Kinetik Holdings Inc

14. SHARE-BASED COMPENSATION

Class A Shares and Class C Shares

The table below summarizes Class A Shares and Class C Shares activity for the year ended December 31, 2024:

The table below summarizes aggregate intrinsic value (market value at vesting date) and grant-date fair value of vested Class A Shares for the years ended December 31, 2024 and 2023. No vesting or forfeitures occurred for Class C Shares during 2024 or 2023.

As of December 31, 2024, there were $27.5 million of unrecognized compensation costs related to unvested Class A Shares and Class C Shares. These costs are expected to be recognized over a weighted average period of 1.03 years.

Restricted Stock Units

RSUs were granted to certain executives and employees under the Kinetik Holdings Inc. Amended and Restated 2019 Omnibus Compensation Plan (the “2019 Plan”) with various service vesting requirements. Such RSUs may be settled only for shares of Class A Common Stock on a one-for-one basis, contingent upon continued employment.

The table below summarizes RSUs activity for the year ended December 31, 2024:

(1)The number of shares and weighted average fair market value per share here includes restricted share awards issued to new employees transitioned from ALTM as part of the merger.

The table below summarizes aggregate intrinsic value (market value at vesting date) and grant-date fair value of vested RSUs for the years ended December 31, 2024 and 2023.

As of December 31, 2024, there were $10.4 million of unrecognized compensation costs related to unvested RSUs. These costs are expected to be recognized over a weighted average period of 1.49 years.

Performance Stock Units

The Company granted PSUs pursuant to the 2019 Plan to certain of its employees and executives during 2024. These PSUs vest and become earned upon the achievement of certain performance goals based on the Company’s annualized absolute total stockholder return and the Company’s relative total stockholder return as compared to the performance peer group during athree-year performance period. Depending on the results achieved during thethree-year performance period, the actual number of Class A Common Stock that a holder of the PSUs earns at the end of the performance period may range from 0% to 200% of the target number of PSUs granted. The fair value of the PSUs is determined using a Monte Carlo simulation at the grant date. The Company recognized compensation expense for PSUs on a straight-line basis over the performance period. Any PSU not earned at the end of the performance period will be forfeited.

The table below summarizes PSU activities for the year ended December 31, 2024:

No vesting or forfeiture occurred for PSUs for the year ended December 31, 2024.

The table below presents a summary of the grant-date fair value assumptions used to value the PSUs on the grant date:

As of December 31, 2024, there were $5.2 million of unrecognized compensation costs related to the PSUs. These costs are expected to be recognized over a weighted average period of 2.00 years.

With respect to above Class A Shares, Class C Shares, RSUs and PSUs, the Company recorded compensation expenses of $76.5 million, $56.0 million and $42.8 million in “General and administrative expenses” of the Consolidated Statements of Operations, for the years ended December 31, 2024, 2023 and 2022, respectively, based on a straight-line amortization of the associated awards’ fair value over the respective vesting life of the shares.

15. INCOME TAXES

The total income tax provision consists of the following:

The difference between the effective income tax rate and the U.S. statutory rate is reconciled below:

The net deferred tax assets reflect the tax impact of temporary differences between the asset and liability amounts carried on the balance sheet under U.S. GAAP and amounts utilized for income tax purposes. The net deferred tax assets consist of the following:

For state purposes, the Company records deferred tax assets and liabilities based on the differences between the carrying value and tax basis of assets and liabilities recorded on the Consolidated Balance Sheets.

For federal purposes, the Company has deferred tax assets related to (i) its investment in the Partnership and (ii) net operating losses (“NOLs”) with no expiration date. As of December 31, 2024, embedded in the investment in partnership deferred tax asset is approximately $21.3 million related to the carryover of interest expense limitation under IRC 163(j). The carryover for the interest expense limitation has no expiration. The Company has evaluated all positive and negative evidence to conclude that it is more likely than not that such deferred tax assets will be realized. This determination was based, in part, on the fact that the Company achieved a three-year cumulative position of profitability as of December 31, 2024. It is also based on our projections of future taxable income at current commodity prices and our current cost structure. This positive evidence outweighs negative evidence regarding the realization of the Company’s deferred tax assets. As a result, no valuation allowance was recorded with respect to such deferred tax assets as of December 31, 2024.

Internal Revenue Code (“IRC”) Section 382 addresses company ownership changes and specifically limits the utilization of certain deductions and other tax attributes on an annual basis following an ownership change. The Company experienced ownership changes within the meaning of IRC Section 382 that subjected certain of the Company's tax attributes, including NOLs, to an IRC Section 382 limitation. Subsequent ownership changes could further impact the limitation in future years. However, notwithstanding such limitation, we expect to use substantially all of our NOLs to offset our future federal tax liabilities. The timing of such usage will depend upon our future earnings and future tax circumstances.

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes, which prescribes a minimum recognition threshold a tax position must meet before being recognized in the financial statements. Tax positions generally refer to a position taken in a previously filed income tax return or expected to be included in a tax return to be filed in the future that is reflected in the measurement of current and deferred income tax assets and liabilities.

The Company hadno uncertain tax position as of December 31, 2024 and 2023.

The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company has recordedno interest or penalties associated with unrecognized tax benefits. As of December 31, 2024, tax years 2020 through 2024 remain subject to examination by various taxing authorities.