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Gulf Coast Express Stake Still on the Block

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The Daley Note: December 1, 2023

Kinetik (KNTK) continues to explore the sale of its stake in Gulf Coast Express Pipeline (GCX).

KNTK announced its intention to sell the 16% stake in GCX back in May, as part of its 1Q23 earnings. At the time, the company said it hoped the process would take three months. Management did not give a timeline in its latest 3Q23 earnings update, but the transaction “is something that we are actively trying to get across the finish line,” CEO Jamie Welch told investors.

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Operated by Kinder Morgan (KMI), Gulf Coast Express can deliver up to 2 Bcf/d of natural gas from the Permian Basin to South Texas. The GCX stake contributed ~$50MM in Adj. EBITDA to KNTK in 2022, according to the Kinetik Financial Blueprint. East Daley Analytics forecasts 2023 EBITDA of just over $53MM from the asset in the KNTK Blueprint (see figure).

Proceeds from the GCX sale would accelerate the timing for Kinetik to reach its 3.5x leverage goal, as well as moderate dilution from the company’s dividend reinvestment plan for shareholders.

In May 2022, Targa Resources (TRGP) sold its 25% interest in GCX for $857MM to ArcLight Capital Partners. The price represented an ~10X EBITDA multiple based on 2022 earnings, setting a benchmark for the value KNTK could potentially receive in a sale. EDA previously estimated the pipeline stake could be worth $550MM to Kinetik.

Selling the GCX stake would make Kinetik more reliant on revenue and growth from its Gathering and Processing business, which has associated volume risk. As detailed in the company Financial Blueprint, KNTK should see some uplift on the G&P side from new minimum volume contracts (MVCs) and a planned gathering expansion into New Mexico. The upcoming expansion of Permian Highway Pipeline, set to come online in December 2023, would also help offset lower revenues from the GCX sale. – James Taylor Tickers: KMI, KNTK, TRGP.



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