Kinetik Holdings Inc

The Transaction

On February 22, 2022 (the “Closing Date”), Kinetik Holdings Inc., a Delaware corporation (the “Company,” formerly known as Altus Midstream Company), consummated the business combination transactions contemplated by that certain Contribution Agreement, dated as of October 21, 2021 (the “Contribution Agreement”), by and among the Company, Altus Midstream LP (now known as Kinetik Holdings LP), a Delaware limited partnership and subsidiary of Altus Midstream Company (the “Partnership”), New BCP Raptor Holdco, LLC, a Delaware limited liability company and BCP Raptor Holdco, LP a Delaware limited partnership (“BCP”). The transactions contemplated by the Contribution Agreement are referred to herein as the “Transaction.” In connection with the closing of the Transaction (the “Closing”), the Company changed its name from “Altus Midstream Company” to “Kinetik Holdings Inc.” Unless the context otherwise requires, “ALTM” refers to the registrant prior to the Closing and “we,” “us,” “our” and the “Company” refer to Kinetik Holdings Inc., the registrant and its subsidiaries following the Closing.

Prior to the Closing, the Company’s financial statements that were filed with the SEC were derived from ALTM’s accounting records. As the Transaction was determined to be a reverse merger, BCP was considered the accounting acquirer and ALTM was the legal acquirer. The accompanying Consolidated Financial Statements herein include (1) BCP’s net assets carried at historical value, (2) BCP’s historical results of operations prior to the Transaction, (3) ALTM’s net assets carried at fair value as of the Closing Date and (4) the combined results of operations with the Company’s results presented within the Consolidated Financial Statements from February 22, 2022 going forward. Refer to Note 3—Business Combination to our Consolidated Financial Statements in this Annual Report for additional discussion.

We are an integrated midstream energy company in the Permian Basin providing comprehensive gathering, transportation, compression, processing and treating services. Our core capabilities include a variety of service offerings including natural gas gathering, transportation, compression, treating and processing; NGLs stabilization and transportation; produced water gathering and disposal; and crude oil gathering, stabilization, storage and transportation. We have approximately 2.0 billion cubic feet per day cryogenic natural gas processing capacity strategically located near the Waha Hub in West Texas. As measured by processing capacity, we are the third largest natural gas processor in the Delaware Basin and fourth largest across the entire Permian Basin. In addition, we have equity interests in four long-term contracted pipelines transporting natural gas, NGLs, and crude oil from the Permian Basin to the Gulf Coast.

Organizational Structure

The Company is a holding company, whose only significant assets are ownership of the non-economic general partner interest and an approximate 38% limited partner interest in the Partnership. As the owner of the non-economic general partner interest in the Partnership, the Company is responsible for all operational, management and administrative decisions related to and consolidates the results of the Partnership and its subsidiaries. The Company also owns equity interests in four Permian Basin pipelines that have access to various points along the U.S. Gulf Coast. The Company’s operations are strategically located in the heart of the Delaware Basin in the Permian and the Company’s operational headquarters is located at 303 Veterans Airpark Lane in Midland, Texas 79705. The Company’s corporate office is located at 2700 Post Oak Boulevard, Suite 300, Houston, Texas 77056. The following chart summarizes our organizational structure as of December 31, 2023. For simplicity, certain entities and ownership interests have not been depicted.

Industry Overview

The following diagram illustrates the Company’s primary operations along the midstream value chain:

The midstream industry is the link between the exploration and production of natural gas and crude oil and condensate and the delivery of its components to end-user markets. Midstream industry is generally characterized by regional competition based on the proximity of gathering systems and processing plants to natural gas and crude oil and condensate producing wells.

Our Operating Segments and Properties

We have two operating segments which are strategic business units with differing products and services. The activities of each of our reportable segments from which the Company earns revenues, records equity income or losses and incurs expenses are described below:

Midstream Logistics

The Midstream Logistics segment provides three service offerings: 1) gas gathering and processing, 2) crude oil gathering, stabilization and storage services and 3) water gathering and disposal.

Gas Gathering and Processing

The Midstream Logistics segment provides gas gathering and processing services with over 1,600 miles of low and high-pressure steel pipeline located throughout the Delaware Basin. Gas processing assets are centralized at five processing complexes with total cryogenic processing capacity of approximately 2.0 Bcf/d.: Diamond Cryogenic complex (720 MMcf/d), the Pecos Bend complex (540 MMcf/d), the East Toyah complex (460 MMcf/d), the Pecos complex (260 MMcf/d), and the Sierra Grande complex (60 MMcf/d). Current residue gas outlets are the El Paso Natural Gas Pipeline, Energy Transfer Comanche Trail Pipeline, ONEOK Roadrunner Pipeline, Whitewater Aqua Blanca Pipeline, Permian Highway Pipeline LLC (“PHP”) and the Company’s wholly owned and operated Delaware Link Pipeline which was placed in commercial service on October 1, 2023. NGL outlets are Energy Transfer’s Lone Star NGL Pipeline, Targa’s Grand Prix NGL Pipeline and Enterprise’s Shin Oak NGL Pipeline (“Shin Oak”), which are accessed through Kinetik NGL, our wholly owned and operated intrabasin NGL pipelines.

Crude Oil Gathering, Stabilization, and Storage Services

The Midstream Logistics segment provides crude oil gathering, stabilization and storage services throughout the Texas Delaware Basin. Crude gathering assets are centralized at the Caprock Stampede Terminal and the Pinnacle Sierra Grande Terminal. The system includes approximately 220 miles of gathering pipeline and 90,000 barrels of crude storage. The crude facilities have connections for takeaway transportation into Plains’s 285 Central Station and State Line and Oryx’s Orla & Central Mentone facilities.

Water Gathering and Disposal

In addition, the Midstream Logistics segment provides water gathering and disposal services through assets located in northern Reeves County, Texas. The system includes approximately 360 miles of gathering pipeline and approximately 580,000 barrels per day of permitted disposal capacity.

Pipeline Transportation

As of December 31, 2023, the Pipeline Transportation segment consists of four equity method investment (“EMI”) pipelines originating in the Permian Basin with various access points to the U.S. Gulf Coast, and our wholly owned and operated pipelines, Kinetik NGL and Delaware Link. The pipelines transport crude oil, natural gas and NGLs within the Permian Basin and to the U.S. Gulf Coast. For a more in-depth discussion of the estimated capital resources, liquidity and timing associated with each EMI pipeline, please see Part IV, Item 15, Note 7—Equity Method Investments, set forth in this Annual Report. In addition, the Company completed the Delaware Link Pipeline in 2023 and acquired full ownership and operatorship of approximately 30 miles of 16-inch NGL pipeline connected to the Diamond Cryogenic complex called the Brandywine NGL Pipeline (“Brandywine Pipeline”) in 2022.

Permian Highway Pipeline

The Company owned an approximately 53.5% equity interest in PHP upon closing of the Transaction, which is also owned and operated by Kinder Morgan Texas Pipeline, LLC (“Kinder Morgan”). PHP transports natural gas from the Waha area in northern Pecos County, Texas to the Katy, Texas area with connections to the U.S. Gulf Coast and Mexico markets. PHP was placed in service in January 2021, with the total capacity of 2.1 Bcf/d fully subscribed under long-term contracts. In June 2022, PHP announced a final investment decision to proceed with its expansion project to increase total capacity to 2.65 Bcf/d fully subscribed under 10 year take or pay contracts. The expansion project was placed in service on December 1, 2023. As a result, upon completion of the project, the Company’s ownership interest in PHP increased to approximately 55.5%.

Gulf Coast Express Pipeline

The Company owns a 16% equity interest in the Gulf Coast Express Pipeline (“GCX”), which is also owned and operated by Kinder Morgan. GCX transports natural gas from the Permian Basin in West Texas to Agua Dulce near the U.S. Gulf Coast. GCX was placed in service during 2019, with the total capacity of 2.0 Bcf/d fully subscribed under long-term contracts.

Breviloba, LLC

The Company owns a 33% equity interest in Shin Oak, which is owned by Breviloba, LLC (“Breviloba”), and operated by Enterprise Products Operating LLC. Shin Oak transports NGLs from the Permian Basin to Mont Belvieu, Texas. Shin Oak was placed in service during 2019, with total capacity of up to 550 MBbl/d.

EPIC Crude Oil Pipeline

The Company owns a 15% equity interest in the EPIC Crude oil pipeline (“EPIC”), which is operated by EPIC Consolidated Operations, LLC. EPIC transports crude oil from Orla, Texas in Northern Reeves County to the Port of Corpus Christi, Texas. EPIC was placed in service in early 2020, with an initial throughput capacity of approximately 600 MBbl/d.

Kinetik NGL Pipelines

The Kinetik NGL Pipelines consist of approximately 96 miles of NGL pipelines connecting our East Toyah and Pecos complexes to Waha, including our 20-inch Dewpoint pipeline that spans 40 miles, and our 30 mile, 16-inch Brandywine Pipeline connecting to our Diamond Cryogenic complex. The Kinetik NGL pipeline system has a capacity of approximately 580 MBbl/d.

Delaware Link Pipeline

The Delaware Link Pipeline consists of approximately 40 miles of 30-inch diameter pipeline with a capacity of approximately 1.0 Bcf/d that provides additional transportation capacity to Waha. The project reached commercial in-service in October 2023.

The following table summarizes our ownership and capacity of properties in our Pipeline Transportation segment as of December 31, 2023:

(1)Upon completion of PHP expansion project in December 2023, the pipeline capacity increased to 2.65 Bcf/d and the Company’s equity interest in PHP increased to 55.5%.

Title to Properties and Permits

Certain of the pipelines connecting our facilities are constructed on rights-of-way granted by the apparent record owners of the property and in some instances these rights-of-way are revocable at the election of the grantor. In several instances, lands over which rights-of-way have been obtained could be subject to prior liens that have not been subordinated to the right-of-way grants. We have obtained permits from public authorities to cross over or under, or to lay pipelines in or along, watercourses, county roads, municipal streets and state highways and, in some instances, these permits are revocable at the election of the grantor. These permits may also be subject to renewal from time to time and we will generally seek renewal or arrange alternative means of transport through additional investment or commercial agreements. We have also obtained permits from railroad companies to cross over or under lands or rights-of-way, many of which are also revocable at the grantor’s election.

We believe we have satisfactory permits and/or title to all our material rights-of-way. We also believe that we have satisfactory title to all our material assets.

Competition

The business of providing gathering, compression, processing and transmission services for natural gas and NGLs is highly competitive. The Company faces intense competition in obtaining natural gas and NGL volumes, including from major integrated and independent exploration and production companies, interstate and intrastate pipelines, and other companies that gather, compress, treat, process, transmit or market natural gas and NGLs. Competition for supplies is primarily based on geographic location of facilities in relation to production or markets, the reputation, efficiency and reliability of the midstream company, and the pricing arrangements offered by the midstream company. For areas where acreage is not dedicated to the Company, the Company will compete with similar enterprises in providing additional gathering, compression, processing and transmission services in the same area of operation.

Human Capital

We recognize that people are our greatest asset and their success is our success. We support our employees so they can deliver on our commitment to the highest standards of safety, performance, integrity and customer service. We strive to retain top talent by fostering a culture that promotes health and safety, employee inclusion and employee engagement and development. As of December 31, 2023, we employed approximately 330 people. None of these employees are covered by collective bargaining agreements.

Health and Safety. The Company’s Environment, Health and Safety (“EHS”) Management System lays out our requirements, processes, and guidelines for process safety and occupational health and safety. We dedicate a safety team, led by the Director of Health and Safety and supported by our VP of Environment, Health and Safety, to oversee our health and safety program and provide training for our employees on crucial aspects such as driving safety, hazard recognition, and safe work practices. We also rebranded our existing safety initiatives as Kinetik Employee Engagement Program (“KEEP”). KEEP gives employees an easy line of communication when they recognize hazards, want to recognize a coworker, or identify areas for improvement. In 2023, our Total Recordable Incident Rate was 0.64 and our Motor Vehicle Incident Rate was 2.15.

Employee Engagement, Development and Well-Being. We use a blend of formal and informal employee recognition strategies, including both monetary and non-monetary incentives. We recognize employee performance, service milestones and special occasions. Additionally, we reward for exceptional performance in areas such as safety, regulatory compliance, innovative thinking, and teamwork. When determining remuneration, we look at multiple factors, including the employee’s performance, function, role, experience, education and tenure within the organization, along with external market factors. In 2023, the Board of Directors (the “Board”) approved merit increases which were in line with the market data provided by our third-party compensation specialists. We continuously enhance our training programs and provide regular performance and career development reviews to our employees to help them achieve their career goals.

In addition, as a part of our ongoing commitment to build an inclusive, respectful and safe workplace, our employees undertake regular training covering topics such as hiring and unconscious bias. To further improve workplace gender balance, the Company’s Sustainability-Linked Financing Framework includes a target to increase the percentage of women on our senior leadership team to 20% by 2026. The Company’s percentage of women in senior leadership positions was 17.7% in both 2023 and 2022.

Leaders Who Listen. We are committed to cultivating an empowered workforce and believe that an important aspect of creating a culture and environment that supports employees, customers and business success is listening to employee feedback. In October 2023, we contracted third-party providers to conduct our 2023 Engagement Survey. The results of the survey are to be discussed among the leadership team to reflect upon what we are doing right and where there may be gaps and opportunities for improvement.

Regulation of Operations

Natural Gas Pipeline Regulation

Under the Natural Gas Act (“NGA”), the Federal Energy Regulatory Commission (“FERC”) regulates the transportation of natural gas in interstate commerce. Intrastate transportation of natural gas is largely regulated by the state in which such transportation takes place. To the extent that the Company’s intrastate natural gas transportation systems transport natural gas in interstate commerce, the rates, terms and conditions of such services are subject to FERC jurisdiction under Section 311 of the Natural Gas Policy Act of 1978 (“NGPA”). The NGPA regulates, among other things, the provision of transportation services by an intrastate natural gas pipeline on behalf of a local distribution company or an interstate natural gas pipeline. Under Section 311 of the NGPA, rates charged for interstate transportation must be fair and equitable, and amounts collected in excess of fair and equitable rates are subject to refund with interest. The terms and conditions of service set forth in the Company’s statement of operating conditions for transportation service under Section 311 of the NGPA are also subject to FERC review and approval. Failure to observe the service limitations applicable to transportation services under Section 311, failure to comply with the rates approved by the FERC for Section 311 service, or failure to comply with the terms and conditions of service established in the pipeline’s FERC-approved statement of operating conditions could result in a change of jurisdictional status and/or the imposition of administrative, civil and criminal remedies.

The Company’s Intrastate natural gas operations are also subject to regulation by various agencies in Texas, principally the Railroad Commission of Texas (“TRRC”). The Company’s intrastate pipeline operations are also subject to the Texas Utilities Code and the Texas Natural Resources Code, as implemented by the TRRC. Generally, the TRRC is vested with authority to ensure that rates, operations and services of gas utilities, including intrastate pipelines, are just and reasonable and not discriminatory. The rates the Company charges for transportation services are deemed just and reasonable under Texas law unless challenged in a customer or TRRC complaint. Failure to comply with the Texas Utilities Code or the Texas Natural Resources Code can result in the imposition of administrative, civil and criminal remedies.

Natural Gas Gathering Regulation

Section 1(b) of the NGA exempts natural gas gathering facilities from the jurisdiction of the FERC. The Company believes that its natural gas gathering pipelines meet the traditional tests the FERC has used to establish whether a pipeline is a gathering pipeline that is not subject to FERC jurisdiction. However, the distinction between FERC-regulated transmission services and federally unregulated gathering services has been the subject of substantial litigation and varying interpretations. In addition, the FERC’s determinations as to whether a pipeline is a gathering pipeline are made on a case-by-case basis, so the classification and regulation of the Company’s natural gas pipeline system could be subject to change based on future determinations by the FERC and the courts. State regulation of gathering facilities generally includes various safety, environmental and, in some circumstances, nondiscriminatory take requirements and complaint-based rate regulation.

The Company’s natural gas gathering facilities are subject to regulation by the TRRC under the Texas Utilities Code and the Texas Natural Resources Code in the same manner as described above for intrastate pipeline transportation facilities. The Company’s natural gas gathering pipeline system is also subject to ratable take and common purchaser statutes in Texas. The ratable take statute generally requires gatherers to take, without undue discrimination, natural gas production that may be tendered to the gatherer for handling. Similarly, the common purchaser statute generally requires gatherers to purchase without undue discrimination as to source of supply or producer. These statutes are designed to prohibit discrimination in favor of one producer over another producer or one source of supply over another source of supply.

Crude Oil and Natural Gas Liquids Pipeline Regulation

Transmission services rendered by the Company are subject to the regulation of the TRRC. The TRRC has the authority to regulate rates, though it generally has not investigated the rates or practices of intrastate pipelines in the absence of shipper complaints.

Pipeline Safety Regulations

Some of the Company’s pipelines are subject to regulation by the U.S. Department of Transportation’s (“DOT”) Pipeline and Hazardous Materials Safety Administration (“PHMSA”) pursuant to the Natural Gas Pipeline Safety Act of 1968 (“NGPSA”), with respect to natural gas, and the Hazardous Liquids Pipeline Safety Act of 1979 (“HLPSA”), with respect to NGLs. The NGPSA and HLPSA regulate safety requirements in the design, construction, operation, and maintenance of natural gas, crude oil, and NGL pipeline facilities, while the Pipeline Safety Improvement Act of 2002 (“PSIA”) establishes mandatory inspections for all U.S. crude oil, NGL, and natural gas transmission pipelines in high consequence areas (“HCAs”), the violation of which can result in administrative, civil and criminal penalties, including civil fines, injunctions, or both.

PHMSA regularly revises its pipeline safety regulations. States are largely preempted by federal law from regulating pipeline safety for interstate lines but most are certified by the DOT to assume responsibility for enforcing federal intrastate pipeline regulations and inspection of intrastate pipelines. States may adopt stricter standards for intrastate pipelines than those imposed by the federal government for interstate lines; however, states vary considerably in their authority and capacity to address pipeline safety. State standards may include requirements for facility design and management in addition to requirements for pipelines. For example, the TRRC has adopted rules that require operators of natural gas and hazardous liquid gathering lines in rural areas to report accidents, conduct investigations and perform necessary corrective action. Due to the possibility of new or amended laws and regulations or reinterpretation of existing laws and regulations, there can be no assurance that future compliance with PHMSA or state requirements will not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

Environmental and Occupational Health and Safety

The Company complies with the requirements of the Occupational Safety and Health Administration (“OSHA”) and comparable state laws that regulate the protection of the health and safety of workers. In addition, with respect to OSHA hazard communication standards, the Company believes that its operations are in substantial compliance with OSHA requirements, including general industry standards, hazard communication, record keeping requirements and monitoring of occupational exposure to regulated substances.

Our business operations are also subject to numerous environmental and occupational health and safety laws and regulations imposed at the federal, regional, state and local levels. The activities the Company conducts in connection with the gathering, compression, dehydration, treatment, processing and transportation of natural gas and gathering, stabilization, transportation and storage of crude oil are subject to, or may become subject to, stringent environmental regulation and we could incur costs related to the cleanup of third-party sites to which we have sent regulated substances for disposal or equipment for cleaning, and for damages to natural resources or other claims relating to releases of regulated substances at or from such third-party sites. The Company has implemented a number of programs and policies designed to monitor and pursue continued operation of our activities in a manner consistent with environmental and occupational health and safety laws and regulations. To that end, the Company has incurred and will continue to incur operating and capital expenditures to comply with these laws and regulations. Some of these environmental compliance costs may be material and have an adverse effect on our business, financial condition and results of operations.

Certain existing environmental and occupational health and safety laws and regulations include the following U.S. legal standards, which may be amended from time to time:

•the Clean Air Act, which restricts the emission of air pollutants from many sources and imposes various pre-construction, operational, monitoring and reporting requirements, and which the EPA has relied upon as authority for adopting climate change regulatory initiatives relating to GHG emissions;

•the Clean Water Act, which regulates discharges of pollutants to state and federal waters as well as establishing the extent to which waterways are subject to federal jurisdiction and rulemaking as protected waters of the United States;

•the Comprehensive Environmental Response, Compensation and Liability Act of 1980, which imposes liability on generators, transporters and arrangers of hazardous substances at sites where releases, or threatened releases, of such hazardous substances has occurred;

•the Resource Conservation and Recovery Act (“RCRA”), which governs the generation, treatment, storage, transport and disposal of solid wastes, including hazardous wastes;

•the Oil Pollution Act, which imposes liability for removal costs and damages arising from an oil spill in waters of the United States on owners and operators of onshore facilities, pipelines and other facilities;

•the National Environmental Policy Act, which requires federal agencies to evaluate major agency actions that have the potential to significantly impact the environment, to include the preparation of an Environmental Assessment to assess potential direct, indirect, and cumulative impacts of the proposed project, and, if necessary, prepare a more detailed Environmental Impact Statement that may be made available to the public for comment;

•the Safe Drinking Water Act, which ensures the quality of the nation’s public drinking through adoption of drinking water standards and controlling the injection of waste fluids into below-ground formations that may adversely affect drinking water sources;

•the Endangered Species Act, which imposes restrictions on activities that may adversely affect federally identified endangered and threatened species or their habitats, to include the implementation of operating restrictions or a temporary, seasonal or permanent ban in affected areas;

•the Emergency Planning and Community Right-to-Know Act, which requires the implementation of a safety hazard communication program and the dissemination of information to employees, local emergency planning committees, and response departments on toxic chemicals use and inventories;

•the Occupational Safety and Health Act, which establishes workplace standards for the protection of both the health and safety of employees, to include the implementation of hazard communications programs to inform employees about hazardous substances in the workplace, the potential harmful effects of those substances and appropriate control measures; and

•the DOT regulations relating to the advancement of safe transportation of energy and hazardous materials and emergency response preparedness.

On March 15, 2023, the EPA announced finalization of its Good Neighbor Plan (the “Plan”) to reduce nitrogen oxide pollution from power plants and other industrial facilities from 23 upwind states which the EPA determined are significantly contributing to National Ambient Air Quality Standards (NAAQS) nonattainment and interfering with maintenance of the 2015 ozone NAAQS in downwind states. As part of the Plan, the EPA announced that it would be issuing further emissions controls from industrial sectors, including new and existing reciprocating internal combustion engines of a certain size used in pipeline transportation of natural gas. Beginning in 2026, the Plan will apply to all impacted engines unless compliance schedule extensions are granted by the EPA, determined on an engine-by-engine basis. The Plan, however, has been challenged in multiple federal courts, and the Supreme Court held oral arguments on the challenges to the rule in February 2024 (specifically, whether to freeze the Plan while litigation continues in the courts), although a decision remains pending at this time and we cannot predict how the Court may ultimately rule. The Plan could have material financial impacts on our natural gas business in relation to the costs necessary to comply with the Plan, the timing of compliance, equipment shortages, potential operational disruptions, and the availability of and costs associated with the purchase of offsets.

There are also state and local jurisdictions where we operate in the U.S. that have, are developing, or are considering developing, similar environmental and occupational health and safety laws. Any failure by the Company to comply with these laws and regulations could result in adverse effects upon our business to include the (i) assessment of sanctions, including administrative, civil, and criminal penalties; (ii) imposition of investigatory, remedial, and corrective action obligations or the incurrence of capital expenditures; (iii) occurrence of delays or cancellations in the permitting, development or expansion of projects; and (iv) issuance of injunctions restricting or prohibiting some or all of our activities in a particular area. Some environmental laws provide for citizen suits which allow for environmental organizations to act in place of the government and sue operators for alleged violations of environmental law. The ultimate financial impact arising from environmental laws and regulations is not clearly known nor determinable as existing standards are subject to change and new standards continue to evolve.

Environmental laws and regulations are frequently subject to change. More stringent environmental laws that apply to our operations and the operations of our customers may result in increased operating costs and capital expenditures for compliance, including, but not limited to, those related to the emission of GHGs and climate change. Given the long-term trend toward increasing regulation, future federal and/or state GHG regulations of the oil and gas industry remain a significant possibility.

Trends in environmental and worker health and safety regulation over time has been to typically place increasing restrictions and limitations on activities that could result in adverse effects to the environment or expose workers to injury. These changes in environmental and worker safety laws and regulations, or reinterpretations or enforcement policies that may arise in the future and result in increasingly stringent or costly waste management or disposal, pollution control, remediation or worker health and safety-related requirements, may have a material adverse effect on our business, operations and financial condition. We may not have insurance or be fully covered by insurance against all risks relating to environmental or occupational health and safety, and we may be unable to pass on the increased cost of compliance arising from such risks to our customers. We regularly review regulatory and environmental issues as they pertain to the Company and we consider these as part of our general risk management approach.

Insurance

Our business has operating risks normally associated with the gathering, stabilization, transportation and storage of crude oil and gathering, compression, dehydration, treatment, processing and transportation of natural gas, which could cause damage to life or property. In accordance with industry practice, we maintain insurance against some, but not all, potential operating losses. For some operating risks, the Company may not obtain insurance if the cost of available insurance is excessive relative to the risks presented; in such a case, if a significant operating accident or other event occurs which is not fully covered by the insurance the Company has, this could adversely affect our operations and business. As we continue to grow, we will continue to evaluate our policy limits and deductibles as they relate to the overall cost and scope of our insurance program.

Environment, Social and Governance Considerations

The Company is committed to advancing a safer, cleaner, and more reliable energy future and believes that integrating environmental, safety, governance, and community considerations into our business decisions is essential to creating value for its stakeholders. In July 2023, the Company published its fiscal year 2022 Sustainability Report (“Report”). The Report focused on four key areas: Governance, Our Environment, People and Community Engagement.

Governance

The Board exercises general supervision over the Company’s business, operations, strategy and risk management programs. To assist the Board in its oversight role, the Board’s committees consist of the Audit Committee, Compensation Committee and Governance and Sustainability Committee. In 2022, we enhanced our corporate governance with the adoption of a reporting and disclosure control framework compliant with the Sarbanes-Oxley Act of 2002. Additionally, our corporate governance structure includes conformity to the applicable rules and regulations as prescribed by the SEC and the New York Stock Exchange (“NYSE”).

We firmly believe that commitment to an actionable sustainability strategy makes for a stronger, more resilient company and drives better performance. As such, we embed sustainability and ESG responsibilities within our organization by ensuring we have ownership and accountability at all levels. In both 2023 and 2022, our compensation program tied 20% of all salaried employees’ at-risk pay, including executives, to the achievement of specific ESG goals, including those related to methane emissions and health and safety. The Governance and Sustainability Committee supported the Compensation Committee in establishing the specific parameters of the metrics.

In addition, the Company has developed an Enterprise Risk Management (“ERM”) program across all functional areas and mechanisms for identifying, prioritizing, and mitigating risks. We evaluate risks across the enterprise on a regular basis, examining the potential impact to our operating flexibility, along with the financial and reputational impact of such risks. Our Audit Committee of the Board has ultimate oversight over the ERM process, providing ongoing assessments of the company’s risk management processes and system of internal control. Our Executive Vice President, Chief Administrative Officer and Chief Accounting Officer has functional oversight of the Enterprise Risk function.

Furthermore, we are committed to conducting business in accordance with the highest ethical standards. Our Code of Business Conduct outlines the requirements that all our employees and contractors must follow to conduct business fairly and ethically. The Audit Committee is responsible for overseeing business ethics issues, and our General Counsel and Chief Compliance Officer oversees the day-to-day responsibilities for ethics and compliance. The Company also recognizes the importance of receiving, retaining and addressing concerns from our directors, officers, employees and other stakeholders seriously and expeditiously. We use a confidential third-party Ethics Hotline to enable anyone to report concerns. The Ethics Hotline is monitored by our Human Resources and Legal departments, as well as the Chair of the Audit Committee.

Environmental Responsibility

The Company is committed to being a good steward of the environment and prioritizes climate change as a key issue. As part of the energy industry, we understand the need to transition to a lower carbon economy, acknowledging our operations within a carbon-constrained world. Our commitment to a lower carbon future is emphasized by our ambitious goal to reach net zero in our Scope 1 and 2 GHG emissions by 2050. Our net zero goal is supported by an interim 2030 target to reduce methane and GHG emissions intensities by 30% and 35%, respectively, compared to a 2021 baseline.

In line with our commitment, the Company not only complies with applicable federal, state, and local regulations but also actively engages in voluntary initiatives aimed at reducing GHG and criteria air emissions. Initiatives started in 2022 included: (1) pneumatics upgrades. We initiated the process of identifying facilities that operated natural gas driven pneumatics and pumps and began evaluating each facility to determine the suitability for transitioning to instrument air; (2) installation of electric compression. We installed 10,000 horsepower (HP) at the Pecos Bend Plant in 2022 and installed another 10,000 HP of electric compression at our Diamond Cryo Plant in 2023. Currently, of the Company’s total 707,000 HP of compression and refrigeration, approximately 120,000 HP or 17% is electric; (3) leak detection and repair (“LDAR”). We perform leak detection surveys through an independent third party to maintain thorough, unbiased inspections. We created an internal LDAR SWAT Team to focus on improving the leak repair time, further minimizing emissions; (4) advanced monitoring technologies. We implemented new emissions monitoring and detection technologies including deployment of continuous emissions monitoring cameras, equipping operations and support teams with handheld leak detection devices and performing regular aerial emissions monitoring surveys of our assets; (5) renewable energy and energy efficiency.

While we use relatively insignificant amounts of water in our direct operations compared to upstream operations and other industries, we recognize the importance of conserving water in a water-scarce region and remain committed to minimizing our water consumption and ensuring that we only use what is necessary. Through our partnership with the Oilfield Water Stewardship Council, we work with a community of peers to establish and standardize relevant performance metrics that support responsible water management and stewardship.

Our Waste Management Plans, one for our gathering and processing operations and one for our produced water management operations, address the identification, characterization, disposition, reporting, and recordkeeping requirements of various waste streams generated during routine operations, general office/administrative tasks, facility maintenance, onsite corrective remediation actions, and excavation and construction activities, in line with applicable governing regulations. All wastes are evaluated to determine their characteristics and regulatory status as hazardous/non-hazardous, industrial, RCRA-exempt, or universal, and each category requires specific handling and disposal processes. We are committed to meeting our regulatory requirements. We had zero violations and zero penalties related to our Waste Management Program in 2023 and 2022.

When we make plans to construct new or expand existing assets or facilities, our assets and pipelines are included as part of a comprehensive Integrity Management Program, ensuring we construct and maintain reliable equipment in accordance with regulatory requirements, industry standards, and best practices. We have established 1) the Process Safety and Risk Management Program, and 2) the Pipeline Integrity Management Program to ensure that our pipeline assets adhere to the highest standards of safety and integrity throughout their lifecycle.

Our pipeline network spans over 2,000 miles, with the majority of the infrastructure being less than 10 years in operation. To ensure safe and efficient operations, we employ both risk-based and prescriptive inspection schedules for our pipeline systems. This schedule takes into account factors such as the potential for internal or external corrosion, soil erosion, adverse weather conditions, or the likelihood of damage from nearby construction activities. The Company is responsible for the transportation of natural gas liquids, crude oil, and produced water through its extensive pipeline network and facilities. Spill prevention and control are fundamental to our operations and the community at large as we work to ensure the integrity of our pipelines and facilities and prevent any contamination of waterways or land. During the operation of our pipelines and facilities, we strictly adhere to spill prevention controls and have robust Spill Prevention, Control, and Countermeasure plans and Emergency Response Plans in place.

The Company believes that its operations are in substantial compliance with applicable environmental regulations and attempts to anticipate future regulatory requirements that might be imposed and plan accordingly. While any new or amended laws and regulations or reinterpretation of existing laws and regulations would not be expected to be any more burdensome to the Company than to other, similarly situated operators, there can be no assurance that future compliance with any new environmental requirements will not have an adverse effect on the Company’s financial condition, results of operations or cash flows.

Social Responsibility

We recognize that people are our greatest asset and that their success is our success. We prioritize a safe working environment and offer a comprehensive suite of benefits to all our employees to ensure the well-being and development of our people. See additional information regarding employee initiatives in Part I—Item 1. and 2. Business and Properties—Human Capital in this Annual Report.

We take pride in being a responsible neighbor and a positive influence in the communities where we live and operate; as such, we continue to encourage our team to give back to the communities where they live and work, providing employees with eight hours of paid volunteer time each year. Volunteer hours totaled 533 and 271 hours in 2023 and 2022, respectively. We also made donations to various causes identified by our employees and our communities. We contributed approximately $1.2 million and $0.3 million to various initiatives in 2023 and 2022, respectively. To further show our commitment to communities where we live and operate, we made a significant commitment to support the Permian Strategic Partnership, joining forces to foster a better quality of life for Permian Basin residents and became a sponsor of Texas’ Sponsor a Highway program, helping keep our interstates safe and beautiful.

We recognize that building strong relationships with our local communities and landowners is essential for the sustainable growth and success of our operations in West Texas, as they provide us with the right-of-way to place pipelines and other facilities on their properties. We aim to provide them with accurate and timely information about activities that may affect their properties, and we work hard to mitigate any negative impacts on their properties, the environment, and surrounding communities by implementing best practices for construction and maintenance of facilities.

We consider our Suppliers an extension of our team and extend our commitment to values and sustainability principles to them. Our Supplier Code of Conduct (“Code”) sets forth our expectations in terms of values, policies, and procedures related to ethics, compliance, safety, environment, health, and human rights. Our Contractor Management Program requires that our suppliers meet specific requirements as well as acknowledge and commit to the Code.

Available Information

The Company’s website is www.kinetik.com. The Company’s Annual Reports, Quarterly Reports on Form 10-Q, Proxy Statements, Current Reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and other filings with the SEC are available at https://ir.kinetik.com/overview/default.aspx under the heading “Financials”—“SEC Filings”, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. These reports are also available on the SEC’s website at www.sec.gov. In addition to reports filed or furnished with the SEC, we publicly disclose material information from time to time in press releases, at annual meetings of shareholders, in publicly accessible conferences and investor presentations, and through our website. In addition, the Company’s Code of Business Conduct and Ethics, Corporate Governance Guidelines, charters of the Audit Committee, Compensation Committee, Governance and Sustainability Committee, and other corporate governance materials are available on the Investor Relations section of the Company’s website. The information contained on the Company’s website as referenced in this report is not, and should not be deemed to be, part of or incorporated by reference into this report. Requests for a copy of any of the above-referenced reports and corporate governance documents may be directed in writing to: Investor Relations, Kinetik Holdings Inc., 2700 Post Oak Blvd, Suite 300 Houston, TX 77056 or by calling (713) 621-7330.