Kinetik Holdings (NYSE: KNTK) continues to position itself as a key midstream infrastructure provider in the Permian Basin, with a growing focus on supporting natural gas development in New Mexico’s Delaware Basin. During its Q1 2026 earnings call, the company highlighted increasing producer demand for sour gas processing capacity and outlined major investments tied to its Kings Landing complex in New Mexico.
Kinetik’s Role in the Permian Basin
Kinetik is a midstream energy company focused on natural gas gathering, processing, transportation, crude oil handling, and water services across the Permian Basin. The company’s infrastructure footprint spans West Texas and New Mexico, where it supports some of the region’s most active oil and gas operators.
As Permian production continues to grow, operators are increasingly dealing with higher levels of hydrogen sulfide (H2S) and carbon dioxide (CO2) in produced gas streams. This trend is driving the need for additional sour gas treatment and processing infrastructure, particularly in the Delaware Basin of New Mexico.
According to Kinetik management, producers have made it clear that incremental sour gas processing capacity is essential to support long-term drilling and development plans in the region.
Strong Producer Activity Driving New Mexico Expansion
Kinetik said commercial momentum in New Mexico remains strong, supported by new customer agreements and long-term contract extensions. During the quarter, the company completed a significant contract amendment with a large customer in New Mexico that expanded dedicated acreage by approximately 25% and extended terms through 2039.
The company noted that roughly 75% of legacy Durango gas processing volumes have now been amended or extended over the past several months. These agreements are expected to increase margins, expand dedicated acreage, and provide greater long-term visibility across Kinetik’s New Mexico system.
Management also emphasized that drilling activity in New Mexico remains robust despite ongoing volatility in Permian natural gas pricing. Kinetik expects additional gas volumes and accelerated development activity to support future infrastructure growth across the basin heading into 2027.
Kings Landing Sour Gas Conversion Project
One of the company’s most important growth projects is the Kings Landing sour gas conversion project in New Mexico.
Kinetik announced that it has received all required approvals from the Bureau of Land Management (BLM) and the New Mexico Oil Conservation Division (NMOCD) to move forward with the acid gas injection (AGI) and sour gas conversion project at Kings Landing.
Construction is already underway, long-lead materials have been ordered, and the company expects to spud its first acid gas injection well during the summer of 2026.
Once completed, the project will allow Kinetik to handle elevated H2S and CO2 volumes across all three Delaware North processing complexes. The company said the project will provide approximately 26.5 million cubic feet per day of operational total acid gas (TAG) capacity, with permitted capacity exceeding 31 million cubic feet per day.
Phase 1 of the Kings Landing sour gas conversion project remains on schedule for in-service by year-end 2026.
Preparing for the Next Phase of Delaware Basin Growth
Kinetik also signaled that the Kings Landing project could pave the way for future processing expansions. Management stated that the company is moving closer toward a potential final investment decision (FID) on a future Kings Landing 2 processing plant as customer demand continues to increase.
At the same time, Kinetik is expanding connectivity between its New Mexico and Texas systems through projects like the ECCC pipeline, which will allow incremental New Mexico gas volumes to access additional downstream processing and takeaway capacity.
The company believes that increasing Gulf Coast pipeline takeaway capacity beginning in 2027 will support stronger long-term Permian gas growth and create additional opportunities for producers operating in New Mexico.
Outlook
Despite near-term challenges associated with negative Waha gas pricing, Kinetik remains optimistic about the long-term outlook for the Delaware Basin. The company expects growing producer activity, expanding Gulf Coast takeaway infrastructure, and increasing demand for sour gas processing to support multi-year growth across its New Mexico operations.
With the Kings Landing sour gas conversion project moving forward and additional processing opportunities under evaluation, Kinetik is positioning itself to play a major role in the next phase of Permian Basin development.
Author: phinds