HOUSTON & MIDLAND, Texas - Kinetik Holdings Inc. (NYSE: KNTK), a midstream energy company, has announced a strategic expansion in the Delaware Basin with the acquisition of Durango Permian LLC, a move that doubles its pipeline mileage and significantly increases processing capacity. Kinetik will acquire Durango for $765 million in cash and stock, with additional contingent consideration based on future capital costs.
The acquisition, expected to close in June 2024, adds over 60 new customers and 2,400 miles of pipeline in New Mexico's Eddy and Lea Counties, some of the most active areas in the Permian Basin. The deal includes a $315 million cash payment and 3.8 million shares of Kinetik Class C common stock at closing, with an additional 7.7 million shares deferred until July 2025.
Kinetik has also entered a 15-year gas gathering and processing agreement with a major existing customer in Eddy County, representing a $200 million investment through 2026. The agreement is set to commence at the end of the year, with processing services starting in the second quarter of 2025.
To partly fund these ventures, Kinetik has agreed to sell its 16% equity interest in the Gulf Coast Express pipeline to ArcLight Capital Partners LLC for $540 million, a transaction expected to close in the coming weeks.
Post-acquisition, Kinetik's leverage target of 3.5x is expected to be met, and the transactions are projected to be over 10% accretive to free cash flow per share starting in the second half of 2025. This growth is anticipated to coincide with an acceleration of capital returns to shareholders.
The company also plans to update its 2024 Adjusted EBITDA and Capital Expenditures Guidance following the Durango Acquisition's closure.
These developments follow Kinetik's recent expansion in Lea County, New Mexico, and are in line with its strategy to become a pure-play midstream service provider across the Delaware Basin. This information is based on a press release statement.
InvestingPro Insights
Kinetik Holdings Inc. (NYSE: KNTK) is making headlines with its ambitious expansion in the Delaware Basin, and the numbers from InvestingPro highlight several key aspects that investors should note. The company has a market capitalization of $5.98 billion USD, showcasing its significant presence in the midstream energy sector. This move, along with its strategic acquisition and agreements, is aimed at solidifying Kinetik's footprint in one of the most active oil and gas regions in the United States.
Investors may find Kinetik's financial strength particularly appealing, as evidenced by its P/E ratio of 7.55, which slightly adjusted to 7.81 for the last twelve months as of Q1 2024. This valuation indicates that the stock could be reasonably priced relative to its earnings. Additionally, the company's dividend yield stands at an attractive 7.62%, a testament to its commitment to returning value to shareholders. This is further supported by one of the InvestingPro Tips, which points out that Kinetik pays a significant dividend to shareholders.
For those looking for stability in their investments, another InvestingPro Tip highlights that Kinetik's stock generally trades with low price volatility, which could make it a suitable option for investors with a lower risk appetite. The company's performance over the last three months has also been strong, with a price total return of nearly 25%.
While Kinetik is trading at high EBIT and revenue valuation multiples, indicating that it may be priced at a premium based on these metrics, the company's recent strategic moves and its robust dividend yield may justify the higher valuation for some investors. Additionally, Kinetik is trading near its 52-week high, reflecting investor confidence in the company's growth prospects.
For those interested in more detailed analysis and additional metrics, InvestingPro offers a range of further InvestingPro Tips for Kinetik Holdings Inc. Visit https://www.investing.com/pro/KNTK to explore these insights and use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are currently 8 additional tips listed on InvestingPro that can help investors make more informed decisions.
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