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Kinetik Starts a Different Sort of Border Conflict

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Kinetik (KNTK) has started service on a new pipeline that extends the company’s West Texas G&P system into New Mexico, posing new competition for some midstream names in the heart of the Delaware Basin.

During the company’s 4Q23 earnings call, executives revealed KNTK completed the pipeline extension on January 18, 2024. The new rich-gas pipeline runs 20 miles north into Lea County, NM.

KNTK will gather volumes on its G&P “super-system” in West Texas, comprised of the Raptor and Alpine High systems. The two gathering systems combined have 2.0 Bcf/d of processing capacity across five complexes. According to KNTK, the expansion is backed by a long-term gathering and processing agreement with a large-cap counterparty that includes a significant minimum volume commitment.

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East Daley Analytics has tracked Kinetik since the company went public in February 2022, combining the former Altus Midstream with BCP Raptor, the owner of EagleClaw Midstream. We were bullish on the merger, which created the largest pure-play midstream company in the Permian Basin. Since forming the company, Kinetik has added new pipelines to interconnect the Raptor and Alpine High systems.

Kinetik also has built front-end amine treating at all its processing facilities, enabling the expansion into New Mexico. Much of the gas produced in the northern Delaware is “off-spec” due to high CO2 and H2S content.

According to system data in Energy Data Studio, Kinetik exited 2023 at flows of ~1.56 Bcf/d on its Delaware super-system, in line with our forecast in the KNTK Financial Blueprint. Assuming the new 20-inch pipe into New Mexico will bring 200-250 MMcf/d onto the system, KNTK is well situated to handle additional volumes using spare processing capacity.

The additional volumes and margin from treating fees will add to Kinetik’s bottom line. Based on the KNTK Financial Blueprint, EDA estimates the company would see a 5% lift to Adj. EBITDA in the Midstream Logistics segment and a 3% increase to total EBITDA from the extension project, assuming average volumes of 200 MMcf/d.

As a new entrant into southern Lea County, Kinetik could siphon volumes from established G&P systems in the area. Given its location, the pipeline extension will most likely impact volumes from Targa Resources’ (TRGP) Lucid and EnLink Midstream’s (ENLC) Delaware systems. Both gather substantial volumes from a diverse group of producers in southern Lea County, NM. Users in Energy Data Studio can screen these and other G&P systems in the Delaware Basin to better understand counterparty risk. –James Taylor Tickers: ENLC, KNTK, TRGP.


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