Kinetik (KNTK) - 2019 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents Altus Midstream Company's unaudited consolidated financial statements for Q3 and nine months ended September 30, 2019, detailing operations, balance sheet, cash flows, and key accounting notes Statement of Consolidated Operations For Q3 2019, revenues increased to $34.0 million, but a $9.3 million impairment and higher costs led to a $6.6 million operating loss and $4.9 million net loss for Class A shareholders Consolidated Operations Summary (Q3 2019 vs Q3 2018) | Metric | Three Months Ended Sep 30, 2019 (in millions) | Three Months Ended Sep 30, 2018 (in millions) | | :--- | :--- | :--- | | Total Revenues | $34.009 | $25.437 | | Total Costs and Expenses | $40.592 | $25.153 | | Operating Income (Loss) | ($6.583) | $0.284 | | Net Loss Attributable to Class A Shareholders | ($4.864) | $19.208 | | Basic EPS | ($0.06) | $0.09 | - The company recorded a $9.3 million impairment charge in Q3 2019, which was not present in the prior year, significantly contributing to the operating loss[17] - For the nine months ended September 30, 2019, revenues nearly doubled to $92.0 million from $50.1 million in the prior year period, though the company still posted a net loss attributable to Class A shareholders of $6.1 million[17] Consolidated Balance Sheet Total assets grew to $2.66 billion by September 30, 2019, driven by $1.09 billion in equity method interests, funded by new debt and preferred units, while cash decreased significantly Key Balance Sheet Items (As of Sep 30, 2019 vs Dec 31, 2018) | Account | Sep 30, 2019 (in millions) | Dec 31, 2018 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $2.594 | $449.935 | | Property, Plant and Equipment, net | $1,443.050 | $1,226.897 | | Equity method interests | $1,094.564 | $91.100 | | Total Assets | $2,661.835 | $1,857.319 | | Long-Term Debt | $235.000 | $0 | | Redeemable noncontrolling interest - Preferred Units | $538.413 | $0 | | Total Liabilities, Noncontrolling Interests, and Equity | $2,661.835 | $1,857.319 | Statement of Consolidated Cash Flows For the first nine months of 2019, operating activities generated $39.4 million, but $1.315 billion was used in investing, primarily for pipeline projects, resulting in a $447.3 million net cash decrease Cash Flow Summary (Nine Months Ended Sep 30, 2019) | Cash Flow Category | Amount (in millions) | | :--- | :--- | | Net Cash Provided by Operating Activities | $39.436 | | Net Cash Used in Investing Activities | ($1,315.047) | | Net Cash Provided by Financing Activities | $828.270 | | Net Decrease in Cash and Cash Equivalents | ($447.341) | - Major uses of cash in investing activities included $307.0 million in capital expenditures and $1.008 billion for acquisitions and contributions to equity method interests (pipelines)[28] - Financing activities were driven by $611.2 million in net proceeds from redeemable preferred units and $235.0 million from the revolving credit facility[28] Notes to Consolidated Financial Statements The notes detail significant accounting policies, including reliance on Apache, terms of new financing, a $9.3 million asset impairment, and substantial investments in four long-haul pipeline projects - The company's operations consist of one reportable segment focused on gas gathering, processing, and transmission assets in the Permian Basin, with Apache Corporation being its sole customer for all periods presented[41][81] - In Q3 2019, the company cancelled construction on a compressor station, resulting in a $9.3 million impairment charge and the reclassification of $18.1 million in components to 'assets held for sale'[97] - As of September 30, 2019, the company had exercised four of its five Pipeline Options, resulting in equity method interests totaling $1.09 billion in entities like Gulf Coast Express, EPIC Crude, Permian Highway, and Breviloba (Shin Oak)[117][118] - On June 12, 2019, Altus Midstream issued 625,000 Series A Cumulative Redeemable Preferred Units for net proceeds of approximately $611.2 million, carrying a 7% distribution rate and classified as temporary equity[132][134] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q3 2019 financial performance, noting revenue growth from increased throughput, a net loss due to impairment, and significant capital deployment for pipeline investments Results of Operations Q3 2019 midstream revenue increased by $8.6 million to $34.0 million due to higher throughput, but total costs rose to $40.6 million due to a $9.3 million impairment and increased depreciation Key Performance Metrics (Q3 2019 vs Q3 2018) | Metric | Three Months Ended Sep 30, 2019 (in millions) | Three Months Ended Sep 30, 2018 (in millions) | | :--- | :--- | :--- | | Midstream Services Revenue | $34.009 | $25.437 | | Operations and Maintenance | $13.063 | $16.579 | | Impairments | $9.338 | $0 | | Operating Income (Loss) | ($6.583) | $0.284 | | Adjusted EBITDA | $17.816 | $5.767 | - The increase in Q3 revenue was primarily driven by higher throughput of rich natural gas volumes, which added approximately $7.8 million[174] - A $9.3 million impairment charge was recorded in Q3 2019 related to the cancellation of construction on a planned compressor station[180][186] Capital Resources and Liquidity Liquidity dramatically changed in Q1-Q3 2019, with $611.2 million from preferred units and $235.0 million from credit facility funding significant capital expenditures, including a $442 million investment in the Shin Oak NGL pipeline Liquidity Summary (As of Sep 30, 2019) | Metric | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $2.594 | | Total debt | $252.562 | | Available committed borrowing capacity | $415.000 | - In Q3 2019, the company exercised its fourth Pipeline Option, acquiring a 33% interest in the Shin Oak NGL pipeline for approximately $442 million[200] - Primary sources of cash for the nine months ended Sep 30, 2019 were $611.2 million from the issuance of Preferred Units and $235.0 million from the revolving credit facility[205][215] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company identifies its primary market risks as indirect commodity price risk and direct credit risk, with revenue sensitivity to Apache's production volumes and concentrated credit exposure - The company has indirect exposure to commodity price risk, as adverse price changes could affect Apache's economic decisions to develop and produce, which in turn impacts Altus's service volumes and revenues[223] - Credit risk is concentrated with its primary customer, Apache Corporation, and any potential future third-party customers[225] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal controls - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2019[226] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[228] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is not aware of any pending or threatened legal proceedings as of the filing date of this quarterly report - As of the filing of the Form 10-Q, the company is not aware of any pending or threatened legal proceedings[231] Item 1A. Risk Factors There have been no material changes to the company's risk factors since its 2018 Annual Report on Form 10-K - There have been no material changes to the company's risk factors since its 2018 Annual Report on Form 10-K[232] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and financial data in Inline XBRL format - Key exhibits filed include certifications by the Principal Executive Officer and Principal Financial Officer as required by SEC rules[234]