Welcome to the Kinetic Investor Update and 2022 guidance conference call. My name is Juan, and I will be coordinating your call today. I will now hand over to your host, Maddie Wagner, Head of Investor Relations, to begin with. Please, Maddie. Please go ahead.

Thank you, Juan. Good morning, everyone, and welcome to the Kinetic Investor Update and 2022 guidance conference call. Here with me is our President and CEO, Jamie Welch; as well as Trevor Howard, our VP of Finance; and members of management. The press release we issued yesterday and the presentation we posted this morning can be found on our website at www.kinetik.com. As a reminder, during the course of this conference call, including the question-and-answer section, we will provide forward-looking statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings and website for a discussion of some of the factors that could cause actual results to differ materially. Today's call is being webcast, and a recording of this conference call will be available on the Kinetik website. With that, I will turn the call over to Jamie.

Thank you, Maddie, and good morning, everyone. Today is an important day for us, though it is overshadowed by the current global events, which will significantly affect not only our discussion today but also the long-term energy and energy policy landscape in this country. We are excited about the future of our company and are ready to move forward. As we refer to Slide 3, Kinetic embodies the essence of our company. We welcome change and are progressing toward a future we are still defining. What we know is that we are flexible and capable of adapting to any challenges we encounter. Our strong foundation of cash flow, contracts, and system capacity positions us well for the future. We focus on four main pillars: financial strength and stability with over 30 customers, stable cash flows, and long-term contracts. Our customer base has a weighted average rating of investment grade, and 85% of our 2022 gross profit comes from non-operated joint venture pipes, take-or-pay contracts, or current production. We are committed to a conservative financial policy that balances distribution growth, buybacks, and maintaining a leverage profile that meets investment-grade standards with a 3.5x leverage target to enhance shareholder value. We plan to expedite the redemption of the Series A preferred by the end of this year, while ensuring the safety and security of our dividend at $6 per share. Starting in 2023, we will also increase the distribution growth rate by at least 5%. Regarding organic growth, the Permian Basin is projected to grow from 2 million barrels to 7 million barrels per year by the end of 2025, with significant contributions from the Delaware Basin. Our analysis shows that natural gas will be a crucial driver for crude production growth, as 90% of our business is tied to natural gas services. Recent crude price surges reinforce the necessity for producers to balance supply to stabilize prices. Sustainability is a core commitment for us, with executive compensation linked to our ESG performance. We aim for net zero greenhouse gas emissions by 2050, with a target of reducing emissions by over 30% by 2030. On Slide 4, we outline our key company highlights. We have no exposure to federal land, and our operations are solely based in Texas, allowing us to bypass concerns about permitting and leasing that affect others. As the only large-scale publicly traded pure-play Permian midstream business, we remain focused on our core strengths, substantially supporting our peers' growth while maintaining our significant asset and cash flow profile from over 30 customers. With 2 Bcf a day of processing capacity, our robust pipeline footprint enables efficient access from the basin. We own four major pipelines connecting the Permian to the Gulf Coast. Our strategy is to capture synergies through integration, achieving revenue savings and reducing controllable costs. Our conservative financial strategies, including an ongoing commitment to a 3.5x leverage and a maintained $6 dividend, continue to reinforce our position. Today marks a peak in our efforts of the past decade, highlighting our resilience as a company. We successfully navigated various commodity cycles, even showing growth during the pandemic. As we continue our expansion, we maintain a unique system with fully integrated processing complexes, enhancing operational reliability. Our recent mergers will allow us to increase efficiency and address challenges more effectively. Overall, we find ourselves in a strong financial position, supported by a long-term contract portfolio and a diverse customer base. Our proactive approach to capital allocation will guide us, ensuring robust free cash flow and solid returns to shareholders. In summary, we remain focused on sustainable practices, capital efficiency, and maximizing our operational leverage while continuing to build strong relationships with our customers. We believe our strategic decisions will position us for continued success as the energy landscape evolves. Thank you, and I look forward to your questions.

And the first question comes from Spiro Dounis from Credit Suisse.

Congrats on closing the deal. Jamie, first one for you, just in terms of sequencing the next few milestones for the company. You've obviously laid out a lot of targets you want to hit. You talked about refinancing the debt. You talked about expanding stock liquidity, talked about redeeming the preferred, talked about even acquiring some assets like Grand Prix. So as you think about checking off these boxes over the next year, how to think about that sequencing? And any sort of practical limitations on you to grow until some of these boxes do get checked.

Spiro, thanks. I believe that addressing the order priority and refinancing is extremely important for us. It sets the stage for us to pursue our ultimate goals. At the same time, Apache has the option to reduce their stock holdings. The two aspects will be determined by their timing decisions. As we are already aware, the overall development of Alpine High is included in their capital budget and is already approved. Therefore, they do not need to take any additional action. However, we think it is crucial for stock liquidity to increase the availability of up to 4 million shares. So, our immediate focus is on refinancing, followed by enhancing stock liquidity. Achieving this will facilitate the accelerated redemption of the preferred shares, which is linked to the refinancing because we are adding an incremental $200 million to speed up that paydown. The remainder will come from free cash flow and savings from the dividend reinvestment. We will assess how we proceed in terms of growth and timing afterward. Our goal is to ensure we make the right moves as we implement our plans.

Got it. That's helpful. For my second question, I'm curious if you could share your perspective on the organic growth rate of the business for the next few years. Depending on the Permian producer you consult, estimates can vary from flat to 25%. You've clearly explained the potential for the Permian and the EBITDA upside of 20% to 30% based on your current operations. With that in mind, how do you see the growth rate of your customer base translating to Kinetik in the coming years?

In the context of our business, I mentioned that we have experienced a 13% growth in our EagleClaw operations, while there has been a decline from Apache at Alpine High this year due to drilling activity that is set to begin in the first quarter of 2023. Moving forward, we anticipate an overall growth in volume of around 5% to 10%. However, I believe that overly optimistic forecasts may overlook practical limitations that prevent growth rates from exceeding this. It’s also important to consider factors such as egress capacity for natural gas from the basin, the timing of expansions like Whistler, and the potential for new pipelines, including the timelines for Final Investment Decisions and construction durations. All of these elements impose practical constraints on overall growth.

Our next question comes from Neel Mitra from Bank of America.

First question is on the Permian pipeline expansions since you have an interest in both GCX and PHP. We've been hearing that even with compression there's a long lead time with the supply chain issues to be able to expand maybe 0.5 Bcf a day on each line. If you were to get the customer support, how long do you think it would take maybe from just a range standpoint to expand those pipelines?

Thank you for the question, Neel. While I can’t speak directly for Kinder Morgan, I can share my thoughts on the situation regarding compression. We have a good understanding of compression and its availability. Depending on the approach to commercializing the potential expansion, it will take some time. The lead time for sourcing and delivering the additional compression—whether it's midline compression or otherwise—will likely be around 12 to 15 months. Ideally, expansions like Whistler and GCX would aim to come online towards the end of 2023. Looking forward, there’s a noticeable difference in Waha residue pricing expected in the second quarter of 2023, suggesting a strong belief in a critical need for these expansions. I hope they will align to meet that need effectively.

Right. Okay. Great. And then second question. If you were to have Grand Prix drop down to you and take that option, would you look at additional downstream options? And how are you looking at that asset and specifically maybe looking more as an integrated player versus where you are right now?

Look, I think, first, let me say, Grand Prix is a great asset, Shin Oak is obviously a great asset. I think we would be privileged and humbled to actually be able to own both an interest in the quality of those 2 pipelines and their operators. Look at the growth, obviously, the target guide I saw their earnings this morning. It's great. Enterprises, obviously, with the most recent acquisition of Navitas creates an incremental customer profile on the Shin Oak line. So yes, we would think about ourselves being more integrated. I think that's how we think about it. That's what we need to do, not just from a relevance standpoint, but also in providing the customer flexibility and the customer optionality that many of the customers that we deal with are looking for. So you drop it down. Obviously, we know what the cash flow profile is as we think about the expansion and the ability to move more volumes, whether it's on Grand Prix, whether it's on Shin Oak, that's key drivers for us going forward.

Our next question comes from Elliott Miller, who is a private investor.

First of all, congratulations to all of us, me too as an investor. I have 2 questions. The first deals with what you can about inflation protection in the contracts. I'm talking not only about the JV pipes contracts but also your 100% owned operational facilities. Are there escalation clauses in there? Is there any inflation protection?

Most of our gas and processing contracts include inflation protection, with caps ranging from 3% to 5%. We will experience a lag effect regarding actual inflation since all terms are based on previous periods. However, we have strong contractual safeguards. Regarding operating expenses, about 80% is fixed, including equipment rentals, salaries, contract labor, electricity, and utilities. This is all at fixed prices. We do have some lubricants that are susceptible to inflation, but we also have significant condensate in our system, which becomes equity barrels. This provides a natural hedge against the lubricant and chemical costs associated with our processing facilities. On the capital expenditure side, we have secured over 50% of our purchase orders for necessary materials. Overall, we feel well-protected; we have seen increases in revenue and have taken notable steps to manage expenses in both operational and capital expenditures to mitigate future inflationary effects.

That's helpful. My second question again deals with the discussion of stock liquidity. Obviously, that has an impact on the stock price. And so I'm curious, I noticed on Page 14 of the investor presentation referencing Blackstone and I Squared Capital's reduction of their interest. And I know there's a 1-year lockup. But is there anything contemplated beyond that 1-year lockup as to when and how there's going to be reduction by Blackstone and I Squared?

There is not. I would say the following. I look at this and say there are various means and ways for us to increase stock liquidity. Obviously, we touched on one before in the context of the drop-down of Grand Prix. We may have other opportunities that are presented in front of us that we think are particularly compelling and meet or exceed our overall capital allocation targets and our return on investment thresholds. So that may lead to incremental equity issuance. We are trying to be mindful of this; we know that we've got to increase stock liquidity. We know that we have one potential selling shareholder, which is Apache. But in the context of Blackstone and I Squared, we can't speak for them in the context of what they think. I think they're going to be pretty patient sort of capital. Could you see them do a small amount if they thought it would further help their liquidity? Sure. I mean, they've obviously got sizable stock holdings, so they could do a couple of million shares without having much impact but making a meaningful impact nonetheless on the actual public float.

We currently have no further questions, so I will hand it back to the management team for any final remarks.

Thank you very much this morning, everybody. Look, we're very excited. And so this is our opportunity to continue to engage in a dialogue and discussion with all of you. Stay tuned, hopefully, for more exciting things to come.

This concludes today's conference call. Thank you so much for joining. You may now disconnect your lines.