U.S.-based Kinetik Holdings Inc. KNTK has announced a series of transactions aimed at expanding its operations in New Mexico and increasing its presence across the North Delaware Basin.
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Acquisition of Durango Permian LLC
Kinetik has entered into an agreement to acquire Durango Permian LLC, expanding its footprint in Eddy and Lea Counties, New Mexico. The acquisition is valued at $765 million in cash and equity, including up to $75 million contingent upon capital cost for the Kings Landing complex. The Kings Landing complex is currently under construction and is scheduled to be completed in April 2025.
Durango boasts approximately 2,400 miles of gas-gathering pipelines in New Mexico, along with a processing capacity of around 220 million cubic feet per day(MMcf/d). The Durango acquisition is slated to expand KNTK’s processing capacity by 420 MMcf/d and double its gathering pipeline mileage. Additionally, the company will acquire over 60 new customers through the acquisition, which includes one of the most active producers in the Delaware Basin.
New Eddy County Agreement
KNTK has secured a new 15-year agreement for low-pressure and high-pressure gas gathering and processing with one of its existing customers in Eddy County. The New Eddy County Agreement requires approximately $200 million in capital investment by 2026, for the construction of low-pressure and high-pressure gathering infrastructure.
These transactions solidify Kinetik’s position in New Mexico and consolidate its value proposition as a pure-play midstream company within the Delaware Basin.
Financing Strategy
Management has mentioned the sale of 16% of its equity interest in Gulf Coast Express pipeline to finance the acquisition of Durango and the capital needed for the New Eddy County Agreement. It will divest its equity interest in the pipeline to ArcLight Capital Partners LLC for a total of $540 million, entirely in cash.
The total consideration for acquiring Durango will be funded via cash and Kinetik Class C common stock. The company will pay approximately $315 million in cash, excluding any contingent consideration. Further, Durango will receive 11.5 million shares of Kinetik Class C common stock, distributed in two installments with 3.8 million shares issued at the time of closing the acquisition. The remaining 7.7 million shares will be issued on Jul 1, 2025.
Investment and Expansion
The acquisition of Durango and the New Eddy County Agreement involve around $1 billion of new investment for Kinetik. The acquisition has been constructed with 60% upfront consideration and the remaining 40% deferred until July 2025. Following the acquisition and completion of the King’s Landing complex, KNTK will operate over 2.4 billion cubic feet per day of processing capacity in the Delaware Basin and around 4,600 miles of pipelines across eight counties.
Further, the company states that proceeds from the sale of its interest in Gulf Coast Express pipeline and the issuance of Kinetik Class C shares worth $450 million will be reinvested into projects at a mid-single digit EBITDA multiple. These moves are aimed at recycling cash proceeds from a non-operated asset into operated assets. Moreover, the acquisition and the New Eddy County Agreement allow Kinetik to gain complete control over its plant products including more than 350 MMcf/d of residue gas and well over 60,000 barrels per day of natural gas liquids.
