Kinetik Holdings Inc. (KNTK) Earnings & Analysis

Latest quarter

Kinetik reported third-quarter revenue of $569.4 million, above the $515.5 million consensus, while adjusted earnings per share of $0.26 missed the $0.40 consensus. Revenue rose from $464.0 million a year earlier, and diluted earnings per share rose from $0.03 to $0.26.

The company’s filing attributed the revenue increase primarily to higher natural gas liquids and condensate sales volumes and higher commodity prices. Service revenue rose to $116.6 million from $103.3 million, as gathered and processed gas volumes increased. Kinetik said cost of sales also rose, partly reflecting higher volumes and commodity prices.

The filing shows Midstream Logistics adjusted EBITDA increased to $203.6 million from $151.4 million. Pipeline Transportation adjusted EBITDA fell to $78.5 million from $95.5 million, mainly because of lower earnings associated with the prior-year divestiture of Kinetik’s EPIC interest.

Kinetik’s gross margin rose to 34.7% from 32.9%, while operating margin increased to 11.2% from 4.26%. Free cash flow was $129.5 million, compared with $16.3 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Jamie Welch said producer activity was extending into formations with higher gas-to-oil ratios, increasing demand for gathering, processing and treating capacity. He said price-related curtailments had diminished and local Waha pipeline constraints had begun to ease.

CFO Trevor Howard said Kinetik processed 1.94 billion cubic feet per day of gas in the third quarter, with an estimated 25 million cubic feet per day shut in on average because of Waha prices. He said higher processed volumes and commodity margins helped sequential results, while Gulf Coast marketing margin declined as Waha gas prices moved into positive territory. Howard added that the business remained predominantly fee-based and was well hedged through year-end.

Welch said new and amended gathering and processing agreements since August added more than 30,000 gross dedicated acres in Texas and New Mexico, with first flow expected in the second and third quarters of 2027. He expects the vast majority of next year’s growth to come from higher-margin, low-pressure developments, which use services including compression and treating. Expiring legacy NGL contracts should also produce greater 2027 gross margin growth than Kinetik had previously indicated, he said.

On investment, Welch said Kinetik increased planned Kings Landing II capacity from 300 million to 380 million cubic feet per day without raising its approximately $260 million expected cost; the project remains on track for mid-2028. He said the ECCC expansion would help move volumes south until the plant enters service, and that Kinetik had begun procuring equipment for a subsequent processing facility.

Asked about processing growth, Welch said the timing and location of the next plant depend on commercial opportunities and the gas sources it would serve. On acquisitions, he said Kinetik was focusing on organic projects given the valuations assigned to existing assets. Howard said repurchases could return as an option but would not necessarily occur at a steady rate.

Guidance

Kinetik now expects 2026 adjusted EBITDA at the high end of its $1.04 billion to $1.1 billion guidance range. Howard said commodity prices remained above the assumptions used in August.

For 2026 capital expenditure, including maintenance, Howard expects spending approximately 5% below the previous guidance of approximately $560 million. He cited project execution, operating efficiencies and the timing of payments now expected in 2027.

Welch said expiring legacy NGL contracts would drive greater 2027 gross margin growth than Kinetik had previously indicated.