Transcript: Kinetik Holdings Q2 2026 Earnings Conference Call

Kinetik Holdings (NYSE: KNTK ) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

View the webcast at Summary Kinetik Holdings reported the strongest financial results in its history, driven by exceptional operational execution and favorable commodity prices, leading to an upward revision of its full-year 2026 adjusted EBITDA guidance by $70 million at the midpoint. Significant commercial momentum was highlighted, with increased activity across the Permian Basin and strategic investments such as the expansion of processing capacity at King's Landing 2, which will be completed ahead of schedule in mid-2028.

The company executed several commercial agreements to enhance market access, including securing additional firm residue gas access to Gulf Coast markets starting in 2027, supporting its integrated platform strategy. Operational highlights included strong system-wide performance and optimization efforts, with the ECCC pipeline now in service and the acid gas injection and sour conversion project at King's Landing progressing on schedule.

Kinetik Holdings reported Q2 adjusted EBITDA of $281 million, with a year-over-year increase of 35% in Midstream Logistics EBITDA, and maintained a comfortable leverage range while increasing capital expenditures guidance to approximately $560 million. Management expressed confidence in the company's long-term growth outlook, supported by strategic reinvestments, favorable market conditions, and continued acceleration of customer activity. Full Transcript OPERATOR Hello everyone. Thank you for joining us and welcome to the Kinetik Holdings second quarter 2026 results.

After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Alex Durkee, Head of Investor Relations.

Please go ahead. Alex Durkee, Director of Investor Relations Good morning and welcome to Kinetik Holdings' second quarter 2026 earnings conference call. Our speakers today are Jamie Welch, President and Chief Executive Officer, and Trevor Howard, Senior Vice President and Chief Financial Officer. As a reminder, today's discussion will include forward-looking statements.

Please refer to our SEC filings for a discussion of the risks that could cause actual results to differ materially. We will also reference certain non-GAAP financial measures. Reconciliations can be found in our earnings materials and on our... With that, I will turn the call over to Jamie.

Jamie Welch, President and CEO Thank you, Alex. Good morning, everyone. Kinetik Holdings delivered the strongest financial results in our history. Our performance was driven by exceptional operational execution, strong system performance, and a supportive commodity price environment.

I'm proud of our team whose focus, discipline, and commitment to excellence continue to drive these results. Accordingly, we are updating our full-year 2026 adjusted EBITDA guidance upwards by $70 million at the midpoint, or 7%, reflecting the strong first half performance and confidence in the outlook for the remainder of the year. Trevor will discuss the key drivers behind our guidance update in more detail shortly. The confidence embedded in our revised outlook is reinforced by what we're seeing across our footprint today.

Customer development activity continues to build. Commercial momentum is the strongest it has been since our inception in 2022, and our team is executing at a very high level. Combined with improved market conditions, these trends position us well for a strong finish to 2026 and tremendous follow-through into 2027. We are seeing broad-based momentum across our integrated gathering, processing, and downstream platform.

Conditions across the Permian continue to improve as Waha pricing has recovered from the extreme dislocations experienced for the first five-plus months of this year, driving a step change in producer curtailments since mid-June. At the same time, the more constructive crude oil environment continues to support attractive development economics, and we're seeing a continuation of customer activity pull-forward across our footprint with some of that benefit to materialize in the second half of 2026. Reflecting these trends, Permian rig count has increased 8% since February with over 60% of that growth coming from the Delaware Basin.

Against this backdrop of accelerating activity and growing producer demand, we continue to proactively position our system for the next phase of development. In May, we reached FID on King's Landing 2. The message from customers has been crystal clear: incremental sour gas treating and processing capacity is needed to support their development plans. As such, we elected to increase the processing capacity of KL2 by 50% to 300 million cubic feet per day.

Since announcing the expansion, we have already purchased cryoprocessing, amine, and residue compression equipment, and the project is now expected to be completed in mid-2028, earlier than previously communicated. 7 billion cubic feet per day. Importantly, we're already looking beyond KL2. This week, Kinetik Holdings' Board authorized procurement of long-lead equipment for the next stage of processing capacity expansion, proactively aligning our supply chain with accelerating customer demand.

This positions us to manage equipment lead times, preserve development flexibility, and efficiently support the next phase of growth on our system. We have also sanctioned the commencement of work on expanding the capacity of ECCC. Our willingness to materially reinvest in our business reflects not only the visibility we have into customer development plans, but also our conviction in the long-term growth outlook for the Permian Basin. S.

natural gas demand growth. With LNG exports, power generation, and data center development driving incremental consumption, the question has increasingly become where the gas will come from and how we will reach end market. The Permian remains uniquely positioned to answer that call with more than 11 billion cubic feet per day of new basin egress capacity that has been sanctioned through 2029. Against this backdrop, Kinetik Holdings' integrated business is becoming increasingly valuable to customers seeking both reliable flow assurance and premium-priced market access.

During the quarter, we executed several commercial agreements that further strengthened the value proposition of our Permian-to-Gulf Coast platform while expanding market access and optionality for both existing and future customers. First, we secured incremental firm residue gas access to Gulf Coast markets beginning in 2027, providing customers with enhanced flow assurance and premium netback pricing. We also signed new residue gas and NGL transportation agreements supporting our Delaware North processing complexes, increasing operational flexibility and securing critical downstream capacity as activity and volumes continue to grow across our New Mexico business.

These agreements are excellent examples of our broader strategy to reduce our customers' exposure to in-basin pricing volatility by expanding access to premium end markets. More importantly, they reflect our differentiated approach to commercializing the value of Kinetik Holdings' integrated platform. Rather than competing solely on G&P services, we continue to leverage our downstream assets and market connectivity to deliver a comprehensive solution for producer customers. Operationally, our team executed very well during the quarter.

A significant driver of our record results was sustained system-wide performance, reflecting both the strength of our operations and our continued focus on optimization opportunities across the system. The ECCC pipeline has been placed into service, officially establishing that north-to-south connection across the western portion of our system between Eddy and Culberson Counties. Rich gas volumes on the pipeline are expected to increase throughout the balance of the year as King's Landing reaches full utilization.

At King's Landing, the acid gas injection and sour conversion project continues to advance, with drilling operations well underway, and Phase 1 remains on schedule for in-service by year-end. In Delaware South, Diamond Volt, our 40 megawatt behind-the-meter power generation project at Diamond Cryo, continues construction progress with in-service anticipated in the second quarter of 2027. Now, before I hand the call over to Trevor, I want to underscore how confident we are in Kinetik Holdings' position and long-term trajectory.

The strategic investments we have made across our platform are delivering exactly as intended, strengthening our financial performance, expanding our commercial opportunity set, enhancing the value we provide to customers. We're seeing the benefits of our integrated model come through in a meaningful way. Our assets are performing well, our team is executing with discipline, and the momentum across the business continues to accelerate as customer activity builds and the need for reliable, connected infrastructure becomes even more critical. Kinetik Holdings is uniquely positioned to deliver.

We exit the second quarter with stronger earnings power, greater visibility, and a clear line of sight to continued value creation in 2027 and beyond. And with that I will turn the call over to Trevor. Matthew Sanderson, Executive Vice President and Chief Financial Officer As Jamie highlighted, the second quarter was a record one for Kinetik Holdings. We reported adjusted EBITDA of $281 million, distributable cash flow of $195 million, and free cash flow of $105 million, reflecting strong execution across the business.

Within Midstream Logistics, adjusted EBITDA increased 35% year over year to $205 million. 74 billion cubic feet per day, flat year over year despite an estimated 250 million cubic feet per day of Waha price-related curtailments. Results benefited from strong system operating performance, improved NGL recoveries and condensate yields, optimization opportunities, and lastly favorable commodity prices and spreads. Our Pipeline Transportation segment generated adjusted EBITDA of $83 million, down year over year primarily due to the divestiture of our equity interest in EPIC Crude.

This was partially offset by year-over-year outperformance at Permian Highway Pipeline, supported by lower fuel costs and higher gross margin, and better-than-expected throughput volumes at Chinook. 8 times and liquidity exceeded $1 billion, and we expect leverage to decline further by year end even with our elevated capital program. 5 to 4 times while maintaining substantial flexibility to fund attractive growth projects and return capital to shareholders. 1 billion at the midpoint.

The revised outlook represents a 7% increase relative to our original guidance issued in February and approximately 15% growth year over year on a pro forma basis for the EPIC Crude divestiture. There are four primary drivers supporting our revised outlook. First, our volume expectations have improved meaningfully since our May outlook. At the time, we expected low- to mid-single-digit volume growth due to the elevated Waha price-related curtailments.

Since then, Waha pricing has normalized, curtailed volumes have returned to production more quickly than anticipated, and customer activity has continued to accelerate. As a result, we now expect mid- to high-single-digit volume growth year over year. 2 billion cubic feet per day of processed gas volumes, with no curtailments assumed in the fourth quarter. Second, commodity prices remain favorable to our outlook.

Updated guidance assumes forward market pricing as of July 28 and reflects a nearly 30% increase in WTI pricing and a nearly 20% increase in liquids pricing relative to commodity assumptions used in our original guidance in February, while Waha natural gas pricing remains well below our original assumptions. That impact has been offset by the significant Gulf Coast marketing gains realized in the first half of the year. However, as Waha pricing has improved and basis differentials have tightened, we expect those marketing benefits to moderate in the second half of the year and be replaced by the return of curtailed volumes.

We remain substantially hedged through year end at the top end of our targeted range of 40% to 80%, opportunistically adding incremental hedge protection in the second quarter and aligning with our rolling 12-month and 24-month targets. Third, operational execution across the system continues to exceed our expectations. Strong plant and compression run times, higher NGL recoveries, increased condensate yields, and continued optimization efforts across our footprint are expected to provide ongoing benefit through the balance of the year.

And lastly, our Pipeline Transportation segment continues to outperform our original forecast, supported by stronger basin activity, higher throughput volumes, and healthy margins across our pipeline businesses. As it relates to quarterly cadence, we expect adjusted EBITDA to be between $260 million to $270 million in the third quarter and $270 million to $280 million in the fourth quarter of this year, supported by increasing customer volumes across the system and ECCC utilization. We are also increasing our 2026 capital expenditures guidance, including maintenance capital, to approximately $560 million.

The increase is primarily driven by several initiatives that we believe represent highly attractive investments for our shareholders. These include Kings Landing 2, additional optimization projects across our footprint, the purchase of compression equipment to address elongating lead times and an increasingly stretched supply chain, the acceleration of certain growth capital investments supporting customer development plans in late 2026 and early 2027, and right-of-way procurement for an expansion of ECCC.

We have also started procuring long-lead equipment for our next cryo beyond Kings Landing 2, which positions us to better manage supply chain risk and preserve timing flexibility for our continued expected processing expansion. Turning to capital allocation, our growth-oriented philosophy remains unchanged. We continue to prioritize investing in high-return organic growth opportunities that strengthen our integrated platform and expand the earnings power of the business. The increase to our capital expenditures guidance reflects the quality of the opportunities in front of us today and our conviction in our long-term outlook.

Simply put, we believe elevated reinvestment today builds the earnings base that funds growing returns tomorrow. Alongside this reinvestment, we remain committed to a growing and well-covered dividend. 2x for full year 2025. We expect coverage to continue to strengthen through the second half of the year and into 2027, supporting sustained dividend growth consistent with the framework we have publicly outlined.

Operator, we can now open the line for questions. OPERATOR We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star-one to raise your hand.

To withdraw your question, press star-one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question is from the line of Spiro Dounis with Citi. Spiro, your line is open. Please go ahead. Spiro Dounis, Analyst at Citi Thanks, operator.

Good morning, everybody. Want to start on the processing capacity first. 2 Bcf/day exit rate, seems like you'll be knocking on the door of capacity and maybe even exceed it in 2027. Jamie, I think you referred to the flow-through there as tremendous.

And so until KL2 comes online, seems like you might have to look into some offloads. So curious, are we thinking about that dynamic right as we head into '27, and maybe just any plans to deal with those excess volumes here? Jamie Welch, President and CEO Yes, Spiro. First off, good morning.

I think it is certainly something that we look at and analyze on a weekly basis with the Ops engineering team, particularly with Matt Wall. We've got some projects underway where we're looking to rebuild center blocks of existing 200-a-day cryos to continue to increase and upsize capacity. I think there's more to come on those particular topics. So the idea comes in a couple of different flavors.

One is what's the most you can get out of the existing footprint and system capacity today? What could we do to improve it?