, yeah, you’re going to put an order in today, and it might be $50.60 weeks from now before you’re gonna see Co’s compression units arrive. So it’s more timing.

If you need something just in time, meaning inside six months because you get you’re about to do a low pressure connection, then unless you have some existing compression that you’re able to go and move, you’re really in the domain of having to go and undertake you know, a lease for some term with one of the compression service providers. I think what Matt will Trevor and I have decided and what we’ve already started to do is we’ve put down some deposits for incremental compression that’s gonna come to us over ’26 into ’27. And that will continue. We think it’s very cost effective, highly cost effective versus other options. We get better run times, better uptimes with it.

I think, you know, we’ve just seen improved reliability, and we’ve now got to a size as far as our compression skill within the company that, look, we can keep these units up and, you know, I think we’ve got the mechanics capability spares that literally means we can we can do this. So compression is a little different. It’s different than a power plant because power plant, you can’t really leg into it. You just got to decide what the size of the power plant you’re going to go do. And I think what we’re doing is we’re also one of the things that certainly has come out of our keen interest to try to, I would say, minimize and just control our overall power cost is we have been approached by external parties.

Some of obviously, there’s a large amount of generation that’s to be built in Texas. So we’re going to look at various options. For now, we have a fixed price fixed block. We went and sourced that out of our retail electric provider. So we bought ourselves enough time to be out and manage and make sure that further cost inflation doesn’t erode our bottom line.

So I think, yeah, we’re trying to do is just manage it. Right? Management as best we can, much like we have historically. I think the first that you’ll start to see some benefits, but not until probably, I think, 27 on the compression side. But again, it’s gonna be smallest it’s gonna be small steps.

Alex Durkey, Host/Moderator, Kinetic: Got it. I appreciate the color there. And then just as a follow-up, wondering if you could provide us an update just on your appetite for bolt on M and A, how you’re seeing valuations trending today, And if there are any other opportunities similar to Borrelia Draw?

Jamie Welch, President and Chief Executive Officer, Kinetic: We will look at everything. I think our viewpoint is that overall multiples have gone up. I think recent deals prove that. I think we look at that in conjunction with where our stock price is, and we say, well, it’s not really the right time to think about doing something aggressive on the the m and a standpoint. And if we’ve got capital to deploy, we’d much prefer to go deploy it in building a new King’s Landing two plant or acid gas injection well that would be a low single digit multiple.

And we’ve got literally all the conviction to go and get it to basically get it commercialized and done. So I would say we are more focused on organic at this point. That is, of course, not to say that we will exclude looking at inorganic, but it would have to be incredibly compelling.

Alex Durkey, Host/Moderator, Kinetic: That’s fair. All Thank you so much. I appreciate the time.

Jamie Welch, President and Chief Executive Officer, Kinetic: No problem. Thank you.

Carly, Call Coordinator: Thank you very much. Our next question comes from Samya Jain from UBS. Samya, your line is now open.

Alex Durkey, Host/Moderator, Kinetic1: Hi. Good morning. So you’ve had a greater CapEx allocated towards Delaware North, especially with Kings Landing versus Delaware South. But now with Borrelia draw contributions and ECCC pipeline under construction, do you see potential in further rolling out Delaware South more? I guess could you expand on the different opportunities you’re seeing in the North versus South longer term and how you’re considering the CapEx split in the future?

Jamie Welch, President and Chief Executive Officer, Kinetic: Look, think it’s a it’s a very good question. I think, you know, the fact that we’ve in investing and invested thus far more in Delaware Northeast, I think, just a reflection of how much activity is up there and the fact that it is so underpenetrated from an infrastructure standpoint versus other areas. E triple c really does unlock. It’s a really new dimension to a business because now you can move sweet rich gas from New Mexico down into Texas. So as we as you all probably will remember and know, you know, we have more of a sweet system.

Yes. We have front end aiming treating, But our overall ability to handle really, really sour gas is more limited in South Texas. Think as we continue to see New Mexico be the hive of activity for our producer customers. That’s where you’ll see the preponderance of our overall capital deployment. When at some point that will pivot and it will come back, ECCC is an example where we’re actually capitalizing on New Mexico, but it’s going into Texas.

And we might need another processing facility getting built. So that would obviously create incremental capital spend in Texas. So I really do think we’re just gonna balance it based on what we see and what occurs as it relates to our producers and where that opportunity set, you know, presents itself.

Alex Durkey, Host/Moderator, Kinetic1: Got it. Thank you. And then you noted how producer development plans were delayed into 2026. I guess, could you provide more color on how we should expect to see producer activity in the back half of the year and the key drivers there? And what and I guess help us understand some of the sensitivity within your growth outlook to basin level growth specifically?

Jamie Welch, President and Chief Executive Officer, Kinetic: Trevor, do you want to jump in on that?

Trevor Howard, Senior Vice President and Chief Financial Officer, Kinetic: Yes. I’ll point back to some comments that Jamie made at the beginning of the year as we think about from where we are in the second quarter to the exit rate of $1,200,000,000 Obviously, with King’s Landing coming online, that’s a significant contributor of both volume and earnings growth. And then we’re seeing, I’d say, part of the shift that we have seen is really just as producers looked at their TIL schedules and with some uncertainty in the timing of King’s Landing that really had shifted things a quarter or two. And so, we start to see significant, I’d say well developments up in our Delaware North area both in Carlsbad and then up in where the King’s Landing area is and up on the shelf. And then Jamie pointed to at the beginning of the call, we start to see some real nice big packages of development in Delaware South and specifically in the Berea Draw area as we exit 2025 and then into 2026.

With respect to basin level growth, we’ve been we have a page in our monthly investor presentation where we index it back to 2021 and we’ve consistently outperformed broader basin level growth and we continue to see that to excuse me, we expect to see that continue, especially as Kings Landing comes online. That’s a bit, I’d say, unique relative to Kinetic. And it’s almost 10% of total processing capacity growth for us in a single quarter. And so I’d say that while it has been a little bit flatter relative to overall basin growth, still I’d say either in line or modest outperformance, we expect that outperformance that we have seen in 2021 through 2024 to really pick back up again.

Chris, Senior Management, Kinetic: And Samia, this is Chris. Just hitting back on something Trevor hit on. Each customer is different on why they’re delaying. Some of them are optimizing rig schedules. Some are testing reservoir properties.

But the rock is still great rock and we’re excited about what’s on the table in 2026. There’s some large packages and there’s going to be some good development there. So again, each customer is different, and there’s different reasons for the delays.

Alex Durkey, Host/Moderator, Kinetic1: Got it. Thank you so much.

Jamie Welch, President and Chief Executive Officer, Kinetic: Thanks.

Carly, Call Coordinator: Thank you very much. We currently have no further questions. So I’d like to hand back to Jamie Welch for any further remarks.

Jamie Welch, President and Chief Executive Officer, Kinetic: Thank you, everyone, for your time this morning. We know it’s a very busy time in the quarter, and we look forward to catching up with you soon. Thanks very much.

Carly, Call Coordinator: As we conclude today’s call, we’d like to thank everyone for joining. You may disconnect your lines.

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