Kinetik Holdings Inc. [ALTMW] Filings

10-Q 1 apa-20230630.htm 10-Q apa-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-38048

KINETIK HOLDINGS INC.

(Exact name of registrant as specified in its charter)


Delaware						81-4675947
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2700 Post Oak Blvd, Suite 300

Houston, Texas, 77056

(Address of principal executive offices)

(Zip Code)

(713) 621-7330

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.0001 par value

KNTK

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒


Number of shares of registrant’s Class A Common Stock, par value $0.0001 per share issued and outstanding as of July 31, 2023												51,973,472
Number of shares of registrant’s Class C Common Stock, par value $0.0001 per share issued and outstanding as of July 31, 2023												94,089,038

TABLE OF CONTENTS


Item		Page
	PART I — FINANCIAL INFORMATION

1.	FINANCIAL STATEMENTS (UNAUDITED)	1

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022	1

	CONDENSED CONSOLIDATED BALANCE SHEETS - AS OF JUNE 30, 2023 AND DECEMBER 31, 2022	2

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - SIX MONTHS ENDED JUNE 30 , 2023 AND 2022	3

	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND NONCONTROLLING INTERESTS - THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022	4

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7

	1.DESCRIPTION OF THE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	7

	2.BUSINESS COMBINATIONS	9

	3.REVENUE RECOGNITION	10

	4.PROPERTY, PLANT AND EQUIPMENT	11

	5.GOODWILL AND INTANGIBLE ASSETS, NET	11

	6.EQUITY METHOD INVESTMENTS	12

	7.DEBT AND FINANCING COSTS	14

	8.ACCRUED EXPENSES	15

	9.LEASE	15

	10.EQUITY AND WARRANTS	15

	11.FAIR VALUE MEASUREMENTS	17

	12.DERIVATIVES AND HEDGING ACTIVITIES	18

	13.SHARE-BASED COMPENSATION	19

	14.INCOME TAXES	20

	15.NET INCOME PER SHARE	21

	16.COMMITMENTS AND CONTINGENCIES	21

	17.SEGMENTS	22

	18.SUBSEQUENT EVENTS	25

2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	26

3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37

4.	CONTROLS AND PROCEDURES	38

	PART II — OTHER INFORMATION

1.	LEGAL PROCEEDINGS	40

1A.	RISK FACTORS	40

2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	40

5.	OTHER INFORMATION	40

6.	EXHIBITS	42
	SIGNATURES	43

GLOSSARY OF TERMS

The following are abbreviations and definitions of certain terms which may be used in this Quarterly Report on Form 10-Q and certain terms which are commonly used in the exploration, production and midstream sectors of the oil and natural gas industry:

•ASC. Accounting Standards Codification

•Bbl. One stock tank barrel of 42 United States (“U.S.”) gallons liquid volume used herein in reference to crude oil, condensate or natural gas liquids

•Bcf. One billion cubic feet

•Bcf/d. One Bcf per day

•Btu. One British thermal unit, which is the quantity of heat required to raise the temperature of a one-pound mass of water by one degree Fahrenheit

•CODM. Chief Operating Decision Maker

•Delaware Basin. Located on the western section of the Permian Basin. The Delaware Basin covers a 6.4 million acre area

•Field. An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations

•GAAP. United States Generally Accepted Accounting Principles

•MBbl. One thousand barrels of crude oil, condensate or NGLs

•MBbl/d. One MBbl per day

•Mcf. One thousand cubic feet of natural gas

•Mcf/d. One Mcf per day

•MMBtu. One million Btus

•MMcf. One million cubic feet of natural gas

•MMcf/d. One MMcf per day

•MVC. Minimum volume commitments

•NGLs. Natural gas liquids. Hydrocarbons found in natural gas, which may be extracted as liquefied petroleum gas and natural gasoline

•Throughput. The volume of crude oil, natural gas, NGLs, water and refined petroleum products transported or passing through a pipeline, plant, terminal or other facility during a particular period

•SEC. United States Securities and Exchange Commission

•SOFR. Secured Overnight Financing Rate

•WTI. West Texas Intermediate crude oil

FORWARD-LOOKING STATEMENTS AND RISK

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included or incorporated by reference in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans, and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “plan,” “believe,” “continue,” “seek,” “guidance,” “might,” “outlook,” “possibly,” “potential,” “prospect,” “should,” “would,” or similar terminology. The absence of these words does not mean that a statement is not forward looking. Although we believe that the expectations reflected in such forward-looking statements are reasonable under the circumstances, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, assumptions about:

•the market prices of oil, natural gas, NGLs and other products or services;

•competition from other pipelines, terminals or other forms of transportation and competition from other service providers for gathering system capacity and availability;

•production rates, throughput volumes, reserve levels and development success of dedicated oil and gas fields;

•our future financial condition, results of operations, liquidity, compliance with debt covenants and competitive position;

•our future revenues, cash flows and expenses;

•our access to capital and our anticipated liquidity;

•our future business strategy and other plans and objectives for future operations;

•the amount, nature and timing of our future capital expenditures, including future development costs;

•the risks associated with potential acquisitions, divestitures, new joint ventures or other strategic opportunities;

•the recruitment and retention of our officers and personnel;

•the likelihood of success of and impact of litigation and other proceedings, including regulatory proceedings;

•our assessment of our counterparty risk and the ability of our counterparties to perform their future obligations;

•the impact of federal, state and local political, regulatory and environmental developments where we conduct our business operations;

•the occurrence of an extreme weather event, terrorist attack or other event that materially impacts project construction and our operations, including cyber or other attached-on electronic systems;

•our ability to successfully implement, execute and achieve our environmental, social and governance goals and initiatives;

•our ability to successfully implement our share repurchase program;

•our ability to integrate operations or realize any anticipated benefits, savings or growth of the Transaction (as defined herein). See Note 2 – Business Combination in the Notes to Condensed Consolidated Financial Statements set forth in this Form 10-Q;

•general economic and political conditions, including the armed conflict in Ukraine, epidemics or pandemics and actions taken by third parties in response to such epidemics or pandemics, the impact of continued inflation, central bank policy actions, bank failures and associated liquidity risks and other factors; and other factors disclosed in “Part I, Item 1A. — Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 7, 2023.

iii

Other factors or events that could cause the Company’s actual results to differ materially from the Company’s expectations may emerge from time to time, and it is not possible for the Company to predict all such factors or events. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, the Company disclaims any obligation to update or revise its forward-looking statements, whether based on changes in internal estimates or expectations, new information, future developments or otherwise.

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

KINETIK HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022(1)

	(In thousands, except per share data)
Operating revenues:
Service revenue	$	102,551	$	102,080	$	205,976	$	182,525
Product revenue	191,430		229,651		365,254		404,579
Other revenue	2,222		3,841		6,013		5,717
Total operating revenues(3)	296,203		335,572		577,243		592,821
Operating costs and expenses:
Costs of sales (exclusive of depreciation and amortization)(4)	110,467		152,714		226,344		272,989
Operating expenses	39,906		35,280		75,879		65,151
Ad valorem taxes	3,889		5,880		9,347		10,033
General and administrative expenses	22,869		25,960		50,380		48,712
Depreciation and amortization expenses	69,482		66,581		138,336		127,604
Loss on disposal of assets	12,137		8,546		12,239		8,656

Total operating costs and expenses	258,750		294,961		512,525		533,145
Operating income	37,453		40,611		64,718		59,676
Other income (expense):
Interest and other income	1,042		—		1,336		250
Gain on redemption of mandatorily redeemable Preferred Units	—		5,087		—		9,580
Loss on debt extinguishment	—		(27,975)		—		(27,975)
Gain on embedded derivative	—		91,448		—		88,562
Interest expense	(16,126)		(25,347)		(85,434)		(52,121)
Equity in earnings of unconsolidated affiliates	49,610		47,786		96,074		75,703

Total other income, net	34,526		90,999		11,976		93,999
Income before income taxes	71,979		131,610		76,694		153,675
Income tax expense	311		162		727		838
Net income including noncontrolling interest	71,668		131,448		75,967		152,837
Net income attributable to Preferred Unit limited partners	—		109,502		—		114,495
Net income attributable to common shareholders	71,668		21,946		75,967		38,342
Net income attributable to Common Unit limited partners	46,654		15,508		49,517		28,039
Net income attributable to Class A Common Stock Shareholders	$	25,014	$	6,438	$	26,450	$	10,303

Net income attributable to Class A Common Shareholders per share
Basic	$	0.41	$	0.06	$	0.36	$	0.16
Diluted	$	0.41	$	0.06	$	0.36	$	0.16
Weighted-average shares(2)
Basic	50,553		39,297		48,980		38,766
Diluted	50,625		39,329		49,220		38,796

(1)The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to the basis of presentation in Note 1—Description of the Organization and Summary of Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for further information.

(2)Class A share and per share amounts have been retrospectively restated to reflect the Company’s reverse stock split, which was effected June 8, 2022.

(3)Includes amounts associated with related parties of $24.8 million and $30.5 million for the three months ended June 30, 2023 and 2022, respectively, and $50.1 million and $46.2 million for the six months ended June 30, 2023 and 2022, respectively.

(4)Includes amounts associated with related parties of $10.8 million and $3.4 million for the three months ended June 30, 2023 and 2022, respectively, and $25.4 million and $7.1 million for the six months ended June 30, 2023 and 2022, respectively.

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

KINETIK HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30,		December 31,
	2023		2022

	(In thousands, except per share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,237	$	6,394
Accounts receivable, net of allowance for credit losses of $1,000 in 2023 and 2022(2)	181,536		204,036
Derivative assets	27,604		6,963
Prepaid and other current assets	36,458		24,474
	247,835		241,867
NONCURRENT ASSETS:
Property, plant and equipment, net	2,691,906		2,535,212
Intangible assets, net	649,897		695,389

Operating lease right-of-use assets	58,581		28,551
Deferred charges and other assets	83,513		32,275
Investments in unconsolidated affiliates	2,490,112		2,381,340
Goodwill	5,077		5,077
	5,979,086		5,677,844
Total assets	$	6,226,921	$	5,919,711
LIABILITIES, NONCONTROLLING INTEREST, AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	36,248	$	17,899
Accrued expenses	112,086		173,914
Derivative liabilities	4,585		5,718
Current portion of operating lease liabilities	37,826		22,810

Other current liabilities	8,605		7,487
	199,350		227,828
NONCURRENT LIABILITIES
Long term debt, net	3,625,799		3,368,510
Contract liabilities	24,535		22,693
Operating lease liabilities	21,715		6,023

Derivative liabilities	3,761		8,328
Other liabilities	3,278		2,677

Deferred tax liabilities	11,621		11,018
	3,690,709		3,419,249
Total liabilities	3,890,059		3,647,077
COMMITMENTS AND CONTINGENCIES (Note 16)
Redeemable noncontrolling interest — Common Unit limited partners	3,242,619		3,112,409
EQUITY:
Class A Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 52,085,784 shares issued 51,973,472 shares outstanding at June 30, 2023 and 45,679,447 shares issued and outstanding and December 31, 2022, respectively(1)	5		5
Class C Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 94,089,038 and 94,270,000 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively(1)	9		9
Additional paid-in capital	—		118,840
Accumulated deficit	(902,446)		(958,629)
Treasury stock, at cost (112,312 and nil shares as of June 30, 2023 and December 31, 2022, respectively)	(3,325)		—
Total equity	(905,757)		(839,775)
Total liabilities, noncontrolling interest, and equity	$	6,226,921	$	5,919,711

(1)Share amounts have been retrospectively restated to reflect the Company’s stock split, which was effected June 8, 2022.

(2)Includes amounts of $16.9 million and $17.6 million associated with related parties as of June 30, 2023 and December 31, 2022, respectively.

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

KINETIK HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2023		2022

	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income including noncontrolling interests	$	75,967	$	152,837
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	138,336		127,604
Amortization of deferred financing costs	3,055		6,538
Amortization of contract costs	3,310		896
Contingent liabilities remeasurement	—		(839)
Distributions from unconsolidated affiliates	136,230		117,544
Derivatives settlement	10,270		11,115
Derivative fair value adjustment	(36,611)		(102,544)
Warrants fair value adjustment	(77)		—
Gain on redemption of mandatorily redeemable Preferred Units	—		(9,580)
Loss on disposal of assets	12,239		8,656
Equity in earnings from unconsolidated affiliates	(96,074)		(75,703)
Loss on debt extinguishment	—		27,975
Share-based compensation	30,839		18,304
Deferred income taxes	603		613

Changes in operating assets and liabilities:
Accounts receivable	22,055		(100,511)
Other assets	(7,298)		(11,892)
Accounts payable	2,909		(3,844)
Accrued liabilities	(66,062)		102,094
Other non-current liabilities	678		—
Operating leases	678		(345)
Net cash provided by operating activities	231,047		268,918
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment expenditures	(160,167)		(71,429)
Intangible assets expenditures	(13,957)		(8,516)
Investments in unconsolidated affiliates	(154,721)		(2,675)
Distributions from unconsolidated affiliate	5,793		—
Cash proceeds from disposals	149		160
Net cash (paid for) acquired in acquisitions	(125,000)		13,401
Net cash used in investing activities	(447,903)		(69,059)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt	—		3,000,000
Principal payments on long-term debt	—		(2,294,130)
Payments on debt issuance cost	—		(37,042)
Proceeds from revolver	563,000		7,000
Payments on revolver	(308,000)		(716,000)
Redemption of mandatorily redeemable Preferred Units	—		(152,580)

Distributions paid to mandatorily redeemable Preferred Unit holders	—		(1,850)
Distributions paid to redeemable noncontrolling interest Preferred Unit limited partners	—		(6,937)
Cash dividends paid to Class A Common Stock shareholders	(36,196)		(11,239)
Distribution paid to Class C Common Unit limited partners	(348)		(491)

Repurchase of Class A Common Stock	(5,757)		—
Net cash provided by (used in) financing activities	212,699		(213,269)
Net change in cash	(4,157)		(13,410)
CASH, BEGINNING OF PERIOD	6,394		18,729
CASH, END OF PERIOD	$	2,237	$	5,319
SUPPLEMENTAL SCHEDULE OF INVESTING AND FINANCING ACTIVITIES
Cash paid for interest, net of amounts capitalized	$	125,411	$	52,982
Property and equipment and intangible accruals in accounts payable and accrued liabilities	$	39,631	$	20,344
Class A Common Stock issued through dividend and distribution reinvestment plan	$	175,626	$	87,697

Fair value of ALTM assets acquired	$	—	$	2,446,430
Class A Common Stock issued in exchange	—		1,013,745
ALTM liabilities and mezzanine equity assumed	$	—	$	1,432,685

The accompanying notes are an integral part of the condensed consolidated financial statements.

KINETIK HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND NONCONTROLLING INTERESTS

(Unaudited)


	Redeemable Noncontrolling Interest — Preferred Unit Limited Partners(2)		Redeemable Noncontrolling Interest — Common Unit Limited Partners		Class A Common Stock			Class C Common Stock			Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total Equity
					Shares(1)	Amount		Shares(1)	Amount

	(In thousands)				(In thousands)
For the Quarter Ended June 30, 2022
Balance at March 31, 2022	$	460,773	$	3,185,431	37,973	$	4	94,520	$	9	$	—	$	(1,137,873)	$	—	$	(1,137,860)

Distributions payable to Preferred Unit limited partners	(6,937)		—		—	—		—	—		—		—		—		—
Redemption of Common Units	—		(2,499)		70	—		(70)	—		2,499		—		—		2,499
Issuance of Class A Common Stock through dividend and distribution reinvestment plan	—		—		2,504	—		—	—		87,697		—		—		87,697
Share-based compensation	—		—		4	—		—	—		12,173		—		—		12,173
Net income	109,502		15,508		—	—		—	—		—		6,438		—		6,438
Change in redemption value of noncontrolling interests	—		123,741		—	—		—	—		(102,369)		(21,372)		—		(123,741)
Distributions paid to Common Unit limited partners	—		(70,891)		—	—		—	—		—		—		—		—
Cash dividends on Class A Common Stock ($0.75 per share)	—		—		—	—		—	—		—		(28,536)		—		(28,536)
Balance at June 30, 2022	$	563,338	$	3,251,290	40,551	$	4	94,450	$	9	$	—	$	(1,181,343)	$	—	$	(1,181,330)

For the Quarter Ended June 30, 2023
Balance at March 31, 2023	$	—	$	2,910,861	49,054	$	5	94,089	$	9	$	229,672	$	(863,452)	$	(2,432)	$	(636,198)

Issuance of common stock through dividend and distribution reinvestment plan	—		—		3,024	—		—	—		87,968		—		—		87,968
Retirement of treasury stock	—		—		—	—		—	—		—		(2,432)		2,432		—
Repurchase of Class A Common Stock	—		—		(112)	—		—	—		—		—		(3,325)		(3,325)
Share-based compensation	—		—		7	—		—	—		13,299		—		—		13,299
Net income	—		46,654		—	—		—	—		—		25,014		—		25,014
Change in redemption value of noncontrolling interests	—		355,670		—	—		—	—		(330,939)		(24,731)		—		(355,670)
Distribution paid to Common Units limited partners	—		(70,392)		—	—		—	—		—		—		—		—
Cash dividends on Class A Common Stock ($0.75 per share)	—		(174)		—	—		—	—		—		(36,845)		—		(36,845)
Balance at June 30, 2023	$	—	$	3,242,619	51,973	$	5	94,089	$	9	$	—	$	(902,446)	$	(3,325)	$	(905,757)

KINETIK HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND NONCONTROLLING INTERESTS

(Unaudited)


	Redeemable Noncontrolling Interest — Preferred Unit Limited Partners(2)		Redeemable Noncontrolling Interest — Common Unit Limited Partners		Class A Common Stock			Class C Common Stock			Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total Equity
					Shares(1)	Amount		Shares(1)	Amount

	(In thousands)				(In thousands)

For the Six Months Ended June 30, 2022
Balance at December 31, 2021	$	—	$	1,006,838	—	$	—	100,000	$	10	$	—	$	—	$	—	$	10
ALTM acquisition	462,717		—		32,493	3		—	—		1,013,742		—		—		1,013,745
Distributions paid to Preferred Unit limited partners	(6,937)		—		—	—		—	—		—		—		—		—
Distributions payable to Preferred Unit limited partners	(6,937)		—		—	—		—	—		—		—		—		—
Redemption of Common Units	—		(172,559)		5,550	1		(5,550)	(1)		172,559		—		—		172,559
Issuance of common stock through dividend and distribution reinvestment plan	—		—		2,504	—		—	—		87,697		—		—		87,697
Share-based compensation	—		—		4	—		—	—		18,304		—		—		18,304
Remeasurement of contingent consideration	—		—		—	—		—	—		4,451		—		—		4,451
Net income	114,495		28,039		—	—		—	—		—		10,303		—		10,303
Change in redemption value of noncontrolling interests	—		2,459,863		—	—		—	—		(1,296,753)		(1,163,110)		—		(2,459,863)
Distribution paid to Common Units limited partners	—		(70,891)		—	—		—	—		—		—		—		—
Cash dividends on Class A Common Stock ($0.75 per share)	—		—		—	—		—	—		—		(28,536)		—		(28,536)
Balance at June 30, 2022	$	563,338	$	3,251,290	40,551	$	4	94,450	$	9	$	—	$	(1,181,343)	$	—	$	(1,181,330)

For the Six Months Ended June 30, 2023
Balance at December 31, 2022	$	—	$	3,112,409	45,679	$	5	94,270	$	9	$	118,840	$	(958,629)	$	—	$	(839,775)
Redemption of Common Units	—		(5,634)		181	—		(181)	—		5,634		—		—		5,634
Issuance of common stock through dividend and distribution reinvestment plan	—		—		6,095	—		—	—		175,626		—		—		175,626
Retirement of treasury stock	—		—		—	—		—	—		—		(2,432)		2,432		—
Repurchase of Class A Common Stock	—		—		(194)	—		—	—		—		—		(5,757)		(5,757)
Share-based compensation	—		—		212	—		—	—		30,839		—		—		30,839
Net income	—		49,517		—	—		—	—		—		26,450		—		26,450
Change in redemption value of noncontrolling interests	—		227,459		—	—		—	—		(330,939)		103,480		—		(227,459)
Distribution paid to Common Units limited partners	—		(141,132)		—	—		—	—		—		—		—		—

KINETIK HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND NONCONTROLLING INTERESTS

(Unaudited)


	Redeemable Noncontrolling Interest — Preferred Unit Limited Partners(2)		Redeemable Noncontrolling Interest — Common Unit Limited Partners		Class A Common Stock			Class C Common Stock			Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total Equity
					Shares(1)	Amount		Shares(1)	Amount

	(In thousands)				(In thousands)
Cash dividends on Class A Common Stock ($0.75 per share)	—		—		—	—		—	—		—		(71,315)		—		(71,315)
Balance at June 30, 2023	$	—	$	3,242,619	51,973	$	5	94,089	$	9	$	—	$	(902,446)	$	(3,325)	$	(905,757)

(1)Share amounts have been retrospectively restated to reflect the Company’s Stock Split, which was effected on June 8, 2022. Refer to Note 10—Equity and Warrants in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for further information.

(2)Certain redemption features embedded within the Preferred Units require bifurcation and measurement at fair value. For further detail, refer to Note 12—Series A Cumulative Redeemable Preferred Units in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Commission on March 7, 2023.

The accompanying notes are an integral part of the condensed consolidated financial statements.

KINETIK HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

These condensed consolidated financial statements have been prepared by Kinetik Holdings Inc. (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). They reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for interim periods, on a basis consistent with the annual audited financial statements, with the exception of recently adopted accounting pronouncements. All such adjustments are of a normal recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10-Q should be read along with the Company’s audited financial statements and related notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 7, 2023.

1. DESCRIPTION OF THE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

BCP Raptor Holdco, LP (“BCP”), the Company’s predecessor for accounting purposes, was formed on April 25, 2017 as a Delaware limited partnership to acquire and develop midstream oil and gas assets. BCP’s primary operating subsidiaries are EagleClaw Midstream Ventures, LLC and CR Permian Holdings, LLC. Both subsidiaries were formed to design, engineer, install, own and operate facilities and provide services for produced natural gas gathering, compression, processing, treating and dehydration, and condensate separation, stabilization, and storage, crude oil gathering and storage and produced water gathering and disposal assets.

Altus Midstream Company (“ALTM”) was originally incorporated on December 12, 2016 in Delaware under the name Kayne Anderson Acquisition Corp. (“KAAC”) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. KAAC completed its initial public offering in the second quarter of 2017. On August 3, 2018, Altus Midstream LP was formed in Delaware as a limited partnership and wholly-owned subsidiary of KAAC and entered into a contribution agreement with certain affiliates of Apache Corporation (“Apache” and such affiliates the “Altus Midstream Entities”), formed by Apache between May 2016 and January 2017, for the purpose of acquiring, developing and operating midstream oil and gas assets in the Alpine High resource play and surrounding areas. On November 9, 2018, KAAC acquired all equity interests of the Altus Midstream Entities and changed its name to Altus Midstream Company.

On February 22, 2022 (the “Closing Date”), Kinetik Holdings Inc., a Delaware corporation (formerly known as Altus Midstream Company), consummated the previously announced business combination transactions contemplated by the Contribution Agreement, dated as of October 21, 2021 (the “Contribution Agreement”), by and among the Company, Altus Midstream LP (now known as Kinetik Holdings LP), a Delaware limited partnership and subsidiary of Altus Midstream Company (the “Partnership”), New BCP Raptor Holdco, LLC, a Delaware limited liability company (“Contributor”) and BCP. The transactions contemplated by the Contribution Agreement are referred to herein as the “Transaction.” In connection with the closing of the Transaction (the “Closing”), the Company changed its name from “Altus Midstream Company” to “Kinetik Holdings Inc.” Unless the context otherwise requires, “ALTM” refers to the registrant prior to the Closing and “we,” “us,” “our” and the “Company” refer to Kinetik Holdings Inc., the registrant and its subsidiaries following the Closing.

Through its consolidated subsidiaries, the Company provides comprehensive gathering, produced water disposal, transportation, compression, processing and treating services necessary to bring natural gas, NGLs and crude oil to market. Additionally, the Company owns equity interests in four separate Permian Basin pipeline entities that have access to various markets along the Texas Gulf Coast.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP. Certain reclassifications of prior year balances have been made to conform such amounts to current year presentation. These reclassifications have no impact on net income. All adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim periods are not necessarily indicative of results of operations for a

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full year; accordingly, you should read these condensed consolidated financial statements in conjunction with our consolidated financial statements and related notes included in our 2022 Form 10-K. All intercompany balances and transactions have been eliminated in consolidation.

Prior to the Closing, the Company’s financial statements that were filed with the SEC were derived from ALTM’s accounting records. As the Transaction was determined to be a reverse merger, BCP was considered the accounting acquirer and ALTM was the legal acquirer. The accompanying condensed consolidated financial statements herein include (1) BCP’s net assets carried at historical value, (2) BCP’s historical results of operations prior to the Transaction, (3) the ALTM’s net assets carried at fair value as of the Closing Date and (4) the combined results of operations with the Company’s results presented within the condensed consolidated financial statements from February 22, 2022 going forward. Therefore, the results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to Note 2—Business Combination to our condensed consolidated financial statements in this Form 10-Q for additional discussion.

The Company completed a two-for-one Stock Split on June 8, 2022. All corresponding per-share and share amounts for periods prior to June 8, 2022 have been retrospectively restated in this Form 10-Q to reflect the two-for-one Stock Split, except for the number of Common Units and shares of Class C Common Stock described above in relation to the Transaction, which are presented at pre-Stock-Split amounts. This presentation is consistent with our previous public filings and the terms of the Contribution Agreement.

Significant Accounting Policies

The accounting policies that we follow are set forth in Note 2 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our Annual Report. There were no significant updates or revisions to our accounting policies during the six months ended June 30, 2023.

Inventory

Other current assets include condensate, residue gas and NGLs inventories that are valued at the lower of cost or market. Inventory was valued at $7.3 million and $4.8 million as of June 30, 2023 and December 31, 2022, respectively.

Transactions with Affiliates

The accounts receivable from or payable to affiliates represent the net result of the Company’s monthly revenue, capital and operating expenditures, and other miscellaneous transactions to be settled with Apache and its subsidiaries, who controlled the Company prior to the Transaction. Accounts receivable from affiliates was $16.9 million and $17.6 million as of June 30, 2023 and December 31, 2022, respectively. Revenue from affiliates was $24.8 million and $30.5 million for the three months ended June 30, 2023 and 2022, respectively, and $50.1 million and $46.2 million for the six months ended June 30, 2023 and 2022, respectively. Accrued expense due to affiliates was immaterial as of June 30, 2023 and December 31, 2022. The Company incurred operating expenses with affiliates of $0.2 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively, and $0.4 million and $0.2 million for the six months ended June 30, 2023 and 2022, respectively.

The Company recorded cost of sales with an affiliate of $10.8 million and $3.4 million for the three months ended June 30, 2023 and 2022, respectively, and $25.4 million and $7.1 million, for the six months ended June 30, 2023 and 2022, respectively.

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2. BUSINESS COMBINATIONS

As of June 30, 2023, our allocation of purchase price for acquisitions made during 2023 and 2022 are detailed below:


	Acquisition Date	Acquisition	Considerations Transferred		Current Assets		Property Plant & Equipment		Intangible Assets		Other Long Term Assets		Goodwill		Liabilities		Noncontrolling Interest
			(In thousands)
(1)	Q1 2023	Midstream Infrastructure Assets and Incentive and Acceleration Agreement(a)	$	125,000	$	4,736	$	61,850	$	3,150	$	55,264	$	—	$	—	$	—
(2)	Q1 2022	Altus Midstream Company (“ALTM”)	$	1,013,745	$	38,750	$	634,923	$	13,200	$	1,752,500	$	5,077	$	(967,988)	$	(462,717)

(a)Consideration includes $65 million paid for certain midstream assets and the $60 million paid related to the incentive and acceleration agreement.

Midstream Infrastructure Assets

In the first quarter of 2023, the Partnership closed on a purchase and sale agreement for certain midstream assets for $65.0 million together with a new 20-year midstream service agreement. In addition, the Partnership entered into an incentive and acceleration agreement related to near term supplemental development activities on acreage dedicated for midstream services to affiliates of the Partnership. Such development activities will begin in 2023 and are subject to semi-annual performance milestones and subject to refund with consequential monetary penalty if not satisfied. Consideration for the incentive and acceleration agreement of $60.0 million was capitalized as a contract asset in accordance with ASC 606, of which $4.7 million was included in “Prepaid and Other Current Assets” and $55.3 million was included in “Deferred Charges and Other Assets” in the condensed consolidated balance sheet as of the date of acquisition. These transactions were accounted for as a business combination in accordance with ASC 805. Certain data necessary to complete the purchase price allocation is not yet available, including, but not limited to, the completion of the valuation of the underlying assets and liabilities assumed. The Company is continuing its review of these matters during the measurement period. Acquisition-related costs were immaterial for this transaction.

Altus Midstream Company

On February 22, 2022, the Company consummated the Transaction. Pursuant to the Contribution Agreement, in connection with the Closing, (i) Contributor contributed all of the equity interests of BCP and BCP Raptor Holdco GP, LLC, a Delaware limited liability company and the general partner of BCP (the “Contributed Entities”) to the Partnership; and (ii) in exchange for such contribution, the Partnership transferred to Contributor 50,000,000 common units representing limited partner interests in the Partnership and 50,000,000 shares of the Company’s Class C Common Stock, par value $0.0001 per share.

The Transaction was accounted as a reverse merger in accordance with ASC 805, which, among other things, requires assets acquired and liabilities assumed to be measured at their acquisition date fair value. During the 12-month measurement period following the acquisition date, the Company made necessary adjustments as information became available to the purchase price allocation, including, but not limited to, working capital and valuation of the underlying assets of the equity method investments. The Company recorded goodwill of $5.1 million as of December 31, 2022 related to operational synergies. The Company incurred acquisition-related costs of nil and $0.7 million for the three months ended June 30, 2023 and 2022, respectively, and nil and $6.4 million for the six months ended June 30, 2023 and 2022, respectively, related to the Transaction.

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3. REVENUE RECOGNITION

Disaggregation of Revenue

The following table presents a disaggregation of the Company’s revenue:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(In thousands)
Gathering and processing services	$	102,551	$	102,080	$	205,976	$	182,525
Natural gas, NGLs and condensate sales	191,430		229,651		365,254		404,579
Other revenue	2,222		3,841		6,013		5,717
Total revenues and other	$	296,203	$	335,572	$	577,243	$	592,821

There have been no significant changes to the Company’s contracts with customers during the three and six months ended June 30, 2023. The Company recognized revenues from minimum volume commitment (“MVC”) deficiency payments of $0.1 million and $0.3 million for the three months ended June 30, 2023 and 2022, respectively, and $1.2 million and $0.3 million for the six months ended June 30, 2023 and 2022, respectively.

Remaining Performance Obligations

The following table presents our estimated revenue from contracts with customers for remaining performance obligations that has not yet been recognized, representing our contractually committed revenues as of June 30, 2023:


	Amount

Fiscal Year	(In thousands)
Remaining of 2023	$	18,586
2024	53,639
2025	74,147
2026	56,166
2027	56,940
Thereafter	243,352
	$	502,830

Our contractually committed revenue, for purposes of the tabular presentation above, is generally limited to customer contracts that have fixed pricing and fixed volume terms and conditions, generally including contracts with payment obligations associated with MVCs.

Contract Liabilities

The following table provides information about contract liabilities from contracts with customers as of June 30, 2023:


	Amount

	(In thousands)
Balance at December 31, 2022	$	29,300
Reclassification of beginning contract liabilities to revenue as a result of performance obligations being satisfied	(4,331)
Cash received in advance and not recognized as revenue	6,872
Balance at June 30, 2023	31,841
Less: Current portion	7,306
Non-current portion	$	24,535

Contract liabilities relate to payments received in advance of satisfying performance obligations under a contract, which result from contribution in aid of construction payments. Current and noncurrent contract liabilities are included in “Other Current Liabilities” and “Contract Liabilities,” respectively, of the Condensed Consolidated Balance Sheets.

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Contract Cost Assets

The Company has capitalized certain costs incurred to obtain a contract that would not have been incurred otherwise. These costs are recovered through the net cash flows of the associated contract. As of June 30, 2023 and December 31, 2022, the Company had contract acquisition cost assets of $74.5 million and $17.8 million, respectively. Current and noncurrent contract cost assets are included in “Prepaid and Other Current Assets” and “Deferred Charges and Other Assets,” respectively, of the Condensed Consolidated Balance Sheets. The Company amortizes these assets as cost of sales on a straight-line basis over the life of the associated long-term customer contracts. The Company recognized cost of sales associated with these assets of $1.7 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively, and $3.3 million and $0.9 million for the six months ended June 30, 2023 and 2022, respectively.

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at carrying value, is as follows:


	June 30,		December 31,
	2023		2022

	(In thousands)
Gathering, processing, and transmission systems and facilities	$	3,017,501	$	2,904,084
Vehicles	11,674		9,290
Computers and equipment	6,048		4,289
Less: accumulated depreciation	(547,712)		(474,258)
Total depreciable assets, net	2,487,511		2,443,405
Construction in progress	182,348		70,325
Land	22,047		21,482
Total property, plant, and equipment, net	$	2,691,906	$	2,535,212

The cost of property classified as “Construction in progress” is excluded from capitalized costs being depreciated. These amounts represent property that is not yet available to be placed into productive service as of the respective reporting date. The Company recorded $38.9 million and $36.6 million of depreciation expense for the three months ended June 30, 2023 and 2022, respectively, and $77.3 million and $67.5 million of depreciation expense for the six months ended June 30, 2023 and 2022, respectively. There were no triggering events for property, plant and equipment during the three and six months ended June 30, 2023 and 2022.

5. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

Goodwill totaled $5.1 million as of June 30, 2023 and December 31, 2022. The goodwill of $5.1 million is within the Midstream Logistics segment, and pertains to excess of the purchase price over net assets acquired in connection with the Transaction.

Goodwill is tested at least annually as of November 30 of each year, or more frequently as events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. Company’s management assesses whether there have been events or circumstances that trigger the fair value of the reporting unit to be lower than its net carrying value since consummation of the Transaction and concluded that goodwill was not impaired as of June 30, 2023.

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Intangible Assets

Intangible assets, net, are comprised of the following:


	June 30,		December 31,
	2023		2022

	(In thousands)
Customer contracts	$	1,142,278	$	1,137,831
Right of way assets	138,660		127,539
Less accumulated amortization	(631,041)		(569,981)
Total amortizable intangible assets, net	$	649,897	$	695,389

The fair value of acquired customer contracts was capitalized as a result of acquiring favorable customer contracts as of the closing dates of certain past acquisitions and is being amortized using a straight-line method over the remaining term of the customer contracts, which range from one to twenty years. Right-of-way assets relate primarily to underground pipeline easements, have a useful life of ten years and are amortized using the straight-line method. The right of way agreements are generally for an initial term of ten years with an option to renew for an additional ten years at agreed upon renewal rates based on certain indices or up to 130% of the original consideration paid.

On June 30, 2023, remaining weighted average amortization periods for customer contracts and right of way assets were approximately 7.20 years and 6.90 years, respectively. Overall remaining weighted average amortization period for the intangible assets as of June 30, 2023 was approximately 7.16 years.

The Company recorded $30.6 million and $30.0 million of amortization expense for the three months ended June 30, 2023 and 2022, respectively, and $61.1 million and $60.1 million of amortization expense for the six months ended June 30, 2023 and 2022, respectively. There was no impairment recognized on intangible assets for the three and six months ended June 30, 2023 and 2022.

6. EQUITY METHOD INVESTMENTS

As of June 30, 2023, the Company owned investments in the following long-haul pipeline entities in the Permian Basin. These investments were accounted for using the equity method of accounting. For each EMI pipeline entity, the Company has the ability to exercise significant influence based on certain governance provisions and its participation in the significant activities and decisions that impact the management and economic performance of the EMI pipeline. The table below presents the ownership percentages and investment balances held by the Company for each entity:


		June 30,		December 31,
	Ownership	2023		2022

		(In thousands)
Permian Highway Pipeline LLC ("PHP")	53.3%	$	1,603,140	$	1,474,800
Breviloba, LLC ("Breviloba")	33.0%	448,816		455,057
Gulf Coast Express Pipeline LLC ("GCX")	16.0%	438,156		451,483
		$	2,490,112	$	2,381,340

Additionally, as of June 30, 2023, the Company owned 15.0% of Epic Crude Holdings, LP (“EPIC”). However, no dollar value was assigned through the Transaction’s purchase price allocation as an adjustment was made to eliminate equity in losses of EPIC. No additional contribution was made to EPIC and no distribution or equity income was received from EPIC during the three and six months ended June 30, 2023.

The unamortized basis differences included in the EMI pipeline balances were $356.1 million and $363.2 million as of June 30, 2023 and December 31, 2022, respectively. These amounts represent differences in the Company’s contributions to date and the Company’s underlying equity in the separate net assets within the financial statements of the respective entities. Unamortized basis differences will be amortized into equity income over the useful lives of the underlying pipeline assets. There was capitalized interest of $17.5 million and $13.4 million as of June 30, 2023 and December 31, 2022, respectively. Capitalized interest is amortized on a straight-line basis into equity income.

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The following table presents the activity in the Company’s EMIs for the six months ended June 30, 2023:


	Permian Highway Pipeline LLC		Breviloba, LLC		Gulf Coast Express Pipeline LLC		Total


	(In thousands)
Balance at December 31, 2022	$	1,474,800	$	455,057	$	451,483	$	2,381,340
Acquisitions	—		—				—
Contributions	150,331		—		—		150,331
Distributions	(88,395)		(21,467)		(32,161)		(142,023)
Capitalized interest	4,390		—		—		4,390
Equity income, net(1)	62,014		15,226		18,834		96,074

Balance at June 30, 2023	$	1,603,140	$	448,816	$	438,156	$	2,490,112

(1)For the six months ended June 30, 2023, net of amortization of basis differences and capitalized interests, which represents undistributed earnings, the amortization was $3.7 million from PHP, $0.3 million from Breviloba, LLC and $3.1 million from GCX.

Summarized Financial Information

The following tables represent selected data for the Company’s EMI pipelines (on a 100 percent basis) for the three and six months ended June 30, 2023 and 2022.


	Three Months Ended June 30,
	2023						2022
	Permian Highway Pipeline LLC		Breviloba, LLC		Gulf Coast Express Pipeline LLC		Permian Highway Pipeline LLC		Breviloba, LLC		Gulf Coast Express Pipeline LLC

	(In thousands)
Revenues	$	99,095	$	46,641	$	90,860	$	98,808	$	50,091	$	90,769
Operating income	63,507		22,547		66,256		61,294		25,359		64,816
Net income	64,342		22,651		66,400		61,307		25,284		64,461


	Six Months Ended June 30,
	2023						2022
	Permian Highway Pipeline LLC		Breviloba, LLC		Gulf Coast Express Pipeline LLC		Permian Highway Pipeline LLC		Breviloba, LLC		Gulf Coast Express Pipeline LLC


	(In thousands)
Revenues	$	191,935	$	92,542	$	180,608	$	196,664	$	98,612	$	180,742
Operating income	120,312		44,496		131,472		120,770		51,672		128,259
Net income	124,032		44,863		137,491		120,520		51,651		127,990

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7. DEBT AND FINANCING COSTS

The following table summarizes the Company’s debt obligations as of June 30, 2023 and December 31, 2022:


	June 30,		December 31,
	2023		2022

	(In thousands)
$2.0 billion unsecured term loan	$	2,000,000	$	2,000,000
$1.0 billion 2030 senior unsecured notes	1,000,000		1,000,000
$1.25 billion revolving line of credit

Kinetik Holdings Inc. [ALTMW] Filings
Kinetik Holdings Inc. [KNTK] Filings
10-Q	[2023-08-08]
10-Q	[2023-05-04]
10-K	[2023-03-07]
10-Q	[2022-11-09]
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-K	[2022-02-22]
10-Q	[2021-11-05]
10-Q	[2021-08-05]
10-Q	[2021-05-10]
10-K	[2021-02-26]
10-Q	[2020-11-05]
10-Q	[2020-07-30]
10-Q	[2020-05-07]
10-K	[2020-03-16]
10-Q	[2019-10-31]
10-Q	[2019-08-01]
10-Q	[2019-05-02]
10-K	[2019-03-01]
10-Q	[2018-11-07]
10-Q	[2018-07-27]
10-Q	[2018-05-11]
10-K	[2018-03-27]
10-Q	[2017-11-13]
10-Q	[2017-08-14]
10-Q	[2017-05-15]
S-1	[2017-03-07]

Kinetik Holdings Inc. [ALTMW] Filings

Kinetik Holdings Inc. [KNTK] Filings