Q2 2025 Kinetik Holdings Inc Earnings Call
Good morning on, thank you for joining us for the classic second quarter of 2025 results, call my name is Kylie and I'll be coordinating the call today. If you would like to register a question during the call, you can do so by pressing star, followed by 1 on your telephone keypad, and to remove yourself from the line of questioning, we start followed by 2. I'd like to hand over to our host, Alex, Durkee. The floor is yours.
Thank you. Good morning and welcome to kinetics second quarter 2025 earnings conference. Call, our speakers today are Jamie Welch, president and chief executive officer and Trevor. Howard, Senior, vice president and Chief Financial Officer.
Other members of our senior management team are also in attendance for this morning's call.
The press release. We issued yesterday, the slide presentation and access to the webcast. For today's call are available at www.connect.com.
Before we begin, I would like to remind all listeners that are remarks, including the question and answer section. We'll provide forward looking statements and actual results could differ from what is described in these statements
These statements are not guaranteed, the future performance and involve a number of risks and assumptions.
We may also provide certain performance measures that do not conform to us. Gaap. We've provided schedules at reconcile. These non-gaap measures as part of our earnings press release.
After our prepared remarks, we will open the call to Q&A with that. I will turn the call over to Jamie.
Thank you, Alex. Good morning, everyone. And thanks for joining our call today.
Kinetic second quarter results. Reflect our resilience and Relentless focus on execution as we navigated through macroeconomic uncertainty and Global geopolitical pressures.
I am proud of what our team accomplished despite the noise that has continued to persist.
During the quarter, we made significant progress across our portfolio of Capital Growth projects.
Starting with Kings Landing, commissioning of the complex commenced in June and has continued through the next 6 weeks. We will be fully testing and starting up the front end aiming plan and we expect to have the necessary electric power to also fully load the facility.
Taken together. We expect to ramp to full commercial inservice by late September.
However, much of the associated gas, carries substantially higher CO2, and H2S content.
To support further development of the resource play, we have filed a permit for an acid gas injection. Well a King's Landing to sequester the growing levels of CO2 and H2S.
Lead times for specialty, equipment and materials can be upwards of a year. So our team has been prudent in identifying these items to jumpstart this process.
We expect to receive approval to proceed by year end.
Upon in service of the AGI, well, at King's Landing.
kinetics total acid gas or tag capacity is expected to more than triple
and further position us to be a best-in-class gas gatherer, treata and processor with a differentiated service offering in Northern Eddie and Lee counties.
We look forward to sharing more as we progress this opportunity.
To support the conversion of Delaware. North to a primarily sour gas system.
E, Triple C pipeline is a critical component to move. Sweet Rich gas from New Mexico to Texas and free up additional processing capacity in New Mexico.
Construction has started and we expect in service in the first half of 2026.
The proposed scope includes restarting, our Sierra Grande processing facility and adding boost compression there.
We have the ability to increase e C's. Throughput capacity to approximately 300 million cubic feet per day for sweet gas with system looping in Texas,
Looking ahead the Investments we have made and continue to make across our system. Provide a multi-year earnings Tailwind through the end of this decade.
First Kings Landing is our beachhead position in northern Delaware.
A conviction continues to grow regarding expanding our footprint and volumes around this complex.
Our commercial team has been very active, advancing some really exciting opportunities.
And with much of the pref work for a processing expansion in King's Landing behind us.
And permitting for acid, gas injection in progress.
Commercialization of an expansion and sour gas conversion remains on track.
Uh, low and high pressure build-out in Eddy County continues to perform better than expected, with well results exceeding expectations.
Customers and other active, producers continue to add inventory in the area, increasing the project earnings potential and duration.
Earlier this year, the burilla draw gas and crude Gathering. Systems are performing well and are expected to contribute to earnings growth throughout the decade.
Additionally, welcome X and Lee County in the second half of this year, will contribute additional volume increases.
So based on the current estimates and with continued commercial success,
We expect that additional processing capacity, besides Kings Landing 2, is likely to be needed inside the next 18 months as our Delaware South processing capacity is fully utilized with the EC pipeline.
We also remain focused on optimizing our cost structure.
And the past few years, we have experienced and managed meaningful cost inflation, especially with electricity and least compression.
And while we think the worst of it is behind us, it underpins our conviction to pursue the behind the meter power generation opportunity in reese County and the owned compression solution over the next several years.
Both projects would compete for Capital and provide long-term structural solutions to offset these inflationary pressures.
So before I turn the call over to Trevor to discuss second quarter results.
I want to reiterate the opportunity set in front of us today.
Our organic and inorganic growth Pursuits over the past year and a half, had positioned the company for accelerating growth. As we head into 2026.
We continue to expect fourth quarter 2025 annualized adjusted EBA of approximately $1.2 billion.
Which represents 24% growth year over year?
The compelling investment opportunity for existing and future shareholders.
So with that, I'll now turn the call over to Trevor.
Thanks. Jamie in the second quarter. We reported adjusted ebit of 243 million. We generated distributable, cash flow of 153 million and free cash. Flow was 8 million
Looking at our segment results are mid-stream Logistics segment generated and adjusted. But have 151 million in the quarter up 3%, year-over-year on increased process, gas volumes from our northern Delaware assets.
This year-over-year increase was mostly offset by lower commodity pricing and higher Opex, both of which I will cover in more detail shortly.
Shifting to our pipeline Transportation segment. We generated adjusted ibida of 97 million up 3%, year-over-year, which benefited from an increased ownership in Epic and modest outperformance at PHP. The year-over-year increase was partially offset by no contributions from Gulf Coast Express following the sale of that stake and the second quarter of 2024
Total Capital expenditures for the quarter were 126 million.
Was the updated in service timing for King's Landing. And the other impacts I just mentioned, we are revising our 2025 adjusted ibaad guidance range to 1. 0 3, 9,
Now, I will walk through each of the impacts in more detail and the implications to guidance.
First we revised our full year process, gas volume growth, assumption from 20%, in February to Mid teens to reflect the shift in timing of the King's Landing startup and modest delays and producer development activity.
For the remainder of the year, we expect a meaningful ramp and process gas volumes driven by the full commercial and service of Kings Landing in late September, and step up in contributions from the Burgh. Draw Carlsbad and Lee County volumes by year end.
We anticipate exiting 2025 with processed gas volumes at approximately 2 billion cubic feet per day.
Second. We have seen significant commodity price volatility, since setting, our initial guidance in February, creating a headwind in the second quarter and a change. In our assumptions on Market, forward pricing.
On a weighted average basis are revised guidance assumes a 10% decline in commodity prices versus our original guidance in February.
Marking to Market realized pricing. And forward pricing. We estimate this decline to represent an approximately 20 million dollar Impact versus our original adjusted Eva guidance.
At current commodity prices, approximately 35% of our direct. Exposure is tied to the price of WTI 20% to the price of natural gas.
25% to the price of lpgs and the remaining 20% to basis in commodity price spreads.
We have significant hedges in place for the remainder of 2025 and a robust hedging program for 2026 and 2027.
Moving on operating costs, continue to persist in the Parian.
We have seen substantial cost inflation. Across least compression and electricity 2 of our largest operating expense line, items year-over-year unit costs per mcf.
Increased by approximately 10 cents in the quarter.
With the commissioning and the startup of King's Landing unit costs per mcf. Are expected to monley step down as volumes come online.
on a 4 year basis, we anticipate unit costs to be up approximately 6 cents, year-over-year in 2025
While much of this increase was expected and included. In our original guidance, we have experienced higher than budgeted operating costs as well as the need to retain lease compression units for new areas of development that we originally planned to release.
Taken together. These impacts let us to revise 2025 adjusted ibida. Guidance, approximately 5%, lower to 1.06 billion at the midpoint.
Importantly, as Jamie discussed earlier, we continue to expect a meaningful acceleration and adjusted EV, but our growth through the remainder of the year. And to reach annualized adjusted, EBA of approximately 1.2 billion dollars in the fourth quarter.
Turning to the capital guidance, we are tightening our range to be within $460 million to $530 million. Given our heightened visibility at this point in the year,
We anticipate capex to be concentrated in the third quarter. With the timing of King's Landing completion and construction of e Triple C pipeline.
That said, we now, expect nearly 60% of 2025 Capital to be spent in the second half and nearly 45% in the third quarter alone.
at the end of May, we completed a total refinancing of our bank debt, extending maturities on the term loan, a and revolving credit facility, our leverage ratio per our credit agreement, stands at 3.6 times and
at the end of the second quarter,
We also repurchased 173 million shares of Kinetik Class A common stock since May, representing nearly 2.5% of our outstanding shares at an average share price of approximately $43.
Our share repurchase program, reflects our commitment, to delivering value to shareholders. And I'm enthusiastic about utilizing it in light of the disconnect, we see between the market, price, and intrinsic value of kinetic stock.
Our finance related objectives, provide the framework to maximize shareholder value via our multi-year earnings growth and strong balance sheet bolstered by strategic and accretive investment opportunities, annual dividend increases and opportunistic. Share repurchases.
I am excited with the progress that we have made in the quarter and look forward to delivering even more value to shareholders in 2025 and Beyond.
And with that, we can open up the line for Q&A.
Thank you very much with order to open the lines for Q&A.
Expect to raise a question the signal. We're pressing star for about 1 on your telephone keypad now. And if you'd like to remove yourself online, the questioning will be start followed by 2 as a reminder, to raise a question if star followed by 1. Our first question comes from Jeremy, TA from JP Morgan, Jeremy. Your line is now open.
Hi, good morning.
good morning, Jeremy
Just wanted to, uh, start off. If you could hear um, you know, if we look at the exit rate for 2025, you know, for 4 q. There just wondering if you could walk through the building blocks, uh, that get you there, and the confidence level of exiting the year in that, uh, 1.2 billion run rate,
Uh, sure. And look, um, a very valid and very good question. Look the, when you break down 1.2, think about it at 300 for the quarter. So we had 243 for the second quarter and as Trevor went through. Yeah, we have already endured a lot of the operating cost um, impacts as it relates to high electricity pricing higher compression leasing. So really the building blocks from here, to get from a 243, you're going to have a little bit of APA non-contaminated. That's what you should anticipate. Obviously, we had it in the second quarter as everyone knows. Um, I think the biggest 1 is going to be KO and Durango obviously and then you're going to have some incremental, uh, volumes. You know, we've had
Some volume shift from third quarter turn in line to fourth quarter, which has has, I think tempered a little bit of the, um, the overall growth rate on the uh, volumetric side. Um, so I exit rate remains pretty strong, however, because it's now on the fourth quarter and not the third quarter, you don't get that flow through um, as far as, uh, duration of that volume for the for this calendar year.
So I think that are the 4 buckets.
Everything else sort of stands pretty much as it is and I think, you know, our degree of confidence.
Look, King's Landing. I think we have really taken a measured approach as it relates to making sure that the plant is running and that we've got the plumbing.
It's as much about the plumbing and separating out the sour gas from the sweet gas which to this point had all just been going know whether it's to dagger draw or to Mema. And now we have to separate free up space on the S gas side which is the Malamar and Dagger draw facilities and for the less sour gas send it to King's Landing. Even though we have Frontier naming we still don't have an AGI so we can't handle really really sour gas at that facility. So we have been very methodical. I I would say it's probably taken us longer. We will probably a little over optimistic on how quickly
We could get it done, um, as far as the re-plumbing of the gas, but I think our confidence level. Now, Jeremy is really high. It's really high. We know where the gas is. We've spent so much time. So maybe it's a little frustrating to to get out of the blocks. Um, a little slower than many of us would have liked including ourselves.
But I think the follow through and, you know, as we hit our stride as we come out through the back end of this year, I think we will be the best for it.
Got it. Thank you for that. Um,
The second quarter is this a a rate that we can expect to continue here or just wondering if you could provide more color on what that Cadence could look like.
Um, I think it's a function of, you know, a traffic can jump into this. It's really a function of where our stock price is, you know, we see the stock in the low 40s as being incredibly compelling and so, you know, he has driven with more of a Lead Foot, um, this past this past quarter starting obviously in May and I think, look, we will take cues from the market
We understand we look at our Capital, allocation framework. We work out and we see where fundamental value is and where we really like, um, the stock
And so we will basically, um, be attuned to what we see on the screen.
I'll leave it there, thanks.
Thanks.
Thank you very much. Our next question comes from Spiro, Donis from sissy, Spyro, your line is now open.
Good morning, everybody. Um, I want to start with NGO recontracting. If we could, um, I think it's more of a 2026 Tailwind, but curious, if some of the NGL pipeline operators are eager to negotiate early, make sure some of those volumes stay on the system. In other words, could we see that recontracting Tailwind? Maybe you can come in earlier than expected.
Uh, spir. Good morning, look. It's a really good question. Obviously, we all know that, uh, I think, uh, Enterprise said that they expect by here to start up in the fourth quarter, so, um, that occurs and obviously between the Enterprise between Enterprise Target, and and transfer, uh, obviously 1 open and DCP as well as mplx. Now,
We have um a much bigger grouping of NGL, integrated players, then probably ever before.
and,
With uh, I would say tempered uh enthusiasm and expectation on growth in the Basin with a lot of capacity to fill. We continue to see some pretty uh, some pretty interesting. Um,
Uh, overall indications and rates coming from uh different NGL service providers. You're right in our context we have um,
2 contracts that roll off next year. 1 is already uh, you've got uh, Target steps into the shoes on 1 of them. And the other is uh the other uh is, you know, basically free to decide. And then in 27, we'll start off with King's Landing once we reach the 2 year in service mark.
Um, and then yeah, we followed from there. We've got literally almost cereal. Um, expirations going on through through almost the end of the decade and, and other contractual adjustments. So, I really do think we're going to be able to capitalize on it. We've always said that, um,
And we'll sort of see where, where that takes us, but I think it's, uh, it's a good time to be on our side where you've got, uh, product. And there's a, a lot of capacity in the marketplace. And obviously, a lot of people eager to fill that capacity,
Got it. That's a topical Jamie. Thank you. Uh second question, Switching gears to uh, Kings Landing 2 and I apologize if I missed it in some of the prepared remarks. But if you describe me what inning you're in there, you think about progressing towards FID and how we should think about some of the gating items, um, and sort of in that context, you know, I think you talked about 18 months, uh, is when you need it, any, any sense on whether or not you could use offloads to sort of bridge, that and push that capex out a little further?
So I think, um, we're sort of, uh, mixing a little bit of metaphors on the 18th that was mentioned. It was actually in relation to uh, uh, processing capacity, in Texas over and above what we have and over over and above uh anything we decide to do on King's Landing too on King's Landing too. The, the core building blocks of that particular project 1 is clearly commercial. The other 2 is 1 acid gas injection.
Because it does need to be a sale plan and that is a longer lead time, uh, item as it relates to both permitting, as well as sourcing equipment.
The other obviously is electricity, which is quite, um, which can be a challenge and it seems almost more of a challenge than uh, in New Mexico than it does in Texas.
and so, when you ask us about what eating we're in,
Into, uh, our overall, um, uh, workstream as far as you know, we've already filed permit application for the acid gas injection. We're well Advanced on the electricity.
The commercial guys have been working this for a long time, you know, we've got some pretty big customers sitting behind, uh, the Durango system that I think, uh, with the Advent of Kings, Landing 1 and seeing for their own eyes. That, that, uh, that capacity is there. We'll give them the conviction, uh, which thus far, they've sort of been hesitant about, uh, to actually go spend money on the drill bit, and accelerate Adele and program. So, we're we have got everything moving together on various work streams and I think it will all come together, you know, our hope and expectation certainly, uh, within the next, I would certainly before your end.
and Spyro, this is
Wanted to jump in quickly on the comment on offloads, you know, we're always going to look at optimizing our portfolio with capital and offloads and that's why e Triple C is so important. It allows us to get south or we have a number of more economic offload options. So we'll continue to look at all those as options to uh to optimize the portfolio.
Got it upload. As always, I'll leave it there. Thank you gentlemen.
Thank you.
Thank you very much. As a reminder to raise a question, please press star 1. Our next question comes from Michael Bomb from Wells Fargo. Michael, your line is now open.
Thanks. Good morning everyone. Uh, wanted to start with a a macro question on the fundamentals. Uh so I guess we're seeing some premium Midstream players maintain guidance. And tell us it's basically producer activities unchanged and then we have others that are, you know, tweaking guidance lower like yourself and pointing to a weaker fundamental macro. So just want to get your take on what's going on from a macro perspective and then, of course, you know, what's going on in your neck of the woods specifically.
Uh, sure, good morning, Michael. I think, um, we're seeing a, a few things, obviously, as a permanent Pure Play. I think, you know, there's no way there's no way for us to to literally run and hide, right? We don't have any other basins we can, so we can't mask.
Any declines in the period against uh increases in the haze or other basins that are maybe more gas focused.
What we're seeing is, you know, let's I mean we can knock down our big customers.
P, r. E, o, g, Catera. I mean, you know, we can pretty much go through them all since we have almost 90, uh, customers
But PR hasn't changed Rick Cadence. In fact, their overall performance on their Wells is exceeded, uh, you know, their own type curves and expectations
So, they may move the well pad from the third quarter of the fourth quarter to the following quarter, or the beginning of 2026.
That doesn't change their guidance, it doesn't change their fundamental view of the quality of the rock. If anything what it does is show you that actually it's even better than the anticipated.
But they're not, you know, much like I think all of us right now, they look at their own, probably stock price and say, look, should I keep capital in my pocket because I can save some dollars and I'm still going to hit my guide on uh, on overall boies.
So I do think in Texas, we've always maintained the Texas position is more today.
We see some spots of activity. Burilla drawer is 1. 1 of the Michael, Trevor, and I will tell you offset some of the Legacy Centennial activity that we saw the year before.
Uh, from PE from perming resources. So, we do see some give-and-take.
Texas remains, I think more more of a
Not, not the it's not the prime.
Uh, and and the sort of ultra Tier 1 acreage that we still see New Mexico.
I think New Mexico holds for various reasons. A lot more attraction and appeal.
From a just a maybe it's a cost standpoint maybe it's an Administration standpoint that they think Now's the Time you know basically get in while they're going is good.
And Texas. You can pivot back to
You can always pivot back to Texas because it's very Dynamic. It's almost can be that. Um uh it can very much be that um, production that just comes on comes on very quickly.
Need too much into it that we're seeing a huge slowdown as it relates to the overall level of activity. I think what we are seeing is we've seen some
Shift in timing.
But its timing. We are seeing quality of uh, results and quality of of uh from a type code standpoint at or above our expectations. Yeah, we said to you, that car's bad, which is another PR position was has been exceptional for a draw has been very solid. Um, so we're really excited by what we have.
And I think, um, you know, our our Viewpoint is look, we we all catch up and we'll end up with some Tailwinds, uh, in the, in the face of what is has been thus far certainly for this year more headwinds on. Whether it's commodity pricing or whether it's in the context of just operation, you know, Opex costs
travel. I don't know if you've got anything you'd add to that.
Yeah, the 1 thing that I'd add, thanks for the question. Michael is, uh, from where we sit from the beginning of the year, you know, prior to the 1015, selloff, uh and WTI is we're not seeing much of a change to the second half of 2026. Um, what I would say is is that, uh, Jamie had mentioned. There's been, you know, some shifting of timing and some pads, both North and South um a lot of them, what we're finding is actually not necessarily for non-economic reasons. In terms of the primary driver, I'm sure WTI goes into it. Um, but what we're
Well we're actually seeing is is that what we need to do? As a company is to get in front of our customers with infrastructure, to facilitate the the the the upcoming development plans that we're seeing up in, uh, Delaware North. And that's why getting e. C completed is critical as Chris had mentioned earlier. Um, we pointed to a potential expansion of that pipeline fiding sometime in 2026. We've talked about Kings Landing too and really I'd say that's what we're extremely focused on in terms of getting that across the finish line with an FID, um, because there is no real change to. I'd say as we think about a broader portfolio of Delaware, North plus Delaware South where we're really seeing from where we were at the beginning of the year. If anything, we've actually seen a bit of an acceleration in certain areas that's offsetting some of the, I say timing shifts or delays that we're seeing elsewhere.
Okay, got it. Thanks. That's uh very helpful. Uh perspective, appreciate it. The other question I want to ask uh in the prepared remarks, if I heard it correctly and understood it correctly, seems like you're seeing the gas is actually getting even I guess more sour for lack of a better word. Uh, then then even what you were anticipating. So, just trying to understand is that a potential upside case for you guys. Whether that means you can either raise, I don't know if that means you can increase the treating fee, or just you're going to see higher volumes on those fees at the existing fee. But just want to just understand if there's anything there on the upside case. Thanks.
Sir, Michael. Um you're right. It is even more sour. I think the first and the second bone in particular
Are very sour.
And therefore, the only way to actually manage that gas is with acid gas injection.
So, by the addition of acid gas injection at King's Landing, we will, I think triple the size of our tag capacity treated acid gas,
And we will be amongst the biggest in New Mexico in the context of uh tag tag capacity.
It will allow us, depending upon, you know, from a tiering standpoint. It will allow us to obviously, uh, get an economically attractive return. But we are putting significant incremental investment in capital into infrastructure to allow us to be able to treat that gas and process that gas.
So, I think you will see. Uh, yes, it is more sour. Yes, you will have. Um, uh, there's probably more upside in the context of uh rates and fees, depending upon just how sour.
Thank you.
Thank you very much.
Our next question comes from Brandon Bingham from Scotia Bank. Brandon, your line is now open.
Hey thanks for taking the questions here. Wanted to go back to the building conviction in Northern New Mexico that you guys are have been discussed and just if you could provide any
Um, yeah sure. Uh Brandon it's Jamie and I'll let um Chris and Trevor jump in. Look, uh, we have a number of customers up there as you know, that we inherited with um Durango um the larger ones of which are spur and newborn, they are both very eager to put incremental um in capital to work on the drill bit and need as Trevor pointed out infrastructure.
Kings Landing 1 is is just you just knock it down and just move on through. They need they want us to do the AGI because they very much see the most some of the most attractive Rock being that as I mentioned. Um as I just referred to to Michael Bloom's question, first bone, second bone.
Really sour gas.
But it's really attractive and they really want to get after it. So right now I feel like we are sprinting.
To keep up with um our customers and their desires. We can't you know I think Chris Kendrick would tell us we we probably can't Sprint fast enough to make these guys thrilled and happy yet because they want to spend the dollars tomorrow and it and unfortunately it takes us longer than tomorrow to actually have the infrastructure up and online
Yeah, Brandon, this is Chris kind of echoing on what Jamie said. Um, there's a lot of activity in front of us. Probably more, so that we've seen in the last 2 years and Jamie hit on New Mexico. But even in Texas, we're seeing opportunities and now with
E.C. online. Next year, we look at this as one combined system where we're introducing volumes across the system. So, it's a huge growth opportunity across the majors, the independents, and the private producers. 2026 is going to be an exciting year, not just for new packages of gas, but there are some big developments on our existing acreage in 2026 that will need to be accommodated. So, it's an exciting time, and the team's doing a good job tackling these commercial prospects.
Okay great thanks. Uh and then maybe wanted to kind of touch on Epic a little bit. Um if there's any updates there and maybe around timing of distributions or just how you're thinking about it in general is you know 1 of your partners in it is discussed that it's comfortably up for sale if they need to or or it's something that they're willing to sell. So just kind of
Any updates on Epic and anything you can share there?
Sure, so, as far as uh, on the distributions I believe the first distribution is going to Partners this month.
um,
so I I believe that that's been authorized and approved which is great and the the business is actually performing very, very well.
uh, as far as the designs of the various partners and certainly, um,
What 1 of probably the largest customer on that Pipeline and what they may want to do? Look I think um from our vantage point, it's like any asset.
It has uh a intrinsic and extrinsic value to us as a company.
If in fact the value proposition of somebody else is at or above that value expectation from our end. Then I think we would be remiss in. Not capitalizing on it right we're looking to create value for our stakeholders.
So yeah, if someone shows up with a with the right number then I think yeah we're we're not so wedded emotionally or otherwise to this asset to say that. Oh it's a must-have. It's a non-operated.
Mistake.
so,
You know it's not as core as other elements, certainly, of our business. Trev, do you have anything to add to that?
Nothing added. I think you hit it.
Great, thanks.
Thank you very much as a reminder, if you'd like to raise a question. Please seek the referencing staff look by 1 on your telephone keypad.
Our next question. Comes from 3 Sin from Barclays. Teresa your likeness not open.
Good morning. Um, on the topic of TAC capacity.
Tag Market in general, um, with 1 of your ministering competitors. Announcing entry into saris treating, uh, recently via acquisition in what seems like a similar area of service as your footprint. How do you think about competition within the space evolving over time?
Yeah, to thus far, it has been more of the domain, uh, with Enterprise buying, pinion ourselves, and obviously, um, target with, uh, Red Hills, right? So, as part of the Lucid, um, uh, complex
so look, um, there's certainly more than enough
Volume and development for many, many players.
And I think, yeah, it's not a case of where, if anything, we're going to see sour gas on the CO2 and H2S side.
I think continue to dramatically increase.
Versus dramatically decrease. And therefore the market, the overall size of the market is getting bigger and therefore I think there's room for everybody. Um,
It still takes a long time to get into this business, obviously. I think that was, if I'm not mistaken was, um, 1 of the 1 of the major principles for the Enterprise acquisition opinion, which was when they looked at it. They said it was going to take them 3 years otherwise and from our vantage point, we said this all along. We said we like to see where the where the puck is going and we could see that sour gas was obviously really going to be on the on the on the front end.
And so the acquisition to Rango gave us gave us that uh, entry point. And we've obviously looked to capitalize on it. So I think, uh, there's plenty of room for everybody. Uh, do I expect it to continue to increase? Look, I think others will will start to see, you know, for those that have the existing infrastructure are able to capitalize on it. It will be a very attractive business and for others, you know, they'll they may look for entry points.
Understood and within, uh, your own organization, um, given the commodity price volatility and the impact that it's had, uh, year to date. Um, how have your hedging strategy evolved, if at all. Um, how do you view the impact of either absolute prices or spreads as we go through the next few months of 2025, and into 2026? And would you expect the net impact to be maybe more muted? Next year versus this year? Um, how should we think about this?
Yeah, thank you for the question Theresa. Uh, what I would say is that the the year-over-year impact from 24 to 25 on pricing, um, is approximately 20 million dollars. Um, so when we enter the year, we thought it was going to be, you know, flat on a year-over-year basis. And as we have this, as we have disclosed relative to our original guidance, it's about a 20 million dollar headwind. Uh, what I would say is, is that, um, you know, I'd say we're we're more active and
Reaching further out, um, relative to uh, I'd say historical Norms to try to I'd say levels, uh, these year-over-year impacts on margins on the commodity side. Um, so as we look forward into 20 as we look forward into 2026, uh I would expect it to be relatively flat in terms of uh, in terms of an impact on a year-over-year basis.
Thank you.
Thank you very much. Our next question comes from Keith Stanley from Wolfe research. Keith, your line is now open.
I, uh, good morning. I was wondering if you could give any early thoughts on where you see capex kind of evolving over the next couple of years. There's a lot of growth you're talking about with KL2, maybe another plant in Texas, AGI capacity, and the power plant. Just how do you see capex kind of evolving next year and into 2027?
Brilliant question, Keith. It is, the it is the, uh, topic that I think, um, that Trevor, and I spend the most amount of time just thinking about, because
Um, there's a realization.
And there's a reality to us and the size of our company that we can't do everything we want, right? We've said this on more than 1 occasion
We're a company that wish we were a 5 billion dollar, 5 billion dollar EBA company and not a, you know, just over 1 billion dollar EBA company.
So I think we are recognizing and really trying to rationalize where we need to spend capital, how, and what's the timing of capital?
Uh, to us.
What are the core elements?
I think if you ask us, I think Trevor would, uh, and I would tell you that obviously
Uh you get some really good bang for your buck on expansion of e Triple C. You can do that pretty. Cost-effectively Kings Landing is pretty in King's. Landing 2 is very important particularly if you're doing it in conjunction with the acid gas injection,
Is higher margin gas.
And then you've got to think about, okay, what are you going to do in Texas? Are you going to have offloads for some time instead of a conversation? We have with the commercial team?
Do we think about bridging um that then and sort of managing our overall Capital bucket? But I think uh, Trevor we've said what consistently 25 30% of EPA and the context of around 30% of IBA in the context of our overall, Capital allocation, uh, for reinvestment. If we, I mean, realizing that it's not perfect for the percentage, but just to give a a sense.
Yeah, that's right. And a little bit more elevated and use in which we're building plants. Um but what I would say is as Jamie pointed out in the beginning, in terms of just our financial profile with the opportunity set that we have, you know, being top to bottom east, to west. And the Delaware Basin is we got a lot of opportunities that we look at, and it allows us to be a little bit more patient and diligent in picking, uh, the right lanes for us to allocate Capital towards
Uh, that's helpful. That's all for me. Thanks.
Thank you.
Thank you very much. Uh, next question comes from Jackie culus, from Goldman Sachs Jackie. Your line is not open.
Hi, good morning, thank you so much for the time, just a little bit on that point on, you know, Capital allocation, you know, with higher operating cost inflation. How are you thinking about, the cost reduction plan efforts, you know, the compression deployment and behind the meter power, um, and the timing of potentially implementing those projects, especially, you know, balancing out, um, potential spending on those those growth opportunities that you mentioned.
so Jackie, um I I think we look at it as follows as it relates to compression compression, you can leg in
you can do a little bit, it's more about you know you're going to put an order in today and it might be 50 60 weeks from now before you're going to see,
Uh Coast compression units, arrived, so it's more timing. If you need something just in time meeting inside 6 months, uh, because you get you're about to do a low pressure connection then, unless you have some, uh, existing compression that you're able to go and move.
you're really in the domain of having to go and undertake a, you know, a lease for some term with 1 of the compression service providers,
I think what Matt will, uh, Trevor and I have decided and what we've already started to do is we've put down
Some deposits.
For incremental compression that's going to come to us over 26 into 27.
And that will continue. Uh, we think it's very cost-effective, highly cost-effective, um, versus other options. We get better run times or better up times with it. I think, uh, you know, we've just seen improved reliability, and we've now got to a size as far as, uh, our compression skill within the company that, look, we can keep these units up. And, you know, I think, uh, we've got the mechanics capability spares. That literally means we can do this.
There's a little different. It's different than a power plant, because power plant, you can't really log into it. You just got to decide what the size of the power plant, you're going to go do
and I think yeah, what we're doing is, you know, we're also um, 1 of the things that certainly has come out of um, you know, our Keen interest to try to, I would say minimize and just control our overall power cost is, you know we have been approached by by external parties. Some of, you know, obviously there's a large amount of um, generation that's to be built in in Texas. So we're going to look at, you know, various options for now.
We have a fixed-price fixed block. We went and sourced that out of our retail electric provider. So we've bought ourselves enough time to be able to manage and make sure that further cost inflation doesn't erode our bottom line.
So, I think, yeah, we we're trying to deal with just manage it, right? Management is as best we can much like we have historically. I think the first, you'll start to see some benefits but not until probably I think 27 on the compression side. Um, but again, it's going to be smaller. It's going to be small steps.
Got it, I appreciate the color there. Um and then just as a follow up um you know wondering if you could provide us an update just on your appetite for bolt-on m&a. You know how you're seeing valuations trending today. Um, and if there are any other, you know opportunities similar to burella draw,
Um, we will look at everything. I think our viewpoint is that, um, overall multiples have gone up. I think recent deals prove that. I think we look at that in conjunction with where our stock price is and we say, well, it's not really the right time to think about, um, doing something aggressive on the M&A standpoint, and if we've got capital to deploy.
With much prefer to go, deploy it in, uh, building a, you know, a new King's Landing to plant or a acid gas injection. Well, that would be a low single digit multiple.
And we've got literally all the conviction, um, to go and get it, uh, to basically, uh, get it commercialized and done.
So I would say we are more focused on organic at this point.
That is, of course, not to say that we will exclude looking at inorganic growth, but it would have to be incredibly compelling.
That's fair. All right. Thank you so much. I appreciate the time.
Have some Samia Jane from UPS. Samia, your line is not open.
Hi, good morning. So you've had a greater capex allocated towards Delaware North especially as King's Landing versus Delaware South. But now with burilla draw contributions in EC pipeline under construction, do you see potential in further? Rowing out Delaware, South more I guess? Could you expand on the different opportunities you're seeing in the north versus South longer term and higher? Considering the capex split in the future?
Um, look, I think it's a very good question. I think, you know, the fact that we've invested thus far more in Delaware and the Northeast is just a reflection of how much activity is up there and the fact that it is.
So under penetrated from an infrastructure standpoint versus other areas.
Each Triple C really does unlock a new dimension to a business because now you can move sweet, rich gas from New Mexico down into Texas.
So as we as you all probably will remember and know you know we have more of a sweet system. Yes, we have Friday night in trading but our overall ability to handle really really sour gas is is more limited.
Uh, in South South Texas. I think as we continue to see, uh, New Mexico, uh, be the The Hive of activity for, uh, for, uh, producer customers.
That's where you'll see the preponderance of our overall capitals appointment. When at some point that will pivot and it will come back. E, c is an example where we're actually capitalizing on New Mexico but it's going into Texas and we might need another processing facility getting built.
So that would obviously create incremental Capital spend in Texas. So I really do think we're just going to balance it based on what what we see and what ours as it relates to our producers and where that opportunity set um you know presents itself.
Got it. Thank you. And then you noted, how producer development plans were delayed into 2026? I guess, could you provide more caller, on how we should expect to see producer activity in the back, half of the year and the key drivers there, and what? And I guess, but help us understand some of the sensitivity within your growth Outlook to base and level growth specifically.
Trev. You want to jump in on that.
Yeah, I'll point back to some comments that Jamie made at the beginning of the year. As we think about from where we are in the second quarter to the exit rate of 1.2 billion. Um you know obviously with King's Landing coming online. That's a significant contributor of both volume and earnings growth. And then we're we're seeing. I'd say part of the shift that we have seen is really just as producers looked at their til schedules. And with some uncertainty in the timing of King's Landing, that really had shifted things, um, you know, a quarter or 2 and so um, you know, we start to see significant I say, well developments up in our Delaware, North Area, both in Carlsbad and then up in where the King's Landing area is and up on the shelf and then Jamie pointed to at the beginning of the call, we start to see some real nice big packages of development uh and Delaware, South and specifically in the Berea draw area as we Exit 25 and in the 2026
Continue that we, we continue to see, uh, that to, uh, excuse me. We expect to see that continue. Um, especially as Kings Landing comes online. That's a bit, you know, I'd say, um, unique relative to kinetic um, and it's a, you know, it's almost 10% of total processing capacity growth for us in a single quarter. And so I'd say that, you know, while it has been a little bit, flatter relative to overall basing growth. Still I'd say um you know either in line or modest upper performance. We expect that outperformance that we have seen in 21 through 24 to really pick back up again.
So, I mean, this is Chris just hitting back on some Trevor hit on each customer's different on why. They're delaying, some of them are optimizing. Rig schedules. Some are testing Reservoir properties.
But the rock is still a great rock, and we're excited about what's on the table in 2026. There's a large package, and there's going to be some good development there. So again, each customer is different, and there are different reasons for the delays.
Thanks, thank you very much. We currently have no further questions so I'd like to hand back to Jamie Welch for any further, remarks.
Thank you everyone, for your time this morning. We know it's is a very busy time in the quarter and uh, we look forward to to catching up with you soon. Thanks very much.
As we conclude today's call, we would like to thank everyone for joining. You have disconnected your lines.