8-K/A: Kinetik Holdings Completes Durango Permian Acquisition, Files Amended 8-K with Financials

Kinetik Holdings Inc. has filed an amended 8-K report including historical financial statements for Durango Permian LLC and pro forma financial information following its acquisition.

Summary

• Kinetik Holdings Inc. has amended its original 8-K filing to include the audited financial statements of Durango Permian LLC for the year ended December 31, 2023, and unaudited financials for the three months ended March 31, 2024.
• The amendment also includes unaudited pro forma combined financial information for Kinetik, reflecting the acquisition of Durango, for the six months ended June 30, 2024, and the year ended December 31, 2023.
• The acquisition of Durango Permian was completed on June 24, 2024, for an adjusted purchase price of approximately $845.2 million, including cash, stock, and a potential earn-out.
• Durango Permian's 2023 revenue totaled $304.1 million, with a net income of $25.2 million.
• For the three months ended March 31, 2024, Durango Permian reported revenue of $72.7 million and net income of $1.7 million.
• The pro forma combined financials show Kinetik's revenue for the six months ended June 30, 2024, at $815.5 million and $1,560.5 million for the year ended December 31, 2023.
• The pro forma net income attributable to Class A Common Stock Shareholders was $45.9 million for the six months ended June 30, 2024, and $284.6 million for the year ended December 31, 2023.

Sentiment

Score: 7

Explanation: The document is generally positive due to the completion of a significant acquisition and the resulting increase in revenue and asset base. However, there are some risks and uncertainties associated with the integration and market conditions.

Positives

• The acquisition of Durango Permian significantly increases Kinetik's revenue and asset base.
• Durango Permian has demonstrated profitability with a net income of $25.2 million in 2023.
• The pro forma financials indicate a substantial increase in Kinetik's revenue and earnings after the acquisition.
• The company has secured $30 million in equity contributions, fulfilling a condition precedent for its credit facility.

Negatives

• The acquisition involved a significant purchase price of $845.2 million.
• The pro forma financials do not reflect any cost savings or synergies from the acquisition.
• Durango Permian experienced a loss from risk management activities of $0.57 million in the three months ended March 31, 2024.
• The company has a significant amount of long-term debt, with $244.1 million outstanding as of March 31, 2024.

Risks

• The company is exposed to commodity price risk, which could impact its operating cash flows.
• The company is subject to credit risk from its counterparties and customers.
• The company relies on a few key customers and producers, which could pose a concentration risk.
• The company is subject to minimum volume commitments with pipeline operators.
• The company is exposed to potential litigation risks in the normal course of business.
• The company's financial performance could be impacted by economic uncertainties, armed conflicts, inflation, and bank failures.

Future Outlook

The pro forma financial information is provided for illustrative purposes only and does not indicate future results or the realization of any expected cost savings or synergies.

Industry Context

The acquisition of Durango Permian is a strategic move for Kinetik to expand its midstream operations in the Permian Basin, a key region for oil and gas production. This consolidation is in line with industry trends of companies seeking to increase scale and efficiency.

Comparison to Industry Standards

• Kinetik's acquisition of Durango Permian is similar to other midstream consolidation activities in the oil and gas industry, such as the merger of Energy Transfer and Enable Midstream.
• The purchase price of $845.2 million is within the range of recent midstream acquisitions, though specific multiples would need to be calculated to make a direct comparison.
• Durango Permian's financial performance is comparable to other mid-sized midstream companies operating in the Permian Basin, with a focus on natural gas and NGL processing.
• The pro forma combined financials suggest that Kinetik will be a larger player in the midstream sector, with increased revenue and asset base, similar to companies like Targa Resources and Williams Companies.

Related Party Transactions

• The company had transactions with related parties, including service agreements with affiliates for employment, payroll, and general administrative costs.
• The company conducted a portion of its commodity risk management activities with Morgan Stanley Capital Services LLC.

Stakeholder Impact

• Shareholders will see an increase in the company's size and potential for future growth.
• Employees may experience changes due to the integration of the two companies.
• Customers and suppliers may see changes in their relationships with the company.
• Creditors will be impacted by the company's increased debt and asset base.

Next Steps

• The company will integrate Durango Permian's operations into its existing business.
• The company will continue to monitor commodity prices and manage its risk exposure.
• The company will assess the potential for cost savings and synergies from the acquisition.
• The company will issue additional shares of Class C Common Stock on July 1, 2025.

Key Dates

Keywords

Acquisition, Durango Permian, Kinetik Holdings, Financial Statements, Pro Forma, Midstream, Natural Gas, NGLs, Commodity Risk, Credit Facility