Kinetik Energy (ticker not provided), a player in the energy sector, has reported a robust start to 2024, with first-quarter earnings exceeding internal budgets and showcasing significant growth. The company announced a 25% increase in adjusted EBITDA, reaching $234 million, attributed to volume growth and strategic expansions.
Gas volumes processed saw a 13% year-over-year increase, and the company's expansions in the Permian Basin have strengthened its market position. Despite challenges such as in-basin price depressions at the Waha hub and winter weather impacts, CEO Jamie Welch highlighted the company's resilience and operational performance. Kinetik is also making strides in sustainability, with a focus on reducing emissions and a new partnership to sell captured carbon dioxide.
Key Takeaways
- Kinetik Energy's adjusted EBITDA rose by 25% to $234 million in Q1.
- Gas volumes processed increased to 1.53 billion cubic feet per day, a 13% growth YoY.
- Strategic expansions like the Permian Highway Pipeline and Delaware Link contributed to growth.
- The company is optimistic about the future, despite not finalizing full-year guidance.
- CEO Jamie Welch and CFO Trevor Howard discussed operational challenges and the company's flexibility in the face of market uncertainties.
- Kinetik is focused on sustainability, reducing emissions, and has partnered with Infinium for eFuel production.
- Future growth opportunities include a new plant in New Mexico and potential GCX pipeline expansion.
Company Outlook
- Optimism prevails for the year ahead with no definitive full-year guidance.
- The company plans to accommodate increased turn-in-lines and expects the return of Alpine High curtailments in Q2.
- Focus on capital discipline and achieving investment grade status remains a priority.
- Kinetik is open to organic growth and strategic acquisitions, maintaining a high bar for value accretion and leverage impact.
Bearish Highlights
- Kinetik experienced depressed in-basin Waha prices affecting their earnings.
- The company anticipates continued pricing pressure until additional pipeline capacity comes online.
- Contract roll-offs present challenges but also flexibility in the market for Kinetik.
Bullish Highlights
- Expansion into Lee County, New Mexico, is already yielding volumes above expectations.
- The company's wellhead to Gulf Coast solution is capturing market share and providing effective egress from the Permian Basin.
- Strong growth in rich gas through April and May indicates high demand for Kinetik's services.
Misses
- Challenges included maintenance issues and winter weather impacts in January.
- Negative pricing at the Waha hub was a notable difficulty during the quarter.
Q&A Highlights
- Discussions around the tightness in the basin and the uncertainty of future pricing pressures.
- Kinetik's competitive advantage highlighted by their ability to handle complex gas compositions.
- The company's customer-centric approach and high demand for its takeaway services were emphasized.
Throughout the call, Kinetik Energy maintained a tone of resilience and operational excellence despite market challenges. With a focus on strategic growth and sustainability, the company is positioning itself for continued success in the dynamic energy landscape.
InvestingPro Insights
Kinetik Energy's solid start to 2024 is mirrored in the company's financial metrics and market performance. With a market capitalization of $5.99 billion USD, Kinetik is a significant player in the energy sector. The company's commitment to sustainability and expansion in the Permian Basin are reflected in its recent financial achievements and stock market performance.
InvestingPro Data:
- Market Cap (Adjusted): 5990M USD
- P/E Ratio (Adjusted) last twelve months as of Q1 2024: 7.81
- Revenue Growth last twelve months as of Q1 2024: 6.42%
InvestingPro Tips for Kinetik Energy indicate several strengths and potential areas of interest for investors:
1. Kinetik pays a significant dividend to shareholders, with a dividend yield of 7.7% as of the latest data, which is attractive in the current market.
2. The company has been trading near its 52-week high, with the price at 96.31% of this peak, suggesting strong market confidence.
For investors seeking more in-depth analysis and additional InvestingPro Tips for Kinetik Energy, visit https://www.investing.com/pro/KNTK. There are 9 total InvestingPro Tips available that could provide further insights into the company's performance and outlook. Remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Kayne Anderson Acquisition Corp ORD (KNTK) Q1 2024:
Operator: Good morning, and thank you for attending the Kinetik First Quarter 2024 Results Call. My name is Elisa, and I will be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. I would now like to pass the call to our host Alex Durkee, Investor Relations. Alex, please go ahead.
Alex Durkee: Thank you. Good morning and welcome to Kinetik's first quarter 2024 earnings conference call. Our speakers today are Jamie Welch, our President and Chief Executive Officer; and Trevor Howard, our 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 [Audio Gap] 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 US 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.
Jamie Welch: Thank you, Alex. Good morning, everyone and thank you for joining our call today. Kinetik had an exceptional start to 2024 with continued momentum throughout April and early May. We reported our first quarter results yesterday afternoon exceeding our own internal budget and positioning Kinetik for a strong year ahead. First quarter adjusted EBITDA was $234 million, a 25% increase year-over-year reflecting robust underlying volume growth and contributions from the Permian Highway Pipeline expansion and Delaware Link. We processed gas volumes of 1.53 billion cubic feet per day representing 13% growth year-over-year and down less than 1% quarter-over-quarter due to planned maintenance at several processing facilities Alpine High curtailments as a result of depressed Waha prices and winter weather in January. During the quarter we completed our planned maintenance projects at our Diamond Cryo East Toya and Pecos Bend processing facilities. We opportunistically scheduled these projects ahead of the ramp in producer turn-in-line activity starting in March and the Lee County contract commencement on April 1. As a result of the massive bed change outs, we have improved our plant recoveries and system efficiencies. I would like to thank the operations team for their hard work and commitment to safety during this time. They did a phenomenal job ensuring safe operations and system reliability for our customers. More recently, we completed our system-wide front-end amine treating project with the installation at our Pecos Bend processing facility in April. We can now offer enhanced blending and treating services across our system and accept gas that previously did not meet our gas quality specifications. As producers explore different benches such as the Avalon and Bone Spring and further expand the boundaries of the Delaware Basin. Treating and blending will become critical to manage the elevated levels of H2S and CO2 and Kinetik stands ready to support this next phase of growth out of the basin. As we shared during our February call we placed our gathering system expansion into Lee County, New Mexico in service on January 18 over two months ahead of schedule. The NVC-backed agreement went into effect on April 1 and we are currently receiving volumes well above that threshold. The expansion into Lee County combined with our enhanced treating and blending capabilities positions Kinetik to capture incremental market share in New Mexico. Furthermore with the in-service of the PHP expansion in Delaware Link, we can now offer producers and integrated wellhead to Gulf Coast solution. With volatile and even negative natural gas prices at Waha since early March, it has been top of mind for producers to access premium priced natural gas markets particularly along the Gulf Coast which offers more price stability. Waha gas daily prices averaged negative $0.72 per MMBtu in the month of March and April. Many of our customers benefited handsomely during this period by having their gas sold at Gulf Coast markets rather than in-basin at the Waha Hub. As a reminder, Kinetik's equity gas exposure shifted from Waha to the Gulf Coast following the in-service of the PHP expansion on December 1. The depressed in-basin Waha prices had not only generated opportunities with Kinetik's reserve PHP capacity, but have also further strengthened our partnerships with existing and new customers in need of egress out of the basin. We continue to forecast pressured in-basin pricing until additional pipeline capacity is placed in service. However, Kinetik and our customers are very well positioned with egress from the Permian to demand centers along the Gulf Coast. March was an important month for Kinetik shareholders, with the four quarter dividend payment on March 7, the core shareholders completed their commitment to reinvest their dividends. This commitment was important in that it enabled us to execute upon key financial priorities, such as fully redeeming the Series A preferred in 2022 and fund our elevated 2023 capital program. It further demonstrated strong alignment with all stakeholders. Moving forward, we're excited for all shareholders to now receive cash dividends starting with the first quarter dividend payment today. Subsequently, in March, we facilitated a secondary offering, which fully exited Apache's remaining ownership in Kinetik. When combined with the prior secondary offering in December, we increased our public float to nearly $1.5 billion and quadrupled our average daily trading volume to nearly $30 million. We saw exceptionally high investor demand and participation in the secondary, and I want to thank our investors for their continued support and belief in the Kinetik story. And with that, I would now like to hand the call over to Trevor.
Trevor Howard: Thanks, Jamie. In the first quarter, we reported adjusted EBITDA of $234 million. For the quarter, we generated an adjusted distributable cash flow of $155 million and free cash flow was $108 million. Looking at our segment results, our Midstream Logistics segment generated an adjusted EBITDA of $143 million in the quarter, up 20% year-over-year, largely driven by increased processed gas volumes and enhanced marketing opportunities captured on our PHP capacity. Shifting to our Pipeline Transportation segment, we generated an adjusted EBITDA of $96 million, up 32% year-over-year and 12% quarter-over-quarter. Sequential growth within the segment was driven by three full months of contributions from Delaware Link and the PHP expansion. To date, our commodity exposure pertaining to our equity volumes is approximately 50% hedged on average across commodities, with a higher hedge percentage on propane, butane and crude. Total capital expenditures for the quarter were $61 million, which was lower than our internal expectations as we completed the New Mexico gathering expansion and several planned maintenance projects in the quarter. Our leverage ratio for the credit agreement stands at 3.8 times. In addition to the series of steps taken in March, generating incremental value for shareholders, which Jamie touched on earlier, we also executed an accounts receivable securitization facility for $150 million in April. We used the proceeds from the AR facility to pay down our existing term loan A to $1 billion, allowing us to extend the maturity of the Term A an additional six months to December 2026. Looking ahead, we continue to expect volatile commodity prices in 2024, especially for natural gas. As an industry, we collectively benefit from a more constructive natural gas price environment. However, Kinetik stands well positioned relative to its peers with capacity on PHP allowing us to provide access to Gulf Coast pricing to our customers and to continue to capture incremental marketing opportunities. Despite current gas prices, oil-directed producer activity remains unchanged on our system, and we have seen the return of activity at Alpine High following curtailed volumes in March in response to negative gas prices at the Waha Hub. We expect to see a step-up in volumes in the second quarter that continues through the remainder of the year, reflecting the completion of planned maintenance projects, the Mexico MVCs and customer development activity heavily weighted in the second and third quarters. Before shifting to Q&A, I would like to share the significant progress we have made, on our sustainability initiatives. We entered into a first-of-its-kind agreement with Infinium, an industry leader in the production of synthetic eFuels to dedicate the sale of carbon dioxide captured from one of our processing complexes, for use as a feedstock in the production of ultra-low carbon eFuels using their proprietary process at Infinium's project, Roadrunner. Notably there are, zero capital or operating cost to Kinetik, and this project will create another revenue stream for Kinetik. Our hope is that this partnership can serve as a model for others in the industry, and support broader decarbonization efforts. Throughout 2023 we made strong progress in our Scope 1 and Scope 2 greenhouse gas and methane emissions intensity reduction initiatives. When compared to the 2021 baseline we have reduced greenhouse gas and methane emissions intensity by 12% and 34%, respectively. And we have now surpassed our 2030 methane emissions intensity reduction target of 30%, well ahead of schedule. Despite this early achievement, which required considerable financial and human capital investment we remain focused on furthering our sustainability efforts as a key pillar of Kinetik's everyday operations. We look forward to providing even more detail this summer in our upcoming 2023 sustainability report. And with that I would like to open the line for Q&A.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Michael Blum with Wells Fargo. Your line is now open.
Michael Blum: Thanks. Good morning, everyone. I guess first question is just really on the full year guidance. In the press release you noted that, you sort of exceeded your internal forecast for Q1. So just wondering does that imply that you could be coming towards the higher end of that range?
Trevor Howard: Michael, good morning, very good question. Early days, we're obviously just we've got -- we're just looking at even April numbers right now. And obviously things are trending well with respect to our overall guidance range. So I think we want to wait before making any statements about where we think we're going to ultimately end up. We've got three quarters to go, one quarter down. I feel like it's the end of the first quarter of a sports game. And we've got still a ways ahead of us. But things are really looking good, which is fantastic. And I just can't complement the operations team more. They have done a hell of a job with all of the -- I think I'm not sure if I spoke to you, but what we did say Michael, when we've spoken to a number of investors is, we had every reason to stub our toe in the first quarter. Not that we didn't communicate it, because we did all this maintenance or the most of that change outs. Here we saw some winter weather in January. But last time I checked that's what winter's all about. And we had negative pricing with Waha. So we had Apache curtailing some of the Alpine High volumes. You had a parade of factors, that would then give you a reason and cause to say, we didn't hit, what we should have, because, and the short answer is we saw it, we took it and we kept going. And that's a phenomenal -- I think that is a phenomenal complement to the resilience of the business and the operational performance of the system.
Michael Blum: Okay. Great. No, that makes sense. And then, I just wanted to ask on GCX. Any updates there in terms of potential expansion just to level set up. I think at this point there's no -- the sales process is kind of on hold. And then kind of the broader question is you have an appetite to participate in some of these greenfield Permian gas takeaway projects that are sort of percolating? Thanks.
Jamie Welch: So as it relates on GCX on the expansion, I think we've been pretty consistent, saying that, we feel confident it's going to happen. It was just a question of time. Yes, just for the audience, I would tell you just so everyone appreciates. Cash price today, Waha this morning, minus $3 folks, minus $3 bucks. So if that isn't a drive for help from everyone to say, look, we need more egress capacity. I don't know what is. As it relates to participation on the greenfield side, yes, we totally believe that we need more egress. I think we've seen a lot of the commentary from folks like Case at Diamondback (NASDAQ:FANG) and others. We got to get together and we got to fix this. We just got to because this is not fun for anybody. We're in a very privileged position, and we recognize that because we have this PHP capacity, which is incredibly valuable. Our customers appreciate it, new customers appreciate it, and it really helps us differentiate our services versus everybody else. And even saying that, we recognize we need, as an industry, to get behind -- behind and coalesce behind the position that says we need more egress out of this basin because this will be one of the significant impediments we think, to the ultimate potential out of the Permian Basin.
Michael Blum: Thank you.
Operator: The next question comes from the line of Spiro Dounis with Citi. Your line is now open.
Spiro Dounis: Thanks, operator. Good morning team. Jamie, maybe if we could go back to the outlook for the rest of the year perspective, a lot of the year still left to go, but wondering if you could just put a finer point on some of the tailwinds you're seeing that were not contemplated in the original guidance. I know Trevor talked about the Alpine High activity coming back. I imagine that was not foreseen. So curious how many of those sort of tailwinds are sort of adding up here?
Jamie Welch: So Spiro, thanks for that question. Good morning. Looking forward to seeing you on Tuesday. All right. As far as I would say, there are various components. When Trevor mentioned Alpine High coming back, that's really just lifting the curtailment. I would say, it's the operational performance that's really been the tailwinds here. It's the recoveries have been fantastic. If you recall, when we did this call at the end of February, we said we had a lot of plant maintenance we needed to do, most of bed change-outs. First time I think we had done it at Diamond. We had East Toya, we had Pecos Bend. We had it across the board. We had compressor maintenance. We had lots going on. Now that we're through that, the recoveries have been fantastic. They really have been fantastic. And so, [Audio Gap] because I really want to hop on operational performance and reliability, because that's how you grow this business and I think we -- our team, led by Matt Wall, have done a phenomenal job. So recoveries in particular, are tailwinds. I would say we're seeing green shoots here and there, as Trevor mentioned, all directed drilling hasn't changed. The only customer system that change behavior for negative gas prices was Alpine High, and that's out there for the world to see. And it really -- we haven't missed a beat. And if anything, I think that reinforces the just the strength of the fundamentals of the business that we've got. And we're above thresholds coming out of New Mexico, as far as volumes are concerned. We're doing really well.
Spiro Dounis: Got it. That's great to hear. Second one, maybe just turning to market share. You talked about maybe 2 areas where you could see a little bit more gains there. One, was on the treating side, it sounds you're able to accept a broader range of gas quality now. So first, curious if you're seeing the volume impact from that just yet and how to think about the upside there? And then you also mentioned more customers or new customers on the egress side. I guess how much more room is there for you to gain on that side?
Jamie Welch: I think as far as let's go in reverse order. On the egress side, we have customers every day. Both existing and new customers approaching us about new packages of gas customers, we're always open for them to tell us that they would like to, in fact, have Gulf Coast pricing. When you do a weighted average sales price calculation for residue gas, we give people an option. They can have Waha. They can have a mix of Waha and Gulf Coast. And so we have more and more customers telling us, hey, we want more Gulf Coast, right? And I would say the relationships we have and the way you build the relationships is you continue to embed that concept of partnership. And that concept of partnership I think a news to your benefit as you think about future development and opportunities that you get. So we do have people. We've got space that we can manage, not just because we're the majority owner of PHP and how it's performing but also just given the space that we've contractually taken. And we've got – this is a constant dialogue with some many of these folks. And then Trevor, do you want to just take that first question on the treating side?
Trevor Howard: Yes. Thanks for the question Spiro. I'd say, we are seeing some benefits on the volume side but really where we see it is margin expansion, which is fantastic, right? Because that's 100% incremental to the bottom line without taking up what is really a precious asset in the basin right now which is any remaining spare processing capacity. So we're seeing the benefits right now that with system-wide front-end aiming treating fully complete. We have an immediate step-up in margin. And then the commercial team is working right now to continue to sell out the remaining space both for sweet and sour gas treating and processing.
Jamie Welch: And we are seeing, as we mentioned in the February call, we've got some customers that actually have really elevated levels of CO2. And we're obviously, now fully accommodating that. And obviously, we have a stair step or a tiering structure pretty much across the board in the context of how we get treating fees. We've got H2S. We have CO2. We even have – we are seeing some nitrogen coming out, right? And what's interesting about our business is because of the size of the system and the sources from where we're pulling the gas, we have a lot of sweet gas, which is – has virtually no impurities in it and we have gas which has higher levels of impurities. And obviously, the blend of the two makes pipelines backed gas that it meets all tariffs. And it's obviously, massively beneficial to the customers and the producers. And we get paid for it as Trevor pointed out. So it's a win-win we think across the board.
Spiro Dounis: Got it. That's great. I will leave it there and look forward to seeing you all next week.
Jamie Welch: We'll see you Tuesday.
Operator: Thank you. The next question comes from the line of Tristan Richardson with Scotiabank. Your line is now open.
Tristan Richardson: Hi good morning, guys. Jamie, maybe could you talk a little bit about the NGL side of downstream. I mean we're closing in on a couple of third-party pipe expansions. Can you talk about how you see your NGL solutions trending once we see these expansions online? And then particularly in the context of thinking about Kinetik barrels that may come up for recontracting.
Jamie Welch: Tristan, good morning. Thank you for the question. So as far – I think we've been pretty clear as far as on the NGL side. We have three different commitments. We have commitment to Lone Star, with respect to some of the legacy plants. We inherited one with Cap Rock. There was obviously some in relation to what is Eagle Core Midstream Ventures, which is primarily is East Toyota (NYSE:TM) and one of the Pecos Bends. And then we have the Enterprise – the Enterprise commitment that we have inherited in large part because Enterprise was the only connection to Diamond Cryo. And as you all know Apache was one of the foundation shippers on the Shin Oak pipeline. So we have contracts with Lone Star come up in 2026. There are two of them and they will roll off. And then we obviously have our dedication with – or commitment with Targa on Grand Prix and that will continue out through beginning of early 2030s. And then we obviously have what we have at Diamond Cryo. Where we – if you go back to first principles and think about the merger, where you saw the open space in the entire the system complex from a processing standpoint was Diamond. Our job is to be to fill up Diamond Cryo. It is the best recoveries. We expanded it from 600 to 720, there the only other tenant that sits at Diamond Cryo is Apache. And so we've been utilizing that space. And therefore, we have a very I would say a mutually beneficial, very flexible arrangement with EPD on Shin Oak that really gives us flexibility. It's very beneficial economically. And we obviously own, one-third of Shin Oak as well. So, we think literally all the stars are aligned to make a good outcome. As it relates to future barrels, we'll decide that as it relates certainly to further expansions we've got flexibility with respect to Caprock flexibility as -- when that contract obviously rolls off. So we've got plenty of flexibility that we can think about sort of what to do next. It's something that Anne Psencik and the team spent a lot of time focused on, as we think about the future. We see all these announcements. We're trying to work out whether in fact obviously, the basin has been pretty tight right now. In fact, they've been jamming like -- I'm looking at any every barrel they can, because when you're at negative $3, it's not a good day and you want to get as much recovery of ethane in the stream, as you possibly can. And we're still trying to work out, whether in fact what the fundamentals will look like we're going to see a lot of pricing pressure going forward, so more power to the customer than necessarily to the owner of the infrastructure. Time will tell, how this is all going to play out. We're not the only ones with obviously, these mid 2025 2026 time frames. There's what 1.5 million barrels, a day of incremental expansions that are coming on. So it's not insignificant right by her and Daytona and other things. So, I do think that look, it's going to be a really interesting segment to watch. As I said, we're not the only ones. There's lots of other dedications that will roll off. As you see, I would say, sort of the NGL 1.0 contracts roll off in the 2025 2026 '27 time frame and see exactly, what happens.
Q – Tristan Richardson: Appreciate it as always Jamie. And then maybe more near term just thinking you talked about lead counting project volumes coming in April and May above maintenance done in time to see March turn-in-lines increasing. I mean is there a particular cadence, we should think about for turn-in-lines for the rest of the year, as you talk about the low double-digit expectations for 2024?
Jamie Welch: Trevor, what do you think?
Trevor Howard: Yes. Thanks for the question, Tristan. It's -- look it's quite consistent from what we have seen over the past few years especially, coming out of winter storm Uri, where most of our TIL development not 70% to 80% of our TIL development really takes place. And late in the first quarter, second quarter and then by September generally, we see most of our TILs in the year. So we should expect a similar volume ramp that we saw last year, where producers are bringing wells on right now. We're going to have the return of Alpine High curtailments in the second quarter, once the maintenance issues on the egress pipes clear up and in-basin pricing recovers. And come mid-summer, we should see, higher levels of volume and that should continue to tick up throughout the balance of the year, until our producers are completed with the TIL programs for fiscal year 2024.
Q – Tristan Richardson: Appreciate it. Thanks, gentlemen.
Trevor Howard: Thanks Tristan.
Operator: Thank you. The next question comes from the line of Keith Stanley with Wolfe Research. Your line is now open.
Q – Keith Stanley: Hi, good morning. First, I just wanted to follow up on the Alpine High curtailment. So you're expecting them to come back once the maintenance ends, I guess later this month? And how good do you feel about them doing that and keeping volumes on? And then just, how meaningful is Alpine High to overall Kinetik G&P volumes at this point?
Jamie Welch: Keith, good morning. So, as far as we did see, actually we've already seen a return of volumes. I think you've got to be mindful shutting in PDP for extended periods of time, you do risk the potential for a reservoir damage. So you got to be conscious and cognizant of not doing something, that may in fact, have longer-lasting ramifications. And I think look, we're seeing the return of those volumes and they can be they can be very much increased almost immediately in the context of just the way they've got an auto choke system, that operates pretty much across the board. As it relates to the overall the impact as we think about the return and we think about what's going to happen and how important it is for us. What you should see is, yes, it pro forma Callon (NYSE:CPE) you've got probably 28% of your volumes, I think sit with Apache between DXL, Callon and obviously Alpine High and only Alpine High is impacted from a gas -- because of gas prices. And despite that, our business has basically done incredibly well as far as profit is concerned. And as I said that strength has continued into April and we're seeing it in the context of even in the first week of May. So I think as we think about our business, it's nice to have and I still I think look whether -- when it comes back and if it fully comes back in the next two weeks, three weeks we were about to come out, I believe in the next two weeks out of the pipeline maintenance with the balance of GTX and PHP and everything should be then done. And then we're just obviously waiting for [indiscernible] and the question is when that comes online.
Trevor Howard: Keith I'd also jump in with the -- it's a small amount of equity space that we do have on PHP. It actually acts as a nice natural hedge where we do see in-basin gas prices that warrant curtailments, it's actually a net positive for the company given the open space. And so it's actually been a -- it's been a nice hedge here in March and in April while we're getting through this maintenance and shoulder season in the basin.
Keith Stanley: That's helpful. Thanks. Second question just, how are you thinking at this point about growth opportunities into next year? It seems like you have some more opportunities. You have a new plant potentially of maybe a phase two in New Mexico, GCX expansion. Should we think of investments and growth for the company is accelerating into next year as you look at the opportunity set, or just any thoughts around that?
Jamie Welch: Look I think Keith, as far as growth opportunities we're always looking at growth opportunities across the board. We've been very successful on the organic side, and we'll continue to look for those opportunities. We think that they are highly accretive to the value complex that is Kinetik. And as we think about 2025 and those and the opportunities out there, look you've identified some that obviously we have talked about already, and we'll continue to see what we are able to secure and see how that obviously what that means as far as the overall trajectory of EBITDA. And obviously we are very mindful of making sure that we are thinking about the capital discipline on.
Keith Stanley: Thank you.
Operator: Thank you. The next question comes from the line of John Mackay with Goldman Sachs. Your line is now open.
John Mackay: Hey, good morning. Thanks for the time. Figured it might ask on the Infinium agreement. I think the projects used to come online in 2026. Just interested if you guys could frame up what the size of the opportunity could be for you guys if there's more of this that you can do kind of what to watch next.
Jamie Welch: John, good morning. Thank you. We've got Tyler Milam who runs our new Energy Ventures business and has been the architect with the on the Infinium deal. So Tyler do you want to take that away?
Tyler Milam: Sure. Thanks Jamie. Hey, John. Yeah, so just to let you know this is just one of our cryogenic complexes that we have contracted with Project Road Runner via Infinium. And so to qualify, I guess, versus even quantify, what we are have still on the slate is we're still evaluating our other three complexes. And so I think there's definitely some room to run and we continue to daily see the best way to not only reduce our greenhouse gas emissions as our corporate objective, but also turning that into a revenue stream at no capital to our organization.
Jamie Welch: Yeah John it's interesting that the whole concept behind Infinium was predicated on the conversion of what was a traditional suite system, which was the old BCP, EagleClaw, Caprock to a system that could take sour gas. We are seeing greater levels of sour gas. We, therefore, see much more CO2 tonnage created and Tyler working with Infinium said with all the CO2 tonnage, this is a stream that we can give you by pipe and they can then obviously using their process they can convert it into eFuels. No capital, no OpEx for us. It's fully paid for. We got a really nice return. So, we're getting paid on the treating side by our customers. And with the byproduct that we're creating, which is incremental direct CO2, we are getting paid for the CO2 stream.
John Mackay: That's great. That makes sense. And you kind of touched on my next question. You touched on it a little bit earlier on the call too. But maybe you can kind of just frame up the size of this sour gas opportunity overall. I mean it feels pretty large. It feels like there's some producers pushing in there and maybe some of your midstream peers aren't necessarily keeping up. So, just wondering if you could kind of frame up that broader opportunity on both gathering processing treating side et cetera?
Jamie Welch: We'll let Mr. Kindrick take the floor.
Kris Kindrick: Hey John this is Kris. Look it's a great question. And as we've alluded to earlier as we continue to go north in the basin and as our customers drill shallower formations we see a higher amount of CO2 and some higher amount of nitrogen. So one of our goals has been once our trading is installed is to add additional fees and treat that gas. One other point I'd like to make too is we have some incremental treating capacities down at Diamond. So, Matt and the operations team is looking at ways to optimize our system to be able to add more CO2 to the system, so we can extract fees there. So, I think the opportunity is great. I think the oil cuts are great from these benches. So, the customers want a solution to be able to treat not only the CO2, but handle the nitrogen. So, we try to get in front of that and are currently talking to a number of producers about a solution there.
Jamie Welch: And it's also true I think Kris that on the shallower formations to Avalon and Bone Spring, we see less water -- produced water.
Kris Kindrick: That's right.
Jamie Welch: So, I do think there is an element on this which is the produced water and the gathering and disposal of that is an element, significant costs from the producer side. Not having to deal with as much water is obviously a huge net benefit for them. So, I do think that goes into the overall equation of the decision-making process for our producers and where they're focusing. And so therefore our ability to take wider ranges of CO2 high levels of H2S and even nitrogen and blamed it and treated is a massive competitive advantage for us in the context of what our customers are now focusing on.
John Mackay: Super. Thanks for that.
Operator: Thank you. The next question comes from the line of Neel Mitra with Bank of America. Your line is now open.
Neel Mitra: Hi. Thanks for taking my question. Jamie just wanted to kind of touch on the cadence of rich gas growth going through April and May. It seems like that's been strong, but I was wondering with the gas takeaway situation right now, if there's been any producer issues with getting the gas out of the basin? I know there's been a lot of ethane recovery and maybe moving to markets that are less than desirable. But just trying to understand the flow trends there?
Jamie Welch: Yes. And Neel thank you. Good morning. I think as we mentioned both in our prepared remarks and maybe an answer to another question, the oil-directed drilling cadence has not changed at all. If anything, we've seen it really continue to pick up which is somewhat typical. Second quarter through third quarter is literally I want to say prime time as far as turn-in-line activity is concerned that's when it all happens because you sort of -- you're out of the pockets of the year where you have the potential for some challenging climate and weather. But I think what's interesting for us -- and again this comes back to I would say almost the switchboard that Kindred's got as far as the number of customers calling everybody knows that we've got space on PHP. They are literally banging down his door saying can I, can I, will we, will you, take my gas, I have gas here, I need help. And look we are very customer-focused and we're very customer-centric. And our viewpoint is we've got space that we can basically fit in packages of gas. We can give people a hand. We want to see more activity. And so we look at our role as being a partner with our customers in the context of helping them achieve their ultimate goals. Kris, would you add anything?
Kris Kindrick: No Jamie, I think that's right. I think Jamie alluded to this earlier Neel that, having the PHP space is one big differentiator for us and it has allowed us to provide egress takeaway not see the curtailments, and unlike maybe some of our peers that don't have access to the Gulf Coast. So, it's been a great tool to have, and we're going to continue to use it to help grow our business.
Neel Mitra: Got it. And then, second question. Now the Apache exited the position and you have a bigger public float, you're still a capital constraint in the sense that you want to get to investment grade, and it looks like you're on the path there and you expanded into other parts of the Permian and the New Mexico area. How are you looking at M&A now in terms of maybe like a bolt-on gathering system, given that you've been able to integrate your upstream and your downstream position like with PHP and other downstream solutions for those customers? And how would that work in terms of maintaining your leverage ratios and also increasing the public float. Is that something that you are considering or have on as an option?
Jamie Welch: Neel, well, I think we have said consistently that we look at lots of different opportunities both organic and inorganic. And we have a very high bar as it relates to all opportunities where we look through the lens of short-cycle value accretion. We look at overall value accretion to the complex. We look at leverage and ratings impact. So we take everything into consideration. And look, when we find something that checks all the boxes, that's -- look, that's what will happen as far as the opportunities that are out there. And I think what we've continued to do is just evaluate. But now, we've been very happy with our organic growth strategy. And we very much believe that we've got that now with the completion of the capital program for last year, we're very focused on the execution side and that's what you've seen obviously in the first quarter and that's how we forecasted for the balance of the year.
Neel Mitra: Perfect. Thank you.
Operator: Thank you. This will conclude the question-and-answer session for today's call. I would now like to hand the call back over to the team for any final remarks.
Jamie Welch: Thank you very much, everybody, for your time this morning. We look forward to seeing you. I know it's a busy time of year, lots of conferences and stuff, so we look forward to seeing you in the next 30 days. Thank you. Bye-bye.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.