Kinetik Holdings Inc

Previous wording

The following discussion and analysis addresses the results of our operations for the three month period ended March 31, 2024, as compared to our results of operations for the same period in 2023. Please read the following discussion of our financial condition and results of operations in conjunction with the financial statements and notes thereto included elsewhere in this report.

Current wording

The following discussion and analysis addresses the results of our operations for the three and six month period ended June 30, 2024, as compared to our results of operations for the same periods in 2023. Please read the following discussion of our financial condition and results of operations in conjunction with the financial statements and notes thereto included elsewhere in this report.

Previous wording

We have two reportable segments which are strategic business units with various products and services. The Midstream Logistics segment operates under three service offerings, 1) gas gathering and processing, 2) crude oil gathering, stabilization and storage services and 3) produced water gathering and disposal. The Pipeline Transportation segment consists of four EMI pipelines originating in the Permian Basin with various access points to the U.S. Gulf Coast, as well as Kinetik NGL and Delaware Link Pipelines. The pipelines transport crude oil, natural gas and NGLs within the Permian Basin and to the U.S. Gulf Coast.

Current wording

We have two reportable segments which are strategic business units with various products and services. The Midstream Logistics segment operates under three service offerings, 1) gas gathering and processing, 2) crude oil gathering, stabilization and storage services and 3) produced water gathering and disposal. The Pipeline Transportation segment consists of three EMI pipelines originating in the Permian Basin with various access points to the U.S. Gulf Coast, as well as Kinetik NGL and Delaware Link Pipelines. The pipelines transport crude oil, natural gas and NGLs within the Permian Basin and to the U.S. Gulf Coast.

Previous wording

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 pipelines 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.

Current wording

Gas Gathering and Processing. The Midstream Logistics segment provides gas gathering and processing services with over 4,100 miles of low and high-pressure steel pipeline located throughout the Delaware Basin, including over 2,500 miles of gas pipeline acquired through the Durango Acquisition. Gas processing assets are centralized at five processing complexes with total cryogenic processing capacity of approximately 2.2 Bcf/d as of today and over 2.4 Bcf/d once the Kings Landing Project is complete in early 2025.

Previous wording

EMI pipelines. The Company owns the following equity interests in four EMI pipelines in the Permian Basin with access to various points along the U.S. Gulf Coast: 1) an approximate 55.5% equity interest in Permian Highway Pipeline LLC(“PHP”), which is operated by Kinder Morgan; 2) 16% equity interest in Gulf Coast Express Pipeline LLC (“GCX”), which is also operated by Kinder Morgan; 3) 33% equity interest in Breviloba, LLC, the owner of Shin Oak, which is operated by Enterprise Products Operating LLC; and 4) 15% equity interest in Epic Crude Holdings, LP (“EPIC”), which is operated by EPIC Consolidated Operations, LLC.

Current wording

EMI pipelines. The Company owns the following equity interests in three EMI pipelines in the Permian Basin with access to various points along the U.S. Gulf Coast: 1) an approximate 55.5% equity interest in Permian Highway Pipeline LLC (“PHP”), which is also owned and operated by Kinder Morgan; 2) 33.0% equity interest in Breviloba, LLC (“Breviloba”), the owner of Shin Oak (“Shin Oak”), which is operated by Enterprise Products Operating LLC; and 3) 15% equity interest in Epic Crude Holdings, LP (“EPIC”), which is operated by EPIC Consolidated Operations, LLC.

Previous wording

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.

Current wording

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 over 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 560 MBbl/d.

Previous wording

On April 2, 2024, Kinetik Receivables LLC (“Kinetik Receivables”), a bankruptcy remote special purpose entity formed as a direct subsidiary of Kinetik Holdings LP, a Delaware limited partnership (the “Partnership”), entered into an accounts receivable securitization facility with an initial facility limit of $150 million (“A/R Facility”) which has a scheduled termination date of April 1, 2025, with renewal options. Pursuant to the terms of the A/R Facility, Kinetik Receivables acquires certain receivables from the Partnership and other subsidiaries of the Company and makes further sales of such receivables to certain purchasers. The net proceeds of the A/R Facility were used, together with cash on hand, to repay a portion of the outstanding borrowings under the existing term loan credit facility (“Term Loan Credit Facility”), lowering the remaining balance to $1.00 billion. As a result, the maturity of the Term Loan Credit Facility extended to December 8, 2026.

Current wording

On April 2, 2024, Kinetik Receivables, a bankruptcy remote special purpose entity formed as a direct subsidiary of the Partnership, entered into an A/R Facility with an initial facility limit of $150.0 million with PNC Bank, as the administrative agent, and certain purchasers party thereto from time to time, which has a scheduled termination date of April 1, 2025. Pursuant to the A/R Facility, the Company and certain of its subsidiaries continuously transfer receivables to Kinetik Receivables and Kinetik Receivables transfers ownership and control of certain receivables that meet certain qualifying conditions to third-party purchasers in exchange for cash. Certain receivables are held by Kinetik Receivables and are pledged to secure the collectability of the sold receivables. The amount available for purchases of receivables at any one time under the A/R Facility is limited to an amount calculated based on the outstanding balance of eligible receivables sold to the purchasers, subject to certain reserves, concentration limits, and other limitations. As of June 30, 2024, eligible accounts receivable of $148.8 million was pledged to the A/R Facility as collateral and $1.2 million was available to be invested by the purchasers. The net proceeds of the A/R Facility were used, together with cash on hand, to repay a portion of the outstanding borrowings under the existing Term Loan Credit Facility, lowering the remaining balance to $1.00 billion. As a result, the maturity of the Term Loan Credit Facility extended to December 8, 2026.

Previous wording

There has been, and we believe there will continue to be, volatility in commodity prices and in the relationships among NGLs, crude oil and natural gas prices. As a result of uncertainty around global commodity supply and demand, the current conflict in Israel and the Gaza Strip and elsewhere in the Middle East, as well as the ongoing armed conflict in Ukraine, global oil and natural gas commodity prices continue to remain volatile. The volatility and uncertainty of natural gas, crude oil and NGL prices impact drilling, completion and other investment decisions by producers and ultimately supply to our systems. Although ongoing armed conflicts might generate commodity price upward pressure, and our operations could benefit in an environment of higher natural gas, NGLs and condensate prices, the instability of the international political environment and human and economic hardship resulting from the conflicts would have a highly uncertain impact on the U.S. economy, which in turn, might affect our business and operations adversely. Our product sales revenue is exposed to commodity price fluctuations. Therefore, commodity price decline and sustained periods of low natural gas, condensate and NGL prices could have an adverse effect on our product revenue stream. The Company continues to monitor commodity prices closely and may enter into commodity price hedges from time to time as necessary to mitigate the volatility risk. In addition, the Company, when economically appropriate, enters into fee-based arrangements that insulate the Company from commodity price volatility.

Current wording

There has been, and we believe there will continue to be, volatility in commodity prices and in the relationships among NGLs, crude oil and natural gas prices. As a result of uncertainty around global commodity supply and demand, the current conflict in Israel and the Gaza Strip and elsewhere in the Middle East, as well as the ongoing armed conflict in Ukraine, global oil and natural gas commodity prices continue to remain volatile. The volatility and uncertainty of natural gas, crude oil and NGL prices impact drilling, completion and other investment decisions by producers and ultimately supply to our systems. Although ongoing armed conflicts might generate commodity price upward pressure, and our operations could benefit in an environment of higher natural gas, NGLs and condensate prices, the instability of the international political environment and human and economic hardship resulting from the conflicts would have a highly uncertain impact on the U.S. economy, which in turn, might affect our business and operations adversely. Our product sales revenue is exposed to commodity price fluctuations. Therefore, commodity price decline and sustained periods of low natural gas and NGL prices could have an adverse effect on our product revenue stream. The Company continues to monitor commodity prices closely and may enter into commodity price hedges from time to time as necessary to mitigate the volatility risk. In addition, the Company, when economically appropriate, enters into fee-based arrangements that insulate the Company from commodity price volatility.

Previous wording

The annual rate of inflation in the United States was 3.25% in March 2024 compared to 5.0% in March 2023, as measured by the Consumer Price Index. However, the Federal Open Market Committee (“FOMC”) maintains its long-term goals of maximum employment and inflation at the rate of 2.00%. In support of these goals, the FOMC maintained the target range for the federal funds rate to 5.25% - 5.50% during its meeting in March 2024. During the meeting, the FOMC noted the economic outlook is uncertain and the FOMC remains highly attentive to inflation risk. It does not expect to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.00%. Elevated interest rates beyond the term of our hedges will increase our financing costs and could have a negative impact on the Company’s ability to meet its contractual debt obligations and to fund its operating expenses, capital expenditures, dividends and distributions.

Current wording

The annual rate of inflation in the United States was 3.0% in June 2024 as measured by the Consumer Price Index. However, the Federal Open Market Committee (“FOMC”) maintains its long-term goals of maximum employment and inflation at the rate of 2.00%. In support of these goals, the FOMC maintained the target range for the federal funds rate at 5.25% - 5.50% during its meeting in July 2024. During the meeting, the FOMC noted that in considering any adjustments to the target range for the federal funds rate, the FOMC will carefully assess incoming data, the evolving outlook, and the balance of risks. The FOMC does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.00%. Elevated interest rates beyond the term of our hedges may increase our financing costs and could have a negative impact on the Company’s ability to meet its contractual debt obligations and to fund its operating expenses, capital expenditures, dividends and distributions.

Previous wording

(1)Cost of sales (exclusive of depreciation and amortization) is net of gas service revenues totaling $44.5 million and $30.5 million for the three months ended March 31, 2024 and 2023, respectively for certain volumes where we act as principal.

Current wording

(1)Cost of sales (exclusive of depreciation and amortization) is net of gas service revenues totaling $54.7 million and $38.1 million for the three months ended June 30, 2024 and 2023, respectively, and $99.2 million and $68.5 million for the six months ended June 30, 2024 and 2023, respectively, for certain volumes, where we act as principal.

Previous wording

For the three months ended March 31, 2024, revenue increased $60.4 million, or 21%, to $341.4 million, compared to $281.0 million for the same period in 2023. The increase was primarily driven by higher product revenue related to increased commodity prices and increased natural gas residue volumes sold.

Current wording

For the three months ended June 30, 2024, revenue increased $63.3 million, or 21%, to $359.5 million, compared to $296.2 million for the same period in 2023. The increase was primarily driven by higher product revenue related to increased commodity prices and increased natural gas residue volumes sold.

Previous wording

Service revenue consists of service fees paid to us by our customers for providing comprehensive gathering, treating, processing and produced water disposal services necessary to bring natural gas, NGLs and crude oil to market. Service revenue for the three months ended March 31, 2024, decreased by $1.2 million, or 1%, to $102.2 million, compared to $103.4 million for the same period in 2023. This decrease was driven by lower period over period crude gathering fees of $1.1 million. Period-over-period gathered and processed gas volumes increased by 207.0 Mcf per day, or 13% and by 204.9 Mcf per day, or 15%, respectively. However, the total gathered and processed gas volumes where we function as the agent decreased period over period causing the change in net gas gathering fees presented as revenues to be flat. Over 99% of service revenues are included in the Midstream Logistics segment.

Current wording

Service revenue consists of service fees paid to us by our customers for providing comprehensive gathering, treating, processing and produced water disposal services necessary to bring natural gas, NGLs and crude oil to market. Service revenue for the three months ended June 30, 2024, decreased by $6.1 million, or 6%, to $96.4 million, compared to $102.6 million for the same period in 2023. This decrease was driven by lower period-over-period gas gathering fees of $6.2 million. Period-over-period gathered and processed gas volumes increased by 95.4 Mcf per day, or 5% and by 121.9 Mcf per day, or 8%, respectively. However, the total gathered and processed gas volumes where we function as the agent decreased period over period causing the change in net gas gathering fees presented as revenues to be down 6%. Over 91% of service revenues are included in the Midstream Logistics segment.

Previous wording

Product revenue consists of commodity sales (including condensate, natural gas residue and NGLs). Product revenue for the three months ended March 31, 2024, increased by $62.7 million, or 36%, to $236.6 million, compared to $173.8 million for the same period in 2023, primarily due to increased residue gas volumes sold and higher commodity prices. Period over period natural gas residue volumes sold increased 4.4 million MMBtu, or 45% and the period over period natural gas price realized increased by $0.62 per MMBtu, or 49%. Further contributing to the quarter over quarter increased product sales, composite NGL prices increased $8.59 per barrel, or 36%, and condensate prices increased $2.93 per barrel or 4%. Partially offsetting these increases, NGL and condensate volumes sold decreased 0.2 million barrels, or 3%. Product revenues are included entirely in the Midstream Logistics segment.

Current wording

Product revenue consists of commodity sales (including condensate, natural gas residue and NGLs). Product revenue for the three months ended June 30, 2024, increased by $68.7 million, or 36%, to $260.1 million, compared to $191.4 million for the same period in 2023, primarily due to increased residue gas volumes sold and higher commodity prices. Period over period natural gas residue volumes sold increased 15.1 million MMBtu, or over 900%. Further contributing to the quarter over quarter increase, composite NGL prices increased $12.21 per barrel, or 64%, and condensate prices increased $8.40 per barrel or 12%. Partially offsetting these increases, NGL and condensate volumes sold decreased 2.1 million barrels, or 27% and residue gas prices decreased $0.37 per MMBtu, or 25%. Product revenues are included entirely in the Midstream Logistics segment.

Previous wording

Cost of sales (exclusive of depreciation and amortization) primarily consists of purchases of NGLs and natural gas from our producers at contracted market prices to support product sales to other third parties. For the three months ended March 31, 2024, cost of sales increased $37.8 million, or 33%, to $153.7 million, compared to $115.9 million for the same period in 2023. The increase was primarily driven by aforementioned period over period increases in commodity prices and natural gas residue volumes sold. Cost of sales (exclusive of depreciation and amortization) is included entirely in the Midstream Logistics segment.

Current wording

Cost of sales (exclusive of depreciation and amortization) primarily consists of purchases of NGLs and natural gas from our producers at contracted market prices to support product sales to other third parties. For the three months ended June 30, 2024, cost of sales increased $36.0 million, or 33%, to $146.5 million, compared to $110.5 million for the same period in 2023. The increase was primarily driven by aforementioned period over period increases in commodity prices and natural gas residue volumes sold, but were slightly offset by residue price decreases and NGL and condensate volume decreases. Over 99% of cost of sales (exclusive of depreciation and amortization) is included entirely in the Midstream Logistics segment.

Previous wording

General and administrative expenses increased by $6.6 million, or 24% to $34.1 million for the three months ended March 31, 2024, compared to $27.5 million for the same period in 2023. The increase was mainly driven by an increase in share-based compensation of $5.0 million due to additional incentive units granted to employees during the first quarter of 2024.

Current wording

General and administrative expenses increased by $8.2 million, or 36% to $31.1 million for the three months ended June 30, 2024, compared to $22.9 million for the same period in 2023. The increase was mainly driven by an increase in share-based compensation of $1.8 million due to new RSUs and PSUs granted to employees during the first half of 2024 and increases in professional fees of $2.2 million, legal fees of $1.7 million and bank fees of $0.8 million primarily due to costs associated with the GCX Sale and the Durango Acquisition.

Previous wording

Interest expense decreased by $21.8 million, or 32%, to $47.5 million for the three months ended March 31, 2024, compared to $69.3 million for the same period in 2023. The decrease was primarily driven by realized gains and favorable valuation marks on our interest rate swaps totaling $13.3 million for the first quarter of 2024 compared to unfavorable valuation marks of $17.2 million for the same period in 2023. Refer to Note—11 Derivatives and Hedging Activities in the Notes to Condensed Consolidated Financial Statements regarding the Company’s strategy in managing interest rate risk. This decrease was partially offset by higher period over period interest expense of $7.2 million due primarily to higher realized interest rates .

Current wording

Interest expense increased by $16.1 million, or 19%, to $101.5 million for the six months ended June 30, 2024, compared to $85.4 million for the same period in 2023. The increase was driven by overall higher period over period interest expense of $5.8 million due primarily to higher variable interest rate, a decrease in capitalized interest expense of $5.1 million given the completion of the PHP expansion in December of 2023, and a net decrease in realized and unrealized gains on interest rate swaps of $4.6 million comparing to the same period in 2023. Refer to Note—11 Derivatives and Hedging Activities in the Notes to Condensed Consolidated Financial Statements regarding the Company’s strategy in managing interest rate risk.

Previous wording

Income from EMI pipelines increased by $14.0 million, or 30%, to $60.5 million for the three months ended March 31, 2024, compared to $46.5 million for the same period in 2023. The increase was driven by higher profitability from the Company’s investment in PHP due to its expanded capacity that was placed into service in December 2023.

Current wording

Income from EMI pipelines increased by $20.4 million, or 21%, to $116.4 million for the six months ended June 30, 2024, compared to $96.1 million for the same period in 2023. An increase of $23.8 million was driven by higher profitability from the Company’s investment in PHP due to its expanded capacity that was placed into service in December 2023. This increase was partially offset by the decrease in equity in earnings of unconsolidated affiliates from GCX of $3.4 million due to the GCX Sale consummated in the second quarter of 2024.

Previous wording

Adjusted EBITDA is defined as net income including noncontrolling interests adjusted for interest, taxes, depreciation and amortization, warrant valuation, loss on disposal of assets, the proportionate EBITDA from our EMI pipelines, equity income from investments recorded using the equity method, share-based compensation expense, noncash increases and decreases related to trading and hedging activities, integration and transaction costs and extraordinary losses and unusual or non-recurring charges. Adjusted EBITDA provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

Current wording

Adjusted EBITDA is defined as net income including noncontrolling interests adjusted for interest, taxes, depreciation and amortization, warrant valuation, gain or loss on disposal of assets and debt extinguishment, the proportionate EBITDA from our EMI pipelines, equity income and gain from sale of investments recorded using the equity method, share-based compensation expense, noncash increases and decreases related to hedging activities, integration and transaction costs and extraordinary losses and unusual or non-recurring charges. Adjusted EBITDA provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

Previous wording

The GAAP measure used by the Company that is most directly comparable to Adjusted EBITDA is net income including noncontrolling interests. Adjusted EBITDA should not be considered as an alternative to the GAAP measure of net income including noncontrolling interests or any other measure of financial performance presented in accordance with GAAP. Adjusted EBITDA has important limitations as an analytical tool because it excludes some, but not all, items that affect net income including noncontrolling interests. Adjusted EBITDA should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. The Company’s definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies in the industry, thereby diminishing its utility.

Current wording

The GAAP measure used by the Company that is most directly comparable to Adjusted EBITDA is net income including noncontrolling interest. Adjusted EBITDA should not be considered as an alternative to the GAAP measure of net income including noncontrolling interest or any other measure of financial performance presented in accordance with GAAP. Adjusted EBITDA has important limitations as an analytical tool because it excludes some, but not all, items that affect net income including noncontrolling interest. Adjusted EBITDA should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. The Company’s definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies in the industry, thereby diminishing its utility.

Previous wording

Adjusted EBITDA increased by $46.1 million, or 25%, to $233.6 million for the three months ended March 31, 2024, compared to $187.5 million for the same period in 2023. As discussed in the Item 2.“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” to this Quarterly Report on Form 10-Q, $7.7 million of the increase was due to increased total operating revenue of $60.4 million, partially offset by increased cost of sales (exclusive of depreciation and amortization) of $37.8 million and an increase in operating expenses, ad valorem taxes and General and Administrative Expenses totaling of $14.9 million. The increase was also driven by (i) higher proportionate EMI EBITDA of $16.5 million due to expanded capacity on PHP that was placed into service in December 2023 (ii) increases in the add backs related to unrealized loss (gain) on commodity hedging activities and share-based compensation.

Current wording

Adjusted EBITDA increased by $72.5 million, or 18%, to $468.0 million for the six months ended June 30, 2024, compared to $395.5 million for the same period in 2023. As discussed in the Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations to this Quarterly Report Form 10-Q, $20.2 million of the increase was due to increased total operating revenue of $123.6 million, partially offset by increased cost of sales (exclusive of depreciation and amortization), operating expenses, ad valorem taxes and general and administrative expenses of $103.5 million. The increase was also driven by (i) higher proportionate EMI EBITDA of $28.0 million primarily related to the expanded capacity at PHP that was placed into service during December 2023 and (ii) increases in the add backs related to unrealized loss on commodity hedging activities of $14.5 million and stock based compensation of $6.9 million.

Previous wording

Segment Adjusted EBITDA is defined as segment net earnings adjusted to exclude interest expense, income tax expense, depreciation and amortization, the proportionate effect of these same items for our equity method investments and other non-recurring items. The following table presents Segment Adjusted EBITDA for the three months ended March 31, 2024 and 2023. Also refer to Note 16—Segments in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for a reconciliation of Segment Adjusted EBITDA to net income before income taxes.

Current wording

Segment Adjusted EBITDA is defined as segment net earnings adjusted to exclude interest expense, income tax expense, depreciation and amortization, the proportionate effect of these same items for our equity method investments and other non-recurring items. The following table presents Segment Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023. Also refer to Note 16—Segments in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for a reconciliation of Segment Adjusted EBITDA to net income before income taxes.

Previous wording

Midstream Logistics Segment Adjusted EBITDA increased by $23.7 million, or 20%, to $143.0 million for the three months ended March 31, 2024, compared to $119.2 million for the same period in 2023. The increase was primarily due to the increased total operating revenue of $52.8 million, partially offset by increases in cost of sales (exclusive of depreciation and amortization) of $37.8 million and operating expense of $7.2 million. The reasons for the fluctuations are discussed in Item 2.“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” to this Quarterly Report on Form 10-Q. The increase was also driven by an increase in add back related to unrealized loss (gain) on commodity hedging activities of $20.1 million.

Current wording

Midstream Logistics Segment Adjusted EBITDA increased by $34.2 million, or 13%, to $290.5 million for the six months ended June 30, 2024, compared to $256.4 million for the same period in 2023. The increase was primarily due to the increased total operating revenue of $107.8 million, partially offset by increases in cost of sales (exclusive of depreciation and amortization) of $73.8 million and operating expense and ad valorem taxes of $13.3 million. The reasons for the fluctuations are discussed in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations to this Quarterly Report on Form 10-Q. The increase was also driven by an increase in add back related to unrealized loss on commodity hedging activities of $14.5 million compared to the same period in 2023.

Previous wording

We have contractual obligations for principal and interest payments on our 2028 Notes, 2030 Notes and Term Loan Credit Facility. See Note 7—Debt and Financing Costs in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Current wording

We have contractual obligations for principal and interest payments on our 2028 Notes, 2030 Notes, and under the Term Loan Credit Facility, Revolving Credit Facility and A/R Facility. See Note 7—Debt and Financing Costs in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Previous wording

The Company’s primary use of capital since inception has been for the initial construction of gathering and processing assets, as well as acquisitions, including the EMI pipelines and associated subsequent construction costs. For 2024, the Company’s primary capital spending requirements are expected to relate to the Durango Acquisition and budgeted capital expenditures for construction and maintenance of gathering and processing assets, , the Company’s contractual debt obligations and quarterly cash dividends. In addition, the Company may repurchase its Class A Common Stock pursuant to the Share Repurchase Program from time to time.

Current wording

The Company’s primary use of capital since inception has been for the initial construction of gathering and processing assets, as well as the acquisition of the EMI pipelines and associated subsequent construction costs. For 2024, the Company’s primary capital spending requirements are related to the business and midstream infrastructure acquisitions and other budgeted capital expenditures for construction and maintenance of gathering and processing assets, the Company’s contractual debt obligations and quarterly cash dividends. In addition, the Company may repurchase its Class A Common Stock pursuant to the Share Repurchase Program from time to time.

Previous wording

During the three months ended March 31, 2024, the Company’s primary sources of cash were distributions from the EMI pipelines, borrowings under the Revolving Credit Facility and cash generated from operations. Based on the Company’s current financial plan, the Company believes that cash from operations and distributions from the EMI pipelines, and remaining borrowing capacity on our credit facilities will generate cash flows in excess of capital expenditures and the amount required to fund the Company’s planned quarterly dividend over the next 12 months. The Company expects to fund the cash consideration required to close the Durango Acquisition (“Closing Cash Consideration”) with proceeds from the GCX Sale. However, if the Durango Acquisition closes prior to the GCX Sale, the Company expects to fund the Closing Cash Consideration with borrowings under its revolving credit facility.

Current wording

During the six months ended June 30, 2024, the Company’s primary sources of cash were distributions from the EMI pipelines, borrowings under the Revolving Credit Facility and A/R Facility, proceeds from the GCX Sale and cash generated from operations. Based on the Company’s current financial plan, the Company believes that cash from operations and distributions from the EMI pipelines, and remaining borrowing capacity on our credit facilities will generate cash flows in excess of capital expenditures and the amount required to fund the Company’s planned quarterly dividend over the next 12 months.

Previous wording

Our operations can be capital intensive, requiring investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational regulations. During the three months ended March 31, 2024 and 2023, capital spending for property, plant and equipment totaled $58.0 million and $58.9 million, respectively, intangible asset purchases totaled $2.2 million and $9.8 million, respectively, and contributions to EMI totaled $3.3 million and $58.7 million, respectively. The decrease in capital spending was mainly due to the completion of the Delaware Link Pipeline and PHP expansion projects in the second half of 2023. Management believes its existing gathering, processing and transmission infrastructure capacity is capable of fulfilling its midstream contracts to service its customers.

Current wording

Our operations can be capital intensive, requiring investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational regulations. During the six months ended June 30, 2024 and 2023, capital spending for property, plant and equipment totaled $97.4 million and $160.2 million, respectively, intangible asset purchases totaled $2.8 million and $14.0 million, respectively, and contributions to EMI totaled $3.3 million and $154.7 million, respectively. The decrease in capital spending was mainly due to completion of the Delaware Link Pipeline and PHP expansion projects in the second half of 2023. Management believes its existing gathering, processing and transmission infrastructure capacity and future planned projects are capable of fulfilling its midstream contracts to service its customers.

Previous wording

Operating activities. Net cash provided by operating activities increased by $34.1 million for the three months ended March 31, 2024 compared with the same period in 2023. The change in the operating cash flows reflected (i) an increase in net income including noncontrolling interests of $31.1 million; (ii) an increase in net income reconciliation adjustments of $5.8 million, which was mainly driven by increases in distributions from EMIs of $9.4 million, share-based compensation of $5.0 million, loss on disposal of assets $4.1 million and depreciation and amortization expense of $4.8 million, partially offset by a decrease in net derivative activity of $7.0 million and an increase in earnings from EMIs of $14.0 million and (iii) a decrease in working capital of $2.8 million.

Current wording

Operating activities. Net cash provided by operating activities increased by $48.2 million for the six months ended June 30, 2024 compared with the same period in 2023. The change in the operating cash flows reflected (i) an increase in net income including noncontrolling interest of $68.4 million; (ii) a decrease in adjustments related to non-cash items of $18.2 million, which was primarily driven by a gain of $59.9 million recognized on the GCX Sale and an increase in equity in earnings from EMI’s of $20.4 million, partially offset by increases in distributions from EMI’s of $16.4 million, deferred income taxes of $11.8 million, depreciation and amortization expense of $10.3 million and a decrease in derivative activities of $23.7 million and (iii) a decrease in working capital of $2.0 million.

Previous wording

Financing activities. Net cash used in financing activities was $86.5 million for the three months ended March 31, 2024, which was primarily comprised of net payments on the Partnership’s Revolving Credit Facility of $47.0 million and cash dividends of $39.5 million paid to the holders of Class A Common Stock and Common Units, compared with net cash provided by financing activities of $122.5 million for the three months ended March 31, 2023, which was primarily comprised of net proceeds from the Partnership’s Revolving Credit Facility of $142.0 million and cash dividends of $17.1 million paid to the holders of Class A Common Stock and Common Units.

Current wording

Financing activities. Net cash used in financing activities was $314.5 million for the six months ended June 30, 2024, which was primarily comprised of net payments on the Partnership’s Term Loan, Revolving Credit Facility and A/R Facility of $158.2 million and cash dividends of $154.7 million paid to the holders of Class A Common Stock and Common Units, compared with net cash provided by financing activities of $212.7 million for the six months ended June 30, 2023, which was primarily comprised of net proceeds from the Partnership’s Revolving Credit Facility of $255.0 million and cash dividends of $36.5 million paid to the holders of Class A Common Stock and Common Units. The significant increase in cash dividends paid in the first half of 2024 compared to the same period in 2023 was mainly due to the expiration of the Reinvestment Agreement on March 8, 2024, as such Reinvestment Holders are not obligated to reinvest a specified percent of all distributions on Common Units or dividends on shares of Class A Common Stock in the Company’s Class A Common Stock.

Previous wording

During the first three months ended March 31, 2024, the Company made cash dividend payments of $39.5 million to holders of Class A Common Stock and Common Units and $74.2 million was reinvested in shares of Class A Common Stock by the Reinvestment Holders.

Current wording

During the six months ended June 30, 2024, the Company made cash dividend payments of $154.7 million to holders of Class A Common Stock and Common Units and $74.8 million was reinvested in shares of Class A Common Stock by the Reinvestment Holders.

Previous wording

For the three months ended March 31, 2024, the Company did not repurchase any of its outstanding shares.

Current wording

For six months ended June 30, 2024, the Company did not repurchase any of its outstanding shares.