Kinetik (US:KNTK)2023-05-06 18:21Financial Data and Key Metrics Changes - The company reported pro forma adjusted EBITDA of $187 million for Q1 2023, aligning with internal budget expectations [5] - The exit rate for processed volumes is expected to reach 1.6 billion cubic feet per day by the end of 2023, representing a year-on-year increase of over 25% [4] - Adjusted distributable cash flow for the quarter was $127 million, with free cash flow of $26 million [10] Business Line Data and Key Metrics Changes - The Midstream Logistics segment generated an adjusted EBITDA of $119 million, while the Pipeline Transportation segment generated $72 million, reflecting a 4% year-over-year increase [5] - The company has seen a ramp-up in volumes beginning in March, with significant growth in April, which is expected to benefit Q2 and full-year results [5] Market Data and Key Metrics Changes - The company noted that gathered and processed natural gas volumes reached all-time record highs, with an average of 1.52 billion cubic feet per day processed in April, a 21% increase from Q4 2022 [31] - The company is actively engaged in commercial discussions with several New Mexico producers, indicating potential near-term opportunities in that market [9] Company Strategy and Development Direction - The company is focusing on portfolio monetization opportunities, particularly regarding its stake in the Gulf Coast Express pipeline, to accelerate capital allocation priorities [32] - The company aims to achieve a leverage target of 3.5x and is considering the potential sale of GCX to facilitate this goal [36][61] - Sustainability initiatives have led to an 8% reduction in Scope 1 and Scope 2 greenhouse gas emissions intensity compared to 2021 [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the high end of the 2023 EBITDA guidance of $800 million to $860 million, despite delays in the PHP expansion [32] - The management highlighted that the basin is becoming gassier, with rising gas-to-oil ratios (GORs) indicating increased activity and potential for future growth [8][14] - The management noted that the incentive agreement with a customer is expected to yield significant revenue uplift starting in 2024 [20] Other Important Information - The company executed a small acquisition of a midstream infrastructure system for $65 million, with a less than 4x EBITDA multiple [4] - Total capital expenditures for the quarter were $121 million, representing approximately 23% of expected capital expenditures for 2023 [10] Q&A Session Summary Question: Can you discuss the timing around the Gulf Coast Express sale? - Management indicated that the formal exploration of the sale should take about three months, with an announcement expected around the second quarter earnings in August [36] Question: What are the expectations for 2024 capital expenditures? - Management stated that the previously mentioned figure of less than $150 million for 2024 remains a good estimate, but ongoing activity levels may lead to discussions about new processing facilities [37] Question: Are there any specific return requirements within the incentive agreement? - Management confirmed that the agreement includes performance metrics tied to drilling activity, with penalties for not meeting lateral footage requirements [51][52] Question: How does the company view the potential for other tuck-in acquisitions? - Management noted that while there are not many opportunities, they are always looking for win-win arrangements with existing customers [60] Question: How does the company plan to manage the DRIP and leverage targets? - Management emphasized that proceeds from the GCX sale would help achieve leverage targets and reduce dilution from the DRIP [55][61]