Kinetik Earnings Call Shows Strength Amid Waha Pain

Kinetik ((KNTK)) has held its Q1 earnings call. Read on for the main highlights of the call.

Kinetik’s latest earnings call struck a notably resilient tone as management balanced record financial performance with clear-eyed acknowledgment of severe near-term headwinds. Executives highlighted record Q1 adjusted EBITDA, strong cash generation and progress on key projects and contracts, while cautioning that extreme Waha gas price dislocations and higher curtailments will constrain volume growth in the short term.

Record Q1 Earnings and Robust Cash Generation

Kinetik reported record Q1 adjusted EBITDA of $251 million, beating the top end of its prior range and underscoring the earnings power of its system. Distributable cash flow reached $181 million and free cash flow came in at $101 million, providing solid liquidity to fund projects, support the balance sheet and maintain capital discipline.

Midstream Logistics Segment Drives Outperformance

The Midstream Logistics segment delivered record adjusted EBITDA of $179 million, up 12% year over year despite essentially flat volumes. Management credited improved Gulf Coast takeaway capacity, stronger operating performance, better condensate and NGL recoveries and slightly lower unit operating costs for the segment’s margin expansion.

Contract Wins and Durango Amendments Boost Fee Mix

Kinetik announced a major contract amendment in New Mexico that expands dedicated acreage by roughly 25%, consolidates agreements and extends terms through 2039. With about 75% of legacy Durango gas processing volumes amended in the past four months, the company expects a modest EBITDA lift in 2026 and a higher fee-based mix versus the pre-acquisition 60% fee and 40% commodity structure.

Regulatory Green Lights and Sour Conversion at King’s Landing

The company secured all required approvals from federal and state regulators to advance its AGI and sour gas conversion at King’s Landing, clearing a key regulatory hurdle. Long-lead materials are ordered, construction has begun and the first AGI well is slated for this summer, with phase one targeted to be in service by year-end 2026 and total TAG operational capacity reaching 26.5 MMcf/d.

Pipeline and Power Projects Gain Commercial Traction

Kinetik is nearing completion of its ECCC pipeline, which is expected to enter service later this quarter, adding critical takeaway capacity. The company is also advancing 40 MW of behind-the-meter power at Diamond Cryer and has signed zero-capex power interconnections that monetize residue gas, illustrating a repeatable, fee-based model as Permian power demand climbs.

Hedging Strategy and Mark-to-Market Tailwinds

Management emphasized that about half of the company’s 2026 transport spread exposure is hedged, while equity volumes are heavily hedged for propane, butane, crude and C5+. At current forward prices, Kinetik estimates roughly a $20 million uplift to 2026 adjusted EBITDA from commodity mark-to-market effects, excluding any benefit from Gulf Coast marketing spreads.

Cost Discipline, Data Initiatives and CapEx Control

Operating and G&A expenses are tracking in line with budget as Kinetik pursues cost-reduction and insourcing opportunities aimed at 2027 and beyond. The company has also piloted Palantir to improve data-driven execution, while reaffirming 2026 CapEx guidance of $450 million to $510 million after spending $91 million in Q1.

Balance Sheet Health and Long-Term Takeaway Position

Kinetik finished the quarter with leverage at 3.9x, comfortably within its target range and supported by ample revolver capacity for growth and volatility. Management highlighted additional Gulf Coast transport secured beginning in 2028 and a European LNG contract starting in 2027, positioning the company to benefit from more than 5 Bcf/d of new Permian takeaway by early 2027 and another 6 Bcf/d expected in 2028–29.

Extreme Waha Price Dislocation Pressures the Basin

The Waha hub suffered extreme pricing weakness, with March and April daily averages running at negative $4.81 per MMBtu, an unusually severe discount. Forward curves suggest Waha could remain negative for much of the spring and into October, posing ongoing operational and pricing challenges for both producers and midstream operators in the region.

Higher Curtailments Weigh on Volume Growth Outlook

Kinetik has increased its 2026 curtailment assumption to roughly 220 MMcf/d, up from around 100 MMcf/d previously, as low prices force more gas off the system. As a result, management now expects processed gas volumes to grow only in the low- to mid-single-digit range year over year, more than six percentage points below its prior high single-digit growth outlook.

Pipeline Transportation Segment Softness

The Pipeline Transportation segment delivered Q1 adjusted EBITDA of $78 million, declining year over year amid portfolio changes and weaker volumes. Management pointed to the divestiture of EPIC Crude, completed last October, and lower throughput on Chinook as key drivers of the segment’s softer performance.

Cautious Approach to Further Expansion

While commercial interest remains strong, Kinetik signaled uncertainty on the timing and capital intensity of potential expansions such as King’s Landing 2, which still awaits a final investment decision. Executives stressed a disciplined stance and did not raise 2026 guidance despite Q1 outperformance, underscoring a cautious approach to committing additional growth capital.

Residual Exposure to Pricing Lows and Operational Risk

Management acknowledged that Waha prices could yet test new lows, especially during maintenance-heavy spring and fall periods that heighten dislocation risk. The company also noted that its gathering and processing contracts lack fee floors, which leaves fee revenue exposed in certain downside scenarios if severe price pressure persists.

Dependence on Marketing and Spread-Based Offsets

Q1 results benefited materially from marketing gains and favorable spreads that helped offset curtailment-related revenue pressure. However, Kinetik cautioned that these offsets are partly cyclical and reliant on Gulf Coast spreads, pipeline reliability and hedging, making sustained outperformance contingent on new egress coming online and market conditions remaining supportive.

Guidance and Forward-Looking Outlook

Management reaffirmed 2026 adjusted EBITDA guidance of $950 million to $1.05 billion, despite higher assumed curtailments and a slower volume growth profile on a roughly 1.8 Bcf/d processed gas base. They reiterated expected quarterly cadence, kept 2026 CapEx unchanged and pointed to upcoming milestones such as ECCC’s in-service date, King’s Landing’s phased capacity ramp and substantial new Permian takeaway additions through 2029 as key enablers of future growth.

Kinetik’s earnings call painted a picture of a company executing well operationally and financially while navigating a harsh pricing environment in the Permian. Record Q1 results, a solid balance sheet and visible project and contract progress provide a strong foundation, yet investors will be watching how effectively the company manages Waha volatility and curtailments until new takeaway capacity relieves pressure on the basin.