Good morning. Thank you for attending today's Kinetik Third Quarter 2024 Results Conference Call. My name is Makaya and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for your questions and answers at the end. I would now like to pass the conference over to your host, Alex Durkee. Alex, you may proceed.

Thank you. Good morning and welcome to Kinetik’s third quarter 2024 earnings conference call. Our speakers today are Jamie Welch, President and Chief Executive Officer; and Trevor Howard, 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.kinetik.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&A. With that, I will turn the call over to Jamie.

Thank you, Alex. Good morning, everyone. Thank you for joining our call today. We have a lot to get through so let's get started. Yesterday, we reported our third quarter results. We logged Kinetik’s single best quarter as a public company in terms of adjusted EBITDA which was an increase of 23% year-over-year. We also processed gas volumes of 1.71 billion cubic feet per day representing 15% growth year-over-year. As many of you are aware, negative gas prices persisted at the Waha Hub with the gas daily price averaging negative $1 per Mcf for the quarter. So the outperformance that we achieved is even more impressive when you take into account the nearly 170 million cubic feet per day of wellhead gas volume curtailed on our system due to pricing. In September, we partnered with Diamondback Energy to acquire an additional equity interest in EPIC Crude, bringing Kinetik’s total ownership to 27.5%. This was the much needed first step in a series of transactions to support continued growth and strengthen the financial profile of the pipeline. Diamondback has now committed approximately 33% of the overall capacity of the pipeline on a firm long-term basis. Kinetik itself is also now finalizing a long-term transport agreement with EPIC. With these actions, EPIC Crude received a multi-notch upgrade from the credit rating agencies and in early October, EPIC refinanced its Term Loan B, which significantly reduced its annual interest expense and positions the business to begin distributions to partners in early 2025. Also at the beginning of September, we received MRV Plan approval from the EPA. The approved MRV Plan covers three acid gas injection wells at our Maljamar and Dagger Draw processing facilities and enables Kinetik to economically benefit from the CO2 that we are currently capturing and sequestering on our system…

Thanks, Jamie. In the third quarter we reported adjusted EBITDA of $266 million. For the quarter we generated distributable cash flow of $184 million and free cash flow was $165 million, increasing more than three-fold year-over-year. Looking at our segment results. Our Midstream Logistics segment generated an adjusted EBITDA of $174 million in the quarter, up 24% year-over-year, largely driven by a full quarter of contributions from our assets in New Mexico as well as strong performance across our Texas assets. Following substantial maintenance overhauls at several Delaware South trains in the spring, we have seen our cryos perform exceptionally well, contributing to our bottom line outperformance. Average gas process volumes were 1.71 billion cubic feet per day across the system. Growth in volumes was driven by our first quarter of our New Mexico processing plants, which are operating at full capacity and volumes in Texas were sequentially flat despite wellhead volume curtailments increasing approximately 30 million cubic feet per day over the same time period. Shifting to our Pipeline Transportation segment. We generated an adjusted EBITDA of $96 million, up 22% year-over-year. This year-over-year increase was driven by contributions from the PHP expansion and Delaware Link and our increased ownership in Epic Crude. Shin Oak experienced volume growth and margin expansion in the quarter, while PHP posted stronger marketing margins and low fuel costs due to low Waha natural gas prices. Total capital expenditures for the quarter were $59 million. Our leverage ratio per our credit agreement stands at 3.2x below our target leverage of 3.5x. In September we received $30 million cash from an affiliate of ArcLight Capital Partners following the FID on the GCX expansion project, which we used towards debt repayment in the quarter. As Jamie mentioned, we are revising upwards our 2024 adjusted EBITDA guidance.…

Thank you. At this time we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Neel Mitra with Bank of America. You may proceed.

Hi, good morning. Thanks for taking my questions. It seems like you’re doing a lot more with sour gas treating as well as CO2 treating and then some sequestration that would all add to margin. How should we think about when we think about the GMP fees, how each of those components adds to the fee you’re getting and maybe the knock on effect if that’s allowing you to compete for upcoming acreage dedications that are expiring off of other producer systems.

Neil, good morning, it’s Jamie. I’ll start. I’m sure Trevor or Kris Kindrick will jump in too. As we’ve talked about before both when we announced the Durango transaction back in May and then obviously the second quarter and I think all the intervening period with all the interactions that we’ve had with investors. There’s a material difference between what we see is the average – I would say the average gross fee on the southern end of our system to the Delaware South, if you will, versus the overall rates that we see Delaware North. So if the distinction is a $1, $1.10 low pressure all the way through, right, so you’ve got to make it apples-to-apples, not a high pressure deal, but low pressure all the way through on the processing side with your fixed – with your typical fixed recoveries and whatever else as far as the incremental margin capture. The distinction between that and what we advertised and said around Durango was average margins almost $1.80. So that will give you a sense. Everything’s a stair step. Gas that doesn’t hit the typical sweet quality of a quality spec of maybe 4 ppm, maybe very low inerts, as you ramp up and you go 10, 20, 50, 100 parts and then you go all the way up into the most extreme sour and you can have thousands of parts per million, then you obviously are just increasing the overall rate structure. So it is – it’s a sort of stair step approach. Hopefully that gives you a sense of the distinction. But it’s a – you provide a lot more services on the sour gas side and that’s whether you’re using your acid gas injection wells, which obviously, which we have three that obviously provides both incremental OpEx, but obviously incremental margin for us.

Perfect. The second question, you’ve made a lot of progress with your partners on Epic. It seems like first you’d probably want to maybe extend some of those contracts. From my understanding, some of them are still on spot rates or short-term contracts. But what would we need to see in order for you to open season and expansion? And if you were to do so, what would be the timing of it if we were to get through some of those steps?

So I think as far as on the Epic expansion, it’s a topic that comes up all the time, both with the partners and with the management team. You’re right. There are a series of – there are some – the contract portfolio is both some long-term, some medium-term and some shorter-term almost buy sells. That changes obviously fairly dramatically with the new very long dated, very large contract or contracts from Diamondback, right, for a third of the capacity of the pipe today. We ourselves are going to take a very – a modest amount of transport space on that pipeline, which will obviously be advantageous for our crude gathering customers. So I think what that will it requires is you will see the decision to expand manifest itself in the MEH, really the MEH diff and the amount of commercial success to replace the shorter-term buy sells with again medium and longer-term firm contracts. Because buy sells will always be there, they are typically the domain of the marketers, of which there are many. The [indiscernible] et cetera, they will always want available access, particularly available access to an export market. And obviously Corpus is ideally situated for many different reasons to do so. Even more so now I think they’re actually finishing the phase two of the dredging with the board of Corpus Christi right now, which will obviously be ideal as it relates to overall drafts and therefore what we can actually load and unload and the size of vessels that we can get in. So I do think, look, it’s not a question of if on the expansion, it’s a question of when. Because it’s very clear that I think this is the pipeline best position and I think the only remaining pipeline positioned to expand, right, relative to the other pipes out of the Permian on the crude side.

Perfect. Thank you for the time. I appreciate all the answers.

No problem, Neel. Thank you.

The next question is from the line of Michael Blum with Wells Fargo. You may proceed.

Thanks. Good morning, everyone. Can you expand a little – can you just expand on the factors that drove the outperformance this quarter? How much of that beat was marketing on the Waha spreads or other factors? And how sustainable that is into 2025?

So look, it’s a really interesting question. I’ll sort of break it down into the following. If you recall, back when we did the very first call for the year, for our year end 2023 results and our guidance that we initiated for 2024, we talked a lot about the increase in maintenance capital that we were actually spending for this current year. In large part it was both related to compressor top end so overhauls as well as changing out molsieve bed, which are really almost like those silica beads that you find when you get any package, whether it’s from Amazon or anything else. It’s basically – it’s like an absorption or drying agent. So we changed those out. And the context I think of Diamond, Matt Wall’s on, I think it was the first time since those trains had gone in service. The overall performance on recoveries across the system as a result of the molsieve bed change outs has been exceptional. We operate a business with a contract portfolio that has fixed recoveries whether you’re in rejection or in recovery. And therefore the outperformance drops to our bottom line. And I can just say the operations guys have really done an exceptional job. And that was a – I would say just given the size of the 2 Bcf a day and the multi complexes that you’re dealing with, that outperformance is a meaningful contributor. Yes, we have open space. We always said this. We had open space on PHP in large part. We took incremental space on the expansion that obviously over time as our customers increase production that space would obviously get filled up because our first need and first call for that service is to provide that option for our customers. We’ve benefited…

Perfect. Thanks for that Jamie. Maybe I know you’re not giving 2025 guidance today. But maybe you could just speak to the trajectory of CapEx for next year? What is that going to look like and maybe some of the building blocks to get there? Thanks.

So I think Michael is, I think we’ve talked to you and talked to other analysts and investors. We said look think about it from a – if you’re going to think about an overall range $250 million, $400 million, that sort of range and we said look as you think about next year you’d be the upper end of that range. That may also be the case depending upon the timing on Kings Landing as well into 2026 and that’s Kings Landing II, right? So this is the pre-FID work long lead critical path items that we’ve done. And our viewpoint is I think on the EBITDA, look I think we’ve said very consistently we’re almost to the midpoint 20% year-on-year increase. We’ve said this is a business that between 2025 and 2027 on a compound annual growth rate should be 10% 12-plus-percent. That’s how you think about it and that’s without as Trevor would tell me breaking a sweat and he’s a good runner so he doesn’t sweat that much. So it’s – I really do think that it’s a context of the business is really, really designed for a tremendous inflection and growth from here on out. So you’ve got that top line growth and I think we continue to have the very focused cost discipline on the capital side.

Thank you.

No problem.

Thank you, Michael. The next question comes from Jackie Koletas with Goldman Sachs. Please go ahead.

Hi, good morning. Thank you so much for taking my questions. First, I just want to start on the pipeline connector, so is there optionality to expand that beyond the 150 Mcf a day announced. And how has future connectivity impacted commercial conversations from here? And beyond that pipeline connector, are there other connections that you can build or potentially buy from here to further connect the north and south Delaware systems?

Okay, Jackie, you get the prize. Don't keep going on because you got a lot. There's a lot. There's a lot in there that you've just gone through in your 60 seconds. So let me just start at the top. On the connector side, greater than 150 that we can basically get on the Eddy County, but that can grow, which is the question you asked. We can increase that with additional boost compression at the Sierra Grande site to have that in excess of between 260 million and 300 million cubic feet a day, drawing or draining out of Eddy County, that's a big deal. I really – I got to say, I know that this may have surprised people. We've been talking about the desire to connect Durango, the north to the south and creating that super system. And I really do think between the overall team here did a phenomenal job engineering ops construction to come up with a plan that said, rather than move that idle 60 day cryo, why don't we do this? It's going to cost the same. You've already budgeted for it. It's already in your numbers in the Eddy County project. And it actually creates the connectivity. And so when these guys go and talk to newborn – all these other customers we've got on the north and we say bingo. Not only capital investment, but we now can take incremental volumes that they're not on the massively sour side, but there's obviously some flexibility that we have. That's really a ray of sunshine for them in the context of their development plans. Because for so long they've been capital starved with no egress, right. No midstream egress. So I feel like this proposition, we knocked down the first of the big pillars which was connect on the west, done. This is what this does. It's a massive game changer for this company. It's a massive game changer for our customers. And it really puts us in a position now to emphasize, okay, on the Lea County side, much more sour gas as we know. Where are the connections? How do we think about it? We said we would analyze connecting on the basis of new commercial opportunities. So we're keeping, basically we are continuing hard at work to finalize commercial opportunities that will ultimately result in us connecting on the Lea County side. So that would be on the east and then you will have your super system and that will be a very – that will be unique. It will be unique amongst our peers. And I think it will really provide us so much flexibility. For optimization that really will position us, I think, tremendously going forward in the future.

And Jackie, this is Kris. I think one other thing we didn't hit on is we expect Kings Landing I to fill up pretty quickly. So we wanted to make sure we had an outlet for our customers as they continue to grow. This pipeline is that answer because we can get it on quickly. And second, this goes through an area where we're going to see significant gas growth over the next five years. So we think there's additional commercial upside where this pipeline will traverse. So strategically it makes a lot of sense for Kinetic. And so we're excited to provide this outlet to connect the systems.

And it would be fair to say, as I look at Kris and the team, what goes into Durango is a mix of sweet and sour. You have both. So what you've really done here is you have the combined elements. This gives you the opportunity to separate them. To free up sour gas treating and processing, which is much more complicated, right. And it's not a case that anybody can go – can basically go and treat and process sour gas if you don't have the right infrastructure. And you can obviously permit and build the right infrastructure, but it takes time. And you probably heard that in the context of whether it was Jim Teague talking about Piñon, multiple years to get this done. So what we looked at our business when we said, hey, look, there's a bunch of sweet here. If we could separate that sweet through Eddy County down into Culberson and bring it south, we leave more sour gas treating and processing up in the Durango system, which is, as I said, the more complicated. It's higher margin in the context of all the services that we have to provide. It really is a tremendous value proposition for the company.

Thank you. I appreciate the color there. And then just pivoting a little bit, you talked about it a little bit before. You mentioned some hedging in the year into 2025, but you were able to benefit on open PHP capacity again and some benefits on continued Waha softness. What is your view on the commodity price environment for the fourth quarter and 2025 and how quickly do you expect pricing to recover? And on those commodity swings, what is your timing expectations for the return of those Alpine High volumes?

Okay, so you referenced fourth quarter 2025. I think you meant fourth quarter 2024, just to confirm?

Yes, sorry, fourth quarter 2024.

Yes, no problem. We just wanted to check as opposed to being a – giving a prognostication as to what it might be a year out from now. So the short answer is cash today for Waha is negative $0.95. Hey, welcome to the third quarter again. It's same old, same old. Interesting enough, December is $20 right now. Positive, positive $20. That's more than enough to bring the Alpine High volumes back on. You can listen to the Alpine, I'm sure the Apache call in a couple hours or an hour and a half or whatever it is, but that's more than enough. This is all PDP, right. There's no new development in the context of Alpine High at this point. So I think our viewpoint is the basin is tight. So let's frame what tight means. We've gone through some maintenance on PHP through 19th till 20th. I'm looking at Kindrick. Matterhorn is full, full like 2 Bcf a day and we have negative Waha prices. What does that tell the audience about how tight this basin is? The overall lower decline curves, the increasing GORs that we're seeing. This gas needs egress and so I think Waha is going to remain challenged. You've got Blackstone, you've got the GCF expansion, maybe the transfer team get over the finish line with Warrior Run. All of this is going to be needed just given the continued growth that we see on the gas side. The net beneficiaries, of course in a weaker gas price environment on a hub basis are the integrated NGL players because everyone's running in full recovery as much as you can and trying to evacuate the ethane in the form of their NGLs. So I think our viewpoint is, look, in our updated guidance we…

Great. That's it for me. Thank you so much. Appreciate it.

Thank you. The next question is from the line of Burke Sansiviero with Wolfe Research. You may proceed.

Hey Burke.

Hi, thanks for taking my questions. Hi. Just firstly, any impressions you have on the potential setback rules being considered in New Mexico and sort of how you're thinking about potential impacts for the Durango assets?

I am so glad you asked this question because there is so much misinformation out there. So look, I saw this Reuters article, much like I'm sure many of you, I think everyone believed that this was some proposed legislation. That's not it at all. This is all about the New Mexico Legislative Finance Committee undertaking an economic study, an economic study impact to the state regarding the cost of potential setbacks and the impact that would have on the state's revenue. So let's frame that for a second. The LFC study is the first time on record that publicly everyone's addressed there is a true, legitimate, real significant cost of potential setbacks. Look, our view is unlike in other states where you've seen discussions on setbacks, there are a multitude of factors here that says it's different here and here's why. Oil and gas sector represents as far as percentage to the overall state COFA's budget. 50%, oil and gas is the largest single employer in the state of New Mexico. The incomes for oil and gas workers is more than two times the state average median income for workers. New Mexico, unlike in other states where you can have citizens can get a number of signatures and then get something basically across the line in the context of modifying state constitution, you do not have that legislative process at all in New Mexico. So groups of citizens that have a mechanism where they gather all these signatures to change the state's constitution does not exist in New Mexico. It is clear in all the conversations that we've had and particularly now with the White House administration changing effective in January, the Democratic leadership and the governor will not support setback legislation. There is virtually no path to any bill even if it eventuated. And as I said right now it is a study. And so our viewpoint, along with Permian Resources, EOG, Oxy, Conoco and all of the other large oil and gas producers is we really think that this is just misinformation. I could say fake news, but it's in the context of how it's positioned. But it is a study and it's the first time people got to see and it has shocked a lot of politicians and regulators as to the potential impact that such any type of framework could have on their overall state budgets and their overall finances. So hopefully Burke, that answers the question. But I think, look, I listened to Tom Jorden last week at Coterra. He did a great job. I think we feel like this is not a story.

Thanks, thanks for that. Just for my follow-up, understanding that the dividend bond marked the positive inflection point for the company, how should we think about further dividend growth given 2025 is shaping up to be a higher CapEx year?

Look, I think our viewpoint is that as we said in the prepared remarks, a capital allocation will be balanced, annual ratable dividend growth. So this was in the third quarter of November. Do you think about it towards this time next year? You shouldn't think about it earlier than that in the context of your right, we're going to have a larger capital budget, we're going to have great growth on the EBITDA side. But I do think that when we say annual ratable, Trevor is a man of his words. He means what he says. It's annual ratable and we will continue to grow it on a thoughtful, methodical basis.

Thanks for the time.

No problem.

The next question is from the line of Jeremy Tonet with JP Morgan. You may proceed.

Good morning, guys. This is Eli on for Jeremy. First one just had a clarifying question. I believe it was 170 million cubic feet per day curtailed in 3Q and I think I might have heard 100 curtailed as now. But I just wanted to clarify whether those volumes have returned or not?

No, no, no. I think you were hearing that we said 100 million cubic feet per day curtailed on Durango is where we started. We said, listen, we had 100 million cubic feet a day when we first announced the transaction. It's still there. We had a growing DUC inventory. It's still there. That's what we were talking about in the context of the reason that Kings Landing I needs to be on and in-service as quickly as it can.

Yes. Those aren't price related shut-ins. We refer to them as shut-ins, not necessarily curtailments. They're not price related. It is associated with the lack of processing capacity at Delaware North.

Yes, because it's full, right. I mean we run full every day on Durango. Whereas the 170 that we referred to refers to price related curtailments generally in Delaware, predominantly in Delaware South. And just to highlight that is wellhead and that is a gross number. So it's a bit inconsistent – it's a bit different than a number that is reported by one of our other customers.

Perfect, thank you. And then switching gears just given some of the industry consolidation, wanted to see updated thoughts that you guys have on Kinetik’s role against this landscape.

We swim with the largest fishes around and we're not that big. So look, consolidation, it's going to continue. We all know that it's going to continue in the upstream space, it's going to continue in the midstream space. And I think we realized that our overall destiny and future is not necessarily for ours to control.

Understood. Thank you.

Thank you. There are currently no questions registered. [Operator Instructions] There are no additional questions waiting at this time. I'd like to pass the conference back over to our management team for any further remarks.

Thanks everyone for your time this morning. I know it's busy time with everyone reporting. So appreciate it. We'll see you shortly with the various tour dates that are coming up and the various conferences to go to year-end. And we look forward to continue our discussions. Thanks. Bye-bye.

Thank you all. That concludes today's conference call. We appreciate your participation. We hope you all have a wonderful day. And you may now disconnect your line.