Kinetik (KNTK) - 2020 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents Altus Midstream Company's unaudited consolidated financial statements and notes for the periods ended June 30, 2020 and 2019 Statement of Consolidated Operations Q2 2020 net income was $17.7 million, a significant improvement, while the six-month period incurred a $9.1 million net loss due to derivative losses Consolidated Operations Highlights (Three Months Ended June 30) | Metric | 2020 (In thousands USD) | 2019 (In thousands USD) | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $31,616 | $24,139 | +31.0% | | Operating Income (Loss) | $11,711 | $(4,942) | N/A | | Net Income (Loss) Including Noncontrolling Interests | $17,662 | $(5,498) | N/A | | Net Loss Attributable to Class A Common Shareholders | $(255) | $(2,293) | +88.9% | | Diluted EPS | $(0.07) | $(0.61) | +88.5% | Consolidated Operations Highlights (Six Months Ended June 30) | Metric | 2020 (In thousands USD) | 2019 (In thousands USD) | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $72,383 | $57,985 | +24.8% | | Operating Income (Loss) | $30,352 | $(711) | N/A | | Net Income (Loss) Including Noncontrolling Interests | $(9,130) | $230 | N/A | | Net Loss Attributable to Class A Common Shareholders | $(10,108) | $(1,193) | -747.3% | | Diluted EPS | $(2.84) | $(0.32) | -787.5% | - A significant unrealized derivative instrument loss of $72.6 million was recorded in the first six months of 2020, which was the primary driver of the net loss for the period[19] Consolidated Balance Sheet Total assets increased to $1.64 billion as of June 30, 2020, while liabilities rose to $748.6 million due to debt and derivatives Key Balance Sheet Items | Account | June 30, 2020 (In thousands USD) | Dec 31, 2019 (In thousands USD) | | :--- | :--- | :--- | | Total Assets | $1,642,243 | $1,500,854 | | Equity Method Interests | $1,408,479 | $1,258,048 | | Total Liabilities | $748,643 | $597,330 | | Long-Term Debt | $493,000 | $396,000 | | Embedded Derivative | $175,498 | $102,929 | | Total Equity | $70,344 | $(353,075) | Statement of Consolidated Cash Flows Operating cash flow significantly increased to $86.8 million for the six months ended June 30, 2020, while investing activities decreased to $175.3 million Cash Flow Summary (Six Months Ended June 30) | Activity | 2020 (In thousands USD) | 2019 (In thousands USD) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $86,797 | $21,688 | | Net Cash Used in Investing Activities | $(175,295) | $(697,698) | | Net Cash Provided by Financing Activities | $84,395 | $602,995 | | Decrease in Cash and Cash Equivalents | $(4,103) | $(73,015) | - Capital expenditures dropped significantly to $26.5 million in the first half of 2020 from $259.3 million in the same period of 2019[29] Notes to Consolidated Financial Statements These notes detail accounting policies, operations, affiliate transactions, revenue recognition, debt, equity interests, and derivative fair value measurements - The company's operations consist of one reportable segment focused on gas gathering, processing, and transmission assets in the Permian Basin, and equity interests in four Permian Basin pipeline entities[40] - For the periods presented, the company's only significant customer was its affiliate, Apache Corporation[67] - On June 30, 2020, the company effected a one-for-twenty reverse stock split of its Class A and Class C Common Stock. All share and per-share amounts have been retroactively restated[108] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, noting COVID-19 impacts, increased revenue, significant derivative losses, and expected cash flow positivity by early 2021 Overview Altus Midstream operates Permian Basin gas assets and pipeline equity interests, facing COVID-19 impacts but expecting cash flow positivity by early 2021 - The company's assets include 182 miles of gas gathering pipelines, three cryogenic processing trains with 200 MMcf/d capacity each, and equity interests in the GCX, EPIC, PHP, and Shin Oak pipelines[137][139] - Management is monitoring the impact of the COVID-19 pandemic on throughput volumes and capacity utilization, noting that the current market has slowed the pace of securing third-party processing opportunities[138] Results of Operations Q2 2020 revenues rose 31% to $31.6 million with lower costs, yielding $11.7 million operating income, though a $72.6 million derivative loss impacted the six-month net loss Revenue Comparison (Three Months Ended June 30) | Metric | 2020 (In thousands USD) | 2019 (In thousands USD) | Change | | :--- | :--- | :--- | :--- | | Midstream services revenue — affiliate | $31,616 | $24,139 | +$7.5M | Costs and Expenses Comparison (Three Months Ended June 30) | Expense Category | 2020 (In thousands USD) | 2019 (In thousands USD) | Change | | :--- | :--- | :--- | :--- | | Operations and maintenance | $9,508 | $14,005 | -$4.5M | | Depreciation and accretion | $4,062 | $9,107 | -$5.0M | | Total costs and expenses | $19,905 | $29,081 | -$9.2M | - The decrease in operations and maintenance expense was primarily due to increased operational efficiency from transitioning to the centralized Diamond cryogenic complex from mechanical refrigeration units[158] - Income from equity method interests increased significantly by $18.2 million for the quarter and $34.2 million for the six months, driven by the GCX and Shin Oak pipelines coming into service[169] Capital Resources and Liquidity Capital spending significantly decreased to $26.5 million in H1 2020, with $493.0 million total debt and $307.0 million available borrowing capacity as of June 30, 2020 - The company believes cash from operations, a reduced capital program, and distributions from equity method interests will generate operating cash flows in excess of capital expenditures by Q1 2021[178] Liquidity Summary | Metric | June 30, 2020 (In thousands USD) | Dec 31, 2019 (In thousands USD) | | :--- | :--- | :--- | | Cash and cash equivalents | $1,880 | $5,983 | | Total debt | $493,000 | $405,767 | | Available committed borrowing capacity | $307,000 | $404,000 | - The company's revolving credit facility matures in November 2023 and has an aggregate commitment of $800.0 million, which can be increased to $1.5 billion[187] - The company was in compliance with its debt covenants as of June 30, 2020, with a Leverage Ratio of less than 4.00:1.00[191][193] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces indirect commodity price, interest rate, and credit risks, particularly from variable-rate debt and concentration with its primary customer - The company is indirectly exposed to commodity price risk, as adverse price changes can affect Apache's and other customers' decisions to develop and produce oil and gas[198] - As of June 30, 2020, the company had $493.0 million of variable-rate loans outstanding. A hypothetical 1.0% increase in interest rates would have increased quarterly interest expense by approximately $1.2 million[200] - Credit risk is concentrated with its primary customer, Apache Corporation, and any potential future third-party customers[201] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[203] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, these controls[205] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company has no direct legal proceedings, but its minority interest in Permian Highway Pipeline LLC is involved in a lawsuit regarding environmental permits - The company is not aware of any direct pending or threatened legal proceedings against it[207] - Permian Highway Pipeline LLC, in which the company holds a minority equity interest, has intervened in a lawsuit filed by the Sierra Club to defend verifications issued by the Army Corps of Engineers[208] Item 1A. Risk Factors The COVID-19 pandemic has amplified existing risks, including commodity prices, economic conditions, and credit risk, with uncertain future impacts on the company - The COVID-19 pandemic has amplified previously identified risks, including those related to demand for oil and gas, economic conditions, availability of capital, and customer credit risk[210] - Management states that due to the uncertainty of the pandemic, there can be no assurance it will not materially and adversely affect the company's future business, financial condition, and results of operations[210] Item 5. Other Information An amendment to the lease agreement with Apache Corporation allows for termination if the property is sold, facilitating Altus Midstream LP's vacating plans - Effective July 27, 2020, Altus Midstream LP and Apache Corporation entered into a First Amendment to their Lease Agreement for property in Reeves County, Texas[212] - The amendment facilitates Altus's desire to vacate the premises by allowing for lease termination if Apache sells the property, with a pro rata rent reduction for a partial sale[213] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate agreements, the amended lease, officer certifications, and XBRL financial statements