Kinetik Holdings Inc. (KNTK) Q4 2025 Earnings Report, Transcript and Summary

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. [Operator Instructions] 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 in Kinetik. Commodity price volatility, macroeconomic uncertainty, tempered customer development activity and inflationary pressures tested our business. And so 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 2 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 onetime 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.

[Operator Instructions] 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 what seems like 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. Look, I think we obviously had our bumps and bruises last quarter and for 2025 we've licked our wounds, and we've basically been head down, focused on execution ever since. I think with the restructuring of the 2 large legacy Durango Midstream contracts, they 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 just generally for the Northern Delaware. It is also apparent that there is a lot of activity in and around the Northern Delaware that we're starting -- that has been emerging for some time, but is now really getting significant momentum. And 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 obviously can really move the needle. And that obviously creates the realignment and the refresh on the capital allocation strategy. The sort of the organic growth first is obviously what we see here as being sort of our critical threshold going forward. So if you hear it, I think we are genuinely excited. And what we bring to the table in the North is a function of the following: we bring not just sour gas and the ability of sour gas treating with obviously the acid gas conversion project going on at Kings Landing, the prospect in the near-term for Kings Landing 2. But more -- just as importantly, as we start to have folks emphasize and focus on co-development, the ability to give Gulf Coast pricing for Northern Delaware Basin customers that has been something nonexistent. And that really, I think the entire package provides a compelling proposition even at a -- in a $60 WTI price.

Got it. That's helpful. Maybe sticking on this sort of 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 does imply that you expect to be growing beyond that 3% to 5% range. And there's 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 just could update us on the latest thinking around NGL.

Sure. So I'll start. I'm sure Trevor will jump in. Look, a viewpoint would be as follows. We said this year is a 7% growth when you basically normalize by excluding EPIC. So same-store sales growth, 7% year-on-year for EBITDA. 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. And while we won't talk specifically about 2027, we think the setup is tremendous, really tremendous. I think as far as what I would say is egress, look, 5.3 Bcf a day, I think, by the time Phase 2 of Hugh Brinson comes online, that's about almost 20% of your overall current net Permian gas production. That's a nice shot in the arm. That is a very, very constructive element. And on top of that, obviously, following within short order because it -- this is the first time I can remember where we have follow-on egress projects already literally working through the system in construction, and that is Eiger Express and obviously, Desert Southwest. So you come into '27, into 2028, late probably fourth quarter, you think in Eiger Express in 2029, you think in Desert Southwest. You're really going to be -- that's going to be a much more constructive situation. And I think, honestly, Spiro, I think our viewpoint is I know a lot of our customers and some of our other peers have talked about the Barnett-Woodford. I think those types of gassier zones are really going to play off the overall constructive element around Waha pricing that we start to see with this egress relief. By the way, you did ask about NGLs. I would say on NGLs, look, in the context of this, we look -- obviously, we've got a couple of contracts that roll off this year in the Delaware South area that is obviously well known to everybody. We're very excited by what we see around us right now. Obviously, you've got 5 or 6 very active large integrated NGL players aggressively looking for market share and obviously being very aggressive around rates. So I think our expectation is probably more on the conservative side relative to what actually may occur. But obviously, more to come over the course of this year and as we look to get things tied down.

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 kind of ex curtailment volume guidance or volume number you disclosed for fourth quarter. Could you talk about kind of how much of those curtailed volumes have come back? What are you kind of specifically expecting for '26? And maybe just a little more color on the trajectory there.

Yes. Thanks for the question, John. This is Trevor. What I would say is that we had 170 million cubic feet a day on average of curtailments in the fourth quarter. We alluded to really 3 contract amendments. We had 1 in Delaware South, and we had 2 at Delaware North. We estimate that, that has brought back online about 50 million cubic feet a day when you normalize for those 2 agreements. And so really 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, I think it's safe to assume that we are at a level that does not make sense to continue to flow. So what we have assumed in our forecast is on average for calendar year 2026, about 100 million cubic feet a day of curtailments. I'm glad that you did bring that up. We did mention that volumes across our entire system in 2026 are up high single digits year-on-year. What's interesting about that is if you just were to bifurcate it between Delaware North and Delaware South, we're at about 35% year-on-year in Delaware North, which makes sense just given the fact that we had a massive increase with Kings Landing coming online at double processing capacity in the third quarter of 2025. But interestingly, and I think it's just not widely talked about by the investment community is Delaware South has grown at 3%. But if you were to normalize for the curtailments, it'd be growing at 10%, which is above Permian Basin average volume expectations. So kind of echoing on comments from Jamie on the previous question, we're incredibly excited about what we're seeing both at Delaware North and Delaware South, and we think that the forecast that we have is appropriately risked the current macro that we anticipate really through the balance of the year. When you look at the Waha forwards, we're not expecting things really to get better until -- or the market is not expecting things to get better until December. And it's effectively what we have done with our forecast as we look at 2026.

I appreciate the color, Trevor. Can we ask 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, sure. So John, it's Jamie. As it relates to KL2, we continue to progress. I would say the restructurings that were done of the 2 largest legacy Durango Midstream customers is a significant positive. There are some other activities. As I said, the amount of commercial discussions and activity going on right now is probably the greatest, most significant it's been for several years. And we're anticipating that we will obviously land a number of those planes. With that being the case, I would expect that at some point over the course of 2026, we will have an announcement on KL2. We have already factored into our construction capital budget that we actually have included an amount on the basis that we're anticipating that we will actually FID it. So there would be no revision to the capital budget if we did. I would say the overall AGI capacity, first phase comes online by the end of this year. If you recall, I think we've talked about this before, there is a requirement that you have a companion well. So you drill an AGI well, but in New Mexico, you need to have a companion well. So that companion well obviously will give us incremental capacity over and above what we have with our first AGI well, which will add, I believe it is another 4 million cubic feet a day of capacity, and then we will step up ultimately up to 24 and then we're at 31 in total, as shown, I think, in the materials.

Our next question comes from Gabe Moreen from Mizuho.

Could I ask a little bit about the commodity sensitivity first around, I think you mentioned getting more fee-based with these renegotiations at Durango. But it looks like from the pie chart, the fixed fee versus commodity hasn't really moved that much. So I'm just wondering if that moves kind of in the future and maybe out years? And the second would just be around some of the kind of creative solutions, Jamie, that you referenced on Permian egress. Given customers' exposure to Gulf Coast pricing, I'm just wondering about your confidence level in terms of hedging your own exposure to that, whether that's PHP or some of the capacity, I think that you had mentioned that you lined up last quarter going forward?

Thanks for the question. This is Trevor. On your first one relating to just the percentage of overall gross margin being contributed from commodity. What I would say is that it remains elevated relative to what you would expect with the conversion of really one primary contract from commodity to fixed fee, and that's because just the marketing contributions associated with our Gulf Coast transport hedge. We expect that in 2026 and then in 2027 thereafter, we expect that to effectively go away. And so therefore, we include that in our commodity that you see on Page 9 of our earnings slides. But again, that should reduce back to a lower level come 2027.

Gabe, this is Kris. On the kind of creative commercial structuring. I mean, we've talked about this for a couple of quarters. We've been able to use the Gulf Coast capacity as a lever and a commercial tool to get new business. And as Jamie alluded to, it was important in restructuring these contracts. A lot of these customers need to get out of Waha, and we provide a good solution for that. And looking forward, it's obviously been a good hedge for us for the shut-ins as we showed in the fourth quarter, and that will continue to be the case. We're optimistic that Waha is relieved with the 5 Bcf coming online and the additional pipelines. But in the event it's not, we're setting ourselves up to win with our capacity position to capitalize that on future opportunities as well.

And maybe if I could just follow up on the 40-megawatt behind the meter project. Can you talk about whether you at all are shopping some of that power to potential third parties and you're viewing that all -- or you're viewing that as being all used for your own account in terms of getting kind of the returns you need? And I think, Jamie, you mentioned potentially pursuing others. Can you just talk about the decision points about pursuing that time line, capital involved, et cetera?

Sure. So Gabe, the 40 megawatts is for self-consumption. So it is for -- or everything is for Diamond. We have the ability to actually -- we can convert it to a combined cycle facility and therefore, increase it by up to 60 megawatts. And if we decided to do that, we would do that because we saw a significant opportunity just given the price of power, and we could look to sell that power back into the grid. None of that's factored into our numbers. We're just looking at it on the most rawest and just plain vanilla terms, which is $25 million of capital. There's a -- it's a very attractive project, very low multiple sort of investment. And we've been talking about this a while. It was good to get it over the finish line, and we look to having it in service by the end of the year.

Our next question comes from Michael Blum from Wells Fargo.

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

Yes. Thanks for the question, Michael. It's Trevor. If you go to Page 10 of our earnings slides, we try to lay it out a little bit differently this year just to help address one of the questions you had noted, which was what's more lumpy in nature and then what's regular way business. And if you look at the right pie chart, we laid it out as steel and maintenance, right? So low-pressure gathering, compression and then maintenance that we have to do every single year. That's about 50% of our total $480 million capital backlog. So about $240 million is what I would say is regular way capital going forward. Now -- it's not necessarily -- that's not to be viewed as a maintenance number in terms of holding things flat. We have volumes that are expected to grow 8% per annum. So as you think about like a true maintenance number, it would be lower than that. And then on the trunk line side, we do have a few completions of trunk lines in Delaware North and Delaware South that provide a little bit more connectivity to the system that are not recurring in nature. We also have the ECCC, which we will complete in the second quarter of this year. And then on the facility side, that is primarily the Kings Landing sour conversion. And then we also have a few optimization projects down at Delaware South that increased processing capacity at several of our facilities. Again, that's necessary to facilitate the growth that we see on the system, but more so viewed as, I'd say, onetime in nature, not necessarily ongoing.

And the BTM project.

Great. That's very helpful. Appreciate that. And then I guess maybe go back to an earlier point as we think about the cadence of EBITDA by quarter, you mentioned it's going to be kind of upward sloping. But I'm wondering if you could give us a sense of what exit rate EBITDA in Q4 could look like?

Yes. This is Trevor again. I would say that Jamie's comments earlier on just dividend coverage, just to expand on that, I think you mentioned that we would be at approximately 1.5 dividend coverage exiting the year. It's really a bit of a tale of 2 halves. If I were to just normalize the fourth quarter numbers for a few things, I'd point out that fourth quarter 2025 included about $5 million of EBITDA from EPIC Crude. We also had an OpEx benefit. And collectively, those 2 would bring us down by about $15 million. And then we've talked about this on prior calls, Enterprise has also talked about this. But with Bahia online, we're expecting a shift in volumes from Shin Oak over to Bahia. That's about $3 million to $4 million on a quarterly basis. So on a normalized basis, you're kind of in that $230 million to $240 million ZIP code for the first 2 quarters. And then in order to hit the full one year -- or excuse me, the full year $1 billion of EBITDA, you're at $260 million to $270 million in the third and fourth quarters.

Our next question comes from Julien Dumoulin-Smith from Jefferies.

This is Rob Mosca on for Julien. So 4Q 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 around that volatility, whether it's the G&P contract restructuring or maybe even taking out capacity on third-party pipe?

Yes. Look, I would say, to answer your question, you just hit on 2 of them. We're able to secure additional Gulf Coast capacity that was critical for the fourth quarter. And then the second aspect is we've restructured or amended 3 contracts that for about 1/3 of the volumes that we saw shut-in, we view that has protected those volumes from resuming their shut-ins in 2026 and thereafter. So we've taken necessary steps to help address a portion of the shut-in risk. What I would also say is just from an expectations perspective, taking a bit of a more heavy hand on what our belief is on curtailments. And like I had mentioned earlier, in my prepared remarks, we took basically fourth quarter 2025 shut-ins, and we rolled that forward, especially in the maintenance months in the spring and the fall. And so I'd say that those are really the 3 items that are significant changes from prior quarters before fourth quarter 2025. And in terms of like the transport hedge being an offset for shut-ins, relative to our internal expectations, they matched effectively flat. The additional curtailments that we saw relative to our forecast, as we mentioned in our disclosure, we were down by about 8% on volumes. But relative to the Gulf Coast marketing gains, it effectively was a nice perfect offset.

Rob, it's Jamie. Look, I would say just a couple of other things. Obviously, fourth quarter, we had the full quarter of KL, right? And that obviously is good. And KL has operated so well, really well. But even through Winter Storm Fern, it has operated fantastically. And a lot of credit goes to the operations engineering team. I think as it relates to how we put this into 2026, you heard Trevor say 170 million cubic feet a day was our average shut-in for fourth quarter of last year. That is a hell of a lot of gas. That's almost a cryo. And that was our shut-in. And we have said, well, on average, for the full year this year, it's 100. I would say between what we've done on the forecasting side and really, I would say, being very granular and really challenging ourselves on shut-ins, timing for developments, looking at OpEx, which we talked about last quarter, looking at controllable costs, looking at what we can do on the compression side, I think we've looked -- we have done a wholesale bottoms-up, ground-up overview of our business and come up with a forecast that we really feel is really well battle-tested.

No. Got it. That's really helpful color, guys. I appreciate it. And maybe without asking you to comment on specifics, just wondering if you could speak to how yourselves, the Board think about inbound strategic interest more broadly and how you'd expect to derive value for Kinetik shareholders from any synergies that could arise if something were to come to fruition?

Look, we are always willing to evaluate opportunities that maximize shareholder value. We've said this from day 1. There has been no change since February 22 of 2022. If someone comes in and can provide more value than we believe we can create ourselves, then we understand our fiduciary responsibilities to all of our shareholders and all of our stakeholders. Simple as that. There's nothing more, nothing less. It's really that simple.

Our next question comes from Jeremy Tonet from JPMorgan.

I was just wondering, I'm not sure how much you said specifically on the KL ramp. But just could you refresh me, I guess, where it stands now, how you see, I guess, that ramp transpiring over the course of the year given the macro dynamics you laid out there?

Yes, sure. 65%, 70% utilization. Expect the second half of this year to get to the 200 because I think we said exit around 2 Bcf a day of inlet. And our expectation is that this thing is going to ramp. So does that answer?

Yes. And just wanted to get back, I guess, towards -- if I try to think about the business growth normalized here, right? And I think as you talk about the first quarter, you talked about the fourth quarter, there's other factors in place such as shut-ins, but going from $230 million to $270 million would be something like 17% growth, and that's not normalized for factors you mentioned. But just wondering, as you look forward, I mean, if you take a $270 million annualized for 2027, which I imagine there's upside for given the factors you laid out there, that points to something north of 7% growth. And just wondering how you think about, I guess, the normalized EBITDA growth for this business over time, granted there will be lumpy years.

Look, we have tried and I suppose, we've been more circumspect with our words. We said originally that this was a business that could grow at a 10% EBITDA CAGR. We said, listen, we obviously didn't do that in 2025 to -- sorry, 2024 to 2025. And 2026 is only 7%. But I still think the -- what we see gives us a lot of confidence around, we think, above-average growth. Now it's so dependent on so many factors. Tell me what Kaplani prices are, tell me how gas prices are reacting. Tell me how much activity is going to be out of the Barnett-Woodford, out of the Penn Shale. It really is so dependent on so many different factors. But I think our viewpoint is rather than being wedded or bound to a specific, this is the growth rate to anticipate. Our growth rate, we think, is going to be above average, and we feel very good about sort of what the line of sight between now and 2028.

Jeremy, this is Trevor. I'd just expand on that, Jamie's comments. Look, we put a target out there at the beginning of last year as we think about internally just arrows on the page, what has changed since 12 months ago. Clearly, commodity prices are down and things have slowed in the Permian in terms of just an absolute just rig count perspective, but we are seeing longer lateral lengths, drilling efficiencies, lateral footage really is kind of holding and productivity gains are also resulting in just more volumes per pad, which really is from a capital efficiency perspective for midstream, it's actually fantastic. So I'd say that macro, clearly, arrows on the page is down, but it does feel like we are starting to see the light at the end of the tunnel on this oversupply narrative -- and then also with respect to Waha, the cavalry is coming with nearly 11 Bcf a day that's going to be coming online over the next several years. But part of why we are now comfortable with revising our capital allocation framework is we've been almost operating Delaware North of the Durango asset for 2 years now. And we are gaining increasing confidence in the opportunity set up there. And so as we look at it internally from 12 months ago, we're more bullish on the opportunity set across our entire business. Down in Delaware South, we've talked about this in the past, but the deconsolidation theme continues to drive volumes on our system. I had mentioned earlier that, that system normalized growing at 10%, I think, is surprising to most folks. And then as Jamie had mentioned earlier, we're starting to see the deeper zones get tested in the South, it's no longer -- it's still very early days, and there's a lot of science work that needs to go into it. But it's no longer things that are happening on the eastern side of the basin or a story in the Midland. We have 7 wells on the schedule in 2026 that are in the deeper zones, and they contribute a lot of gas. So if that story continues to be -- or if it continues to progress in 2027, it's very exciting. And so I'm not going to give an exact number. But again, that's just how we think about it in terms of arrows on a page.

I think, Jeremy, the one other thing I would just amplify on what Trevor said, we have been almost 2 years now running Durango. But I think most importantly, Kings Landing has been, whilst it was delayed from a timing standpoint, has been an unqualified success. Operationally, it has been exemplary. It has given a lot of conviction and a lot of confidence to the producers up there. We FID-ed the sour gas conversion project. We have stuck to our commitments and our words to our producers. And in turn, the amount of support that we're getting is real. And that I think it is a symbiotic relationship that we have with our producers. It's their partnerships. And this, I think, is we've held up our end of the bargain, and now we're seeing our customers come to the party and come to the fore as far as their level of activity and what we're seeing.

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 here that may not be easily discernible outside looking in? 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?

Yes. I'll also let Kris Kindrick jump in here. But just to hit in terms of the numbers itself, the commercial team has done a great job to continue to expand our business with our customers and the northern part of the Delaware South system, which extends into New Mexico and Southern Lea County, and that needs no introduction in terms of just the rock quality and what we're seeing there. But even further south, we've always said that the rock is great and it's good. It's just longer-dated inventory relative to what we're seeing up in New Mexico with the majors and the large cap independent E&Ps. And they've held on to it for a handful of years. We have seen deconsolidation with either asset sales or farm-ins or even just 1,280-acre units that have been picked off by some folks. But again, we're starting to see this become more and more of a theme. I can think of 3 right now that we've had in the second half of 2025, where they are existing -- their existing dedications that are held by folks that had no plans to drill in the next few years, and they are now with operators where this is their sole focus and they're getting after it. Kris, anything to add there?

No, Theresa, this is Kris. To echo on what Trevor said, a lot of the deeper benches, as we know, are more gas focused. So a lot of that's going to be dependent on what Waha does. We have the capacity coming on into this year, next year. So a higher Waha price will provide a lot of conviction. On the other hand, though, if it does get volatile with the additional gas in Waha gets depressed, we have the Gulf Coast capacity to couple that capacity with commercial deals. So we made the comment earlier, we want to win in both scenarios. We're going to continue to employ that strategy. So we're excited. The resource is there, and we're going to capture our share of the market.

Got it. And on the NGL recontracting front, understanding that there will be more details to come as you execute through, but with multiple contracts rolling over the next few years, 2 in this year, in particular, I believe, can you talk about the time line of commercial discussions on this? And when would you expect to have more clarity on the economics and related cost savings?

Hard to give an exact calendar date of how this all progresses. Obviously, there's a lot of inbounds that have come to us because it's not a state secret that these contracts obviously expire. And so we are accumulating information. We're accumulating data. We're receiving inbounds and ideas and concepts. And we'll make our decisions as we think that we've come to the right place, the right decisions for the right reasons. And so that's what we'll do. And I don't -- we really can't say it's going to happen by this date. I think that would be unrealistic. And look, we'll -- as soon as we've done something, do not worry. We will recognize that we will communicate it to the Street.

Our next question comes from Manav Gupta from UBS.

I just wanted to go back a little into the Power Solutions. I mean it looks like a very attractive project. But from our perspective, it also looks like a cost reduction initiative and something which stabilizes your operations, reduces your dependence on third-party electricity. So if you could talk a little bit about how internally it helps you out besides a very good attractive multiple.

Manav, you actually hit all of the key points. Obviously, for us, the important thing is reliability. So we need -- if we're going to self-generate, we need to have absolute assurance that we have the grid as the backup. Obviously, we realize that with Waha being challenged from a pricing standpoint, if we're able to self-generate ourselves on a highly reliable basis, then it is extremely attractive. If we -- I mean, I'll put it in this context. It's as simple as if gas prices -- if Waha gas price is negative and we are producing electricity ourselves, you can presume your electricity cost is effectively 0 for that amount of electricity that you've just generated. It's as simple as that. And OpEx, we have -- when you think about the big items on OpEx, you really think about 3: salaries and benefits, you think about compression and you think about electricity. They are your 3 biggest components. I said before, Manav, we really looked at salaries and benefits because, obviously, contractors also fit into that category and really try to actually be very, I would say, very discerning and very focused on trying to reduce those costs on compression, we've really looked at our compression fleet and worked out where we can optimize it. And the third element, obviously, is evidenced by this capital project, which we're going to -- this beta test we're going to do with Diamond Cryo. We're very -- we are really excited by what it will show us and what it will tell us. And if it is as successful as we think it will be, we can replicate this across several of our facilities in the Delaware, South or Texas area.

Perfect. That's the point on negative -- please go on, please go on, sorry.

Yes. No, this is Tyler. Just to echo on to Jamie's comment there that, yes, the foundational investment thesis is exactly what Jamie had mentioned or alluded to. We got -- there was an earlier question about additional kind of upside. Because we have such a focus on operational reliability and insurance, that's kind of the first step -- but there are, as you know, lots of parties out there with a lot of electrical demand. And so there are conversations that I do think in the future is definitely an opportunity, and that's definitely an objective potentially in the future for -- depending on how this goes. So -- and then the other sites, this is very replicatable. And then sourcing additional units is something that we feel confident in as well for those future projects.

Perfect. My quick follow-up here is, when we are talking to the upstream producers, not only are they saying Permian is the best rock, but they're also saying the recovery in Permian will rise over a period of time. And we are seeing some of the major players bring in lightweight proppants, some are bringing in these nano surfactants. So when you talk to these upstream producers who are basically adding to a lot of technology in terms of how they're drilling for Permian, do you also somewhere agree with them that the recoveries on the Permian wells could increase as more technology comes in, and that would be a major upside for somebody like Kinetik?

Manav, this is Kris. That's a great comment, great question, and we tend to agree. You look at the history of the Permian, and we've seen well improvement performance improve over time, and that's going to continue to happen. I mean some of our peers have made comments that they're seeing revisions higher, and that's largely in the Delaware Basin. We're seeing that as well. The opportunity set is large, the pie is large. And so Kinetik will -- just given our geographic footprint and our strategy, we'll be in a good position to capture the market there.

The one thing that I would add to Kris' comments, and it doesn't directly answer your question, but just -- I had mentioned this in some of my earlier comments is the efficiencies that we're seeing in terms of higher well density as well as days drilled coming down, that is a direct benefit to a company like Kinetik, where just the capital efficiency to go build for these particular pads has reduced from our business 5 years ago or even 10 years ago. So that's one nice benefit to our business. It also allows for, I'd say, a little bit more visibility into our business, just given the size and the capital commitment for a 25-well pad. That's pretty significant. And so again, that requires a lot of planning in advance. This is planning -- we're planning now in 2027, 2028 for these types of packages, which is a pretty, pretty massive step change again from the business that we had in the 2010. And then what I'd also say is not necessarily -- we don't -- we hear anecdotally from our customers on lightweight proppant and nanosurfactants, but really more so our conversations are around exploratory benches. And that, again, is a very nice theme for a gas midstream player. What we're seeing is that gas quality issues are going to continue to increase and then gas rates on these new benches are substantially higher. So we've been on this trend for a few years now, and it does feel like it's finally converting over into wells on the system, and we're incredibly excited about it.

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. And 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.