Q4 2024 Kinetik Holdings Inc Earnings Call
Jo Keslowski, London, TIME There's Nothing We Can't Do
Thank you for watching.
Victoria: Good morning. Thank you for attending today's Kinetic Fourth Quarter and Full Year 2024 results. My name is Victoria and I'll be your moderator today. All lines will be muted during the presentation portion of the call with the opportunity for questions and answers at the end. If you'd like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the call over to Alex Durkee.
Alex Durkee: Thank you. Good morning and welcome to Kinetic's fourth quarter and full year 2024 earnings and full year 2025 guidance conference call. Our speakers today are Jamie Welch, President and Chief Executive Officer and Trevor Howard, Chief Financial Officer. Other members of our senior management team are also in attendance for this morning's call.
Alex Durkee: Before we begin, I would like to remind all listeners that our remarks, including the question and answer section, will provide forward-looking statements, and actual results could differ from what is described in these statements. These statements are not guarantees of future performance and involve a number of risks and assumptions.
Alex Durkee: We may also provide certain performance measures that do not conform to U.S. GAAP. We have provided schedules that reconcile these non-GAAP measures as part of our earnings press release. After our prepared remarks, we will open the line for Q&A. With that, I will turn the call over to Jamie.
Jamie Welch: Thank you, Alex. Good morning, everyone. Thank you for joining our call today. Yesterday, we reported our fourth quarter and full year 2024 results and provided our 2025 financial guidance and outlook.
Alex Durkee: We look forward to discussing each in more detail with you this morning.
Alex Durkee: 2024 was another transformational year for Kinetic, marked by highly strategic M&A and organic growth.
Alex Durkee: We substantially expanded our footprint across the Delaware Basin, and at the same time achieved significant milestones in our capital allocation framework.
Alex Durkee: This was the first step in a broader vision of becoming a market leader in the Northern Delaware.
Alex Durkee: In March, we put a stock overhang behind us with Apache exiting its remaining ownership stake in Kinetic.
Alex Durkee: This last trade nearly doubled our public float and created an opportunity for existing and new shareholders to participate in the kinetic growth story in a more meaningful way.
Alex Durkee: In May, we announced $1 billion of highly strategic and accretive transactions that furthered our expansion into New Mexico.
Alex Durkee: which was primarily funded by the sale of about 16% non-operated, non-core stake in GCX. Positioned Kinetic for future opportunities like never before.
Alex Durkee: Importantly, upon closing these transactions we reduced our leverage by nearly half a turn to 3.4 times, falling below our communicated leverage target.
Alex Durkee: During the third quarter we announced the sanctioning of pre-FID work for King's Landing 2.
Alex Durkee: to support continued development of the resource in the Northern Delaware. We also increased our equity interest in Epic Crude to 27.5% ownership in a series of transactions that support the pipe's continued growth and strengthen its financial profile.
Alex Durkee: To close out the year, we announced the ECCC pipeline between our Delaware North and Delaware South positions Which will allow us to flow sweet rich gas South
and process higher margin sour gas across our northern assets.
Alex Durkee: We also announced the strategic bolt-on acquisition of the Borilla Draw assets from Permian Resources.
Alex Durkee: And with a backdrop of strength and visibility in our business in 2025 and beyond, we increased our cash dividend by 4%, accelerating our return of capital to shareholders for the first time as a company, and we were also placed on positive outlook by S&P.
Now, addressing our fourth quarter results.
Alex Durkee: The quarter was temporarily impacted by unexpected events in November that resulted in a $15 million
Alex Durkee: Lastly, driven by the associated volume curtailment impacts from negative Waha gas prices in November and the restricted operating mode for several of our plants in Texas for the first half of the month.
Alex Durkee: Normalizing fourth quarter earnings for this headwind, four-year adjusted EBITDA would have been above the midpoint of our revised guidance range.
Alex Durkee: While Trevor will provide more context on fourth quarter results shortly, it's important to note that the management team has implemented new risk measures and processes to prevent this from happening in the future.
Alex Durkee: By late December, alpine high volumes had rebounded to levels not seen since early 2024, prior to when the curtailments began.
Alex Durkee: The last two months have marked a strong rebound in operational and financial performance at the company with adjusted EBITDA averaging well over 1.05 billion dollars on an annualized basis
Alex Durkee: Moving on to four-year results we reported record volume growth and earnings.
Alex Durkee: Average gas process volumes of 1.64 billion cubic feet per day were up 13% year-over-year. Adjusted EBITDA of $971 million represents a 16% increase year-over-year.
and an 18% increase when normalizing for November impacts.
Alex Durkee: We reported 2024 capital expenditures of $265 million, approximately $15 million below the midpoint, and $5 million below the low end of our guidance range.
Alex Durkee: Looking ahead to 2025 and beyond, Kinetic's pure play footprint in the most prolific basin and in its close proximity to the largest natural gas and natural gas liquids demand hubs in the world.
positions us at the epicenter of a long-term supply-push-demand-pull dynamic.
Alex Durkee: Permian supply, U.S. Gulf Coast demand are growing at mid-single-digit compound annual growth rates through the end of the decade.
Alex Durkee: At the current trajectory, approximately 10 billion cubic feet per day of additional processing capacity is needed to keep up with the pace of growth.
Alex Durkee: Over 5.5 billion cubic feet per day of capacity has been sanctioned in the Permian and is expected to be placed in service in the next several years.
Alex Durkee: implying an additional 20 to 25 unannounced Permian processing plants still needed by 2030.
Alex Durkee: The significant growth out of the Permian will help meet the demand needs in the U.S. Gulf Coast.
Alex Durkee: LNG exports are expected to more than double by 2030 and drive approximately 75% of the nearly 18 billion cubic feet per day expected natural gas demand growth in the region.
Alex Durkee: Increased industrial and power demands, as well as growing exports to Mexico, would make up the balance.
Alex Durkee: Gulf Coast exports of ethane and LPGs are also growing at mid-single-digit compound annual rates as global demand for feedstock increases, predominantly supported by ethylene and PDH capacity additions in China.
Alex Durkee: Given the cost inflation we have seen in power prices over the last several years, we believe our ability to manage electricity OPEX is going to become even more critical over the balance of this decade.
Alex Durkee: Which is why we are exploring a behind-the-meter, greenfield, large-scale, gas-fired power generation facility and distribution network in Reeves County, Texas.
Alex Durkee: A behind-the-meter solution would allow us to reduce ongoing electricity costs and be able to capitalize on the persistent and expected WAHA natural gas price volatility.
Alex Durkee: While the project is still in its early stages, this is something we and others are really excited about. We're in conversations with potential partners with the intent to pursue a joint venture structure.
Alex Durkee: The project could reach FID as early as this year, and we look forward to sharing more as we advance this opportunity.
I'm incredibly proud of what our team has accomplished.
Alex Durkee: Since closing the merger in February of 2022, we have a proven track record of compound annual double-digit adjusted EBITDA growth and expect to continue this multi-year growth journey in 2025 and beyond.
Alex Durkee: This earnings growth trajectory, coupled with disciplined capital deployment, reinforces Kinetic's position as a best-in-class leader in the Delaware Basin and the midstream industry.
Alex Durkee: And with that, I'll now hand the call over to Trevor to discuss our financial results and 2025 guidance in more detail.
Trevor Howard: Thanks, Jamie. In the fourth quarter, we reported adjusted EBITDA of $237 million. We generated distributable cash flow of $155 million and free cash flow was $32 million.
Trevor Howard: Looking at our segment results, our midstream logistics segment generated and adjusted EBITDA of 150 million dollars in the quarter, up 3% year over year on volume growth, but down sequentially by 14%.
As Jamie mentioned earlier, November was a difficult month.
Trevor Howard: where the average gas daily price at Waha was negative $1.40 per MMBTU.
Trevor Howard: for the first 15 days in November due to scheduled maintenance on several intrastate gas pipelines, including Permian Highway Pipeline.
Trevor Howard: Negative gas prices at Waha led to the continuation of Alpine High's volume curtailments.
Due to maintenance work and commissioning activities.
Trevor Howard: This created equity residue gas exposure at Waha which we typically do not have, further negatively impacting our gross margin.
Trevor Howard: We have implemented measures and processes to prevent this operational headwind from happening in the future.
Trevor Howard: Importantly, we were back on track by the beginning of December. Gas process volumes have performed well, averaging over 1.8 billion cubic feet per day for December and January.
Trevor Howard: Annualized adjusted EBITDA for October and December was approximately 1.04 billion dollars, further demonstrating the unique nature of the events in November.
Trevor Howard: Shifting to our pipeline transportation segment, we generated adjusted EBITDA of $92 million, up nearly 9% year-over-year.
Trevor Howard: Growth within the segment was largely driven by a full quarter contribution from the additional 12.5% ownership of Efta Crude.
Trevor Howard: Volume growth at Kinetic NGL, and contributions from the PHP expansion and Delaware Link, partially offset by no contribution from GCX following the sale earlier in the year.
Total capital expenditures for the quarter were $107 million.
Trevor Howard: For the full year, we reported adjusted EBITDA of $971 million, $657 million of distributable cash flow, and $410 million of free cash flow.
Trevor Howard: We exited the year with a 3.4 times leverage ratio per our credit agreement down 0.6 times year over year.
Trevor Howard: Specifically within midstream logistics segment, our key assumptions include approximately 20% growth in gas processed volumes across the system outpacing broader Permian growth.
Trevor Howard: We anticipate the 220 million cubic feet per day King's Landing complex to start up in late June at nearly 50% utilized as the curtailments across the northern Delaware system today come online. We expect to ramp to full capacity over the balance of the year.
Trevor Howard: 2025 estimates include the recently acquired Berea Draw assets and the large Eddy County project.
Trevor Howard: The Eddy County Project commenced gathering services in December and will extend to processing when the King's Landing Complex is operational.
Trevor Howard: Approximately 83% of our 2025 expected gross profit is sourced from fixed-fee agreements.
Trevor Howard: As of today, we have hedged approximately 75% of our remaining commodity-exposed gross profit in 2025, implying only 4% of total gross profit is unhedged and directly related to commodity prices.
Trevor Howard: Our midstream logistics adjusted EBITDA grew 13% year-over-year in 2024 and we anticipate accelerating that level of growth to over 20% year-on-year.
Trevor Howard: The pipeline transportation segment will have a full-year benefit from the incremental 12.5% equity interest in Epic Route, which was purchased in the third quarter of 2024.
Trevor Howard: Our forecast also calls for further growth at our wholly owned Intrabasin Pipeline, Kinetic NGL, and Delaware Link.
Trevor Howard: These year-over-year growth contributions will be partially offset by no contributions from GCX following the sale in June of 2024.
Trevor Howard: On 2025 capital guidance, we expect aggregate capital to be between $450 million to $540 million, inclusive of up to $75 million of contingent consideration to the Durango Cellar, Morgan Stanley Energy Partners.
Trevor Howard: The contingent consideration payment is tied to the actual cost of the King's Landing Complex and to the extent that total CapEx exceeds the original estimates, the $75 million contingent consideration is reduced.
Trevor Howard: Our guidance also includes capital to construct the ECCC pipeline, continue the build-out of the low and high pressure gathering system in Eddy County, integrate the Berea Draw assets, and pre-FID work on King's Landing 2.
Speaker Change: As I mentioned earlier, we were $15 million below the midpoint of our 2024 CapEx guidance.
Speaker Change: This expected spend effectively shifts to the right and is now part of our 2025 capital guidance.
Speaker Change: Adjusting for this shift as well as the increase to current market steel prices for the potential steel tariffs.
Speaker Change: 2025 capital expenditures prior to the potential $75 million of contingent consideration are in line with our previous communications of being towards the high end of our long-term CapEx range.
Speaker Change: Strong execution across our growth objectives throughout 2025 positions kinetic for an even more successful future.
Speaker Change: With adjusted EBITDA growth accelerating through the year, as projects come online and volumes continue to ramp, we expect Q4 2025 annualized adjusted EBITDA to exceed $1.2 billion.
Speaker Change: We have demonstrated our success in investing in highly accretive, capital efficient projects that drive earnings growth. We will continue to invest in projects that not only drive attractive EBITDA growth, but also support our discipline and appropriate leverage target of 3.5 times.
Speaker Change: This balanced approach positions us well for near-term investment grade rating upgrades.
Speaker Change: We remain committed to this framework as we believe it maximizes shareholder value.
Speaker Change: It also provides financial flexibility for opportunistic capital deployment to attractive inorganic opportunities and accelerated returns through annual ratable dividend increases and opportunistic share of purchases.
Speaker Change: And with that, I would like to open the line for Q&A.
Speaker Change: We will now begin the question and answer session. In the interest of time, we ask that everyone limit themselves to one question and one follow-up and then return to the queue. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one.
Speaker Change: As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question.
Speaker Change: Our first question comes from the line of Spyro Dunis with Citi. Your line is now open.
Spyro Dunis: Thanks Operator, morning team. I wanted to start first with a new data point in the slides. You guys referred to this sort of 10% EBITDA CAGR over the next five years. So just curious, as you think about the infrastructure needed to build out
Speaker Change: to get you there. What's that going to take? Just trying to get a sense of the execution risk to achieve that target.
Speaker Change: Bureau, Jamie, good morning. All right so I think if you go look at our slides we said the basin is going to grow around 6% on a supply basis.
Speaker Change: Over and above the overall supply growth that we see more broadly in the in the Delaware
Speaker Change: As we think about our overall forecast right now on what we see, obviously King's Landing 2 is probably
Speaker Change: We have embedded within our business not just obviously the top-line growth from a commercial standpoint
Speaker Change: But we also have, you know, structural changes being the NGL contract roll offs. They start in 26, they go on to 27, they go on to 28, and actually even on the commitment side they change in 29.
Speaker Change: That creates, obviously, incremental EBITDA opportunity and growth, and as we pointed out on the prepared remarks, you know, electricity OPEX, you know, our labor cost is sort of a 4% growth rate and has been now for the last few years, certainly post-COVID.
Speaker Change: However, electricity and compression, as you guys know, particularly for those of you on the phone, have been growing at much higher rates.
Speaker Change: And so Matt and the Ops team have been looking at this saying, this is something that we want to actually go and really attack.
Speaker Change: We see an opportunity to actually create controlled cost as opposed to non-controllable cost. And we can see an opportunity to deploy some capital and see set up multiples not different
Speaker Change: We're no different than what we have with our organic growth, sort of in that five to six times set up multiple. And that would be reduction in OPEX, which again would flow to the bottom line as far as EBITDA.
Speaker Change: That's right now our toolkit and just taking that I think really gets you this consistent growth rate on a multi-year basis through the end of the decade.
Speaker Change: So I don't think there's a whole lot of execution risk, sorry Sparrow on this. I think this is really, a lot of it sits within in-house.
Jamie: Got it. Okay, that's good to hear. Appreciate that color, Jamie. Maybe second question.
Speaker Change: Look, I think there remain opportunities that are out there. The question is, do they hit the threshold as far as attractiveness from a return standpoint?
Speaker Change: You know, if there's something that we thought was particularly compelling, you know, we have a very high bar. And I think we've proven that in the context of how we how we did the Durango transaction. And obviously, most recently, the BarillaDraw transaction, they're highly compelling project opportunities for us.
Speaker Change: So that creates, within the boardroom, an expectation and a dynamic that is a
Speaker Change: really puts you through your paces as far as making sure that it lives up to the billing and it lives up to the expectation.
Understood. I'll leave it there. Thanks, guys.
Thank you.
Thank you for your question.
Speaker Change: Our next question comes from the line of Jeremy Tonnett with JP Morgan. Your line is now open.
Hi, good morning.
Speaker Change: Good morning, Jeremy. I was going to say top of the day, but it's bottom of the morning, but let's go.
Speaker Change: Fair enough. I just want to talk maybe a bit more about the longer term growth of 10% CAGR.
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Speaker Change: you see out there, I guess line of sight on that side as well towards that type of internal goal and the drivers of providing that outlook.
Speaker Change: So in the context of how I would think about this, this is really, you know, we like to communicate transparently in the context of our internal objectives.
Speaker Change: and we've always been that way and we think that that's the way you you deal with both from a sell side analyst community as well as the investor community at large.
Speaker Change: and we have always looked at really trying to maximize what we can within the framework and the portfolio of businesses that we have.
Speaker Change: And so, you know, to tell you that, you know, we had a, we have an internal target for two billion dollars by 2030 is not too dissimilar to what we said sort of more than a year ago when we said a billion dollars was going to be our target, you know, our near term objective.
We see the capabilities just given the skill sets.
Speaker Change: and the opportunities that we see within our portfolio, within our overall system to continue to grow the business at an attractive rate.
Spyro Dunis: And therefore, I look at this as being much more organic, as I've just pointed out to Spiro, it's much more within house.
What we really see as being the catalyst
Speaker Change: For so much activity in the north will be King's Landing coming online and there is no higher more important objective for the ops team and The and the engineering construction team then to make sure that happens at the end of 2q this year
Speaker Change: So, that we think we are positioned well to capitalize on.
I've already mentioned obviously OPEX.
Speaker Change: Compression is another area that we continue to see. Right now on the basis of what we see with it with for example with Apache and what we inherited with Alpine High, we still have almost 18 units that we could possibly move within our system.
Speaker Change: It's about 150 million cubic feet a day of horsepower, and that's a direct, immediate OPEX benefit with very, very modest capital to basically redeploy and move those units.
Speaker Change: So there, we look at every element and aspect of our business. We look at whether it's on the commercial side, whether it's on the hedging side, the marketing side, and whether it's on the operations, engineering, construction side. Everyone has a role to play.
In this
in growing this business.
Speaker Change: So as I said, when we think about our internal objectives, we're not putting out there, you know, sort of unexpected or things that are completely outside of our control that we don't, we can't necessarily influence.
Got it. That's very helpful there.
and just pivoting a bit, want to dial into.
Producer Customer Activity Expectations for this year.
Speaker Change: Look, I would say 24 was an eye-opener for most producers in the context of the extent to which Waha was negative.
Speaker Change: And that obviously, you know, we live the good and the bad, right, as it results to that. Ongoing opportunity set right now is still, since all of our customers, you know, all of our customers, because as I said, you know, we have Apache and PVP declined, all of our customers.
oil drill activity.
Speaker Change: If WAHA ever gets its act in gear and we see positive catalysts on gas prices, then hey, there might be additional activity in some of the areas that have higher GOR, I suppose, in the context of just more richer just gas, but much less crude. So I think...
Speaker Change: Overall, the level of activity remains pretty robust, Jeremy, pretty robust as it relates across both Northern Delaware and Southern Delaware.
Speaker Change: and Jeremy, this is Chris. Remember, part of our differentiator too is
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Thank you. Bye.
Got it. That's helpful. I'll leave it there. Thanks.
Thanks, Jeremy.
Thank you for your questions.
Speaker Change: Our next question comes from the line of Neil Mitra with Bank of America. Your line is now open.
Neil Mitra: Hi, good morning. I wanted to start off with a macro question.
Speaker Change: It seems like the Permian gas pipes, a lot of them have enhanced capacity through compression with Whistler, PHP, GCX, and there's a lot of maintenance around those on plan and planned.
Speaker Change: and it seems like that was an issue this quarter. Are you able to manage around that risk and do you see increased compression as a source of volatility going forward?
Speaker Change: You know, it's a really good question. It is a very good question. So I would say the following, you know, in the context of my view on the on all the Gulf Coast pipes.
Speaker Change: There is going to be regular seasonal maintenance as there is honestly for just about every type of large equipment and machinery that we have.
Speaker Change: Utilities do seasonal maintenance. Seasonal maintenance is just part and parcel of when you have something that runs 24-7, 365 days a year.
Speaker Change: that is typically going to be in the shoulder periods April, May, October, November. They are obviously where you see even in the forwards week the weakest pricing.
Speaker Change: You may have obviously more impacts because now you've got this.
Speaker Change: Assets with more compression and so there might be longer periods Where you have you know some modest level of capacity cuts
Speaker Change: So I do think that that obviously does play in. Obviously trying to sequence it so that it doesn't all literally fall on top of each other and create obviously some sort of bigger issue is obviously important.
Speaker Change: But I look at this and say, look, our lesson learned from this. And look, you know, I think I have a viewpoint, which is you just don't get mad, you get better. That's what you do is you take November and you say, okay, what have we learned? So what we learned was we needed to be have incremental length.
for Gulf Coast Capacity. So we have and we are.
Speaker Change: And that will obviously allow, you know, we understand now that that is an important offset as it relates to just risks.
Speaker Change: What it means, as we continue to see more and more pipelines, obviously the fact is, the rate of growth that we're seeing is unprecedented. And that's really the issue. When you see sort of this growth rate of 8 BCF over the next five years,
One and a half bees a year.
Speaker Change: Right? I mean, that's massive amount of growth. That is a pipeline a year and it's hard to get pipelines built. We've seen that they happen in clusters and there's a frenetic amount of of activity, lots being talked about, but things happen.
and then then there's Catalyst.
Speaker Change: So obviously Catalyst I think last year was just how Waha performed and finally you saw obviously GCX get done We saw obviously, you know, we saw Blackcomb, you know, and we saw Hugh Brinson. So finally we saw okay, we saw some activity
The pressure will build up again.
Speaker Change: Absolutely, just given what we see, and you'll continue to have this problem. Part and parcel of one of the ideas, but with the ops guys on PowerGen.
is that's just in bison.
Speaker Change: But that's you know 50 to 60 million cubic feet a day Whatever it is in the context of that we could build a power gen plant and capitalize on some of this weakness It's another way for us
Speaker Change: to create economic value for the enterprise and capture it within the overall company itself. So, I do think it's a really good question and look, it's going to be something that I think all of us are going to have to watch and we'll probably watch very closely.
Got it. Thank you.
Speaker Change: The second question, my feeling was that, you know, the New Mexico-Delaware was kind of your near-term growth engine and your long-term growth engine was the existing southern Delaware system.
Speaker Change: But it seems like some of your customers like Permian Resources and Borla Draw are allowing you to see some outsized growth.
in the near term in the southern Delaware.
Speaker Change: Can you talk about what you see in terms of how that contributes to the 10% growth and then also if there's any additional...
Speaker Change: services you can provide for that subset of customers like you are in New Mexico with the treating and other services.
Speaker Change: Sure, so let me deal with that last aspect first and then we'll just talk about the picture on the Southern Delaware.
So...
Speaker Change: As you know, interestingly enough, in the southern Delaware is the preponderance of all the customers that we provide potentially multi-stream service. So we provide crude gathering, which we do with Borilla Drawer, we do it with Katerra, we do it with a number of others. We have water gathering and disposal and we have obviously natural gas gathering and processing.
Speaker Change: To this point, since it is being primarily a more of a traditional suite system, the gas, obviously gas quality is.
Speaker Change: much lower from a PPM standpoint with respect to H2S, and obviously CO2 has been relatively negligible, likewise inert.
Speaker Change: So we do provide multiple services, multi-stream capabilities wherever we can, and we look for those opportunities, particularly in and around our system on the Southern Delaware side.
Speaker Change: Yes, you're right. Barilla drawer is a very, you know, I would say
Speaker Change: is a very helpful and is a very strong infusion of growth for the Southern Delaware system.
Speaker Change: candidly as we look at it. So does that mean that it's more of an inventory play at this point because the directed capital dollars are in New Mexico?
That's probably a pretty good point of view.
Speaker Change: I think, you know, they will come back, our producers will come back and obviously focus on these areas. But New Mexico obviously has, I think, for various reasons, which we've explained, I think has obviously a lot more appeal right now in the context of what we're seeing.
So Barilla drawer is more I would say
Speaker Change: probably an exception than the norm, but it's a fantastic opportunity. And obviously, if any of you listened to or saw the transcript for the Permian Resources call yesterday,
Speaker Change: They're really going to go after it from a development activity standpoint. The good news for us is that it fits within our EBITDA and our growth is that
Speaker Change: We pick up partial processing after March this year, and then we pick it all up a couple of years out when another contract expires.
Speaker Change: And that will be a big, that will be a big contributor that will be obviously very attractive in the context of that step up when we both gather and process that gas. So that really that obviously does help the overall 10% you know, the double digit growth rate and how we think about it longer term.
Speaker Change: across not only our footprint, but just the broader Delaware Basin. And one of the things that we're really excited about on the heels of Durango was the announcement and the completion of ECCC in the first quarter of next year which will migrate.
Speaker Change: I think how we internally have, you know, always wanted to get to and how
Speaker Change: Folks from the outside looking in will look at us, which is this is a this business is a Delaware Basin proxy
and so
Speaker Change: Despite assets changing hands, we have such length and footprint across the entire Delaware basin that there's opportunities that are popping up.
Speaker Change: In the south, on the eastern side where Pegasus Lateral is in Lee County, on the western side where ECCC is, and then all across the north with Durango and on the southern side of Durango with the King's Landing footprint.
Speaker Change: So, hard to, I'd say, say on a longer term basis exactly where those opportunities are going to transpire, given all the consolidation that emanated on the upstream side. But we have, again, such a robust footprint now that we are quite confident that there will be opportunities within our capture area for the long term, given our belief in the Delaware Basin.
Speaker Change: And Neil, finally, I would just say the commercial team and Trevor and the finance team.
Speaker Change: You know their brainchild of ECCC really allows us to capitalize on the growth that's in the North
Speaker Change: And if we're not seeing the growth in the south, we have brand new processing facilities down there that we can fully utilize and be able to bring that gas south and process it is a real optimization of our overall footprint. And that's tremendously attractive.
Thank you.
Okay, perfect. I really appreciate all the thorough answers. Thanks.
Thank you for your question.
Speaker Change: Our next question comes from line of Michael Bloom with Wells Fargo. Your line is now open.
Speaker Change: Obviously, here in 2025, you're targeting 15% of the duck growth.
Speaker Change: three to five percent dividend growth. Can you just speak to the delta there? Are you trying to
Retain More Cash, Reduce Leverage Further.
and then, you know, assuming you can hit that 10%.
Unknown Executive, Alex Durkee, Trevor Howard
Unknown Speaker going forward between grown earnings versus
Speaker Change: and others. Dividends are just capital return more broadly. Thank you.
Speaker Change: Thanks, Michael. It's Trevor. What I would say is that we
Speaker Change: Following up on Neil's earlier question, we see a lot of opportunity in the Delaware Basin to grow our business and retaining financial flexibility to execute primarily on organic opportunities and to the extent that there are inorganic opportunities, maintaining again, not just
Speaker Change: ample free cashflow following after dividends in order to absorb incremental growth capital and execute on such opportunities. So what I would say is, is that until that dynamic changes,
which we do not see any time soon.
Speaker Change: growing our dividend at a slower rate of pace we believe is prudent just to give us that financial flexibility.
Okay guys
Speaker Change: it. Thanks. And then just one more question on that long term 10% EBITDA CAGR. Does that effectively assume you stay within that?
Speaker Change: that long-term CapEx range that you laid out before or does it.
contemplate. Yeah, higher.
No, we stay within the footprint, Michael, we do.
Speaker Change: And as I said, you know, in the context of there's so much of this growth, which is already, you know, whether it's King's Landing 2, you know, we've already talked about this a lot with you and obviously, most of our investors and most of most of your other analysts brethren, that we can really live within that, that overall range, and we continue to see the growth that we've got.
Thank you.
Got it. Thank you.
Thank you.
Thank you for your question.
Speaker Change: Our next question comes from Lion of Keith Stanley with Wolf Research. Your line is now open.
Speaker Change: Hi, good morning. I wanted to ask on the power plant potential project, I know it's early.
Speaker Change: But can you just confirm how much capacity you would want to own? And then when you say it's comparable returns, mid single digit EBITDA, billed multiples, is that tied to just forward?
Speaker Change: Market power prices as they sit today. Does that begin any gas optimization with Waha just any any inputs on that?
Okay, so Keith, it's Jamie. Two things. As far as...
How much capacity? So today, post-Borilla draw...
Speaker Change: We're in the low 100, 110 megawatts, round the clock, 24 hours, 24-7, that's southern Delaware.
Speaker Change: We have been talking about this for some time You know, I give Matt and the engineering guys a lot of credit. You know, they've really looked at this
We've talked to a few customers.
They would be our joint venture partners.
Speaker Change: And they themselves have lots of loads. So all of us look at this and it's really self-consumption, right? We're building this.
Speaker Change: And we're going to directly connect to our load points and we will then control our own electricity.
Speaker Change: with grid as backup, right? So that's the opportunity set. It's not about selling into power. It's not selling into the grid. It's not sell... We're not going to sell, you know, data centers or a hyperscaler. This is our optimization of our existing operating expense.
Speaker Change: As far as returns are concerned, this is against what we have and what we see today.
Speaker Change: So there's no optimization in the context of lower, you know, Waha prices, you know, we're just, we're looking at this today versus what a fully loaded cost is, and what it is in ERCOT today. So I think, look, there are
Optimization depending upon the actual expected price for WAHA.
Speaker Change: is a further enhancement or refinement at some later stage. But I think what we see on an existing basis, given expected potential construction costs versus opex reduction immediate, this is what it would be.
Speaker Change: Thanks, that's helpful. Second question is just really more of a follow-up.
Processing Volume Growth Assumption for this year.
Speaker Change: Is there any way to split that between kind of legacy Kinetic South, Durango, Barilla Draw, and then the 1.2 billion EBITDA exit rate for the year is a pretty big ramp. I assume a lot of that's King's Landing starting up, but any color on, you know, is it front half loaded or back half loaded in terms of gathering growth for the year as you see it?
Speaker Change: On the front half, I would say, yes, we'll try to give you the north-south breakdown. On the south, a lot of it is the return of Apache Cattel volumes.
Speaker Change: I mean, just put in context, it's like 140 million cubic feet a day. It's a lot. That would be sort of the adjustment if I look at it sort of the overall volume bridge. You obviously on a gathered basis.
Trevor Howard: You've got a lot on Ruler draw so those two things I would say looking at Kendrick and Trevor that's pretty much your South bucket right everything else is sort of
Trevor Howard: some pluses, some minuses, but nothing really material. And then it's all King's Landing. King's Landing, when it comes on, you've got obviously,
Trevor Howard: newborn spurt. You've got a lot of ducks, you have a lot of cataled volume and literally that just brings it on and our expectation is and this is how we sort of thought about our overall guide, which was
Trevor Howard: Kings Landing is a big project to us, and we don't control exactly when it comes up, so we want it to be just like we have historically, but, you know, I would say every year we do this in February when we give our initial guidance.
Trevor Howard: We want to be conservative because there's a lot that we can see but we just want to know before we start.
Moving.
Trevor Howard: and I think every year we've actually issued original guidance and then revised it. But I think in the context of King's Landing, that's one of the unknowns, right? Exactly how that ramp plays up, I think we are anticipating that it's going to be full
Trevor Howard: year-end I think. So the fourth quarter is when it's when we should see King's Lannings at full so obviously that will have a an impact there with the additional 200 plus a day that we get.
Speaker Change: Yeah, one other thing that I would just add is that, remember, Berea-Draw starts out as gathered service for the first quarter, and then there is an existing processing agreement whereby we're not getting all that gas. So the over 20% of processed gas growth
Speaker Change: you know, how achievable is that longer term growth rate for our business?
Thank you.
Thank you.
Thank you for your question.
Speaker Change: Our next question comes from the line of John McKay with Goldman Sachs.
Your line is now open.
Jamie Welch: So, John, it's Jamie. So as far as the sal gas treating, there remains
Significant number of opportunities in northern Delaware.
Jamie Welch: differentiator for us and probably a couple of our peers and be able to capitalize on that with existing capacity.
Jamie Welch: and obviously with King's Landing and then King's Landing 2 with Sour Gas processing capacity.
Jamie Welch: So I think we're very excited by the opportunity. It really hasn't changed as we continue to tell everybody.
Jamie Welch: developed. Obviously, so much of it sits in in and around our existing system that we have on King's Landing and we are we're trying to to harvest that with commercial contracts.
Speaker Change: Well, as you know, we inherited a lot of units from Alpine High and we've been, we have redeployed them across our entire system. And so our compression capability, whether it's first call or from an ongoing
Speaker Change: compression mechanics you know we've really increased significantly from the original base business that was that was BCP Raptor which was the old ECMV and Caprock businesses
Speaker Change: So, it is third party. We are seeing both new units as well as old, as well as, you know, existing leases when they expire or they're reset provisions, increased provisions, obviously increased greater than.
what we're seeing inflation at this point in time.
Speaker Change: And so it is an interesting dynamic, right? Obviously, I think we've read probably many of the research pieces that you and others have talked about, whether it's ArchRock, USA Compression, Kodiak, etc. And I think, you know, we all recognize that there is pressure on those prevailing lease rates.
Speaker Change: What it drives someone like us to do is really evaluate, okay, the lead times to get new compression.
Speaker Change: Okay, so let's think about it perspectively. Let's put that into our thinking on our capital budget, because it makes a direct impact. We have the technology, we have the capability.
Speaker Change: Let's go secure it and let's deploy it within our business.
Speaker Change: A lot of it continues to be driven by you doing low-pressure. How much of your business is low-pressure than high-pressure? Because obviously, the more low-pressure you do, the more compression we need. If it's high-pressure, don't need as much.
Speaker Change: So I do think it's an interesting sort of complexion. It's an interesting chessboard that we have to navigate, but it is certainly new units, cost of new units, not a surprise. It's obviously also existing lease rates that you're seeing as terms come up for renewal.
I got it. Thanks, Jamie.
for your questions.
Speaker Change: Our next question comes from the line of Teresa Chin with Barclays.
Your line is now open.
Teresa Chin: Morning, in your discussion related to the details on the infusion of growth that Borrelia drop brings, would you mind clarifying the comments around taking up additional processing and with more to come later in the decade, just quantitatively, what is the path of economic contribution on this acquisition?
Teresa is Trevor. So we
Teresa Chin: That comment, so what we are initially providing is gas gathering services. There are existing processing agreements.
Teresa Chin: We don't necessarily process that gas today. Later this year, we will process a portion of that gas, and then later in the decade, the remaining existing processing agreement with the third party will expire, and then we will process.
Teresa Chin: 100% of that gas. Haven't commented on the economic contribution on that, but the way to think about it is it's just a margin expansion on existing gas that we touched today. So.
Thank you.
Speaker Change: Understood. And then on the PowerGen opportunity, if it reaches FID as early as this year, how quickly can something like this come online and would you view this as a one-and-done or do you want to build a series of these assets as a, you know, new component of your commercial offerings?
Jamie Welch: Well, I think this is, Theresa, Jamie, so it's, I would say in the South, it takes pretty much all of our load, right? So it's a one and done as we think about the South. You know, the interesting thing will be
Jamie Welch: Let's do this first. Let's see how it is. If we, if I did this year, end of 27, I think is when you start to think about when it's in service. If this experiment, we think, if this works,
Jamie Welch: we would very much start to analyze looking to do it in New Mexico.
Jamie Welch: and ironically some of the some of the joint venture partner you know one or more of the joint venture partners that we're talking to would also like us to go into New Mexico because they also would like to do something.
Jamie Welch: So we do see an interesting opportunity. We're not trying to do these. These aren't peakers, right? This is going to be several hundred megawatt, you know, basically gas-fired power gen
Jamie Welch: So this is, you know, this is not a 10 megawatt peaker that looks like a pig shaving when you get sort of super high pricing at certain points in time in the year. This is more about, as I said during my remarks and earlier, this is about OpEx optimization.
Jamie Welch: This is about reducing permanently your overall OpEx to contribute obviously incrementally the growth to the and cash flow growth to the to the enterprise
Thank you. Thank you.
Thank you.
Thank you for your questions. Thanks, Teresa.
Speaker Change: Our next question comes from the line of Gabe Marine with Mizuho.
Your line is now open.
Speaker Change: Morning, Jamie, just had a larger picture question on all the announcements we've seen on downstream NGL capacity expansions this past quarter, whether frack pipes or export. Just wondering how that plays into your recontracting strategy, whether you see upside, I guess, from what you had seen potentially before. And also, I'm just curious your approach to locking in some of these recontracting that you've got, whether you can do that ahead of time.
Speaker Change: or whether you're going to wait. Obviously, I don't want to give you to give too much away on a commercial strategy, but just curious how that all plays into it.
Speaker Change: Yeah, sure. I think as far as, you know, we said that we have various contracts and commitments that roll off of the passengers starting next year, literally for the following four years, right to the end of the decade.
Speaker Change: There are opportunities, we have an existing contract and relationship with Taga which we very much enjoy. We have a very close and enjoyable relationship with Enterprise.
Speaker Change: So we do see the opportunities, we do see rates, we do see them going lower and that obviously creates incremental opportunities for us.
Speaker Change: I think we are analyzing, you know, what and when we do, we see no pressure to rush to do anything.
Speaker Change: Thanks, Jamie. And then if I could just follow up with two quick ones. Are you expecting any epic crew distributions this year? And then I don't know if you can ballpark steel tariff impacts on your potential cap tax, but just wondering how are you thinking about that? And whether there's anything to potentially lock in to avoid those?
Yeah.
Speaker Change: So on Epic Crew, the short answer is yes, because I think the overall business has reached a steady state as far as
Speaker Change: Obviously the contractual support from Diamondback is critically important and I think it's very much in a good place right now. Partners are expecting distributions this year, which is obviously a good thing.
Speaker Change: and you know I suppose as it relates to sorry I just forgot the last aspect what was the last aspect to your question?
Speaker Change: How can I forget tariffs? Tariffs is like literally the frenetic activity of the everyday within our business. Who, when, what, how?
Speaker Change: It's about 15 to 20 million I think is the impact Matt if I'm not mistaken. That's what we have Yeah, we got a lot of pipe. It was mainly steel for us predominantly because you know, we've got
Speaker Change: The ECCC, Olympus North, low pressure in and around Carlsbad, it's a lot of steel. So we had secured a lot of it. No King's Landing, because that all had been taken care of.
Speaker Change: but it certainly was all of the additional development we see in Carlsbad which is pretty strong and obviously ECCC which we announced at the end of last year.
Speaker Change: Thanks, Jamie. Sorry to be the one to ask the tariffs question.
Thank you for your questions, Gabe.
Speaker Change: There are no additional questions waiting at this time. I would now like to pass the conference back to Jamie for any closing remarks.
Jamie: Thank you everyone for your time this morning. I know we ran a little longer than normal. We look forward to seeing a number of you next week. I think we're at a couple of conferences up in New York. And in the meantime, if you have any questions, please feel free to reach out. Thanks very much. Bye-bye.