Kinetik Holdings Inc
For the period ended Dec 31, 2023. Filed Mar 5, 2024.
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FY2023 · Filed Mar 5, 2024
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6. Intangible Assets, Net F-
- INTANGIBLE ASSETS, NET
Intangible assets, net are comprised of the following:
| December 31, | ||
|---|---|---|
| 2023 | 2022 | |
| (In thousands) | ||
| Customer contracts | $1,139,665 | $1,137,831 |
| Right of way assets | 141,711 | 127,539 |
| Less accumulated amortization | (689,706) | (569,981) |
| Total amortizable intangible assets, net | $591,670 | $695,389 |
The fair value of acquired customer contracts was capitalized as a result of acquiring favorable customer contracts as of the closing dates of certain past acquisitions and is being amortized using a straight-line method over the remaining term of the customer contracts, which range fromone totwenty years. Right-of-way assets relate primarily to underground pipeline easements and have a useful life often years and are amortized using the straight-line method. The right of way agreements are generally for an initial term often years with an option to renew for an additionalten years at agreed upon renewal rates based on certain indices or up to 130% of the original consideration paid.
At December 31, 2023, the remaining weighted average amortization periods for customer contracts and right of way assets were approximately 6.94 years and 6.59 years, respectively. The overall remaining weighted average amortization period for the intangible assets as of December 31, 2023 was approximately 6.89 years.
The Company recorded $122.3 million, $120.7 million and $136.8 million of amortization expense for the years ended December 31, 2023, 2022, and 2021, respectively. There wasno impairment recognized on intangible assets for the years ended December 31, 2023, 2022, and 2021, respectively.
Estimated aggregate amortization expense for the remaining unamortized balance in future years is as follows:
| Fiscal Year | Amount |
|---|---|
| (In thousands) | |
| 2024 | $122,160 |
| 2025 | 121,121 |
| 2026 | 114,184 |
| 2027 | 79,408 |
| 2028 | 33,454 |
| Thereafter | 121,343 |
| Total | $591,670 |
- EQUITY METHOD INVESTMENTS
As of December 31, 2023, the Company owned investments in the following long-haul pipeline entities in the Permian Basin. These investments were accounted for using the equity method of accounting. For each EMI pipeline entity, the Company has the ability to exercise significant influence based on certain governance provisions and its participation in the significant activities and decisions that impact the management and economic performance of the EMI pipeline.
The table below presents the ownership percentages and investment balances held by the Company for each entity:
| December 31, | ||||
|---|---|---|---|---|
| 2023 · 2022 | ||||
| (In thousands, except for ownership percentages) | ||||
| Ownership | Amount | Ownership | Amount | |
| Permian Highway Pipeline LLP (“PHP”)(1) | 55.5% | $1,666,254 | 53.3% | $1,474,800 |
| Breviloba LLC (“Breviloba”) | 33.0% | 443,684 | 33.0% | 455,057 |
| Gulf Coast Express Pipeline LLC (“GCX”) | 16.0% | 431,051 | 16.0% | 451,483 |
| $2,540,989 | $2,381,340 | |||
(1)The PHP expansion project, started in June 2022, was completed and went into service in December 2023. The Company’s ownership increased to 55.5% upon completion.
Additionally, as of December 31, 2023, the Company owned 15.0% of Epic Crude Holdings, LP (“EPIC”). However, no dollar value was assigned through the Transaction’s purchase price allocation as an adjustment was made to eliminate equity in losses of EPIC. No additional contribution was made to EPIC andno distribution or equity income was received from EPIC during the year-ended December 31, 2023.
As of December 31, 2023 and 2022, the unamortized basis differences included in the EMI pipelines’ investment balances were $349.3 million and $363.2 million. These amounts represent differences in the Company’s contributions to date and the Company’s underlying equity in the separate net assets within the financial statements of the respective entities. Unamortized basis differences will be amortized into equity income over the useful lives of the underlying pipeline assets. There was capitalized interest of $24.7 million and $13.4 million as of December 31, 2023 and 2022, respectively. Capitalized interest is amortized on a straight-line basis into equity income.
The following table presents the activities in the Company’s EMIs:
| PHP | Breviloba | GCX | Total | |
|---|---|---|---|---|
| (In thousands) | ||||
| Balance at December 31, 2021 | $626,477 | $— | $— | $626,477 |
| Acquisitions | 817,500 | 467,500 | 467,500 | 1,752,500 |
| Contributions | 76,770 | — | — | 76,770 |
| Distributions | (170,409) | (38,816) | (47,539) | (256,764) |
| Capitalized interest | 1,401 | — | — | 1,401 |
| Equity income, net(1) | 123,061 | 26,373 | 31,522 | 180,956 |
| Balance at December 31, 2022 | $1,474,800 | $455,057 | $451,483 | $2,381,340 |
| Contributions | 226,948 | — | — | 226,948 |
| Distributions | (178,542) | (42,711) | (57,916) | (279,169) |
| Capitalized interest | 11,855 | — | — | 11,855 |
| Equity income, net(1) | 131,193 | 31,338 | 37,484 | 200,015 |
| Balance at December 31, 2023 | $1,666,254 | $443,684 | $431,051 | $2,540,989 |
(1)For the year ended December 31, 2023, net of amortization of basis differences and capitalized interests, which represents undistributed earnings, the amortization was $7.5 million from PHP, $0.7 million from Breviloba and $6.2 million from GCX. For the year ended December 31, 2022, net of amortization of basis differences and capitalized interests, which represents undistributed earnings, the amortization was $6.8 million from PHP, $0.6 million from Breviloba and $5.3 million from GCX.
Summarized Financial Information
The following represented selected income statement and balance sheet data for the Company’s EMI pipeline entities(on a 100 percent basis):
| PHP · Breviloba · GCX | |||||
|---|---|---|---|---|---|
| Statements of Operations · (In thousands) | |||||
| Revenues | $401,668 | $188,921 | $364,223 | ||
| Operating income | 259,872 | 93,763 | 267,019 | ||
| Net income | 261,332 | 94,378 | 273,194 | ||
| PHP · Breviloba · GCX | |||||
| Statements of Operations | (In thousands) | ||||
| Revenues | $396,846 | $183,328 | $364,223 | ||
| Operating income | 261,040 | 98,119 | 269,150 | ||
| Net income | 261,028 | 97,834 | 268,493 | ||
| PHP · Breviloba · GCX | |||||
| Statements of Operations | (In thousands) | ||||
| Revenues | $397,237 | $157,683 | $362,399 | ||
| Operating income | 237,230 | 92,568 | 254,772 | ||
| Net income | 236,528 | 92,005 | 253,535 | ||
| December 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| PHP | Breviloba | GCX | PHP | Breviloba | GCX | |
| Balance Sheets · (In thousands) | ||||||
| Current assets | $101,900 | $30,108 | $49,884 | $94,771 | $30,541 | $47,935 |
| Noncurrent assets | 2,575,843 | 1,277,648 | 1,509,632 | 2,310,739 | 1,308,087 | 1,594,623 |
| Total assets | $2,677,743 | $1,307,756 | $1,559,516 | $2,405,510 | $1,338,628 | $1,642,558 |
| Current liabilities | $67,597 | $17,131 | $21,908 | $63,392 | $12,352 | $16,103 |
| Noncurrent liabilities | — | 8,427 | 329 | — | 9,029 | 395 |
| Equity | 2,610,146 | 1,282,198 | 1,537,279 | 2,342,118 | 1,317,247 | 1,626,060 |
| Total liabilities and equity | $2,677,743 | $1,307,756 | $1,559,516 | $2,405,510 | $1,338,628 | $1,642,558 |
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