Executive Summary / Key Takeaways

• Kinetik Holdings Inc. (NYSE:KNTK) is a Permian pure-play midstream company executing a multi-year organic growth strategy, targeting $2 billion in EBITDA by 2030, driven by strategic asset expansion and cost optimization.
• Recent operational achievements include the Kings Landing complex reaching full commercial service in September 2025 and the Final Investment Decision (FID) on an acid gas injection project, significantly enhancing sour gas treating capabilities in the Northern Delaware Basin.
• Despite recent commodity price volatility and operational headwinds, Kinetik reaffirmed its 2025 Adjusted EBITDA guidance range of $965 million to $1.005 billion, supported by a highly fee-based revenue model (83% fixed-fee).
• The company is committed to robust capital returns, evidenced by a $500 million share repurchase program and a 4% dividend increase, reflecting management's strong conviction in Kinetik's intrinsic value.
• Kinetik differentiates itself through regional expertise, integrated multi-stream services, and a focus on innovative solutions like behind-the-meter power generation and advanced sour gas treating, positioning it for continued market share gains in the growing Permian and U.S. Gulf Coast demand landscape.

Kinetik's Permian Foundation and Strategic Vision

Kinetik Holdings Inc. (NYSE:KNTK) operates as a critical midstream energy provider in the Texas Delaware Basin, offering a comprehensive suite of services including gathering, transportation, compression, processing, and treating for natural gas, natural gas liquids (NGLs), crude oil, and water. The company's overarching strategy is to solidify its position as a market leader in the Northern Delaware, leveraging the Permian's robust supply-push dynamics and the burgeoning demand from the U.S. Gulf Coast. Kinetik has set an ambitious internal objective of achieving $2 billion in EBITDA by 2030, a testament to its confidence in its strategic asset footprint and operational capabilities.

Kinetik's journey has been marked by strategic evolution since its founding in 2017 and a pivotal merger in February 2022. The year 2024 was particularly transformative, characterized by significant mergers and acquisitions (M&A) and organic growth initiatives that expanded its footprint across the Delaware Basin. Key moves included the acquisition of Durango Permian, LLC, the increased stake in EPIC Crude, and the announcement of the ECCC pipeline. This momentum continued into 2025 with the completion of the Barilla Draw acquisition, the commissioning of the Kings Landing complex, and the FID on a crucial acid gas injection project. These developments underscore Kinetik's commitment to strategic expansion and operational excellence.

The broader industry landscape provides a compelling backdrop for Kinetik's strategy. Permian supply and U.S. Gulf Coast demand are projected to grow at mid-single-digit compound annual rates through the end of the decade. This growth necessitates substantial infrastructure development, with approximately 10 billion cubic feet per day (Bcf/d) of additional processing capacity required in the Permian by 2030. Furthermore, U.S. LNG exports are expected to more than double by 2030, driving roughly 75% of the nearly 18 Bcf/d natural gas demand growth in the Gulf Coast region. Kinetik, as a Permian pure-play, is strategically positioned at the epicenter of this long-term demand-pull dynamic.

Technological Edge and Operational Innovation

Kinetik's core technological differentiation lies in its advanced gas processing, compression, and sour gas treating capabilities, particularly vital in the challenging Northern Delaware Basin. These specialized services provide tangible benefits that enhance operational efficiency and competitive standing.

A critical development is the Final Investment Decision (FID) on the Acid Gas Injection (AGI) project at Kings Landing, expected to be in service by late 2026. This project is a significant differentiator, as it will enable Kinetik to handle high levels of H2S and CO2 gas at all its Delaware North processing complexes, "meaningfully increas our total asset gas capacity". This directly addresses the "even more sour" nature of gas from formations like the First and Second Bone in the Northern Delaware, which require AGI for effective management. The AGI project is projected to "triple the size of our tag capacity, treated acid gas," positioning Kinetik among the largest providers of this crucial capability in New Mexico.

In terms of compression, Kinetik has significantly enhanced its capabilities by redeploying inherited units and investing in new, owned compression. This strategy is proving "very cost effective, highly cost effective versus other options," offering "better run times or better uptimes" compared to third-party leases, which have seen rates increase beyond inflation. This focus on owned assets improves operational reliability and cost control.

Kinetik is also pursuing capital-light solutions, exemplified by its agreement with Competitive Power Ventures (CPV) for the Basin Ranch Energy Center. This connection to Kinetik's residue gas pipeline network will be made at "no capital cost to Kinetik," creating a highly efficient and accretive pipeline outlet for residue gas. This arrangement serves as a "blueprint for future collaborations," showcasing how Kinetik can leverage its existing infrastructure and relationships to create scalable, cost-effective solutions.

Looking ahead, Kinetik is actively exploring a behind-the-meter greenfield, large-scale gas-fired power generation facility in Reeves County, Texas, potentially with joint venture partners. The stated goal is to reduce ongoing electricity costs, a rising operating expense, and capitalize on Waha natural gas price volatility. This project is aimed at "optimization of our existing operating expense" and could be replicated in New Mexico if successful. Furthermore, the company is "evaluating the use of AI tools and machine learning" to improve forecasting assumptions and mitigate risks. These technological and operational innovations collectively strengthen Kinetik's competitive moat by providing specialized services for complex gas streams, reducing controllable costs, and creating capital-light growth avenues, directly contributing to higher margins, improved operational reliability, and supporting the long-term EBITDA growth trajectory.

Competitive Landscape and Strategic Positioning

Kinetik operates in a dynamic midstream environment, competing with established players such as Enterprise Products Partners L.P. (EPD), Kinder Morgan, Inc. (KMI), The Williams Companies, Inc. (WMB), and ONEOK, Inc. (OKE). Kinetik's competitive strategy is rooted in its deep regional expertise and integrated service offerings within the Delaware Basin. This focused approach allows for localized operational agility and stronger customer relationships, often leading to faster project execution and tailored solutions. While larger competitors like EPD and KMI benefit from vast, diversified asset bases and national scale, which can provide more consistent cash flow, Kinetik's targeted strategy enables it to achieve "outsized market share performance relative to our competition" in its core areas.

Kinetik's aggressive expansion into sour gas treating, particularly with the Kings Landing AGI project, provides a significant competitive advantage. While other major players like MPLX (MPLX) (through its Northland acquisition), Enterprise (via Pinion), and Targa (TRGP) (with Red Hills) are active in this space, Kinetik's planned "tripl of our tag capacity" will establish it as a leading provider in New Mexico, where sour gas development is increasingly prevalent. This specialized capability is a high barrier to entry, as "it still takes a long time to get into this business".

The company further differentiates itself through its market access and pricing strategies. Kinetik offers Gulf Coast pricing to a substantial portion of its customers, a valuable proposition in the volatile Permian market. This, combined with securing additional firm transport capacity to the U.S. Gulf Coast commencing in 2028 and a 5-year European LNG pricing agreement with INEOS starting in early 2027, enhances market access and diversifies pricing exposure for its producers, directly addressing critical takeaway constraints at the Waha Hub.

Kinetik's customer base includes both private and public producers. Private producers, while more price-sensitive, have historically been aggressive in development during crude price upturns. Public producers are increasingly pushing further north in the Delaware Basin, aligning perfectly with Kinetik's expanded footprint and strategic infrastructure development. The company actively "sprint to keep up with our customers and their desires" for infrastructure, particularly for sour gas development, fostering strong partnerships.

Financially, Kinetik's EBITDA Margin (TTM) of 44.59% demonstrates strong operational efficiency within the midstream sector. While direct P/E and P/B comparisons with all peers are complex due to varying business models and scale, Kinetik's P/E of 34.88 and P/S of 1.27 reflect its growth trajectory. The company's 9.04% dividend yield is notably attractive to investors.

Financial Performance and Operational Momentum

Kinetik's recent financial performance reflects a period of strategic growth and adaptation amidst a challenging market. For the nine months ended September 30, 2025, total operating revenues reached $1.33 billion, marking a significant 22% increase from $1.10 billion in the corresponding period of 2024. This robust growth was primarily fueled by higher service and product revenue stemming from the Durango and Barilla Draw acquisitions. Product revenue alone surged by 25% to $981.70 million, driven by increased NGL and condensate volumes sold and favorable natural gas residue prices.

Despite this top-line expansion, Adjusted EBITDA for the nine months ended September 30, 2025, saw a modest increase of $1.90 million to $735.60 million. This was largely due to significant increases in operating costs and expenses. Specifically, Q3 2025 Adjusted EBITDA decreased by 9% year-over-year to $242.60 million, a decline attributed to lower commodity prices, reduced marketing contributions, higher cost of goods sold, and increased operating expenses.

Operating costs have been a notable factor. Cost of sales (excluding depreciation and amortization) for the nine months ended September 30, 2025, rose by 38% to $615.50 million. This increase was driven by higher volumes, natural gas residue prices, and a $5.70 million fair value adjustment for the Kings Landing earn-out contingent liability. Operating expenses also climbed by 45% to $207.80 million, with significant contributions from the newly integrated Durango and Barilla Draw operations, alongside rising utility costs. Depreciation and amortization expenses increased by 19% to $281.80 million, reflecting the substantial assets placed in service.

Kinetik's cash flow and liquidity remain solid. Net cash provided by operating activities increased slightly by $0.70 million for the nine months ended September 30, 2025, reaching $494.03 million. However, net cash used in investing activities increased by $497 million to $562.93 million, primarily due to the absence of proceeds from the GCX sale in 2024 (which had offset capital expenditures) and higher capital spending on the Kings Landing Project.

The company's liquidity position is robust, with $71.40 million available under its Amended AR Facility and $804.40 million under its Revolving Credit Facility as of September 30, 2025. Kinetik's leverage ratio stood at 3.6x at the end of Q2 2025, demonstrating a disciplined approach to debt management.

Outlook, Guidance, and Strategic Initiatives

Kinetik has revised its full-year 2025 Adjusted EBITDA guidance range to $965 million to $1.005 billion. This adjustment reflects several factors, including a $20 million impact from the slower-than-anticipated ramp-up of Kings Landing, a nearly $30 million negative impact from lower commodity prices (with Waha natural gas prices declining over 50% since February assumptions), an estimated $20 million impact from curtailments (including oil-focused producers), and the absence of full Q4 2025 EBITDA contribution from EPIC Crude following its October 2025 divestiture. The 2025 capital expenditure guidance was tightened to $485 million to $515 million, incorporating the FID of the Kings Landing acid gas injection project.

Despite these near-term adjustments, Kinetik maintains a long-term outlook for double-digit Adjusted EBITDA growth, targeting $2 billion by 2030. This growth is underpinned by the full operation of Kings Landing, the ECCC pipeline coming online for 8-9 months in 2026, NGL contract expirations in 2026, and ongoing cost reductions.

Key strategic projects are advancing. The Kings Landing complex is now fully operational and consistently flowing over 100 MMcf/d. The AGI project will convert Kings Landing 1 into a sour gas plant, optimizing the system for increasingly complex gas streams. The ECCC pipeline, expected in-service in Q2 2026, is crucial for moving sweet-rich gas from New Mexico to Texas, thereby freeing up processing capacity in New Mexico for higher-margin sour gas. Furthermore, the 5-year European LNG pricing agreement with INEOS, commencing in early 2027, provides diversified international pricing exposure for customers. Additional firm transport capacity to the U.S. Gulf Coast, starting in 2028, will further alleviate Waha constraints, supported by over 5 Bcf/d of new industry takeaway capacity expected online in 2026-2027.

Kinetik's commitment to shareholder returns is evident through its $500 million share repurchase program, with $172.60 million already executed as of September 30, 2025, and a 4% dividend increase. Management views the stock as "incredibly compelling" at current valuations, reinforcing their belief in the company's intrinsic value.

Risks and Mitigation

Kinetik faces several pertinent risks, primarily stemming from commodity price volatility and operational challenges. The company's product revenue remains exposed to fluctuations in natural gas, NGL, and crude oil prices. While 83% of its 2025 gross profit is derived from fixed-fee agreements, Kinetik actively employs commodity hedges and NGL arbitrage arrangements to mitigate this direct exposure.

Negative Waha natural gas prices have historically led to significant curtailments, including oil-focused production, a dynamic not seen since 2020. Kinetik is proactively addressing this by securing incremental Gulf Coast transport capacity and exploring in-basin power generation solutions to reduce its reliance on volatile Waha pricing.

Management has candidly acknowledged past "stumble" in forecasting and project execution, particularly concerning the Kings Landing complex. In response, the company is "forensically analyzing and improving" its forecasting assumptions, including the evaluation of AI tools and machine learning, and is aggressively reducing controllable costs across all segments. This "fundamental reset" aims to enhance operational predictability and financial performance.

Rising utility costs and interest rate exposure on floating-rate debt also pose risks; a hypothetical 1% change in interest rates could impact annual interest expense by approximately $21.10 million. The proposed behind-the-meter power project and existing interest rate swaps are key mitigation strategies. Additionally, tariffs on steel and other materials could increase construction costs, impacting project returns. Kinetik has secured much of its pipe needs but acknowledges a $15-20 million impact from these tariffs.

Conclusion

Kinetik Holdings Inc. stands as a compelling investment opportunity within the Permian Basin's midstream sector, underpinned by a robust organic growth strategy and a clear path to enhanced shareholder value. Despite recent headwinds from commodity price volatility and operational adjustments, the company's foundational strengths in regional expertise, integrated multi-stream services, and a strategic asset footprint position it for sustained success. Kinetik's commitment to technological leadership, particularly in sour gas treating with the Kings Landing AGI project and innovative cost-reduction initiatives like behind-the-meter power generation, fortifies its competitive moat against larger, more diversified peers.

The company's disciplined capital allocation, balancing strategic growth projects with significant shareholder returns through dividends and an aggressive share repurchase program, reflects management's strong conviction in Kinetik's intrinsic value. With key projects like Kings Landing and the ECCC pipeline coming online, coupled with structural advantages from NGL contract re-contracting and cost optimization, Kinetik is well-positioned to achieve its ambitious $2 billion EBITDA target by 2030. Investors should recognize Kinetik's strategic responses to market dynamics and its technological advancements as critical drivers for long-term growth and value creation in the evolving energy landscape.