The Daley Note: May 19, 2023
Kinetik (KNTK) will likely begin marketing its 16% share in Gulf Coast Express Pipeline (GCX) this quarter, CEO Jamie Welch said on the company’s 1Q23 earnings call. We estimate KNTK could fetch around $550MM for the stake.
Operated by Kinder Morgan (KMI), GCX is one of the premier natural gas egress pipelines out of the Permian Basin. The pipeline can move up to 2.0 Bcf/d of natural gas to South Texas markets.
KNTK management noted it is ready to formally start exploring a sale and expects the process to take around three months. This means we could see the announcement of a sale by the end of 2Q23. KNTK in 2022 earned ~$50MM in Adj. EBITDA for its GCX interest.
The recent sale by Targa Resources (TRGP) of its GCX stake is a good benchmark for what KNTK is likely to receive. In May 2022, TRGP sold its 25% interest in GCX to ArcLight Capital Partners for $857MM. According to East Daley’s KNTK and TRGP Financial Blueprints, the sale represented a ~10.5x multiple based on 2021 GCX Adj. EBITDA of $325MM.
We forecast GCX to earn Adj. EBITDA of $329MM in 2023 (see figure). Assuming the same EBITDA multiplier of 10-11x, KNTK could fetch a price of around $550MM for its GCX stake. KNTK said sales proceeds from a sale would be used to pay down debt and move toward its 3.5x leverage goal.
KNTK would be less diversified after a sale of the GCX interest, and more reliant on the G&P segment for growth. This brings associated volume risk. KNTK does expect some uplift on the G&P side from new minimum volume commitments (MVCs) and gathering expansions in New Mexico, in addition to the upcoming expansion of Permian Highway Pipeline (PHP), which should help offset lost earnings from GCX. – James Taylor & Maria Paz Urdaneta Tickers: KMI, KNTK, TRGP.
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