Permian Basin pure-play Kinetik Holdings Inc. revised its 2024 guidance after seizing opportunities in New Mexico and the Delaware sub-basin in the second quarter, and increasing processing volumes despite challenges from anemic natural gas prices at the Waha hub.
The Midland, TX-based midstream company, which operates natural gas assets to Gulf Coast markets and beyond, revised its earnings estimates for the year to $940-980 million, versus $905-960 million earlier this year.
“That is a 3% increase at the midpoint versus the previous guidance range midpoint, and implies over 14% growth year/year at the midpoint,” CFO Trevor Howard said during the second quarter earnings call. The revision reflected earnings outperformance throughout the first six months. Kinetik bought Durango Permian LLC , a platform in the Northern Delaware Basin. It also sold its 16% equity interest in Gulf Coast Express pipeline.
Durango expanded Kinetik’s footprint into New Mexico’s Eddy and Lea counties. Prior to the acquisition, it had “zero operations in New Mexico” or the Delaware, CEO James Welch said on the call. “Today, nearly 20% of our volumes are sourced from New Mexico.
Kinetik’s processing capacity also increased by 2 Bcf/d with the Durango deal. In addition, compression capacity jumped by 470,000 hp and 90,000 bbl of crude oil storage were added from the Durango tie-up.
Natural gas processing volumes were up 7% year/year at 1.58 Bcf/d during 2Q2024, Welch noted. That was despite wellhead volume curtailments in response to Waha hub pricing, which averaged about 140 MMcf/d.
Natural gas prices at Waha struggled to hold positive territory throughout the second quarter. NGI’s Daily Historical Data show natural gas prices at Waha only as high as $1.365/MMBtu in June after tanking to negative $4.595 in May. Waha hub prices were down 2.0 cents day/day Wednesday to negative 38.0 cents.
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During 2Q2024, natural gas prices at the Houston Ship Channel (HSC) ranged from a low of 38.5 cents to a high of $2.580, NGI data show. Prices at the East Texas hub were 4.0 cents lower day/day Wednesday to $1.815.
Kinetik revised its commodity price outlook for the remainder of the year to average about $77/bbl for West Texas Intermediate crude oil, $2/MMBtu for natural gas at HSC and 60 cents/gallon for natural gas liquids.
About 13% of Kinetik’s remaining 2024 expected gross profit is directly influenced by commodity prices, Howard said. Currently, about 30% of its exposure is linked to natural gas or ethane, 30% to propane and butane, and 40% to crude oil.
Looking ahead specifically within the midstream logistics segment, Howard said, “We now expect process gas volume growth in the high teens.” The outlook includes six months of Durango’s existing business, including about 200 MMcf/d of processed gas volumes from the Maljamar and Dagger Draw processing facilities.
Construction is progressing on Kings Landing I, the 200 MMcf/d greenfield processing complex in Eddy County. The facility would increase Durango’s processing capacity to 420 MMcf/d. It is expected to be in service next spring.
Additionally, work is ongoing on a 20-inch diameter pipeline running across the Durango system to provide connectivity to the Kings Landing complex and improve system hydraulics. Pre-final investment decision (FID) work scope and long-lead critical path items were also sanctioned in 2Q2024 for Kings Landing II.
The full-year 2024 spending budget bumped up to range between $260 million and $300 million, versus previous guidance of $125-165 million. The increase reflected capital included for the construction of Kings Landing I, pre-FID work for Kings Landing II and an associated asset gas injection well, Howard said.
The revised budget also reflected new and amended long-term gathering and processing agreements with producer customers in Eddy and Lea counties to increase treating services and minimum volume commitment levels.
Kinetik posted net income of $108.9 million (54 cents/share) in 2Q2024, versus year-ago profits of $71.7 million (41 cents).
