Kinetik Holdings announces strategic agreements to strengthen Permian Basin operations

Kinetik Holdings Inc. (NYSE: KNTK) has entered into multiple strategic transactions aimed at consolidating its footprint in the Permian Basin, particularly in Eddy and Lea Counties, New Mexico. These moves are set to enhance the company’s processing capacity and broaden its operational reach, underscoring Kinetik’s commitment to strengthening its position as a leading midstream service provider in the region.

The centerpiece of these initiatives is the acquisition of Durango Permian LLC for a total consideration of $765 million, paid through cash and equity, with an additional $75 million contingent upon the capital costs associated with the Kings Landing complex, currently under construction. This acquisition is expected to double Kinetik’s pipeline mileage, add over 60 new customers, and increase its processing capacity by 420 million cubic feet per day.

In a related development, Kinetik has divested its 16% equity interest in the Gulf Coast Express pipeline to an affiliate of ArcLight Capital Partners LLC for $540 million. This sale is part of a broader strategy to reallocate resources more efficiently across Kinetik’s portfolio, focusing on assets with higher strategic value.

Moreover, Kinetik has secured a new 15-year agreement for both low-pressure and high-pressure gas gathering and processing services in Eddy County, representing a $200 million capital commitment through 2026. This new contract underscores Kinetik’s role as a critical player in supporting the energy needs and infrastructure development within one of the most dynamic areas of the Delaware Basin.

The Durango Acquisition involves an upfront payment of $315 million in cash and the issuance of approximately 3.8 million shares of Kinetik Class C common stock at closing. An additional 7.7 million shares are scheduled for issuance by July 2025. The deal is structured to achieve Kinetik’s leverage target of 3.5x and is expected to be over 10% accretive to free cash flow per share starting in the second half of 2025.

The sale of the Gulf Coast Express equity interest includes $510 million in cash upfront and an additional $30 million in deferred cash, contingent on a final investment decision related to a capacity expansion project. This transaction is noteworthy as it does not require Hart-Scott-Rodino Antitrust Improvements Act approval and is set to close within the coming weeks.

These transactions collectively mark a significant milestone for Kinetik, as they not only enhance the company’s operational capabilities but also solidify its financial foundation. The strategic divestiture of non-core assets and the reinvestment into higher yield projects are expected to deliver substantial value to shareholders, particularly as the Kings Landing project comes online.

The deliberate focus on optimizing and expanding operations in the Northern Delaware Basin is likely to position Kinetik advantageously within the competitive landscape, offering both resilience and potential for growth amidst fluctuating market conditions.