Buy KNTK
Key Financial Metrics
Fealty’s Foundational Reasons
Strategic Positioning: Kinetik operates as a pure-play midstream company in the Permian Basin, leveraging its position as the third-largest natural gas processor in the Delaware Basin with a system-wide processing capacity of over 2.4 Bcf per day.
Robust Financial Performance: Kinetik has demonstrated consistent volume growth and margin expansion, with 2024 expected adjusted EBITDA guidance of $970 million to $1 billion, reflecting nearly 20% year-over-year growth at the midpoint.
Sustainability and Decarbonization Initiatives: The company has taken significant steps in sustainability, including CO2 sequestration under its MRV Plan, positioning itself to benefit economically through 45Q credits starting in 2025.
Diversified Revenue Streams: Through its partnerships, including with Diamondback Energy and EPIC Crude, Kinetik has strengthened its pipeline transportation segment and secured long-term agreements, enhancing stability and unlocking future growth opportunities.
Margin of Safety: Based off of our calculation of Kinetik Holding’s intrinsic value of $220.84, the current price of $48.67, leaves a healthy margin of safety.
Kinetik Holding’s Origins and Revenue Streams
Kinetik Holdings Inc. stands as a premier midstream energy company deeply integrated into the Permian Basin, specifically the Delaware Basin, which is among the most prolific oil and gas-producing regions in the United States. The company emerged from a transformative merger in 2022, when Altus Midstream Company combined with BCP Raptor Holdco, LP, creating a robust, publicly traded entity focused on gathering, processing, transporting, and treating natural gas, crude oil, and natural gas liquids (NGLs).
Founded as Altus Midstream, the company originally operated as a subsidiary of Apache Corporation. The merger with BCP Raptor marked a strategic shift, significantly expanding its operational footprint and capabilities. Renamed Kinetik Holdings Inc., the business pivoted to focus on leveraging its position in the Delaware Basin, integrating assets, and forming strategic partnerships to deliver sustained growth. This combination also brought equity interests in critical pipeline infrastructure, strengthening the company's ability to serve both upstream producers and downstream markets.
Kinetik's operations are centered around its integrated natural gas "super-system," which spans the Delaware Basin, serving both Texas and New Mexico. The company’s offerings include:
Natural Gas Services: Gathering, compressing, processing, and treating natural gas with a processing capacity exceeding 2.4 billion cubic feet per day (Bcf/d), complemented by front-end amine treating capabilities that provide a competitive edge in gas quality management.
Pipeline Transportation: Kinetik holds equity stakes in long-haul pipelines like EPIC Crude, Shin Oak, and the Permian Highway Pipeline (PHP), connecting Permian production to demand centers such as the Gulf Coast for export and petrochemical uses.
Crude Oil and NGL Services: Gathering, stabilizing, storing, and transporting crude oil and NGLs, offering comprehensive solutions to producers.
CO2 Sequestration and Sustainability: Through its approved MRV Plan, Kinetik captures and sequesters CO2, enabling it to monetize through 45Q tax credits while furthering its commitment to decarbonization.
Kinetik aims to capitalize on its position as a leader in the Delaware Basin by expanding its infrastructure, enhancing its processing capabilities, and maintaining cost discipline. Future growth initiatives include the development of the Kings Landing Cryo I and II facilities, additional pipeline connectivity between northern and southern Delaware systems, and leveraging global demand for LNG and NGL exports to capture value through downstream markets.
The company has committed to balancing growth with shareholder returns, emphasizing disciplined capital allocation through dividend growth, opportunistic share repurchases, and strategic investments in high-margin projects. This approach positions Kinetik as a key player in the midstream sector, uniquely equipped to meet the evolving demands of the energy transition while delivering consistent value to its stakeholders.
Kinetik Holding’s reports its revenue in two distinct segments: midstream logistics, and pipeline transportation.
Midstream Logistics Sales - 99%
This segment encompasses gas gathering and processing, crude oil gathering, stabilization, and storage services, as well as produced water gathering and disposal.
Pipeline Transportation Sales - 1%
This segment includes equity investment interests in Permian Basin pipelines and proprietary pipeline assets that transport crude oil, natural gas, and NGLs to various destinations, including the U.S. Gulf Coast.
Why is Kinetik Holding’s a Buy Now?
Kinetik Holdings Inc. ($KNTK) offers a unique and timely investment opportunity, driven by its operational resilience, strategic growth initiatives, and ability to capitalize on emerging market trends within the midstream energy sector.
Kinetik has consistently outperformed despite external pressures, including persistently negative gas prices at the Waha Hub. Its ability to maintain strong operational metrics—such as processing over 1.7 billion cubic feet of gas per day—demonstrates its adaptability and strategic focus on high-margin services even in a volatile commodity environment.
The company’s commitment to future growth is evident in projects like the Kings Landing Cryo I facility, set to increase processing capacity in a key region by mid-2025. Additionally, the newly announced high-pressure pipeline between Eddy County, New Mexico, and Culberson County, Texas, will enhance operational flexibility and boost capacity by up to 300 million cubic feet per day, unlocking new opportunities for optimization and higher-margin throughput.
Kinetik’s forward-thinking approach to environmental sustainability—such as leveraging its EPA-approved MRV Plan for CO2 sequestration—positions it as a leader in integrating sustainability with profitability. These efforts are set to generate financial returns through 45Q tax credits, starting in 2025, while aligning with broader industry decarbonization goals.
Kinetik's investments in pipeline transportation assets and integration with high-growth downstream markets position it to benefit from increasing global demand for LNG and NGLs. Its strategic focus on connecting supply to export hubs and petrochemical facilities ensures it is well-placed to capture value in a market increasingly shaped by international demand.
In sum, Kinetik’s operational strength, proactive growth strategy, environmental monetization efforts, and market alignment make it a compelling addition to a long-term investment portfolio.
Kinetik Holding’s Potential Pitfalls
Commodity Price Exposure: Despite Kinetik’s focus on fee-based revenue, sustained periods of negative gas prices at hubs like Waha could impact its margins and profitability.
High Capital Expenditure Requirements: Ongoing infrastructure projects, including the Kings Landing Cryo I and new pipeline developments, require significant capital investments, which may strain cash flows if economic or market conditions deteriorate.
Regulatory and Environmental Risks: The company’s operations, particularly CO2 sequestration initiatives and acid gas injection wells, are subject to stringent regulatory oversight that could delay projects or increase costs.
Operational Risks in Expanding Infrastructure: Integrating and optimizing new assets, such as the recently acquired Durango system and planned pipeline expansions, poses execution risks that could impact efficiency and financial performance.
Dependence on Permian Basin Growth: As a pure-play Permian midstream operator, Kinetik’s performance is highly dependent on continued upstream activity and production growth in this region, which may be influenced by external factors like regulatory changes or reduced producer investment.
The Ideal Investor
If you value a company with a strong presence in its industry, appreciate a focus on growth and shareholder returns, and are comfortable navigating the inherent risks associated with market and operational dynamics, you may be the ideal investor for Kinetik Holdings.
Who Might Look Elsewhere
If you are seeking a low-volatility investment with minimal exposure to commodity price fluctuations or prefer industries with limited regulatory and environmental complexities, you may want to look elsewhere.