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Kinetik Extends Reach in Delaware with Durango Midstream Purchase

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Kinetik (KNTK) will acquire Durango Midstream’s Permian Basin assets for $765MM in stock and cash, extending the company’s reach further north in the Delaware Basin. KNTK also reached a deal to sell its stake in Gulf Coast Express Pipeline (GCX) to help fund the purchase.

The total consideration includes $315MM in cash and 11.5MM shares of Kinetik Class C common stock, KNTK said in the announcement last Thursday (May 9). Durango Midstream operates in Lea and Eddy counties in New Mexico. The deal for Durango will add 420 MMcf/d of gas processing capacity (200 MMcf/d is still under construction) to KNTK’s G&P business.

Kinetik also announced the sale of its 16% interest in GCX to ArcLight Capital Partners LLC for $540MM. The deal with ArcLight represents a 9.6x 2024 EBITDA multiple, according to East Daley Analytics’ KNTK Financial Blueprint, while KNTK reports a 10.4x multiple on the sale. KNTK expects to close both the Durango acquisition and the GCX sale in 2Q24.

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KNTK had sought a buyer for the GCX stake for over a year in a bid to raise cash and reach its 3.5x leverage target. East Daley had estimated the GCX stake could be worth $550MM. ArcLight Capital Partners already owns 25% of GCX after purchasing Targa Resources’ (TRGP) interest in 2022.

Clients can research Durango and Kinetik’s G&P systems in the “G&P System Analysis” dashboard in Energy Data Studio, including historical rig counts, system volumes, and the top producers on the assets (see Figures 1 and 2).

Durango’s northern Delaware Basin assets include 2,400 miles of gas gathering lines and 220 MMcf/d of processing capacity, split between the Dagger Draw and Maljamar gas plants. Durango is also building 200 MMcf/d of capacity at the Kings Landing complex. The company in November ’23 announced a Phase II expansion at Kings Landing that could add another 200 MMcf/d of nameplate capacity. We expect Phase II would only enter service in 2026 or later.

In Energy Data Studio, East Daley estimates current throughput of just over 200 MMcf/d for the Durango assets, compared to 1.53 Bcf/d for KNTK’s G&P systems. Durango’s largest customers include Mewbourne Oil and Spur Energy Partners).

KNTK said it has also entered into a 15-year “New Eddy County Agreement” with one of its largest customers in Eddy County, NM to provide low- and high-pressure gathering and processing services. Under the agreement, KNTK expects to spend $200MM on new gathering infrastructure through 2026. KNTK’s primary customers in Eddy County are Permian Resources (PR) and EOG Resources (EOG), as shown in Energy Data Studio.

We believe the deal for Durango makes strategic sense for Kinetik. Durango expands KNTK’s footprint across the entire Delaware Basin, giving the company access to some of the most active acreage in New Mexico. The control of residue gas and NGL volumes from the acquired assets will also provide a boost to KNTK’s Pipeline Transportation segment (Shin Oak, Permian Highway) going forward. – James Taylor Tickers: EOG, KNTK, PR, TRGP.


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