Kinetik Holdings Inc. Q4 FY2025 Earnings Call

Hello, everyone, and thank you for joining the Kinetik Fourth Quarter 2025 Results. My name is Claire, and I will be coordinating your call today. I will now hand over to Alex Durkee from Kinetik Holdings to begin. Please go ahead.

Good morning, and welcome to Kinetik's Fourth Quarter and Full Year 2025 Earnings Conference Call. Our speakers today are Jamie Welch, President and Chief Executive Officer; and Trevor Howard, Senior Vice President and Chief Financial Officer. Other members of our senior management team are also in attendance for this morning's call. As a reminder, today's discussion will include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of these factors, please refer to our SEC filings. We will also reference certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures can be found in our earnings materials and on our website. With that, I will turn the call over to Jamie.

Thank you, Alex. Good morning, everyone. 2025 was a challenging year for the energy industry and for Kinetik. Commodity price volatility, macroeconomic uncertainty, tempered customer development activity and inflationary pressures tested our business. Our financial results underperformed expectations. But it was also a year of important strategic progress, progress that strengthened our core business, deepened customer alignment and positioned us for a bright future. Our team is keenly aware that 2026 is our rebuilding year, a year to reestablish credibility through consistent execution, disciplined capital allocation and transparent communication. Despite the challenging operating conditions, we still managed to deliver year-over-year EBITDA growth and executed on several foundational initiatives. We closed the bolt-on acquisition of the Barilla Draw gathering assets, enhancing our Delaware South footprint and expanding our systems capture area. We achieved full commercial in-service at Kings Landing, a multiyear strategic build that doubled our processing capacity in Delaware North. Kings Landing is performing exceptionally well with a 99.8% run time, strong ethane recoveries and reliable performance even through the recent Winter Storm Fern. This reliability is critical as inlet volumes rise and eventually sour gas content increases. We also reached FID on the Kings Landing sour gas conversion project that is expected in service by year-end 2026. That project will ultimately increase our total permitted acid gas injection capacity across our Delaware North processing complexes to over 31 million cubic feet per day, enabling us to meaningfully scale sour gas handling across the Northern Delaware Basin. Completion of the ECCC Pipeline remains on schedule for in-service next quarter. ECCC is a critical link between Eddy and Culberson Counties and unlocks additional growth by providing Delaware North with direct access to our latent processing capacity in Delaware South. Yesterday, we announced that we reached FID on our first behind-the-meter gas-fired power generation project at the Diamond Cryo facility. We have purchased a 40-megawatt gas turbine scheduled to arrive in West Texas during the second quarter. The project requires less than $25 million of capital, is expected to be in service in late 2026 and provides a scalable, cost-efficient power solution that can be replicated at several of our other processing facilities in Delaware South. Continuing to execute on initiatives that reduce our operating cost structure, thereby making our existing assets more profitable and our business more competitive, is a key focus for our team going forward. 2025 was also a year of meaningful commercial advancement. We amended gas gathering and processing agreements with our two largest legacy Durango Midstream customers, extending terms into the mid-2030s and enhancing long-term cash flow visibility through fixed fee structures, treating fees and control of residue gas and NGLs. Importantly, these amended agreements increase expected EBITDA beginning in 2026, strengthen long-term customer alignment and position Kinetik to grow alongside these producers as development increasingly shifts towards more sour gas benches. Our G&P agreement in Delaware South was amended to shift the residue gas price point from Waha to premium Gulf Coast markets, improving this customer's natural gas price realizations and reducing our indirect exposure to in-basin price volatility via price-related production curtailments. These types of commercial refinements underscore our focus on creating win-win outcomes that enhance system utilization and long-term value. We also executed long-term agreements with CPV and INEOS, demonstrating our ability to create differentiated pricing solutions across power generation and international gas markets. And our commercial success has continued into this year as we're finalizing a new agreement for low and high-pressure gathering and processing services in Lea County with one of our large existing customers. We are reminded daily that location, a low-cost structure and connectivity determine the winners in midstream. The Texas and New Mexico natural gas supply and demand forces at play today reinforce a very attractive thesis for our business. Kinetik strategically sits at the crossroads of rising low-cost natural gas supply and rapidly growing demand along the U.S. Gulf Coast, for which our system is a critical link in the energy value chain. Permian natural gas production is expected to grow nearly 4% annually through 2030, supported by rising GORs, attractive gas-rich plays and accelerating domestic natural gas demand. Gas-to-oil ratios, especially in the Delaware, are climbing steadily as development moves into gassier zones. Delaware Basin GORs are projected to increase nearly 70% over the next couple of decades. At the same time, highly productive gas-rich plays like the Barnett, Woodford and Alpine High are becoming increasingly attractive as producers delineate and prove out the resource and gas fundamentals improve. Permian gas takeaway capacity remains a critical component of the outlook. The industry is bringing online approximately 5 billion cubic feet per day of incremental egress by the first quarter of next year, representing nearly 20% of current Permian natural gas production volume. While we still anticipate Waha gas price volatility during the spring and the fall pipeline maintenance seasons, takeaway gas pipeline utilization near 90% should provide pricing relief at Waha. Additional projects like Eiger Express and Desert Southwest slated to come online in 2028 and 2029, further strengthen the Waha price relief narrative. Accelerating ERCOT power generation demand, driven largely by data centers, creates substantial upside for gas-fired power generation, especially in West Texas. Further downstream, the U.S. Gulf Coast remains the most attractive natural gas demand story globally, with LNG capacity expansions expected to increase gas demand by nearly 12 billion cubic feet per day through 2030. Before turning the call to Trevor, I'd like to reiterate that we recognize the importance of restoring investor confidence this year. Our priorities for 2026 are clear: meet or exceed our financial estimates, tighten operating cost discipline, deliver projects on time and on budget, play offense regarding our Waha exposure. Examples include amendments of existing G&P agreements, as mentioned earlier, potentially being part of the solution for new takeaway capacity options and creative sales agreements. And lastly, convert our commercial opportunities pipeline into long-term agreements, which would result in the FID of additional system investments at compelling multiples. We enter 2026 with momentum, a strong system and a clear mandate. While I am incredibly proud of our team's success to date, there is a huge opportunity to meaningfully and accretively continue to grow our business. To capture that opportunity, we need to operate at a higher level in 2026. And I know we have the right people to do just that. With that, I will turn it over to Trevor.

Thanks, Jamie. In the fourth quarter, we reported adjusted EBITDA of $252 million. We generated distributable cash flow of $152 million and free cash flow was negative $12 million. Midstream Logistics delivered $173 million of adjusted EBITDA, up 15% year-over-year, driven by gas volume growth, Gulf Coast marketing gains and a one-time operating expense benefit, partially offset by Waha price-related production shut-ins. Pipeline Transportation generated $84 million of adjusted EBITDA, down year-over-year due to the EPIC Crude divestiture that closed on October 31. The approximately $500 million of proceeds received from the EPIC Crude sale were used to pay down borrowings at the revolving credit facility, improving liquidity and deleveraging the balance sheet, both important for our revised capital allocation framework. Additionally, distributions from PHP were down approximately $31 million in the fourth quarter versus the third quarter due to a change in distribution policy resulting in a portion of the fourth quarter distribution being paid at the beginning of January. This change in the distribution policy has no further consequence nor is it a reflection on PHP's financial performance. For the full year, adjusted EBITDA was $988 million, slightly above the midpoint of revised guidance. Capital expenditures were $497 million, in line with revised guidance. We repurchased $176 million of Class A common stock and exited the year at 3.8x leverage. Turning to the financial guidance issued yesterday, we expect 2026 adjusted EBITDA of $950 million to $1.05 billion. The midpoint of $1 billion represents over 7% growth year-over-year when adjusting for the sale of EPIC Crude. Within the Midstream Logistics segment, key assumptions include high single-digit growth in processed gas volumes across the system, outpacing broader Permian production growth, approximately 100 million cubic feet per day of expected Waha price-related production shut-ins, and these are most pronounced during pipeline maintenance periods in the fall and spring. Gas process volumes exceeding 2 billion cubic feet per day in the second half of this year, supported by ECCC in service and Kings Landing ramping to full utilization, approximately 84% of fixed fee gross profit and flat to slightly down operating expenses relative to our third quarter 2025 run rate. Since we still expect substantial volatility at Waha this year, I would like to spend a bit of time on how we approach guidance with utilization of our Gulf Coast transport capacity to offset the financial impact of anticipated production shut-ins. We believe our guidance is appropriately risked based on the following: we saw the extent to which curtailments could impact the business in the fall of 2025 and assumed similar levels in our forecast. We are modeling strip pricing, which suggests depressed Waha pricing for most of the year, especially during the spring and fall pipeline maintenance seasons. While we are planning for material price-related shut-ins, we are also expecting marketing contributions as a financial offset. Given the magnitude of the Waha to Gulf Coast hub natural gas price differential, we have approximately 40% of our transport spread exposure hedged. Our 2026 adjusted EBITDA guidance also reflects the full year impact of the EPIC Crude divestiture as well as margin and volume adjustments at Shin Oak within the Pipeline Transportation segment. Moving to 2026 capital expenditures guidance. We expect $450 million to $510 million of capital expenditures with approximately 70% of capital spent in New Mexico including the ECCC pipeline, gathering investments in Eddy and Lea Counties and the Kings Landing sour gas conversion project. Our Delaware South budget includes the behind-the-meter power generation project, regular way low-pressure gathering and compression capital to service existing agreements and a handful of optimization projects that will increase processing capacity at several of our Delaware South processing complexes. I would like to discuss our revised capital allocation framework and how we're positioning the company for long-term value creation. Over the past year, we've shifted from a balanced all-of-the-above capital allocation model to a growth-oriented framework aligned with multiyear visibility and high-return opportunities. Our updated capital allocation framework reflects a structural opportunity to reinvest in projects that generate highly attractive rates of return and enhance our overall strategic and integrated enterprise value. All the while, we plan to modestly increase capital returns to shareholders via annual dividend increases and remain disciplined around leverage and balance sheet resiliency. As growth projects come online and cash flow steps up, we expect to accelerate cash returns to shareholders. There are a few elements I want to highlight. First, elevated growth capital budgets are expected, driven by high-return projects supported by our system footprint, operational reliability and long-term commercial agreements. Second, we will target leverage between 3.5x and 4x. The scale of the opportunity set requires disciplined project high grading in order for us to operate within this range, which we believe appropriately protects our company's financial health. Third, we plan to increase the dividend annually by 3% to 5% until our dividend coverage reaches 1.6x. Upon achievement of 1.6x, dividend increases should track earnings growth. Fourth, we will pursue share repurchases opportunistically. With elevated CapEx, buybacks will naturally be lower in the near term, but over time, they will become an additional mechanism for incremental cash returns as free cash flow applies. And finally, we will preserve balance sheet flexibility with investment-grade ratings remaining an objective, but not at the expense of alternative compelling returns. Before we start Q&A, I would like to pass the call back to Jamie.

Thanks, Trevor. I want to briefly address recent M&A conjecture. As a reminder, we do not comment on market rumors or speculation, and we won't be doing so today. What I will reiterate is this. We operate in an industry where assets of scale, integration and durability are highly strategic. We swim with other large players and recognize that the broader landscape is constantly evolving. Against that backdrop, our focus remains on executing our strategy and driving near- and long-term shareholder value. We are incredibly excited about what lies ahead in 2026 and beyond and believe we are well-positioned to drive multiyear growth. And so with that, we can open the line for questions.

Our first question comes from Spiro Dounis from Citi.

I want to start with the outlook here. Noticeable difference in tone this call from the last call. I'm just curious, what's giving you this renewed confidence as you're heading into 2026? And why are you so confident in the EBITDA range this year?

Spiro, it's Jamie. So first off, thanks for the question. I think we obviously had our bumps and bruises last quarter and for 2025 we've licked our wounds and have been head down, focused on execution ever since. With the restructuring of the two large legacy Durango Midstream contracts, those were really critical to get over the finish line, and we did it. That opens up a tremendous window of opportunity as it relates to sour gas benches and sour gas generally for the Northern Delaware. There is also a lot of activity in and around the Northern Delaware that has been emerging for some time but is now really getting significant momentum. There is probably more in-house commercial activity today than we've had for multiple years in the context of just things that are actually happening that can move the needle. That creates the realignment and the refresh on the capital allocation strategy. The organic growth first is what we see as our critical threshold going forward. We are genuinely excited. What we bring to the table in the North is a function of the following: we bring not just sour gas and the ability to treat sour gas with the acid gas conversion project going on at Kings Landing, the prospect in the near-term for Kings Landing 2, but also, as we start to emphasize co-development, the ability to give Gulf Coast pricing for Northern Delaware Basin customers that has been something nonexistent. The entire package provides a compelling proposition even in a $60 WTI price environment.

Got it. That's helpful. Maybe sticking on this line of questioning around the outlook and looking beyond '26. I hate to be in the what-have-you-done-for-me-lately camp, but the dividend guidance of 3% to 5% growth to get up to 1.6x coverage implies that you expect to be growing beyond that 3% to 5% range. And there are quite a few things impacting you at the end of '26 that really don't benefit you until '27. So in that context, how are you thinking about growth beyond this year? How much could get unlocked by Permian gas egress coming online alone? And maybe if you could update us on the latest thinking around NGLs.

Sure. I'll start and Trevor will jump in. We said this year is a 7% growth when you normalize by excluding EPIC. So same-store EBITDA growth of 7% year-on-year. We have a trajectory that is on the incline over the course of this year and towards the back end of the year, the coverage ratio is right around 1.5x. While we won't talk specifically about 2027, we think the setup is tremendous. Regarding egress, 5.3 Bcf per day by the time Phase 2 of Hugh Brinson comes online is about almost 20% of your overall current net Permian gas production. That's a constructive element. There are follow-on egress projects already working through the system in construction — Eiger Express and Desert Southwest — which should come online in the next couple of years and further improve takeaway. Coming into 2027 and 2028, the situation should be much more constructive. We also see gassier zones like the Barnett and Woodford becoming more attractive, and those will benefit from better Waha pricing with egress relief. On NGLs, in the context of this, we have a couple of contracts that roll off this year in Delaware South that are well known. There are multiple active large integrated NGL players aggressively looking for market share and being competitive on rates. Our expectation is conservative relative to what may occur, but more to come over the course of this year as we work to finalize arrangements.

Our next question comes from John Mackay from Goldman Sachs.

Why don't we pick up on a couple of these things. I wanted to talk about the curtailment volume guidance or the volume number you disclosed for fourth quarter. Could you talk about how much of those curtailed volumes have come back? What are you specifically expecting for '26? And maybe just a little more color on the trajectory there.

Yes. In the fourth quarter, we had 170 million cubic feet per day on average of curtailments. We alluded to really three contract amendments: one in Delaware South and two at Delaware North. We estimate that has brought back online about 50 million cubic feet per day when you normalize for those two agreements. The preponderance of the remaining shut-ins pertains to our gas-focused customer, which is Apache in the Alpine High area. With where Waha prices are right now, it's safe to assume that level does not make sense to continue to flow. In our forecast, we have assumed on average for calendar year 2026 about 100 million cubic feet per day of curtailments. Volumes across our entire system in 2026 are up high single digits year-on-year. If you bifurcate between Delaware North and Delaware South, we're at about 35% year-on-year in Delaware North, which makes sense given Kings Landing came online and doubled processing capacity in the third quarter of 2025. Delaware South has grown about 3%, but if you normalize for the curtailments, it's growing about 10%, which is above Permian Basin average volume expectations. We are excited about what we're seeing in both Delaware North and Delaware South, and we think the forecast is appropriately risked for the macro we anticipate for the balance of the year. When you look at Waha forwards, the market isn't expecting improvement until December, and that's effectively what we've incorporated in our 2026 view.

I appreciate the color, Trevor. Can we ask a second one, just on Kings Landing 2. I think the line from you guys is continuing to finalize commercial negotiations. Can you tell us a little bit more about that? Maybe how much of that factors into the AGI capacity ramping up? Just walk us through some of those moving pieces.

Yes, John. As it relates to KL2, we continue to progress. The restructurings of the two largest legacy Durango Midstream customers is a significant positive. There are other commercial activities underway. The amount of commercial discussions and activity going on right now is probably the greatest it's been for several years, and we expect to land a number of those agreements. Over the course of 2026, I would expect that we will have an announcement on KL2. We have already factored into our construction capital budget an amount on the basis that we anticipate FID-ing it, so there would be no revision to the capital budget if we did. Regarding overall AGI capacity, the first phase comes online by the end of this year. In New Mexico, there is a requirement that you have a companion well for an AGI well; that companion well will give us incremental capacity over and above what we have with our first AGI well, which will add another approximately 4 million cubic feet per day of capacity, and then we will step up ultimately to 24 and then 31 million cubic feet per day in total, as shown in the materials.

Our next question comes from Gabe Moreen from Mizuho.

Could I ask a little bit about the commodity sensitivity first around the amendments at Durango. It looks like from the pie chart, the fixed fee versus commodity hasn't really moved that much. So I'm wondering if that shifts in the future and in out years? And second, around some of the creative solutions Jamie referenced on Permian egress: given customers' exposure to Gulf Coast pricing, how confident are you in hedging your own exposure to that, whether that's PHP or some of the capacity you had mentioned lining up going forward?

Thanks for the question. On the percentage of overall gross margin contributed from commodity, it remains elevated relative to what you would expect with the conversion of one primary contract from commodity to fixed fee, and that's because of the marketing contributions associated with our Gulf Coast transport position. We expect that in 2026 and then in 2027 thereafter, that contribution should effectively go away, so it should reduce back to a lower level come 2027. Refer to Page 9 of our slides for the inclusion of that marketing contribution in the commodity line.

On the creative commercial structuring, we've been using Gulf Coast capacity as a lever and a commercial tool to win new business. As Jamie mentioned, it was important in restructuring those contracts. Many customers need to get out of Waha and we provide a solution for that. Looking forward, it's been a good hedge for us against shut-ins as shown in the fourth quarter, and that will continue. We're optimistic that Waha will be relieved with the 5 Bcf coming online and additional pipelines, but if it's not, we're setting ourselves up to win with our capacity position and capitalize on future opportunities.

And maybe a follow-up on the 40-megawatt behind-the-meter project. Can you talk about whether you're shopping some of that power to third parties or viewing it all for your own account? And Jamie, you mentioned pursuing others. Can you discuss decision points about pursuing additional projects, the timeline, capital involved, etc.?

Gabe, the 40 megawatts is for self-consumption at Diamond Cryo. We have the ability to convert it to a combined cycle facility and increase it by up to 60 megawatts; if we decided to do that because of a significant opportunity given power prices, we could sell power back into the grid. None of that is factored into our numbers. We're looking at the most basic terms: roughly $25 million of capital, a very attractive low-multiple investment. We've been evaluating this for a while; it's good to get it over the finish line and have it in service by the end of the year.

Our next question comes from Michael Blum from Wells Fargo.

I'm wondering if you can provide more detail on what's in the growth CapEx number, particularly the 'rich gas opportunities in New Mexico,' optimization and field CapEx. Should we think of that as normal course recurring items we should expect to see in growth CapEx going forward?

If you go to Page 10 of our earnings slides, we laid this out differently to address what's lumpy and what's regular way. On the right pie chart, we show steel and maintenance: low-pressure gathering, compression and maintenance that we have to do every year. That's about 50% of our total $480 million capital backlog — roughly $240 million is what I would call regular way capital going forward. That's not necessarily a pure maintenance number; with volumes expected to grow 8% per annum, true maintenance would be lower. On the trunk line side, we have a few trunk line completions in Delaware North and Delaware South that provide connectivity and are not recurring. We also have the ECCC, which will be complete in the second quarter. On the facility side, that's primarily the Kings Landing sour conversion and a few optimization projects in Delaware South that increase processing capacity at several facilities. Those are necessary to facilitate growth but are more one-time in nature rather than ongoing.

And the behind-the-meter project is included in that facility bucket.

Great. And then as we think about the cadence of EBITDA by quarter, you mentioned it will be upward sloping. Can you give a sense of what exit rate EBITDA in Q4 could look like?

Jamie mentioned dividend coverage exiting the year around 1.5x. It's a tale of two halves. Normalizing fourth quarter numbers for a few items: fourth quarter 2025 included about $5 million of EBITDA from EPIC Crude and an OpEx benefit; collectively those two would change the quarter by about $15 million. Also, with Bahia online, we expect a shift in volumes from Shin Oak over to Bahia, which is about $3 million to $4 million on a quarterly basis. On a normalized basis, you're in the $230 million to $240 million range for the first two quarters. To hit the full-year $1 billion of EBITDA, you're at about $260 million to $270 million in the third and fourth quarters.

Our next question comes from Julien Dumoulin-Smith from Jefferies. The question will be asked by Rob Mosca.

FourQ looked pretty successful in terms of your ability to manage around Waha. Can you speak to what was different in 4Q than prior periods? And can you highlight some of the additional steps you've taken in '26 to manage that volatility, whether it's the G&P contract restructuring or maybe even taking out capacity on third-party pipe?

We secured additional Gulf Coast capacity that was critical for the fourth quarter. We also restructured or amended three contracts that cover about a third of the volumes that were shut-in, which we view as protecting those volumes from resuming shut-ins in 2026 and thereafter. We took a heavier hand in assumptions around curtailments, rolling forward fourth quarter 2025 shut-ins and assuming similar impacts in maintenance months in spring and fall. Those are the three significant changes from prior quarters into fourth quarter 2025. Regarding the transport hedge as an offset for shut-ins, relative to our internal expectations, they matched effectively flat. The additional curtailments relative to our forecast were about an 8% volume shortfall, but Gulf Coast marketing gains were a nearly perfect offset.

Rob, just a couple of other points. Fourth quarter had the full quarter of Kings Landing online, which performed very well even through Winter Storm Fern. A lot of credit goes to the operations and engineering team. On average, fourth quarter shut-ins were 170 million cubic feet per day — that's a lot of gas, almost the equivalent of a cryo. For 2026, we're assuming about 100 million cubic feet per day of shut-ins on average. We've done a wholesale bottoms-up review of the business, challenging shut-in timing, controllable OpEx, compression optimization and other controllable elements. The forecast we have is battle-tested and grounded in that analysis.

Got it. And maybe without asking you to comment on specifics, could you speak to how you and the Board think about inbound strategic interest more broadly and how you'd expect to derive value for Kinetik shareholders from any synergies if something were to come to fruition?

We are always willing to evaluate opportunities that maximize shareholder value. There's been no change since February 22, 2022. If someone comes in and can provide more value than we believe we can create ourselves, we understand our fiduciary responsibilities to our shareholders and stakeholders. It's that simple.

Our next question comes from Jeremy Tonet from JPMorgan.

I wasn't sure how much you said specifically on the Kings Landing ramp. Could you refresh where it stands now and how you see that ramp transpiring over the course of the year given the macro dynamics you laid out?

We expect Kings Landing to operate at roughly 65% to 70% utilization initially. We expect the second half of this year to reach the 2.0 Bcf per day inlet exit rate, so our expectation is that Kings Landing will ramp through the year to that level.

Thanks. And thinking about normalized business growth, moving from roughly $230 million to $270 million would be about a 17% increase on a quarterly basis; normalized out, that points to something north of 7% growth. How do you think about normalized EBITDA growth for this business over time, recognizing some years will be lumpy?

We originally said this business could grow at a 10% EBITDA CAGR. We didn't achieve that in the recent period, and 2026 is targeting 7% when normalized. But we still see a lot of reasons for above-average growth: egress relief coming online, attractive gas-rich zones and improved commercial positioning. There are many variables — commodity prices, gas activity, development in Barnett and Woodford — but our view is the business should be above average in growth and we have good line of sight between now and 2028.

To expand on Jamie's comments, we had targets internally a year ago. Commodity prices have come down, and Permian activity slowed in absolute terms, but we are seeing longer lateral lengths, drilling efficiencies and higher productivity per pad, which improves capital efficiency for midstream. The macro backdrop is softer, but we see the cavalry coming for Waha with nearly 11 Bcf per day of egress coming online over the next several years. Part of why we are comfortable revising our capital allocation framework is we've been operating the Durango asset for nearly two years and have increasing confidence in the opportunity set. In Delaware South, the deconsolidation theme continues to drive volumes and normalized system growth around 10% is surprising to many. Deeper-zone testing and success would be a significant upside for a gas midstream player, and we're excited about the potential.

One other point: Kings Landing, despite delays, has been an operational success. Its performance has given a lot of conviction to producers in the area. We FID-ed the sour gas conversion project and have stuck to our commitments to producers, which in turn has driven customer support and activity. This symbiotic relationship with our customers is real and provides confidence in our outlook.

Our next question comes from Theresa Chen from Barclays.

Trevor, I want to go back to your comments about the Delaware South footprint. Can you elaborate on what exactly your customers are seeing or unlocking on the resource front that may not be easily discernible from the outside? What's driving the growth? How durable is it? Is it just the pace of deeper zone development or what has surprised you to the upside versus your original expectations?

I'll have Kris add color, but on the numbers, the commercial team has expanded our business in the northern part of Delaware South into New Mexico and Southern Lea County, which is known for strong rock quality. Further south, the rock is good but historically longer-dated inventory relative to New Mexico. We've seen deconsolidation via asset sales, farm-ins or units being picked off, and that's become more of a theme. In the second half of 2025, we saw three instances where dedications held by parties with no near-term drill plans have been picked up by operators focused on development. That change in operator dynamics and renewed activity has driven incremental volumes.

To echo Trevor, much of the upside is in deeper benches that are more gas-focused. That will depend in part on Waha pricing and takeaway capacity coming online, which can provide conviction to drill. Even if Waha remains depressed and volatile, we have Gulf Coast capacity and will couple that with commercial deals to provide solutions. We're excited; the resource is there and we're positioning to capture our share of the market.

On NGL recontracting, with multiple contracts rolling over the next few years and two rolling this year in particular, can you talk about the timeline for commercial discussions? When should we expect more clarity on the economics and related cost savings?

It's hard to give an exact calendar date. There's a lot of inbound interest because these contracts are known to expire. We're collecting information, inbounds and ideas. We'll make decisions when we believe we are in the right place for the right reasons and will communicate them to the Street as soon as they are made. We can't realistically tie it to a specific date today.

Our next question comes from Manav Gupta from UBS.

I wanted to go back into the power solutions. It looks like a very attractive project but from our perspective it also looks like a cost reduction initiative and something that stabilizes operations and reduces dependence on third-party electricity. Can you talk a bit about how internally it helps beyond attractive multiples?

Manav, you hit the key points: reliability, cost reduction and reduced dependence on third-party electricity. For self-generation we need absolute assurance that the grid is backup. With Waha challenged from a pricing standpoint, self-generation on a reliable basis is especially attractive. For example, if Waha gas price is negative and we are producing electricity ourselves, the marginal electricity cost for that self-generated supply can effectively be zero. On OpEx, the big items are salaries and benefits (including contractors), compression and electricity. We've focused on reducing those controllable costs, optimizing compression, and the behind-the-meter project at Diamond Cryo is a beta test. If successful, it can be replicated across several facilities in Delaware South and West Texas.

Quick follow-up: when talking to upstream producers, many say Permian rock quality is improving and recoveries could rise with new technologies like lightweight proppants and nano-surfactants. Do you agree recoveries could increase and that would be a material upside for Kinetik?

That's a great question. We've seen well performance improve over time in the Permian and we expect that to continue. Some peers have mentioned upward revisions, largely in the Delaware Basin, and we are seeing similar indications. The opportunity set is large and Kinetik's geographic footprint and strategy put us in a good position to capture that upside.

To add, efficiencies we're seeing — higher well density and shorter drilling days — are direct benefits to Kinetik. Capital efficiency for building to serve a pad has improved relative to five or ten years ago, and that provides better visibility into future business given larger and more capital-intensive pads. Anecdotally we hear about proppant and nano-surfactant developments, but our conversations more often center on exploratory benches. Those deeper benches deliver higher gas rates, which is a positive theme for a gas midstream player and something we are increasingly seeing convert into wells on the system.

We currently have no further questions, and I would like to hand back to Jamie Welch for any closing remarks.

Thanks, everyone, for your time this morning. We look forward to talking to you over the course of the next several quarters. Please reach out if there are any questions.

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