Good morning and thank you for attending the Kinetik Third Quarter 2022 Results Call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator instructions] I'll now like to pass the conference over to your host, Maddie Wagner, with Kinetik. Thank you. You may proceed.

Thank you. Good morning and welcome to Kinetik's third quarter 2022 earnings conference call. Here with me is our President and CEO, President and CEO, Jamie Welch; as well as Matt Wall, our COO; Anne Psencik, our Chief Strategy Officer; Steve Stellato, our CAO; Todd Carpenter, our General Counsel; Trevor Howard, our VP of Finance; and Kris Kindrick and Tyler Milam, our VPs of Commercial. The press release we issued yesterday, the slide presentation and access to the webcast for today's call, are available on our Web site at www.kinetik.com. Before we begin, I would like to remind all listeners that our remarks, including the question-and-answer section, will provide forward looking statements and actual results could differ from what is described in these statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. We may also provide certain performance measures that do not conform to US GAAP. We provided schedules to reconcile these non-GAAP measures as part of our earnings press release. After our prepared remarks, we will open the call to Q&A. With that, I will turn the call over to Jamie.

Thank you, Mattie. Good morning everyone, and thank you for joining us today. We reported our third quarter 2022 results yesterday afternoon, and I'm pleased to share with you this morning that we reported a record quarter with respect to both process gas volumes and adjusted EBITDA. In this first year post merger, we have continued to improve quarter-over-quarter across all facets of our business as we realize integration synergies, optimize our system and grow customer relationships. Having grown 1.5 billion cubic feet per day through the end of September, the Permian Basin remains on track to grow natural gas volumes by two billion cubic feet per day exit to exit in 2022, with consultants expecting another two cubic feet per day of growth in 2023. Drawing down further, we estimate that the Delaware basin accounts for well over half of total Permian supply growth. Moving a bit further downstream, we are beginning to see tightness at the long haul residue gas transport outlets earlier than expected. In October, approximately 1.3 billion cubic feet per day of takeaway capacity was taken offline for routine maintenance, which resulted in Waha moving internet negative price territory. A stark reminder of the 2017 to 2020 Waha basis collapse. This recent event reinforced to us a few things. First, Permian natural gas takeaway appears to be fairly balanced and Waha pricing is volatile when utilization rates are this high. This point is further reinforced when looking at northbound natural gas volumes historically viewed as a transport avenue of last resort, which in September and October hit levels not seen since the in-service of Permian Highway Pipeline almost three years ago. As expected, the immediate response is already underway with Permian processes largely switching plants into recovery. With the takeaway supply demand equation fairly balanced…

[Operator instructions] The first question is from the line of Jeremy Tonet with JPMorgan. You may proceed.

Thanks for all the details today. I really appreciate going through the business and Permian outlook and just wanted to build on a little bit more as far as Permian takeaway is concerned. A few questions there, I guess, and just, with PHP coming online, is that a distinct date where everything starts up day one or could it be some of it de-servicing volumes partial in service earlier than that? And if we think about later data takeaway, how would you think about the chances of GCX expansion versus Permian Pass versus another project coming to fruition?

You ask all the questions, which are top of mind for everybody. So let me deal with PHP. So the short answer is there is always going to be a period for which there may be some incremental capacity, how much that is on a volumetric basis, and what the period that is still TBD, right? Depends on when we're mechanically complete and the tie-ins are done. So I think it's a bit of a moving target. We'll keep you apprised and I'm sure kinder will too, as we, we travel along this path on getting an in-service date of November 01. So there could be some attractive upside, Don't get us wrong, we just don't know how to quite measure that at this point in time. As it relates to the overall takeaway capacity, I think the quarter next year we're anticipating the Whistler expansion to happen. Then obviously November one will be PHP, the sum total of the two of that will add just over Bcf. Then obviously I think going into 24 you've got mattor and so that will be interesting. However, if the pundits and the consultants and the experts are right and we do hit two SF a day of growth for this year, and we hit two BCF of gas growth for next year, I think it's going to really accelerate the discussions around incremental takeaway and whether that's, warrior for transfer or anybody else. I think, there are lots of projects out there trying to be commercialized, and I think it's just a case of waiting to get that balance when customers can clearly see the net benefit to them. I think as we listen to one of our favorite customers, the guys at Permian Resources yesterday, the Waha negative price in October was a bit of a shocker. It felt like we were, it was deja vu all over again living that 2017 to 2020 timeframe. And so I really do think that may very much jumpstart some overall activities and on the commercial side do I see it impacting GCX? Don't really know. It's hard to weigh that up. I don't really -- I'm not sure exactly whether a new pipeline, a new 42 inch is the right answer. I think it might be in the, in the eyes and in the mind of, of many producers because the more still on the ground, the more egress the better as opposed to the same sticker pipe, just having a larger volumetric throughput. But yeah, that's, it's hard to handicap.

Got it. That's helpful. Appreciate your thoughts as always there. And turning to '23 and not running front running guidance there, but just wondering any incremental bread crumbs you can leave for us as far as how EBITDA could shake out a lot of moving pieces there with growth in the new projects, what have you, but wanted to see even with commodity price sensitivity, I guess how you see direct commodity price sensitivity evolving over time or any, any thoughts to share with us on how that could impact '23?

So interestingly enough, I think the over, as we've been very consistent, you're in a, you're in a commodity price environment where traditionally it's, you have migrated from p or pol contracts to traditional fixed fee. That's not to say that there's not some commodity upside with overall system performance, plant performance, the SRX technology, 99% ethane, that is state of the art but the overall percentage of that as a contribution relative to the overall base fee that you would get from a customer is going to be on the on the lower end. And I think as we think about the overall expectation, our migration will be to more fixed less, pop and therefore less commodity sensitivity going forward. And certainly the pipeline transportation component will also, as that continues to increase, that will continue to decline. The overall contribution factor as we look at 2023 landscape looks like this really good growth, great contracts that are now, you annualized obviously contracts that have started this the last part of 2020 22 and you'll annualize them over 2020 three, you've got some really good pull forward growth. I would say the interesting thing is the amount of private activity, I think we've seen what privates can do. We've all lived through this over the last several years where the publics have been very disciplined and their overall capital expenditures and all about returning cash back to shareholders and other stakeholders and the privates really accelerating the inventory and capitalizing on that commodity price windfall. We've got, six new customers, three, we just signed up this past quarter and we, we've got an accelerant right now going into 23, which is great. The headwind for 23 is commodity prices and whether it's, Yeah, what's going to happen is when's…

Got it. That's very helpful. I'll get back in the queue. Thank you.

Thank you. The next question is from the line of Gabe Moreen with Mizuho. You may proceed.

Hey, good morning everyone. Jamie, maybe if I could continue on the 23 outlook scene just with all the activity and new customers you're signing up. Can you talk about where things stand right now in terms of how you feel about processing capacity utilization the length of these contracts and whether that gives you visibility, potential further expansions or even new builds? Maybe I'll just see where your thoughts are there.

So I think Gabe, it has not been lost on us as we've seen all of the associated announcements around processing facilities being added late '23 into '24. So there's a little bit of a, of a motto within this organization, which is time is now. We are selling this today, and as I said, the integrated solution is we are a foundation chipper on PHP, we're a foundation shipper, pro forma expansion. We can start as people see what's going on with gas prices and whether they're private or public, there's a reticence to flare. They really want to find economic value for that side of the hydrocarbon stream. So I think it's very clear that we can offer something that differentiates and we've got space today, right? These people are, the privates are focused today and we have capacity to give them today. So it's a very nice marriage. What does that mean as far as how we think about our processing? We're increasing the processing footprint by 120 million cubic feet a day for Diamond. So I'll go from 600 to seven 20 as of late March of next, next year that'd be 2023. And yeah, Gabe and the engineering team have already been looking at the rest of the fleet and we are seeing, whether we can get 10% to 20% improvement across our larger cryos, which obviously would also be very low, low cost, and nice immediate upside because we can make it happen immediately. We realize what is important to us. We want to sell out everything we can once we start getting within that 90% zip code looking out sort of six months out at overall processing volumes relative to capacity, that's the point in time you will see us make decisions on what we do next on a processing plant. And just as importantly, where are we going now? It I like where exactly do we think we wanted to go, where the puck is going to be, not where it's necessarily at.

Thanks Jamie. And then maybe if I could turn to commodity prices and hedges. You mentioned, I think in your answer to Jeremy's question about trying to negotiate contracts to more feed basis. Is that playing at all on your decision on hedges and, and just the latest also I guess between ethane rejection or not? Just wondering, the latest thinking is on hedging here.

We've been working on the operational hedging as it relates to 2023. So that would then determine whether we have plans run in recovery or objection so that we've already been putting in place. As far as other fundamentals on the, on the hedging side, we are looking acutely at all the potential opportunities that present themselves to in fact mitigate their hedging exposure and looking to make sure that we capitalize on what we think makes the most sense relative to our overall supply stack. Meaning how do we think about growth that's coming on with different contracts because not every customer is the same and not every contract's the same. So we've got a lot of internal work going on. Trevor Ross and Graham working with Annie Penick on the NGL side, we've really been spending a lot of time and effort as we now really get headlong into 2023 activity.

Thank you. The next question is from the line of Neel Mitra with Bank of America. You may proceed.

Hey, good morning. First just wanted to clarify your latent processing capacity going into 2023. Jamie, it sounds like you've landed some private agreements and you haven't necessarily known the full amount. I, I think the, the last presentation said you had about half a BCF a day of, of latent capacity with the diamond cryo expansion included. Can you give us your views on, on where you'll be in in '23 with that with existing customers?

Well I think as we said the 1.5 BCF was a projected viewpoint in the context of the bigger contracts that we had just signed in the first quarter. And with the privates, obviously we can aggregate them, they would obviously take of that remaining half a BCF. I would say in total, I'm looking at Trevor wouldn't be more than a hundred, right? So I think you're looking at about 20% of that further being impacted good contracts, really good contracts from a fee and from an economic margin standpoint. And, I think we probably risk those volumes a lot more heavily just because there is a, there's a sense of a little bit of the unknown.

Got it. Second question you have 56% interest in PHP expansion. I know you've, you've contracted a little bit down with some of your two contracts that you announced earlier this year, but are you able to, to bundle GMP and take away agreements on that expansion going forward? Or are they going to be distinct contracts?

No, we going to, we will, we will bundle it and that was part of the commentary around, in continuing to do more things with, our existing customers and some of the things we've done with them on guests on gaining control of their residue gas, which as Neil firsthand, we have a couple of contracts where we do have some taken kind customers that there's one customer in particular that we've now got control of their residue going forward in exchange for which they get some very attractive Gulf Coast pricing.

Right. And follow up to that, do you see any flow assurance issues this time around in, in two Q 23? Just with the, with the amount of gas that's coming out in the lack of tickle capacity and the inability for a lot of guys to flare?

No, sorry, I'm just, are you talking about general Permian or are you talking about Kinetik specifically? Look, just given we saw recently and, and if, if supply growth resumes and continues there will, yeah, there's going to be concerns about the ability to actually go and move that gas out of the basin. Yes. but specifically with Kinetik due to our downstream capacity arrangements as well as our marketing arrangements, we do not see a risk. And just further hammering on that point in 2020, before PHP even came online when the basis was blown out, we didn't have any issues actually going physically flowing the gas. It's fair to say, I was going to, Sorry. I was going to say, as I, I said in my ear, in my earlier remarks, we just be in recovery, right? And so, there might be an impact in the context of how, what happens with ethane pricing. Sure. but obviously that's one of the first triggers that I would say self-help that you can actually utilize.

Got it. And if I could just ask us one more on your view of, of NGL takeaway tightness. We've seen Chin Oak postponed a year Daytona announced on the target system to come on in in 2024. So looks like different systems have different views of, of tightness. You're obviously involved or could be involved in ownership with both and have capacity in both. What are you seeing in terms of tightness when we need it or if there's pockets that that are tighter than others within the Permian?

Look, I would say on the Shino side, we see a more broadly from a market perspective, 2025, we really start to see some very interesting some very interesting elements and affecting the market. And that's when obviously we really do see a need for the incremental takeaway capacity. The Chinook expansion, as Enterprise has said, is ready to go. They are trying to work out phase one, phase two, what does it look like? And they're listening, engaged in conversations with their customers. They're thinking about what they have with their own footprint. They're also talking to us as their partner in the context of trying to work out what it is we want to do. And so I think we saw the Daytona, I think there obviously it's a different discussion and obviously that should obviously that gives a course for optimism, I think, around the overall target expectation on volumes and their continued customer growth. So I think that we are, we're okay for now and I think you're okay as you go through next year into 2024 and 2025 is when certainly we think that Chino needs to be in service just given the combined needs of the existing two partners. And we can't really comment on what Tyler is thinking as it relates to the timing on Daytona.

Thank you. The next question is from the line of Michael Cusimano with Pickering Energy Partners. You may proceed.

Hey, good morning everyone. I wanted to start CapEx for '23. I was hoping you can go through some of the puts and takes there, rolling in from 2022, and how maybe like the Shin Oak delay affects what you were looking for '23.

Shin Oak probably means that there's less spend in '23, which is a good, I'll call that a good guy . We've got PHP expand, so knocking down the bigger buckets. We've got treating as it relates to the carryover. So you've got the front end surplus aim treating at our existing BCP sites. So that was a modestly large capital item on the midstream logistics side. We'll have well connects, we're obviously going through all of that Delaware link, which is the 30 inch, 40 miles residue gas, which is fully sold out and then feeds into PHP and the expansion on PHP. So we've got the Delaware link piece. You've got to have the PHP expansion piece. And we've got, just in the context, 75% of our spend -- of our PHP spend is to be spent in '23 because 25% was this year and you're looking at four, I think it's around 4.25, 4.30 of total cost, eight eights. So that's some of the bigger items. I think that's probably the, the biggest ones that I can tell you. And then the unknown is exactly how much we end up having to spend at Shin Oak. You've got a little bit of maintenance. We've told you $14.50 million on the maintenance side. You've got some base growth with our, with just our overall customer footprint, which obviously continues to expand. They're not huge, huge dollars. They're just little bits and pieces right. But everything obviously adds up.

Okay. That's really helpful. And then it seems, many in the industry are pointing to ethane recovery as being the option to free up some gas takeaway, but I'm wondering if you have a view on how that affects ethane markets in Bellevue and if that puts additional pressure there.

All right, so why don't I get you -- I'll let all of you have the opportunity to talk to Anne Psencik who is a resident NGL expert, and she can give you her perspectives on the FA market.

It will put some pressure on the FA market just because of the petrochemicals right now are not performing very well. I mean, there's not a lot of demand and with China not pulling like they used to we're going to see pressure on ethane. But I do believe that you'll find that the midstream, the integrated midstream will be able to deal with the Ethan that shows up in Mont Bellevue. They'll export it out. I know right now they're full and there's issues with shipping, but all of all of them are working on it to try and make sure that we get more out the market.

But it will put some pressure on pricing.

Because you'll have, I think universally we will, you'll have everyone be in recovery and that obviously just that incremental ethane in the stream will obviously put some pressure despite whether you can export it or de-bottleneck, existing impacts on the overall demand chain.

All right. That is helpful. That's all I have. I appreciate the help.

Thank you. The next question is from the line of Jackie [ph] with Goldman Sachs. You may proceed.

Hi, good morning. Thanks for time. So you guys move forward on the Brandy Wine and DL acquisition. You're also working on the Delaware Link project. Are there any other opportunities like these around the footprint, either on the bolt on m and a side or on the organic CapEx side?

I think there is, there are always more things that we can do. The Brandy Wine to us was about security of supply and ensuring that we control the NGLs the NGLs coming out of Diamond Cryer, we do, yeah, obviously out there is the, the potential related to our major shareholder dropping down their 25% or engaging in a discussion with us about a dropping down the 25% in Grand Prix. Grand Prix is obviously now Grand Prix plus, Dakota Daytona expansion. So I do think there are some other bits and pieces Jackie that are, that are out there relatively modest in size. As far as other merchant acquisition opportunities, I think we've been very consistent on the GMP side. It's got to our proverbial pistol. It's got to be something that we see as tremendously value. It's additive to who we are and what we do. And that means that, collectively from a commercial standpoint, from an NGL standpoint, a residue standpoint, operational standpoint, and when I say commercial that's on the customer side and the types of customer contracts that we all collectively believe this business is worth, that that opportunity is worth more in our hands than on a standalone basis. We haven't found anything that really fits that criteria. So we are being very, very strict in how we think about things and I think we've got enough growth organically here to keep us so fully occupied that I would say none of us are just sitting idling our thumbs.

The next question is a follow up from the line of Jeremy Tonet with JPMorgan. You may proceed.

Hi, thanks for squeezing me back in here. Just wanted to shift a little bit. I know it's a very small part of the portfolio, but Epic, just wondering what's your latest thoughts there in Outlook, I guess on, on that asset?

Trevor, would you like to give some thoughts or any.

I'm happy to jump in here. Thanks for the question, Jeremy. Look on Epic crude, it's, as you noted, it's a small part of our business. When you look at the, when you look at the outlook for Permian crude production growth and the contract profile margins and volumes should continue to expand. The pipeline's actually running pretty full. So from here it's more of a margin, it's more of a margin expansion game. And due to their contract nature, it really is going to follow what that spread between Meh and Midland looks like. And so when you look at the forwards, it's continuing to widen, which should be a good thing for the pipeline. And so we see margin expansion on that business for the next several years. But as we look at it from, the next -- from today, we're still not seeing distributions coming out of it in 2023. And that's what we're prepared to comment on today.

Got it. That makes sense. Maybe it's not something to talk about at this point, but just wondering, is that an asset that you could see more capital going into or is the cap structure kind of sustainable as it is? Just kind of curious on, on that side.

I think if margins continue to if you see the net improvement that we've had there has been that improvement this year. Just let me be very clear. And I think where they started the year and where they're finishing the year are in two very different places that should make it that should keep make sure that it can deal with its own capital profile. Obviously, there's a, there's a complete uncertainty of what happens 2024, 2025, they've got debt that comes due. There's a lot of things and a lot of unknown and unknowable elements to the overall prospects for that that pipeline. So, we are just, as we have, we've written that investment down to zero and as Trevor have noted, we have no anticipation of, of any distributions coming, nor do we have any viewpoint that there will be any further capital committed.

Got it. That's helpful there. And if I could ask just one last one, and it's been touched on in the call a number of different ways, but it was just curious, as you look forward now in your area in the Permian, there's a lot of tailwinds and headwinds, for production growth. But do you see up upside or downside to current, upstream budgets and production targets at this point? Just given the great resource versus potential takeaway issues next year?

I think you to continue to see modest growth. I, I don't think suddenly 2023 is going to show up and everyone's going to open up the, the safe and take all the money out and basically put it back in the drilling. I think the, we have seen a change of behavior. The nice thing is you can still get lots of growth. We get a lot more gas growth, the decline rates crude 70% year over year, it's only 50% for gas. That's what's creating all of the gas and that is going up. So we are seeing gas and gasier benches and formations obviously now starting to be actually overall exploited and with obviously a lot more of private folks back at it. I think you're going to see the cycle of smaller folks grow acreage positions and then will fold into Publix and life cycle will start again. And that's what we're seeing. So I think that's a really, that's a nice dimension to, to have as a backdrop for 23. And Jeremy, I'll just add on that one thing is unless you see a supply response on the services side just given where costs are, it's hard for us to see rig counts materially moving higher. I mean, they've been relatively flat for the last six months. And like I said, unless there's a change to the supply demand dynamics with services in the basin, it's hard to see us break out from that number from here.

There are no questions remaining in queue. [Operator instructions] This concludes today's conference call. Thank you for joining today's call. Please enjoy the rest of your day. Thank you.