Detailed narrative
Strategic Progress in 2025
Despite challenging operating conditions, Kinetik delivered year-over-year EBITDA growth and executed foundational initiatives. This included the bolt-on acquisition of Barilla Draw gathering assets, enhancing the Delaware South footprint. Kings Landing achieved full commercial in-service with a 99.8% run time and reliable performance, leading to the FID on the Kings Landing sour gas conversion project, expected in service by year-end 2026 to increase acid gas injection capacity to over 31 MMcf/d.
The ECCC Pipeline remains on schedule for in-service next quarter, connecting Eddy and Culberson Counties.
Commercial Advancements and Customer Alignment
Kinetik amended gas gathering and processing agreements with its two largest legacy Durango Midstream customers, extending terms into the mid-2030s and enhancing cash flow visibility through fixed fee structures. These amendments are expected to increase EBITDA starting in 2026 and strengthen long-term customer alignment, positioning Kinetik for growth in sour gas benches.
A Delaware South G&P agreement was also amended to shift residue gas pricing from Waha to premium Gulf Coast markets, reducing Waha exposure. Long-term agreements with CPV and INEOS were executed, and a new agreement for Lea County services is being finalized.
Waha Exposure Management and Market Outlook
The company anticipates continued Waha price volatility in 2026, modeling approximately 100 MMcf/d of Waha price-related production shut-ins, primarily during pipeline maintenance periods. Kinetik is utilizing its Gulf Coast transport capacity to offset financial impacts, having hedged about 40% of its transport spread exposure.
The industry is bringing online approximately 5 Bcf/d of incremental Permian egress by Q1 FY27, with additional projects like Eiger Express and Desert Southwest slated for 2028 and 2029, which are expected to provide Waha price relief.
Revised Capital Allocation Framework
Kinetik has shifted to a growth-oriented capital allocation framework, prioritizing high-return projects with multiyear visibility. This includes elevated growth capital budgets, targeting leverage between 3.5x and 4x. The company plans annual dividend increases of 3% to 5% until dividend coverage reaches 1.6x, after which increases will track earnings growth.
Share repurchases will be opportunistic and lower in the near term due to elevated CapEx, but are expected to increase as free cash flow steps up. Preserving balance sheet flexibility and investment-grade ratings remain objectives.
Permian Basin and Gulf Coast Demand
Permian natural gas production is projected to grow nearly 4% annually through 2030, supported by rising GORs (Delaware Basin GORs projected to increase nearly 70% over the next couple of decades) and attractive gas-rich plays. Accelerating ERCOT power generation demand, driven by data centers, creates substantial upside for gas-fired power in West Texas.
The U.S. Gulf Coast remains a strong demand story, with LNG capacity expansions expected to increase gas demand by nearly 12 Bcf/d through 2030, for which Kinetik's system is a critical link.
Behind-the-Meter Power Generation Initiative
Kinetik reached FID on its first behind-the-meter 40-megawatt gas-fired power generation project at the Diamond Cryo facility. The project, requiring less than $25 million of capital, is expected to be in service in late 2026. It aims to provide a scalable, cost-efficient power solution, reduce operating costs, and enhance reliability, with potential for replication at other processing facilities in Delaware South.
The 40 MW capacity is for self-consumption, with potential for future expansion to 60 MW and sales to the grid.
Delaware South System Growth
The Delaware South system is demonstrating strong growth, with volumes normalized for📎 curtailments growing at 10% year-over-year, surpassing broader Permian averages. This growth is attributed to the commercial team's expansion efforts in New Mexico and Southern Lea County, as well as the ongoing deconsolidation theme leading to asset sales and farm-ins.
Deeper zones in the South are also being tested, with 7 wells on schedule in 2026 contributing significant gas volumes, indicating a promising trend for gas midstream players.