10q10k10q10k.net

What changed in Kinetik Holdings Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Kinetik Holdings Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+294 added−275 removedSource: 10-K (2024-03-05) vs 10-K (2023-03-07)

Top changes in Kinetik Holdings Inc.'s 2023 10-K

294 paragraphs added · 275 removed · 191 edited across 5 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

79 edited+46 added−30 removed123 unchanged
Biggest changeIn addition, the Company has no control over producers or their exploration and development decisions, which may be affected by, among other things: • the availability and cost of capital; • demand for and the prevailing and projected prices of crude oil, natural gas and NGLs; • political and economic conditions and events in foreign oil, natural gas and NGL producing countries, including embargoes, disrupted global supply chains, continued hostilities in the Middle East and other sustained military campaigns, the armed conflict in Ukraine and associated economic sanctions on Russia; • increase in interest rates and rising or sustained inflation; • levels of reserves; • geologic considerations; • changes in the strategic importance customers assign to development in the Delaware Basin as opposed to other potential future operations they may acquire, which could adversely affect the financial and operational resources such customers are willing to devote to development of their acreage in the Permian Basin; • increased levels of taxation related to the exploration and production of crude oil, natural gas and NGLs; • environmental or other governmental regulations, including those related to the prorationing of oil and gas production, the availability of permits, the regulation of hydraulic fracturing, and a governmental determination that multiple facilities are to be treated as a single source for air permitting purposes; and • the costs of producing and ability to produce crude oil, natural gas and NGLs and the availability and costs of drilling rigs, pipeline transportation facilities and other equipment.
Biggest changeIn addition, the Company has no control over producers or their exploration and development decisions, which may be affected by, among other things: • the availability and cost of capital; • the prevailing and projected prices of crude oil, natural gas and NGLs; fewer project opportunities or assumption of risk that results in weaker or more volatile financial performance than expected; • assets that vary in age and were constructed over many decades which may cause our inspection, maintenance or repair costs to increase in the future; • political and economic conditions and events in foreign oil, natural gas and NGL producing countries, including embargoes, disrupted global supply chains, continued hostilities in the Middle East and other sustained military campaigns, the armed conflict in Ukraine and associated economic sanctions on Russia; • increase in interest rates and rising or sustained inflation; • levels of crude oil and natural gas reserves; • contractor or supplier non-performance, weather, geological or other factors; • Consolidation in the upstream sector and the resulting changes in the strategic importance customers assign to development in certain acreage or locations in the Delaware Basin as opposed to other areas, which could adversely affect the financial and operational resources devoted to development of their acreage dedicated to the Company; • increased levels of taxation related to the exploration and production of crude oil, natural gas and NGLs; • environmental or other governmental regulations, including those related to the prorationing of oil and gas production, the availability of permits, the regulation of hydraulic fracturing, and a governmental determination that multiple facilities are to be treated as a single source for air permitting purposes; and • the costs of producing and ability to produce crude oil, natural gas and NGLs and the availability and costs of drilling rigs, pipeline transportation facilities and other equipment. 12 Table of Contents Index to Financial Statements Due to these and other factors, even if reserves are known to exist in areas served by the Company’s midstream assets, producers may choose not to develop those reserves.
The Company’s business is highly regulated and subject to numerous governmental laws, rules, regulations and requires permits, authorizations and various governmental and agency approvals, in the various jurisdictions in which the Company operates, that impose various restrictions and obligations that may have material effects on the Company’s business and results of operations.
The Company’s business is highly regulated and subject to numerous governmental laws, rules and regulations and requires permits, authorizations and various governmental and agency approvals, in the various jurisdictions in which the Company operates, that impose various restrictions and obligations that may have material effects on the Company’s business and results of operations.
The Company’s intrastate NGL transportation services are subject to the TRRC regulations and must be provided in a manner that is just, reasonable and non-discriminatory. Such operations could be subject to additional regulation if the NGLs and crude oil are transported in interstate or foreign commerce, whether by the Company’s pipelines or other means of transportation.
The Company’s intrastate NGL transportation services are subject to the TRRC regulations and must be provided in a manner that is just, reasonable and non-discriminatory. Such operations could be subject to additional regulation if the NGLs and crude oil are transported in interstate or through foreign commerce, whether by the Company’s pipelines or other means of transportation.
Future legislation and regulations or changes in existing legislation and regulations, or interpretations thereof, could cause additional expenditures, tax liabilities, restrictions and delays in connection with the Company’s current business as well as future projects, the extent of which cannot be predicted and which may require the Company to limit substantially, delay or cease operations in some circumstances.
Future legislation and regulations or changes in existing legislation and regulations, or interpretations thereof, could cause additional expenditures, liabilities, restrictions and delays in connection with the Company’s current business as well as future projects, the extent of which cannot be predicted and which may require the Company to limit substantially, delay or cease operations in some circumstances.
Certain environmental groups have also suggested that additional laws at the federal, state and local levels of government may be needed to more closely and uniformly regulate the hydraulic fracturing process. The Company cannot predict whether any such legislation will be enacted and if so, what its provisions would be.
Certain environmental groups have also suggested that additional laws at the federal, state and local levels of government may be needed to more closely and uniformly regulate the hydraulic fracturing process. The Company cannot predict whether any such legislation will be enacted and if so, what its provisions will be.
The Company believes, however, that neither the EPAct 2005, nor the regulations promulgated by FERC as a result of the EPAct 2005, nor the regulations promulgated by the CFTC will affect it in a way that materially differs from the way they affect other sellers of oil, natural gas, or NGLs with which the Company competes.
The Company believes, however, that neither the EPAct 2005, nor the regulations promulgated by FERC as a result of the EPAct 2005, nor the regulations promulgated by the CFTC or FTC will affect it in a way that materially differs from the way they affect other sellers of oil, natural gas, or NGLs with which the Company competes.
The Company currently operates produced water injection wells injecting into shallow formations in Texas, where the Texas Railroad Commission has recently addressed seismic activity by establishing Seismic Response Areas, curtailing injected volumes and/or suspending certain permits for disposal wells injecting into deep strata.
The Company currently operates produced water injection wells injecting into shallow formations in Texas, where the Texas Railroad Commission has addressed seismic activity by establishing Seismic Response Areas, curtailing injected volumes and/or suspending certain permits for disposal wells injecting into deep strata.
The Company’s sales of oil, natural gas, and NGLs are subject to market manipulation requirements promulgated by FERC pursuant to the authority delegated to it by the Energy Policy Act of 2005 (“EPAct 2005”). The EPAct 2005 amended the NGA and NGPA to give FERC authority to impose civil penalties for violations of these statutes and regulations.
The Company’s sales of natural gas are subject to market manipulation requirements promulgated by FERC pursuant to the authority delegated to it by the Energy Policy Act of 2005 (“EPAct 2005”). The EPAct 2005 amended the NGA and NGPA to give FERC authority to impose civil penalties for violations of these statutes and regulations.
As long as Blackstone, I Squared Capital, Apache Midstream and their respective affiliates own or control a significant percentage of the Company’s outstanding voting power, they will have the ability to strongly influence all corporate actions, including stockholder approval of the election of and removal of directors.
As long as Blackstone and I Squared Capital and their respective affiliates own or control a significant percentage of the Company’s outstanding voting power, they will have the ability to strongly influence all corporate actions, including stockholder approval of the election of and removal of directors.
Consequently, the Company’s existing operations and cash flow have limited direct exposure to commodity price risk. However, the Company’s customers are exposed to commodity price risk, and extended reduction in commodity prices could reduce the production volumes available for the Company’s midstream services in the future below expected levels.
Consequently, the Company’s existing operations and cash flows have limited direct exposure to commodity price risk. However, the Company’s customers are exposed to commodity price risk, and extended reduction in commodity prices could reduce the production volumes available for the Company’s midstream services in the future below expected levels.
As a result, new midstream assets may not be able to attract enough throughput to achieve their expected investment return, which could materially and adversely affect the Company’s business, financial condition, results of operations and cash flow.
As a result, new midstream assets may not be able to attract enough throughput to achieve their expected investment return, which could materially and adversely affect the Company’s business, financial condition, results of operations and cash flows.
Moreover, joint venture arrangements involve various risks and uncertainties, such as committing the Company to fund operating and/or capital expenditures, the timing and amount of which the Company may not control, and which could materially and adversely affect its cash flow.
Moreover, joint venture arrangements involve various risks and uncertainties, such as committing the Company to fund operating and/or capital expenditures, the timing and amount of which the Company may not control, and which could materially and adversely affect its cash flows.
The Company’s construction of new midstream assets may be subject to new or additional regulatory, environmental, political, contractual, legal and economic risks, which could materially and adversely affect its cash flow, results of operations and financial condition.
The Company’s construction of new midstream assets may be subject to new or additional regulatory, environmental, political, contractual, legal and economic risks, which could materially and adversely affect its cash flows, results of operations and financial condition.
If the cost of renewing or obtaining new agreements increases, the Company’s cash flow could be materially and adversely affected. The Company’s business involves many hazards and operational risks, some of which may not be fully covered by insurance.
If the cost of renewing or obtaining new agreements increases, the Company’s cash flows could be materially and adversely affected. The Company’s business involves many hazards and operational risks, some of which may not be fully covered by insurance.
The possible future sale of our shares by our existing stockholders, pursuant to and in accordance with the provisions of Rule 144, may have a depressive effect on the price of our shares of Class A Common Stock in the applicable trading marketplace.
The potential future sale of our shares by our existing stockholders, pursuant to and in accordance with the provisions of Rule 144, may have a depressive effect on the price of our shares of Class A Common Stock in the applicable trading marketplace.
Failure to comply with these laws and regulations may result in the assessment of sanctions, 17 Table of Contents including administrative, civil and criminal penalties; the imposition of investigatory, remedial or corrective action obligations; the incurrence of capital expenditures, the occurrence of delays in the permitting, development or expansion of projects, and enjoining some or all of the Company’s future operations in a particular area.
Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil and criminal penalties; the imposition of investigatory, remedial or corrective action obligations; the incurrence of capital expenditures, the occurrence of delays in the permitting, development or expansion of projects, and enjoining some or all of the Company’s future operations in a particular area.
In November 2021, the international community gathered again in Glasgow at the 26th Conference to the Parties on the UN Framework Convention on Climate Change (“COP26”), during which multiple announcements were made, including a call for parties to eliminate certain fossil fuel subsidies and pursue further action on non-carbon dioxide GHGs.
In November 2021, the international community gathered again in Glasgow at the 26 th Conference to the Parties on the UN Framework Convention on Climate Change (“COP26”), during which multiple announcements were made, including a call for parties to eliminate certain fossil fuel subsidies and pursue further action on non-carbon dioxide GHGs.
There has been increasing public controversy regarding hydraulic fracturing with regard to the use of fracturing fluids, induced seismic activity, impacts on drinking water supplies, use of water and the potential for impacts to surface water, groundwater and the environment generally. 16 Table of Contents Hydraulic fracturing is typically regulated by state oil and gas commissions and similar agencies.
There has been increasing public controversy regarding hydraulic fracturing with regard to the use of fracturing fluids, induced seismic activity, impacts on drinking water supplies, use of water and the potential for impacts to surface water, groundwater and the environment generally. Hydraulic fracturing is typically regulated by state oil and gas commissions and similar agencies.
Any such reduction, suspension or termination of these customers’ obligations under their commercial agreements could materially and adversely affect the Company’s financial condition, results of operations and cash flow.
Any such reduction, suspension or termination of these customers’ obligations under their commercial agreements could materially and adversely affect the Company’s financial condition, results of operations and cash flows.
The charter provides that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (Court of Chancery) will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for any derivative action or proceeding brought on the Company’s behalf; any action asserting a claim of breach of a fiduciary duty owed by any of the Company’s directors, officers or other employees to it or its stockholders; any action asserting a claim against the Company or any of its directors, officers or employees arising pursuant to any provision of the DGCL, the charter or the Company’s bylaws; or any action asserting a claim against the Company or any of its directors, officers or other employees that is governed by the internal affairs doctrine.
The charter provides that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for any derivative action or proceeding brought on the Company’s behalf; any action asserting a claim of breach of a fiduciary duty owed by any of the Company’s directors, officers or other employees to it or its stockholders; any action asserting a claim against the Company or any of its directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law (“DGCL”), the charter or the Company’s bylaws; or any action asserting a claim against the Company or any of its directors, officers or other employees that is governed by the internal affairs doctrine.
The Company’s ability to return capital to stockholders through dividends and stock repurchases depends on its ability to generate sufficient cash flow, which it may not be able to accomplish.
The Company’s ability to return capital to stockholders through dividends and stock repurchases depends on its ability to generate sufficient cash flows, which it may not be able to accomplish.
The Company also may be unable to control the amount of cash it will receive from the operation of these entities, which could further adversely affect its cash flow.
The Company also may be unable to control the amount of cash it will receive from the operation of these entities, which could further adversely affect its cash flows.
The occurrence of a significant accident or other event that is not fully insured could curtail its operations and materially and adversely affect its cash flow.
The occurrence of a significant accident or other event that is not fully insured could curtail its operations and materially and adversely affect its cash flows.
The Company’s ability to return capital to stockholders through dividends and stock repurchases principally depends upon the amount of cash it generates from its operations, which will fluctuate from quarter to quarter based on, among other things, income from the Pipeline Transportation JVs, the volumes of natural gas and NGLs it gathers and processes, commodity prices, and other factors impacting the Company’s financial condition, some of which are beyond its control.
The Company’s ability to return capital to stockholders through dividends and stock repurchases principally depends upon the amount of cash it generates from its operations, which will fluctuate from quarter to quarter based on, among other things, income from the Pipeline Transportation JVs, which are accounted for using equity method, the volumes of natural gas and NGLs it gathers and processes, commodity prices, and other factors impacting the Company’s financial condition, some of which are beyond its control.
Additionally, in March 2022, the Securities and Exchange Commission released a proposed rule that would establish a framework for the reporting of climate risks, targets, and metrics. If a final rule is released, the Company cannot predict what any such rule may require. To the extent the rule imposes additional reporting obligations, the Company could face increased costs.
Additionally, in March 2022, the SEC released a proposed rule that would establish a framework for the reporting of climate risks, targets, and metrics. If a final rule is released, the Company cannot predict what any such rule may require. To the extent the rule imposes additional reporting obligations, the Company could face increased costs.
If any downstream pipeline were to become unavailable for current or future volumes due to repairs, damage to the facility, force majeure, lack of capacity, shut in by regulators, failure to meet quality requirements or any other reason, the Company’s ability to operate efficiently and continue shipping crude oil, natural gas and refined products to major demand centers could be restricted, thereby reducing revenue.
If any downstream pipeline were to become unavailable for current or future volumes due to 13 Table of Contents Index to Financial Statements repairs, damage to the facility, force majeure, lack of capacity, shut in by regulators, failure to meet quality requirements or any other reason, the Company’s ability to operate efficiently and continue shipping crude oil, natural gas and refined products to major demand centers could be restricted, thereby reducing revenue.
If we were a controlled company, we would be eligible, and could elect, not to comply with certain of the NYSE corporate governance standards. Such standards include the requirement that a majority of directors on our Board are independent directors, subject to certain phase-in periods, and the requirement that our compensation, nominating and governance committee consist entirely of independent directors.
As a controlled company, we are eligible, and could elect, not to comply with certain of the NYSE corporate governance standards. Such standards include the requirement that a majority of directors on our Board are independent directors, subject to certain phase-in periods, and the requirement that our compensation, nominating and governance committee consist entirely of independent directors.
The Company has granted a number of its stockholders, including Blackstone, I Squared Capital and Apache Midstream, registration rights with respect to their shares of Class A Common Stock, including shares of Class A Common Stock issuable upon redemption of OpCo Units.
The Company has granted a number of its stockholders, including Blackstone, I Squared Capital and Apache Midstream LLC (“Apache Midstream”), registration rights with respect to their shares of Class A Common Stock, including shares of Class A Common Stock issuable upon redemption of Common Units.
These developments could result in additional regulation and restrictions on the Company’s use of injection wells to dispose of produced water, including a possible shut down of wells, which could materially and adversely affect its business, financial condition, and results of operations.
These developments could 18 Table of Contents Index to Financial Statements result in additional regulation and restrictions on the Company’s use of injection wells to dispose of produced water, including a possible shut down of wells, which could materially and adversely affect its business, financial condition, and results of operations.
For a general overview of federal, state and local regulation applicable to the Company’s assets, see the “Regulation” section included within Part I, Items 1 and 2 of this annual report.
For a general overview of federal, state and local regulations applicable to the Company’s assets, see the “Regulation” section included within Part I, Items 1 and 2 . — Business and Properties of this annual report.
We may experience difficulties completing acquisitions or integrating new businesses and properties, and we may be unable to achieve the benefits we expect from any future acquisitions. Part of the Company’s business strategy includes acquiring additional businesses and assets.
We may experience difficulties completing acquisitions or divestitures or integrating new businesses and properties, and we may be unable to achieve the benefits we expect from any future acquisitions or divestitures. Part of the Company’s business strategy includes acquiring additional businesses and assets and/or divesting certain assets or portions of our business.
More recently, in August 2022, PHMSA published a final rule expanding the Management of Change process, extending corrosion requirements for gas transmission pipelines, adding requirements that operators ensure no conditions exist following an extreme weather event that could adversely affect the safe operation of the pipeline and adopting repair criteria for non-HCAs similar to those applicable to HCAs.
In August 2022, PHMSA published a final rule expanding the 17 Table of Contents Index to Financial Statements Management of Change process, extending corrosion requirements for gas transmission pipelines, adding requirements that operators ensure no conditions exist following an extreme weather event that could adversely affect the safe operation of the pipeline and adopting repair criteria for non-HCAs similar to those applicable to HCAs.
Compliance with the EPA’s proposed new regulations and the IRA’s methane emissions fee could increase the Company’s operating costs and accelerate the transition away from fossil fuels, which could in turn reduce the demand for its services, thereby adversely affecting its operations and potentially restricting or delaying the Company’s ability to obtain applicable permits, approvals, or certificates for new or modified facilities.
The requirements of the EPA’s final methane rules and, as applicable, the IRA’s methane emissions fee could increase the Company’s operating costs and accelerate the transition away from fossil fuels, which could in turn reduce the demand for its services, thereby adversely affecting its operations and potentially restricting or delaying the Company’s ability to obtain applicable permits, approvals, or certificates for new or modified facilities.
A cyber incident involving the Company’s information systems and related infrastructure, or that of its business service providers, could disrupt its business plans and negatively impact its operations in the following ways, among others: • a cyber-attack on a vendor or other service provider could result in supply chain disruptions, which could delay or halt development of additional infrastructure, effectively delaying the start of cash flow from the project; • a cyber-attack on downstream pipelines could prevent the Company from delivering product at the tailgate of its facilities, resulting in a loss of revenues; 23 Table of Contents • a cyber-attack on a communications network or power grid could cause operational disruption resulting in loss of revenues; • a deliberate corruption of its financial or operational data could result in events of non-compliance which could lead to regulatory fines or penalties; and • business interruptions could result in expensive remediation efforts, distraction of management, damage to its reputation or a negative impact on cash flow.
In addition, certain cyber incidents, such as surveillance, may remain undetected for an extended period. 25 Table of Contents Index to Financial Statements A cyber incident involving the Company’s information systems and related infrastructure, or that of its business service providers, could disrupt its business plans and negatively impact its operations in the following ways, among others: • a cyber-attack on a vendor or other service provider could result in supply chain disruptions, which could delay or halt development of additional infrastructure, effectively delaying the start of cash flows from the project; • a cyber-attack on downstream pipelines could prevent the Company from delivering product at the tailgate of its facilities, resulting in a loss of revenues; • a cyber-attack on a communications network or power grid could cause operational disruption resulting in loss of revenues; • a deliberate corruption of its financial or operational data could result in events of non-compliance which could lead to regulatory fines or penalties; and • business interruptions could result in expensive remediation efforts, distraction of management, damage to its reputation or a negative impact on cash flows.
In addition, hedging activities can result in losses that might be material to our financial condition, results of operations and cash flows.
H edging activities can result in losses that might be material to our financial condition, results of operations and cash flows.
The adoption of federal, state and local legislation and regulations intended to address induced seismicity in the areas in which the Company operates could restrict drilling and production activities, as well as the Company's ability to dispose of produced water gathered from such activities and could result in increased costs and additional operating restrictions or delays, that could, in turn, materially and adversely impact the Company's business and results of operations.
The adoption of federal, state and local legislation and regulations intended to address induced seismicity in the areas in which the Company operates could restrict drilling and production activities and could result in increased costs and additional operating restrictions or delays, that could, in turn, materially and adversely impact the Company's business and results of operations.
Moreover, while the Company may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures will be based on hypothetical expectations and assumptions that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith.
While the Company may create and publish voluntary disclosures regarding these goals and other ESG matters from time to time, many of the statements in those voluntary disclosures will be based on hypothetical expectations and assumptions that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs 21 Table of Contents Index to Financial Statements associated therewith.
The Company currently generates revenues pursuant to a variety of different contractual arrangements, including fee-based agreements based on volumetric fees, keep-whole arrangements used for processing services, percent-of-proceeds arrangements based on a percent of the proceeds from the sale of gathering and processing outputs on behalf of a producer and percent-of-products arrangements in which the Company is assigned a portion of the natural gas it gathers and processes as partial compensation.
The Company currently generates revenues pursuant to a variety of different contractual arrangements, including fee-based agreements based on volumetric fees and percent-of-proceeds arrangements based on a percent of the proceeds from the sale of gathering and processing outputs on behalf of a producer and percent-of-products arrangements in which the Company 14 Table of Contents Index to Financial Statements is assigned a portion of the natural gas it gathers and processes as partial compensation.
While the Company owns equity interests and has certain voting rights with respect to its joint ventures, it does not act as operator of or control the joint ventures, each of which is operated by another joint venture partner.
While the Company owns equity interests and has certain voting rights with respect to its joint ventures and can exercise significant influence over the operating and financial policies of the entity, it does not act as operator of or control the joint ventures, each of which is operated by another joint venture partner.
The U.S. inflation rate has been steadily increasing throughout 2022. These inflationary pressures have resulted in and may result in additional increases to the costs of the Company’s services and personnel, which in turn cause the Company’s capital expenditures and operating costs to rise. Sustained levels of high inflation have likewise caused the U.S.
Although inflation has moderated in 2023, inflationary pressures have resulted in and may result in additional increases to the costs of the Company’s services and personnel, which in turn cause the Company’s capital expenditures and operating costs to rise. Sustained levels of high inflation have likewise caused the U.S.
A significant number of our currently issued and outstanding shares of Class A Common Stock held by existing stockholders, including officers and directors and other principal stockholders are currently eligible for resale pursuant to and in accordance with the provisions of Rule 144.
A significant number of our currently issued and outstanding shares of Class A Common Stock held by existing stockholders, including officers and directors and other principal stockholders are currently eligible for resale pursuant to and in accordance with the provisions of Rule 144. During 2023, Apache Midstream sold 7,475,000 shares of Class A Common Stock through a Secondary Offering.
ITEM 1A. RISK FACTORS Risks Related to Our Business The Company’s operating assets are currently located exclusively in the Permian Basin, making it vulnerable to risks associated with operating in a single geographic area. The Company’s wholly owned midstream assets are currently located exclusively in the Delaware Basin which is part of the broader Permian Basin.
Business and Operational Risks The majority of the Company’s operating assets are currently located in the Permian Basin, making it vulnerable to risks associated with operating in a single geographic area. The majority of the Company’s wholly owned midstream assets are currently located in the Delaware Basin which is part of the broader Permian Basin.
Climate change laws and regulations restricting emissions of GHGs could result in increased operating costs and reduced demand for the crude oil and natural gas the Company gathers, while potential physical effects of climate change could disrupt the Company’s operations, cause damage to its pipelines and other facilities and cause it to incur significant costs in preparing for or responding to those effects.
The impact of this changing demand could materially and adversely affect the Company’s business, operations and cash flows. 19 Table of Contents Index to Financial Statements Climate change laws and regulations restricting emissions of GHGs could result in increased operating costs and reduced demand for the crude oil and natural gas the Company gathers, while potential physical effects of climate change could disrupt the Company’s operations, cause damage to its pipelines and other facilities and cause it to incur significant costs in preparing for or responding to those effects.
Industrial control systems such as SCADA (supervisory control and data acquisition) now control large scale processes that can include multiple sites and long distances, such as crude oil and natural gas pipelines.
The use of mobile communication devices has increased rapidly. Industrial control systems such as SCADA (supervisory control and data acquisition) now control large scale processes that can include multiple sites and long distances, such as crude oil and natural gas pipelines.
The Company has ownership interests in several joint ventures, including the PHP, GCX, Breviloba and EPIC joint ventures, and it may enter into other joint venture arrangements in the future.
The Company has ownership interests in several joint ventures, including the PHP, GCX, Breviloba and EPIC joint ventures, which were accounted for using the equity interest method, and it may enter into other joint venture arrangements in the future.
The nature and extent of any changes in these laws, rules, regulations and permits may be unpredictable, have retroactive effects and may have material effects on the Company’s business and profitability.
The nature and extent of any changes in these laws, rules, regulations and permits may be unpredictable, have retroactive effects and may have material effects on the Company’s financial condition, results of operations and cash flows.
Alternatively, if a court were to find these provisions of the Company’s charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, the Company may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect its business, financial condition or results of operations.
Alternatively, if a court were to find these provisions of the Company’s charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, the Company may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect its business, financial condition or results of operations. 23 Table of Contents Index to Financial Statements The Company’s charter provides that the exclusive forum provision will be applicable to the fullest extent permitted by applicable law.
The Company has limited ability to influence the business decisions of these entities, and it may therefore be difficult or impossible for the Company to cause the joint venture to take actions that the Company believes would be in its or the relevant joint venture’s best interests.
It may therefore be difficult or impossible for the Company to cause the joint venture to take actions that the Company believes would be in its or the relevant joint venture’s best interests.
Federal Reserve has indicated its intention to continue to raise benchmark interest rates throughout the remainder of 2022 and into 2023 in an effort to curb inflationary pressure on the costs of goods and services across the U.S., which could have the effects of raising the cost of capital and depressing economic growth, either of which—or the combination thereof—could hurt the financial and operating results of the Company’s business.
Federal Reserve and other central banks to increase interest rates multiple times in 2023 in an effort to curb inflationary pressure on the costs of goods and services across the U.S., which could have the effects of raising the cost of capital and depressing economic growth, either of which—or the combination thereof—could hurt the financial and operating results of the Company’s business.
The Company’s operations are subject to all the hazards inherent in the gathering and transportation of crude oil, natural gas and produced water, including: • damage to pipelines, compressor stations, centralized gathering facilities, pump stations, storage terminals, related equipment, and surrounding properties caused by design, installation, construction materials or operational flaws, natural disasters, acts of terrorism, acts of third parties or other unforeseen circumstances. • leaks of crude oil, natural gas or NGLs or losses of crude oil, natural gas or NGLs as a result of the malfunction of, or other disruptions associated with, equipment, facilities or pipelines; • fires, ruptures and explosions; and • other hazards that could also result in personal injury and loss of life, pollution and suspension of operations.
The Company’s operations are subject to all the hazards inherent in the gathering and transportation of crude oil, natural gas and produced water, including: • damage to pipelines, compressor stations, centralized gathering facilities, pump stations, storage terminals, related equipment, and surrounding properties caused by design, installation, construction materials or operational flaws, natural disasters, acts of terrorism, acts of third parties or other unforeseen circumstances. • leaks of crude oil, natural gas or NGLs or losses of crude oil, natural gas or NGLs as a result of the malfunction of, or other disruptions associated with, equipment, facilities or pipelines; • fires, ruptures and explosions; and • other hazards that could also result in personal injury and loss of life, pollution and suspension of operations. 15 Table of Contents Index to Financial Statements The Company may elect to not obtain insurance, maintain a self-insured retention or increase deductibles for any or all of these risks if it believes that the cost of available insurance is excessive relative to the risks presented.
The interests of Blackstone, I Squared Capital or Apache Midstream may not align with the interests of the Company’s other stockholders. Although we currently are not considered to be a “controlled company” under the NYSE corporate governance rules, we may in the future become a controlled company due to the concentration of voting power among entities controlled by Blackstone.
The interests of Blackstone or I Squared Capital may not align with the interests of the Company’s other stockholders. Although we do not currently avail ourselves of the “controlled company” exemption under the NYSE corporate governance rules, we may elect to rely on such exemption in the future due to the concentration of voting power among entities controlled by Blackstone.
Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring, and reporting on many ESG matters. Additionally, while the Company may also announce various voluntary ESG targets, such targets are aspirational.
Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single, uniformed approach to identifying, measuring, and reporting on many ESG matters. The standards for tracking and reporting on ESG matters are continuously evolving.
Any temporary or permanent interruption at these pipelines could materially and adversely affect the Company’s business, results of operations, financial condition or cash flow. 12 Table of Contents The Company’s customers may suspend, reduce or terminate their obligations under the Company’s commercial agreements with them in certain circumstances, which could have a material adverse effect on the Company’s financial condition, results of operations and cash flow.
The Company’s customers may suspend, reduce or terminate their obligations under the Company’s commercial agreements with them in certain circumstances, which could have a material adverse effect on the Company’s financial condition, results of operations and cash flows.
A “controlled company” pursuant to the NYSE corporate governance rules is a company of which more than 50% of the voting power is held by an individual, group, or another company.
As of November 22, 2023, entities controlled by Blackstone held approximately 50.3% of the voting power of our outstanding Common Stock. A “controlled company” pursuant to the NYSE corporate governance rules is a company of which more than 50% of the voting power is held by an individual, group, or another company.
The Company’s charter provides that the exclusive forum provision will be applicable to the fullest extent permitted by applicable law. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
This regulatory oversight can affect certain aspects of the Company’s business and the market for its products and could materially and adversely affect the Company’s financial position, results of operations and cash flows.
This regulatory oversight can affect certain aspects of the Company’s business and the market for its products and could materially and adversely affect the Company’s financial position, results of operations and cash flows. Changes to applicable tax laws and regulations or exposure to additional income tax liabilities could adversely affect our operating results and cash flows.
Costs for insurance and other security may increase as a result of these threats, and some insurance coverage may become more difficult to obtain, if available at all. A cyber incident could result in information theft, data corruption, operational disruption and/or financial loss.
Costs for insurance and other security may increase as a result of these threats, and some insurance coverage may become more difficult to obtain, if available at all.
Reductions in development activity, coupled with the natural decline in production from its current dedicated acreage, would result in the Company’s inability to maintain the then-current levels of utilization of its midstream assets, which could materially and adversely affect its business, financial condition, results of operations, and cash flow. 11 Table of Contents The acquisition of additional businesses and assets is part of our growth strategy.
Reductions in development activity, coupled with the natural decline in production from its current dedicated acreage, could materially and adversely affect its business, financial condition, results of operations, and cash flows. The acquisition or divestiture of businesses and assets is part of our strategy.
Separately, the SEC has also announced that it is scrutinizing existing climate-change related disclosures in public filings, increasing the potential for enforcement if the SEC were to allege an issuer’s climate disclosures are misleading or deficient. 19 Table of Contents Finally, it should be noted that there are increasing risks to the Company’s operations resulting from the potential physical impacts of climate change, such as drought, wildfires, damage to infrastructure and resources from flooding, storms and other natural disasters, chronic shifts in temperature and precipitation patterns and other physical disruptions.
Finally, it should be noted that there are increasing risks to the Company’s operations resulting from the potential physical impacts of climate change, such as drought, wildfires, damage to infrastructure and resources from flooding, storms and other natural disasters, chronic shifts in temperature and precipitation patterns and other physical disruptions.
The Company cannot predict what effect, if any, such changes might have on its operations, but it could be required to incur additional capital expenditures and increased operating costs depending on future legislative and regulatory changes. 15 Table of Contents The Company’s midstream and intrastate transportation and storage services that are regulated are generally subject to rate regulation and the regulation of the terms and conditions of service.
The Company cannot predict what effect, if any, such changes might have on its operations, but it could be required to incur additional capital expenditures and increased operating costs depending on future legislative and regulatory changes.
Joint venture arrangements may also restrict the Company’s operational and organizational flexibility and its ability to manage risk, which could have a material and adverse effect on its business, cash flow and results of operations.
Joint venture arrangements may also restrict the Company’s operational and organizational flexibility and its ability to manage risk, which could materially and adversely affect the Company’s financial condition, results of operations and cash flows.
Rate regulation, challenges by shippers to the rates the Company charges on its pipelines or changes in the jurisdictional characterization of some of the Company’s assets by federal, state or local regulatory agencies or a change in policy by those agencies may result in increased regulation of its assets, which may cause its operating expenses to increase, limit the rates it charges for certain services and decrease the amount of cash flow.
Any significant variance in our interpretation of current tax laws or a successful challenge of one or more of our tax positions by the IRS or other tax authorities could increase our future tax liabilities and adversely affect our operating results and cash flows. 16 Table of Contents Index to Financial Statements Rate regulation, challenges by shippers to the rates the Company charges on its pipelines or changes in the jurisdictional characterization of some of the Company’s assets by federal, state or local regulatory agencies or a change in policy by those agencies may result in increased regulation of its assets, which may cause its operating expenses to increase, limit the rates it charges for certain services and decrease the amount of cash flows.
The Commodity Futures Trading Commission (“CFTC”) also holds authority to monitor certain segments of the physical and futures energy commodities market pursuant to the Commodity Exchange Act.
The Commodity Futures Trading Commission (“CFTC”) also holds authority to monitor certain segments of the physical and futures energy commodities market pursuant to the Commodity Exchange Act. In addition, the Federal Trade Commission (“FTC”) has the authority under the Federal Trade Commission Act and the Energy Independence and Security Act of 2007 to regulate wholesale petroleum markets.
If the third-party pipelines interconnected, or at some future point expected to be interconnected, to the Company’s pipelines become unavailable to transport or store crude oil, NGLs or natural gas, the Company’s revenue and available cash could be adversely affected. The Company depends upon third-party downstream pipelines and associated operations to provide delivery options from its processing system.
If the third-party pipelines interconnected, or at some future point expected to be interconnected, to the Company’s pipelines become unavailable to transport or store crude oil, NGLs or natural gas, or if our cost of transporting on such third-party pipelines changes, the Company’s revenue and available cash could be adversely affected.
The oil and gas industry has become increasingly dependent on digital technologies to conduct day-to-day operations including certain midstream activities. For example, software programs are used to manage gathering and transportation systems and for compliance reporting. The use of mobile communication devices has increased rapidly.
Cybersecurity breaches of our IT systems could result in information theft, data corruption, operational disruption and/or financial loss. The oil and gas industry has become increasingly dependent on digital technologies to conduct day-to-day operations including certain midstream activities. For example, software programs are used to manage gathering and transportation systems and for compliance reporting.
The Company’s gathering and other midstream services require special equipment and laborers who are skilled in multiple disciplines, such as equipment operators, mechanics and engineers, among others. If the Company experiences shortages of necessary equipment or skilled labor in the future, its labor and equipment costs and overall productivity could be materially and adversely affected.
A shortage of equipment and skilled labor could reduce equipment availability and labor productivity and increase labor and equipment costs, which could materially and adversely affect the Company’s business and results of operations. The Company’s gathering and other midstream services require special equipment and laborers who are skilled in multiple disciplines, such as equipment operators, mechanics and engineers, among others.
Because the Company does not control these pipelines and associated operations, their continuing operation is not within its control.
The Company depends upon third-party downstream pipelines and associated operations to provide delivery options from its processing system. Because the Company does not control these pipelines and associated operations, their continuing operation is not within its control.
In addition, under Delaware law, dividends on the Company’s capital stock may only be paid from “surplus,” which is the amount by which the fair value of the Company’s total assets exceeds the sum of its total liabilities, including contingent liabilities, and the amount of its capital; if there is no surplus, cash dividends on capital stock may only be paid from the Company’s net profits for the then-current and/or the preceding fiscal year. 21 Table of Contents The Company’s charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by its stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers, employees or agents.
In addition, under Delaware law, dividends on the Company’s capital stock may only be paid from “surplus,” which is the amount by which the fair value of the Company’s total assets exceeds the sum of its total liabilities, including contingent liabilities, and the amount of its capital; if there is no surplus, cash dividends on capital stock may only be paid from the Company’s net profits for the then-current and/or the preceding fiscal year.
This target builds upon the President’s goals to create a carbon pollution-free power sector by 2035 and a net zero emissions economy by 2050.
The current administration, in April 2021, announced a target for the United States to achieve a 50% – 52% reduction from 2005 levels in economy-wide net GHG pollution in 2030. This target builds upon the President’s goals to create a carbon pollution-free power sector by 2035 and a net zero emissions economy by 2050.
The Paris Agreement calls for parties to undertake “ambitious efforts” to limit the average global temperature, and to conserve and enhance sinks and reservoirs of GHGs. The current administration, in April 2021, announced a target for the United States to achieve a 50% – 52% reduction from 2005 levels in economy-wide net GHG pollution in 2030.
In February 2021, the administration recommitted the United States to the Paris Agreement, a framework for parties to the agreement to cooperate and report actions to reduce GHG emissions. The Paris Agreement calls for parties to undertake “ambitious efforts” to limit the average global temperature, and to conserve and enhance sinks and reservoirs of GHGs.
The occurrence of an event that is not fully covered by insurance could materially and adversely affect the Company’s business, financial condition, results of operations and cash flow. 14 Table of Contents A shortage of equipment and skilled labor could reduce equipment availability and labor productivity and increase labor and equipment costs, which could materially and adversely affect the Company’s business and results of operations.
In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event that is not fully covered by insurance could materially and adversely affect the Company’s business, financial condition, results of operations and cash flows.
The EPA has also continued with its comprehensive strategy for further reducing methane and volatile organic compound (“VOC”) emissions from oil and gas operations. In May 2016, a final rule established specific new requirements regarding emissions from production-related wet seal and reciprocating compressors, and from pneumatic controllers and storage vessels.
The EPA has also continued with its comprehensive strategy for further reducing methane and volatile organic compound emissions from oil and gas operations.
Additionally, the Company could face increasing costs as it attempts to comply with and navigate further regulatory focus and scrutiny. 20 Table of Contents Risks Related to Ownership of Our Common Stock Entities controlled by Blackstone, I Squared Capital and Apache Midstream own a majority of the Company’s outstanding voting shares and thus strongly influence all the Company’s corporate actions.
Risks Related to Ownership of Our Common Stock Entities controlled by Blackstone and I Squared Capital are parties to the amended and restated stockholders agreement granting certain director designation rights and own a majority of the Company’s outstanding voting shares and thus strongly influence all of the Company’s corporate actions.
In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions.
Any failure or perceived failure to pursue our targets, goals and objectives, or to satisfy various reporting standards, could negatively impact our reputation. In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters.
A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to the Company could depress the Company’s stock price regardless of its business, prospects, financial conditions or results of operations. 22 Table of Contents General Risks Continuing or worsening inflationary issues and associated changes in monetary policy have resulted in and may result in additional increases to the cost of the Company’s services and personnel, which in turn cause the Company’s capital expenditures and operating costs to rise.
A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to the Company could depress the Company’s stock price regardless of its business, prospects, financial conditions or results of operations. We cannot guarantee that our stock repurchase program will enhance long-term stockholder value.
In the event that Blackstone and its affiliates or other stockholders own more than 50% of the voting power of the Company, we may in the future be able to rely on the “controlled company” exemptions under the NYSE corporate governance rules due to this concentration of voting power.
Although we do not currently avail 22 Table of Contents Index to Financial Statements ourselves of such exemption, we may in the future rely on the “controlled company” exemptions under the NYSE corporate governance rules due to this concentration of voting power.
Climate change remains a priority for the current administration, which could lead to additional regulations or restrictions on oil and gas development. In February 2021, the administration recommitted the United States to the Paris Agreement, a framework for parties to the agreement to cooperate and report actions to reduce GHG emissions.
Moreover, failure to comply with these requirements could result in the imposition of substantial fines and penalties, as well as costly injunctive relief. Climate change remains a priority for the current administration, which could lead to additional regulations or restrictions on oil and gas development.
Moreover, the Federal Trade Commission in August 2022 indicated its intent to issue revised “Green Guides” which will likely address greenwashing risks arising from ESG-related matters. As a result, the Company may face increased litigation risks from private parties and governmental authorities related to its ESG efforts.
As a result, the Company may face increased litigation risks from private parties and governmental authorities related to its ESG efforts. Additionally, the Company could face increasing costs as it attempts to comply with and navigate further regulatory focus and scrutiny.
From time to time, the Company has sought to reduce its exposure to fluctuations in commodity prices and interest rates by using derivative instruments. To the extent that we hedge our commodity price and interest rate exposures, we will forego the benefits we would otherwise experience if commodity prices or interest rates were to change in our favor.
The use of derivative financial instruments could result in material financial losses by us. The Company engages in commodity and interest rate hedging activities to reduce its exposure to fluctuations in commodity prices and interest rates by using derivative instruments.
Removed
Due to these and other factors, even if reserves are known to exist in areas served by the Company’s midstream assets, producers may choose not to develop those reserves.

… 75 more changes not shown on this page.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
Biggest changeITEM 3. LEGAL PROCEEDINGS For further information regarding legal proceedings, see Note 18—Commitments and Contingencies in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on this Form 10-K. 24 Table of Contents PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS For further information regarding legal proceedings, see Note 17—Commitments and Contingencies in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report. 28 Table of Contents Index to Financial Statements PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+6 added−1 removed1 unchanged
Biggest changePurchase of Equity Securities by the Issuer and Affiliated Purchasers None. 25 Table of Contents Performance Graph The graph and table below compares the Company’s cumulative return to holders of its common stock, the NASDAQ Composite Index, the NYSE Composite Index and the Alerian US Midstream Energy Index during the period beginning on December 31, 2017 and ending on December 31, 2022.
Biggest changeMidstream Energy Index during the period beginning on December 31, 2018 and ending on December 31, 2023. The NASDAQ Composite Index was included here as the Company’s Class A Common Stock was traded on NASDAQ prior to switching to NYSE in October 2022.
Dividends Holders of the Company’s common stock are entitled to receive cash dividends when declared by the Company’s Board out of legally available funds. The Board presently intends to continue the policy of paying quarterly cash dividends, however, future dividend payments will depend upon our level of earnings, capital expenditure requirements, debt obligation, financial condition and other relevant factors.
Dividends Holders of the Company’s Class A Common Stock are entitled to receive cash dividends when declared by the Company’s Board out of legally available funds. The Board intends to continue the policy of paying quarterly cash dividends, however, future dividend payments will depend upon our level of earnings, capital expenditure requirements, debt obligations, financial condition and other relevant factors.
(2) $100 invested on 12/31/2017 in index, including reinvestment of dividends.
(2) $100 invested on 12/31/2018 in index, including reinvestment of dividends.
The performance graph was prepared based on the following assumptions: (i) $100 was invested in our Class A Common Stock and in each of the indices at beginning of the period, and (ii) dividends were reinvested on the relevant payment dates. The stock price performance included in this graph is historical and not necessarily indicative of future stock price performance.
The performance graph was prepared based on the following assumptions: (i) $100 was invested in our Class A Common Stock and in each of the indices at the beginning of the period, and (ii) dividends were reinvested on the relevant payment dates.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company’s Class A Common Stock is traded on the New York Stock Exchange under the symbol “KNTK”.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company’s Class A Common Stock is traded on the NYSE under the symbol “KNTK”. The Company’s public and private warrants expired as of November 9, 2023.
On February 28, 2023, the Class A Common Stock had a closing price of $29.75, and the warrants had a closing price of $0.001. Holders On February 28, 2023, there were 204 holders of record of the Company’s Class A Common Stock and nine holders of record of the Company’s Class C Common Stock.
On February 29, 2024, the Class A Common Stock had a closing price of $35.32. Holders On February 29, 2024, there were 200 holders of record of the Company’s Class A Common Stock and nine holders of record of the Company’s Class C Common Stock, par value $0.0001 per share (“Class C Common Stock”).
The NYSE Composite Index was added to the performance graph because the Company changed the listing of its Class A Common Stock to the NYSE from the Nasdaq in October 2022. In accordance with SEC rules, the performance graph presents both the indices used in the previous year and the newly selected index.
In accordance with SEC rules, the performance graph presents both the indices used in the previous year and the newly selected index.
December 31, 2017 2018 2019 2020 2021 2022 Kinetik Holdings, Inc. $ 100.00 $ 79.61 $ 29.45 $ 24.44 $ 34.85 $ 40.04 NYSE Composite Index 100.00 96.12 135.23 143.64 174.36 116.65 Nasdaq Composite Index 100.00 88.80 122.32 104.40 123.37 109.14 Alerian US Midstream Energy Index 100.00 80.97 79.32 50.42 65.01 79.07
December 31, 2018 2019 2020 2021 2022 2023 Kinetik Holdings Inc $ 100.00 $ 37.00 $ 30.70 $ 43.78 $ 50.29 $ 50.78 NYSE Composite Index 100.00 135.23 194.24 235.78 157.74 226.24 Nasdaq Composite Index 100.00 122.32 127.70 150.90 133.50 148.17 Alerian US Midstream Energy Index 100.00 97.96 62.27 80.29 97.65 114.16 30 Table of Contents Index to Financial Statements
Removed
The Company’s public warrants are quoted on the over-the-counter markets operated by OTC Markets Group under the symbol “ALTMW.” The warrants may still be exercised in accordance with their terms to purchase shares of the Company’s Class A Common Stock.
Added
Recent Sales of Unregistered Securities None. Purchase of Equity Securities by the Issuer and Affiliated Purchasers In February 2023, the Board approved a stock repurchase program (“Repurchase Program”), authorizing discretionary purchases of the Company’s Class A Common Stock up to $100.0 million in the aggregate.
Added
The Repurchase Program allowed us to reduce dilution and potentially acquire shares at levels that we believe do not reflect the fundamental earnings power of the Company during 2023, 2024 and thereafter.
Added
Repurchases may be made at management’s discretion from time-to-time throughout the year, in accordance with applicable securities laws on the open market, a trading plan, or through privately negotiated transactions. There was no unregistered sale of equity securities or repurchase activities during the three months ended December 31, 2023.
Added
During 2023, the Company repurchased and retired 194,174 shares at a total cost of $5.8 million.
Added
For more information regarding the non-deductible 1% U.S. federal excise tax imposed on certain repurchases of stock by publicly traded U.S. corporations, please refer to Part I—Item 1A Risk Factors—Risks Related to Ownership of our Common Stock . 29 Table of Contents Index to Financial Statements Performance Graph The graph and table below compares the Company’s cumulative return to holders of its common stock, the NASDAQ Composite Index, the NYSE Composite Index and the Alerian U.S.
Added
The stock price performance included in this graph is historical and not necessarily indicative of future stock price performance.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

94 edited+50 added−50 removed14 unchanged
Biggest changeTo that end, accelerating tensions between China and the U.S. could also result in further supply disruption. 30 Table of Contents Results of Operations The following table presents the Company’s results of operations for the periods presented: Year Ended December 31, * 2022 2021 % Change (In thousands, except percentages) Revenues: Service revenue $ 393,954 $ 272,677 44 % Product revenue 806,353 385,622 109 % Other revenue 13,183 3,745 NM Total revenues 1,213,490 662,044 83 % Operating costs and expenses: Cost of sales (exclusive of depreciation and amortization) 541,518 233,619 132 % Operating expense 137,289 90,894 51 % Ad valorem taxes 16,970 11,512 47 % General and administrative 94,268 28,588 NM Depreciation and amortization 260,345 243,558 7 % Loss on disposal of assets 12,611 382 NM Total operating costs and expenses 1,063,001 608,553 75 % Operating income 150,489 53,491 181 % Other income (expense): Interest and other income 489 4,143 (88) % Gain on Preferred Units redemption 9,580 — 100 % Gain (loss) on debt extinguishment (27,975) 4 NM Gain on embedded derivatives 89,050 — 100 % Interest expense (149,252) (117,365) 27 % Equity in earnings of unconsolidated affiliates 180,956 63,074 187 % Total other income (expense), net 102,848 (50,144) NM Income before income tax 253,337 3,347 NM Income tax expense 2,616 1,865 40 % Net income including noncontrolling interests $ 250,721 $ 1,482 NM *The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022.
Biggest changeIncreased interest rates beyond the term of our hedges will increase our financing costs and have a negative impact on the Company’s ability to meet its contractual debt obligations and to fund its operating expenses, capital expenditures, dividends and distributions. 35 Table of Contents Index to Financial Statements Results of Operations The following table presents the Company’s results of operations for the periods presented: Year Ended December 31, 2023 2022 * % Change (In thousands, except percentages) Revenues: Service revenue $ 417,751 $ 393,954 6 % Product revenue 822,410 806,353 2 % Other revenue 16,251 13,183 23 % Total revenues 1,256,412 1,213,490 4 % Operating costs and expenses: Cost of sales (exclusive of depreciation and amortization expenses) ** 515,721 541,518 (5) % Operating expense 161,520 137,289 18 % Ad valorem taxes 21,622 16,970 27 % General and administrative 97,906 94,268 4 % Depreciation and amortization expenses 280,986 260,345 8 % Loss on disposal of assets 19,402 12,611 54 % Total operating costs and expenses 1,097,157 1,063,001 3 % Operating income 159,255 150,489 6 % Other income (expense): Interest and other income 2,004 489 NM Gain on Preferred Units redemption — 9,580 (100) % Loss on debt extinguishment (1,876) (27,975) (93) % Gain on embedded derivative — 89,050 (100) % Interest expense (205,854) (149,252) 38 % Equity in earnings of unconsolidated affiliates 200,015 180,956 11 % Total other (expense) income, net (5,711) 102,848 (106) % Income before income tax 153,544 253,337 (39) % Income tax (benefit) expense (232,908) 2,616 NM Net income including noncontrolling interests $ 386,452 $ 250,721 54 % *The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022.
If there is an indication that the carrying amount of an asset may not be recovered, the asset is assessed for impairment through an established process in which changes to significant assumptions such as service prices, throughput volumes, future development plans and fluctuation of commodity pricing are reviewed.
If there is an indication that the carrying amount of an asset may not be recovered, the asset is assessed for impairment through an established process in which changes to significant assumptions such as service prices, throughput volumes, future development plans and fluctuation of commodity prices are reviewed.
Derivatives and Hedging Activities All our derivative contracts are recorded at estimated fair value. We utilize published prices, broker quotes, and estimates of market prices to estimate the fair value of these contracts; however, actual amounts could vary materially from estimated fair values as a result of changes in market prices.
Derivatives Instruments and Hedging Activities All our derivative contracts are recorded at estimated fair value. We utilize published prices, broker quotes, and estimates of market prices to estimate the fair value of these contracts; however, actual amounts could vary materially from estimated fair values as a result of changes in market prices.
Comprehensive Refinancing On June 8, 2022, the Partnership completed the private placement of $1.00 billion aggregate principal amount of the Notes, which are fully and unconditionally guaranteed by the Company. The Notes are issued under our Sustainability-Linked Financing Framework and include sustainability-linked features.
Comprehensive Refinancing On June 8, 2022, the Partnership completed the private placement of $1.00 billion aggregate principal amount of the 2030 Notes, which are fully and unconditionally guaranteed by the Company. The 2030 Notes are issued under our Sustainability-Linked Financing Framework and include sustainability-linked features.
The estimates and assumptions can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts.
Estimates and assumptions can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts.
Our core capabilities include a variety of service offerings including natural gas gathering, transportation, compression, treating and processing; NGLs stabilization and transportation; produced water gathering and disposal; and crude oil gathering, stabilization, storage and transportation. The Company’s corporate office is located in Houston, TX and our operations are strategically located in the heart of the Delaware Basin in the Permian.
Our core capabilities include a variety of service offerings including natural gas gathering, transportation, compression, treating and processing; NGLs stabilization and transportation; produced water gathering and disposal; and crude oil gathering, stabilization, storage and transportation. The Company’s corporate office is located in Houston, Texas and our operations are strategically located in the heart of the Delaware Basin.
Stock Split On May 19, 2022, the Company announced the Stock Split with respect to its Class A Common Stock and Class C Common Stock in the form of a stock dividend.
Stock Split On May 19, 2022, the Company announced a stock split with respect to its Class A Common Stock and Class C Common Stock in the form of a stock dividend (the “Stock Split”).
Estimating projected cash flows requires us to make certain assumptions as it relates to the future operating performance of each of our equity method investments (which includes assumptions, among others, about estimating future operating margins and related future growth in those margins, contracting efforts and the cost and timing of facility expansions) and assumptions related to our equity method investments, such as their future capital and operating plans and their financial condition.
Estimating projected cash flows requires us to make certain assumptions as it relates to the future operating performance of each of our EMIs (which includes assumptions, among others, about estimating future operating margins and related future growth in those margins, contracting efforts and the cost and timing of facility expansions) and assumptions related to our EMIs, such as their future capital and operating plans and their financial condition.
Certain holders of Class A Common Stock and Class C Common Stock will receive a cash dividend with the balance receiving additional shares of Class A Common Stock under the Reinvestment Agreement. Series A Cumulative Redeemable Preferred Units The Company issued Preferred Units on June 12, 2019.
Certain holders of Class A Common Stock and Common Units will receive a cash dividend with the balance receiving additional shares of Class A Common Stock under the Reinvestment Agreement. Series A Cumulative Redeemable Preferred Units The Company issued Series A Cumulative Redeemable Preferred Units (“Preferred Units”) on June 12, 2019.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read together with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K, and the risk factors and related information set forth in Part I, Item 1A and Part II, Item 7A of this Annual Report on Form 10-K.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read together with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report, and the risk factors and related information set forth in Part I, Item 1A and Part II, Item 7A of this Annual Report.
Under this framework, our KPIs are (1) Scope 1 and Scope 2 greenhouse gas emissions intensity, (2) Scope 1 and Scope 2 methane gas emissions intensity and (3) female representation in corporate officer positions and our SPTs are (1) reducing the intensity of all Scope 1 and Scope 2 greenhouse gas emissions from our operations by 35% by 2030 from a 2021 baseline year (as described in the Sustainability-Linked Financing Framework), (2) reducing the intensity of Scope 1 and Scope 2 methane gas emissions from our operations by 30% by 2030 from a 2021 baseline year, and (3) increasing female representation in corporate officer positions of Vice President and above to 20% by year-end 2026 from a 2021 baseline year.
Our long-term SPTs are (1) reducing the intensity of all Scope 1 and Scope 2 greenhouse gas emissions from our operations by 35% by 2030 from a 2021 baseline year (as described in the Sustainability-Linked Financing Framework), (2) reducing the intensity of Scope 1 and Scope 2 methane gas emissions from our operations by 30% by 2030 from a 2021 baseline year, and (3) increasing female representation in corporate officer positions of Vice President and above to 20% by year-end 2026 from a 2021 baseline year.
In addition, changes in the methods used to determine the fair value of these contracts could have a material effect on our results of operations. We do not anticipate future changes in the methods used to determine the fair value of these derivative contracts. 39 Table of Contents
In addition, changes in the methods used to determine the fair value of these contracts could have a material effect on our results of operations. We do not anticipate future changes in the methods used to determine the fair value of these derivative contracts.
The Company anticipates its existing capital resources will be sufficient to fund the future capital expenditures for EMI pipelines and the Company’s existing infrastructure assets over the next 12 months. For further information on EMIs, refer to Note 7—Equity Method Investments in the Notes to our Consolidated Financial Statements in this Form 10-K.
The Company anticipates its existing capital resources will be sufficient to fund the future capital expenditures for EMI pipelines and the Company’s existing infrastructure assets over the next 12 months. For further information on EMIs, refer to Note 7—Equity Method Investments in the Notes to our Consolidated Financial Statements in this Annual Report.
Although the armed conflict in Ukraine generated commodity price upward pressure, and our operation could benefit in an environment of higher natural gas, NGLs and condensate prices, the instability of international political environment and human and economic hardship resulting from the conflict would have a highly uncertain impact on the U.S. economy, which in turn, might affect our business and operations adv ersely.
Although ongoing armed conflicts might generate commodity price upward pressure, and our operations could benefit in an environment of higher natural gas, NGLs and condensate prices, the instability of the international political environment and human and economic hardship resulting from the conflicts would have a highly uncertain impact on the U.S. economy, which in turn, might affect our business and operations adv ersely.
Proceeds from the Notes and the Term Loan Credit Facility were used to repay all outstanding borrowings under our existing credit facilities and to pay fees and expenses related to the offering. Refer to Note 8 — Debt and Financing Costs in the Notes to our Consolidated Financial Statements in this Form 10-K for further information.
Proceeds from the 2030 Notes and the Term Loan were used to repay all outstanding borrowings under our then existing credit facilities and to pay fees and expenses related to the offering. Refer to Note 8 — Debt and Financing Costs in the Notes to our Consolidated Financial Statements in this Annual Report for further information.
Key Performance Metrics Adjusted EBITDA Adjusted EBITDA is defined as net income including noncontrolling interests adjusted for interest, taxes, depreciation and amortization, impairment charges, asset write-offs, the proportionate EBITDA from our equity method investments, equity in earnings from investments recorded using the equity method, share-based compensation expense, extraordinary losses and unusual or non-recurring charges.
Key Performance Metrics Adjusted EBITDA Adjusted EBITDA is defined as net income including noncontrolling interests adjusted for interest, taxes, depreciation and amortization, impairment charges, asset write-offs, the proportionate EBITDA from our EMI pipelines, equity in earnings from investments recorded using the equity method, share-based compensation expense, noncash increases and decreases related to trading and hedging agreements, extraordinary losses and unusual or non-recurring charges.
Dividend and Distribution Reinvestment Agreement On February 22, 2022, the Company entered into a Dividend and Distribution Reinvestment Agreement (the “Reinvestment Agreement”) with certain stockholders including BCP Raptor Aggregator, LP, BX Permian Pipeline Aggregator, LP, Buzzard Midstream LLC, APA Corporation Apache Midstream LLC, and certain individuals (each, a “Reinvestment Holder”).
Dividend and Distribution Reinvestment Agreement On February 22, 2022, the Company entered into a Dividend and Distribution Reinvestment Agreement (the “Reinvestment Agreement”) with certain stockholders including BCP Raptor Aggregator, LP, BX Permian Pipeline Aggregator, LP, Buzzard Midstream LLC, APA Corporation, Apache Midstream LLC and certain individuals (each, a 42 Table of Contents Index to Financial Statements “Reinvestment Holder”).
Management believes its existing gathering, processing, and transmission infrastructure capacity is capable of fulfilling its contracts to service its customers. During the year ended December 31, 2022, the Company contributed $78.2 million to one of its EMI pipelines, PHP, for the 2022 Capacity Expansion Project, compared to $20.5 million contributed to the same period of 2021.
Management believes its existing gathering, processing, and transmission infrastructure capacity is capable of fulfilling its contracts to service its customers. During the year ended December 31, 2023, the Company contributed $238.8 million to PHP for the expansion project, compared to $78.2 million contributed to the same period of 2022.
Refer to the Form 10-K basis of presentation in Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements in this Form 10-K, for further information.
Refer to the Annual Report basis of presentation in Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements in this Annual Report, for further information.
Under the Reinvestment Agreement, each Reinvestment Holder is obligated to reinvest at least 20% of all distributions on Common Units or dividends on shares of Class A Common Stock in the Company’s Class A Common Stock.
Under the Reinvestment Agreement, each Reinvestment Holder is obligated to reinvest at least 20% of all distributions on common units representing limited partner interests in the Partnership (“Common Units”) or dividends on shares of Class A Common Stock in the Company’s Class A Common Stock.
The system includes approximately 80 miles of gathering pipeline and approximately 490,000 barrels per day of permitted disposal capacity. Pipeline Transportation EMI pipelines.
The system includes over 360 miles of gathering pipeline and approximately 580,000 barrels per day of permitted disposal capacity. Pipeline Transportation EMI pipelines.
In addition, the Partnership entered into a new Revolving Credit Agreement, which provides for a $1.25 billion senior unsecured Revolving Credit Facility maturing on June 8, 2027, and a new term loan agreement, which provides for a $2.00 billion senior unsecured Term Loan Credit Facility maturing on June 8, 2025.
In addition, the Partnership entered into a revolving credit agreement, which provides for a $1.25 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”) maturing on June 8, 2027, and term loan credit agreement, which provides for a $2.00 billion senior unsecured Term Loan maturing on June 8, 2025, which was then extended to June 8, 2026 pursuant to the First Amendment.
Adjusted EBITDA is useful to an investor in evaluating our performance because this measure: • Is widely used by analysts, investors and competitors to measure a company’s operating performance; • Is a financial measurement that is used by rating agencies, lenders, and other parties to evaluate our credit worthiness; and • Is used by our management for various purposes, including as a measure of performance and as a basis for strategic planning and forecasting.
Adjusted EBITDA is useful to an investor in evaluating our performance because this measure: • Is widely used by analysts, investors and competitors to measure a company’s operating performance; • Is a financial measurement that is used by rating agencies, lenders, and other parties to evaluate our credit worthiness; and • Is used by our management for various purposes, including as a measure of performance and as a basis for strategic planning and forecasting. 38 Table of Contents Index to Financial Statements Adjusted EBITDA is not defined in GAAP The GAAP measure used by the Company that is most directly comparable to Adjusted EBITDA is net income including noncontrolling interests.
NM - Not meaningful Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Revenues For the year ended December 31, 2022, revenue increased $551.4 million, or 83%, to $1,213.5 million, compared to $662.0 million for the same period in 2021.
NM - Not meaningful Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Revenues For the year ended December 31, 2023, revenue increased $42.9 million, or 4%, to $1,256.4 million, compared to $1,213.5 million for the same period in 2022.
Management routinely discusses the development, selection, and disclosure of the following critical accounting estimates. 38 Table of Contents Business Combination For acquired businesses, we recognize the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their estimated fair values on the date of acquisition with any excess purchase price over the fair value of net assets acquired is recorded to goodwill.
Business Combination For acquired businesses, we recognize the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their estimated fair values on the date of acquisition with any excess purchase price over the fair value of net assets acquired recorded to goodwill.
Dividend On January 17, 2023, the Company declared a cash dividend of $0.75 per share on the Company’s Class A Common Stock and a distribution of $0.75 per Common Unit from the Partnership to the holders of Common Units. Dividends are payable on February 16, 2023.
Dividend On January 23, 2024, the Company declared a cash dividend of $0.75 per share on the Company’s Class A Common Stock and a distribution of $0.75 per Common Unit from the Partnership to the holders of Common Units. Dividends are payable on March 7, 2024 to holders of record as of market close on February 22, 2024.
Net cash provided by operating activities increased by $377.4 million for the year ended December 31, 2022 compared with the same period in 2021.
Net cash provided by operating activities decreased by $28.5 million for the year ended December 31, 2023 compared with the same period in 2022.
This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
This section of this Annual Report generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
However, the Federal Open Market Committee (“FOMC”) maintains its long run goals of maximum employment and inflation at the rate of 2.00%. In support of these goals, the FOMC decided to raise the target range for the federal funds rate to 4.50% and 4.75% during its meeting in January 2023.
The Federal Open Market Committee (“FOMC”) seeks to achieve maximum employment and inflation at the rate of 2.00% over the long run. In support of these goals, the FOMC maintained the target range for the federal funds rate to 5.25% - 5.50% during its meeting in January 2024.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are omitted in this Annual Report on Form 10-K are incorporated by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Exhibit 99.6 of the Company’s Current Report on Form 8-K, filed on February 28, 2022.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are omitted in this Annual Report are incorporated by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 7, 2023.
The Company’s definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies in the industry, thereby diminishing its utility. 33 Table of Contents Reconciliation of non-GAAP financial measure Company management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measure, understanding the differences between Adjusted EBITDA as compared to net income including noncontrolling interests, and incorporating this knowledge into its decision-making processes.
Reconciliation of non-GAAP financial measure Company management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measure, understanding the differences between Adjusted EBITDA as compared to net income including noncontrolling interests, and incorporating this knowledge into its decision-making processes.
For The Year Ended December 31,* 2022 2021 % Change (In thousands, except percentage) Midstream Logistics $ 516,045 $ 343,809 50 % Pipeline Transportation 269,237 81,861 NM Corporate and Other** (13,093) (9,957) 31 % Total segment adjusted EBITDA $ 772,189 $ 415,713 86 % * The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022.
For The Year Ended December 31, 2023 2022 * % Change (In thousands, except percentage) Midstream Logistics $ 543,190 $ 516,045 5 % Pipeline Transportation 311,106 269,237 16 % Corporate and Other** (15,466) (13,093) 18 % Total segment adjusted EBITDA $ 838,830 $ 772,189 9 % * The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022.
Based on the Company’s current financial plan and related assumptions, including the Reinvestment Agreement and Class A Common Stock Repurchase Program, the Company believes that cash from operations and distributions from the EMI pipelines will generate cash flows in excess of capital expenditures and the amount required to fund the Company’s planned quarterly dividend over the next 12 months.
Based on the Company’s current financial plan, the Company believes that cash from operations and distributions from the EMI pipelines, and remaining borrowing capacity on our Revolving Credit Facility will generate cash flows in excess of capital expenditures and the amount required to fund the Company’s planned quarterly dividend over the next 12 months.
Additionally, the Audit Committee resolved that for the calendar year 2022, 100% of all distributions or dividends received by each Reinvestment Holder would be reinvested in shares of Class A Common Stock. The Audit Committee approved a similar determination for 2023.
For the calendar year 2023, the Audit Committee resolved 100% of all distributions or dividends received by each Reinvestment Holder would be reinvested in shares of Class A Common Stock. The Reinvestment Agreement will terminate automatically on March 8, 2024.
Refer to Note 1—Description of Business and Basis of Presentation in the Notes to the Consolidated Financial Statements of this Form 10-K for further information on the Company’s financial statement consolidation. ** Corporate and Other represents those results that: (i) are not specifically attributable to a reportable segment; (ii) are not individually reportable or (iii) have not been allocated to a reportable segment for the purpose of evaluating their performance, including certain general and administrative expense items.
Refer to Note 1—Description of Business and Basis of Presentation in the Notes to the Consolidated Financial Statements of this Annual Report for further information on the Company’s financial statement consolidation. ** Corporate and Other represents those results that: (i) are not specifically attributable to a reportable segment; (ii) are not individually reportable or (iii) have not been allocated to a reportable segment for the purpose of evaluating their performance, including certain general and administrative expense Midstream Logistics segment adjusted EBITDA increased by $27.1 million, or 5%, to $543.2 million for the year ended December 31, 2023, compared to $516.0 million for the same period in 2022.
The change in the operating cash flows reflected increases in net income including noncontrolling interests of $249.2 million, adjustments related to non-cash items of $79.0 million and cash provided by changes in working capital of $49.2 million.
The change in the operating cash flows reflected an increase in net income including noncontrolling interests of $135.7 million, and decreases in adjustments related to non-cash items of $135.5 million and cash provided by changes in working capital of $28.7 million.
During 2022, the Company made cash dividend payments of $40.5 million to holders of Class A Common Stock and Common Units and $263.3 million was reinvested in shares of Class A Common Stock by each Reinvestment Holder.
During 2023, the Company made cash dividend payments of $82.0 million to holders of Class A Common Stock and Common Units and $352.1 million was reinvested in shares of Class A Common Stock by the Reinvestment Holders.
Because the Transaction was accounted for as a reverse merger, certain Preferred Units that were issued and outstanding were assumed at Closing for accounting purposes.
Because the Transaction was accounted for as a reverse merger, certain Preferred Units that were issued and outstanding were assumed at Closing for accounting purposes. The Company assumed 525,000 Preferred Units as well as 29,983 paid-in-kind (“PIK”) Preferred Units immediately after the Closing.
In addition, the Company, when economically appropriate, enters into fee-based arrangements that insulate the Company from commodity price volatility. 29 Table of Contents Inflation and Interest Rates The annual rate of inflation in the United States dropped slightly to 6.40% in January 2023, as measured by the Consumer Price Index, which was the lowest since October 2021.
In addition, the Company, when economically appropriate, enters into fee-based arrangements that insulate the Company from commodity price volatility. 34 Table of Contents Index to Financial Statements Inflation and Interest Rates The annual rate of inflation in the United States was 3.10% for the 12 months ending January 2024 compared to 6.4% for the 12 months ending in January 2023, as measured by the Consumer Price Index.
Loss on disposal of assets For the year ended December 31, 2022, the Company recognized a loss on disposal of assets of $12.6 million compared with $0.4 million for the same period in 2021.
Over 99% of operating expenses are included in the Midstream Logistics segment. Loss on disposal of assets For the year ended December 31, 2023, the Company recognized a loss on disposal of assets of $19.4 million compared with $12.6 million for the same period in 2022.
See Note 20 —Segment s in the Notes to the Consolidated Financial Statements in this Form 10-K for capital expenditure for each operating segment.
See Note 19 —Segments in the Notes to the Consolidated Financial Statements in this Annual Report for capital expenditure for each operating segment.
Our product sales revenue is exposed to commodity price fluctuations. Therefore, commodity price decline and sustained periods of low natural gas and NGL prices could have an adverse effect on our product revenue stream. The Company continues to monitor commodity prices closely and may enter into commodity price hedges from time to time as necessary to mitigate the volatility risk.
Our product sales revenue is exposed to commodity price fluctuations. Therefore, commodity price decline and sustained periods of low natural gas and NGL prices could have an adverse effect on our product revenue stream.
Impairment of Long-lived Assets Long-lived assets used in operations are evaluated for potential impairment when events or changes in circumstances indicate a possible significant deterioration in future cash flows expected to be generated by an asset group.
See Note 3—Business Combination in our Notes to the Consolidated Financial Statements in this Annual Report for more information regarding our valuation approach. Impairment of Long-lived Assets Long-lived assets used in operations are evaluated for potential impairment when events or changes in circumstances indicate a possible significant deterioration in future cash flows expected to be generated by an asset group.
Adjusted EBITDA has important limitations as an analytical tool because it excludes some, but not all, items that affect net income including noncontrolling interests. Adjusted EBITDA should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP.
Adjusted EBITDA should not be considered as an alternative to the GAAP measure of net income including noncontrolling interests or any other measure of financial performance presented in accordance with GAAP. Adjusted EBITDA has important limitations as an analytical tool because it excludes some, but not all, items that affect net income including noncontrolling interests.
For The Year Ended December 31, * 2022 2021 % Change (In thousands, except percentage) Reconciliation of net income including noncontrolling interests to Adjusted EBITDA Net income including noncontrolling interests $ 250,721 $ 1,482 NM Add back: Interest expense 149,252 117,365 27 % Income tax expense 2,616 1,865 40 % Depreciation and amortization 260,345 243,558 7 % Amortization of contract costs 1,807 1,792 1 % Proportionate EMI EBITDA 268,826 83,593 NM Share-based compensation 42,780 — 100 % Loss on disposal of assets 12,611 382 NM Loss (gain) on debt extinguishment 27,975 (4) NM Derivative loss due to Winter Storm Uri — 13,456 (100) % Integration Costs 12,208 — 100 % Transaction Costs 6,412 5,730 12 % Other one-time cost or amortization 16,355 2,856 NM Producer Settlement — 6,827 (100) % Deduct: Interest income — 115 (100) % Warrant valuation adjustment 133 — 100 % Gain on redemption of mandatorily redeemable Preferred Units 9,580 — 100 % Gain on embedded derivatives 89,050 — 100 % Equity income from unconsolidated affiliates 180,956 63,074 187 % Adjusted EBITDA $ 772,189 $ 415,713 86 % *The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022.
For The Year Ended December 31, 2023 2022 * % Change (In thousands, except percentage) Reconciliation of net income including noncontrolling interests to Adjusted EBITDA Net income including noncontrolling interests $ 386,452 $ 250,721 54 % Add back: Interest expense 205,854 149,252 38 % Income tax (benefit) expense (232,908) 2,616 NM Depreciation and amortization 280,986 260,345 8 % Amortization of contract costs 6,620 1,807 NM Proportionate EMI EBITDA 306,072 268,826 14 % Share-based compensation 55,983 42,780 31 % Loss on disposal of assets 19,402 12,611 54 % Loss on debt extinguishment 1,876 27,975 (93) % Integration Costs 1,015 12,208 (92) % Transaction Costs 648 6,412 (90) % Other one-time cost or amortization 11,901 16,355 (27) % Deduct: Interest income 677 — 100 % Warrant valuation adjustment 88 133 (34) % Gain on redemption of mandatorily redeemable Preferred Units — 9,580 (100) % Unrealized gain on derivatives 4,291 — 100 % Gain on embedded derivative — 89,050 (100) % Equity income from unconsolidated affiliates 200,015 180,956 11 % Adjusted EBITDA $ 838,830 $ 772,189 9 % *The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022.
The following table presents segment adjusted EBITDA for the year ended December 31, 2022. Also refer to Note 20—Segments in the Notes to our Consolidated Financial Statements in this Form 10-K for reconciliation of segment adjusted EBITDA to net income including noncontrolling interests.
Also refer to Note 19 — Segments in the Notes to our Consolidated Financial Statements in this Annual Report for reconciliation of segment adjusted EBITDA to net income including noncontrolling interests.
The additional shares of Common Stock were issued on June 8, 2022 to holders of record at the close of business on May 31, 2022. Factors Affecting Our Business Commodity Price Volatility There has been, and we believe there will continue to be, volatility in commodity prices and in the relationships among NGLs, crude oil and natural gas prices.
Factors Affecting Our Business Commodity Price Volatility There has been, and we believe there will continue to be, volatility in commodity prices and in the relationships among NGLs, crude oil and natural gas prices.
Financing Activities . Net cash used in financing activities increased by $202.4 million for the year ended December 31, 2022 compared with the same period in 2021.
Net cash provided by financing activities totaled $100.0 million for the year ended December 31, 2023 compared with net cash used in financing activities totaling $339.2 million in the same period in 2022.
Cash Flows The following tables present cash flows from operating, investing, and financing activities during the periods presented: For The Year Ended December 31, 2022 2021 (In thousands) Cash provided by operating activities $ 613,006 $ 235,569 Cash used in investing activities $ (286,130) $ (99,621) Cash used in financing activities $ (339,211) $ (136,810) 36 Table of Contents Operating Activities .
Cash Flows The following tables present cash flows from operating, investing, and financing activities: For The Year Ended December 31, 2023 2022 (In thousands) Cash provided by operating activities $ 584,480 $ 613,006 Cash used in investing activities $ (686,320) $ (286,130) Cash provided by (used in) financing activities $ 99,956 $ (339,211) Operating Activities .
The Company owns the following equity interests in four EMI pipelines in the Permian Basin with access to various points along the Texas Gulf Coast: 1) an approximate 53.3% equity interest in PHP, which is also owned and operated by Kinder Morgan; 2) 16% equity interest in GCX, which is owned and operated by Kinder Morgan; 3) 33% equity interest in Shin Oak, which is owned by Breviloba, LLC, and operated by Enterprise Products Operating LLC; and 4) 15% equity interest in EPIC, which is operated by EPIC Consolidated Operations, LLC.
The Company owns the following equity interests in four EMI pipelines in the Permian Basin with access to various points along the Texas Gulf Coast: 1) an approximate 55.5% equity interest in Permian Highway Pipeline LLC (“ PHP”), which is also owned and operated by Kinder Morgan.
Under certain clauses of our transportation services agreements with third party pipelines to transport natural gas and NGLs, if we fail to ship a minimum throughput volume, then we will pay certain deficiency payments for transportation based on the volume shortfall up to the MVC amount.
Under certain clauses of our transportation services agreements with third party pipelines to transport natural gas and NGLs, if we fail to ship a minimum throughput volume, then we will pay certain deficiency payments for transportation based on the volume shortfall up to the MVC amount. 40 Table of Contents Index to Financial Statements For additional information regarding the Company’s obligations, please see Note 8—Debt and Financing Costs and Note 17—Commitments and Contingencies in the Notes to the Consolidated Financial Statements in this Annual Report.
The Midstream Logistics segment operates under three service offerings, 1) gas gathering and processing, 2) crude oil gathering, stabilization, and storage services, and 3) water gathering and disposal.
Our Operations and Segments We have two reportable segments which are strategic business units with various products and services. The Midstream Logistics segment operates under three service offerings, 1) gas gathering and processing, 2) crude oil gathering, stabilization and storage services and 3) produced water gathering and disposal.
During the year ended December 31, 2022 and 2021, capital spending for property, plant and equipment totaled $206.2 million, which included the Brandywine NGL Pipeline acquisition, and $78.0 million, respectively and intangible assets purchases of $15.4 million and $4.7 million, respectively.
During the year ended December 31, 2023 and 2022, capital spending for property, plant and equipment totaled $312.9 million and $206.2 million in 2022, and intangible asset purchases of $16.7 million in 2023 and $15.4 million in 2022.
Cost of sales (exclusive of depreciation and amortization) are included entirely in the Midstream Logistics segment. Operating expenses Operating expenses increased by $46.4 million, or 51%, to $137.3 million for the year ended December 31, 2022, compared to $90.9 million for the same period in 2021. Of the total increase, $25.0 million was driven by the newly acquired operations.
More than 99% of the cost of sales (exclusive of depreciation and amortization) are included in the Midstream Logistics segment. Operating expenses Operating expenses increased by $24.2 million, or 18%, to $161.5 million for the year ended December 31, 2023, compared to $137.3 million for the same period in 2022.
Gas processing assets are centralized at five processing complexes with total cryogenic processing capacity of approximately 2.0 Bcf/d. Crude Oil Gathering, Stabilization, and Storage Services. Crude gathering assets are centralized at the Caprock Stampede Terminal and the Pinnacle Sierra Grande Terminal. The system includes approximately 220 miles of gathering pipeline and 90,000 barrels of crude storage. Water Gathering and Disposal.
Crude gathering assets are centralized at the Caprock Stampede Terminal and the Pinnacle Sierra Grande Terminal. The system includes approximately 220 miles of gathering pipeline and 90,000 barrels of crude storage. 32 Table of Contents Index to Financial Statements Water Gathering and Disposal.
The Pipeline Transportation segment consists of four EMI pipelines in the Permian Basin with various access points to the Texas Gulf Coast, Kinetik NGL Pipeline and our Delaware Link Pipeline that is under construction.
The Pipeline Transportation segment consists of four EMI pipelines originating in the Permian Basin with various access points to the U.S. Gulf Coast, Kinetik NGL Pipelines and Delaware Link Pipeline. The pipelines transport crude oil, natural gas and NGLs within the Permian Basin and to the U.S. Gulf Coast. Midstream Logistics Gas Gathering and Processing.
As a result of uncertainty around global commodity supply and demand, uncertainty in global economic recovery from the aftereffects of the COVID-19 pandemic and the armed conflict in Ukraine, global oil and natural gas commodity prices continue to remain volatile.
As a result of uncertainty around global commodity supply and demand, the current armed conflict in Israel and the Gaza Strip, the ongoing armed conflict in Ukraine, and uncertainty from failures of two U.S. banks and the resulting effects on financial markets, global oil and natural gas commodity prices continue to remain volatile.
Partially offsetting this decrease in volumes, natural gas prices increased period over period $1.44 per MMBtu, or 37%. Product revenues are included entirely in the Midstream Logistics segment.
In addition, natural gas residue sales volumes increased 0.5 million MMBtu, or 2%, but fully offsetting this increase in residue volumes, natural gas prices decreased period-over-period $3.84 per MMBtu, or 69%. Product revenues are included entirely in the Midstream Logistics segment.
If an impairment is indicated, we adjust the carrying values of the investment downward, if necessary, to their estimated fair values. We estimate the fair value of our equity method investments based on a number of factors, including discount rates, projected cash flows, and enterprise value.
If an event occurs, we evaluate the recoverability of our carrying value based on the fair value of the investment. If an impairment is indicated, we adjust the carrying values of the investment downward, if necessary, to their estimated fair values.
Refer to Note 8 — Debt and Financing Costs in the Notes to our Consolidated Financial Statements in this Form 10-K for further information. 28 Table of Contents PHP Expansion Project In June 2022, PHP announced a final investment decision to proceed with its expansion project to increase total capacity to 2.65 Bcf/d fully subscribed under 10 year take-or-pay contracts.
PHP Expansion Project In June 2022, PHP announced a final investment decision to proceed with its expansion project to increase total capacity to 2.65 Bcf/d, fully subscribed under 10 year take-or-pay contracts. The expansion project increased PHP’s capacity by nearly 550 MMcf/d.
NM - Not meaningful Adjusted EBITDA increased by $356.5 million, or 86% to $772.2 million for the year ended December 31, 2022, compared to $415.7 million for the same period in 2021.
NM - Not meaningful 39 Table of Contents Index to Financial Statements Adjusted EBITDA increased by $66.6 million, or 9% to $838.8 million for the year ended December 31, 2023, compared to $772.2 million for the same period in 2022. As discussed in the Item 7.
The change reflected the loss on debt extinguishment recognized in relation to the comprehensive refinancing completed in June 2022. Gain on embedded derivatives For the year ended December 31, 2022, the Company recognized a gain on embedded derivatives of $89.1 million.
The prior year loss on debt extinguishment was in relation to the comprehensive refinancing completed in June of 2022. 37 Table of Contents Index to Financial Statements Gain on embedded derivative For the year ended December 31, 2022, the Company recognized a gain on an embedded derivative of $89.1 million as a result of the complete redemption of redeemable noncontrolling interest Preferred Units during July of 2022.
NGL and condensate sales volumes increased 12.7 million barrels, or over 300%. The increase in NGL and condensate sales volumes offset the decreased NGL prices of $0.80 per barrel, or 2%.
NGL and condensate sales volumes increased 14.7 million barrels, or over 80%. The increase in volume was partially offset by decreases in c ondensate prices of $22.38 per barrel, or 24%, and decreases of NGL prices of $14.31 per barrel, or 40%.
The additional shares of Common Stock were issued on June 8, 2022 to holders of record at the close of business on May 31, 2022.
The additional shares of Common Stock were issued on June 8, 2022 to holders of record at the close of business on May 31, 2022. Stock Repurchase Program In February 2023, the Board approved the Repurchase Program, authorizing discretionary purchases of the Company’s Class A Common Stock up to $100.0 million in the aggregate.
Volume increase reflected synergy realized from the new operations acquired through the Transaction. 31 Table of Contents Service revenue Service revenue consists of service fees paid to the Company by its customers for providing comprehensive gathering, treating, processing and water disposal services necessary to bring natural gas, NGLs and crude oil to the market.
The increase was primarily driven by increases in gathered and disposed of produced water volumes, as well as similar increases in condensate and NGL volumes sold. 36 Table of Contents Index to Financial Statements Service revenue Service revenue consists of service fees paid to the Company by its customers for providing comprehensive gathering, treating, processing and water disposal services necessary to bring natural gas, NGLs and crude oil to market.
The Company assumed 525,000 Preferred Units as well as 29,983 paid-in-kind (“PIK”) Preferred Units immediately after the Closing. 37 Table of Contents Since the Closing, the Company redeemed all outstanding Preferred Units and PIK units for an aggregate redemption price of $644.8 million.
In 2022, the Company redeemed all outstanding Preferred Units and PIK units for an aggregate redemption price of $644.8 million.
For the year ended December 31, 2022, cost of sales increased $307.9 million, or 132%, to $541.5 million, compared to $233.6 million for the same period in 2021. The increase was primarily driven by the period-to-period increases in commodity prices and NGL and condensate volumes discussed above.
For the year ended December 31, 2023, cost of sales decreased $25.8 million, or 5%, to $515.7 million, compared to $541.5 million for the same period in 2022. The decrease was primarily driven by the period-to-period decreases in the aforementioned commodity prices.
Equity in earnings of unconsolidated affiliates Income from EMI pipelines increased by $117.9 million, or 187% to $181.0 million for the year ended December 31, 2022, compared to $63.1 million for the same period in 2021.
Refer to Note—1 3 Derivatives and Hedging Activities in the Notes to Consolidated Financial Statements regarding the Company’s strategy in managing interest rate risk. Equity in earnings of unconsolidated affiliates Income from EMI pipelines increased by $19.1 million, or 11% to $200.0 million for the year ended December 31, 2023, compared to $181.0 million for the same period in 2022.
The increase was primarily due to the acquisition of new EMI pipelines and additional equity interests in the Company’s existing EMI pipeline, PHP, through the Transaction and due to higher earnings from our EMI pipelines. Equity in earnings of unconsolidated affiliates is included entirely in the Pipeline Transportation segment.
The increase was primarily due to additional equity interests in PHP from the recently completed expansion and due to the Company owning the former ALTM EMI pipelines for a full 12 months during 2023 versus 10 months in 2022. Equity in earnings of unconsolidated affiliates is included entirely in the Pipeline Transportation segment.
Exhibits, Financial Statement Schedules, Note 2 —Summary of Significant Accounting Policies of this Annual Report on Form 10-K. The Company prepares its financial statements and the accompanying notes in conformity with GAAP, which require management to make estimates and assumptions about future events that affect the reported amounts in the financial statements and the accompanying notes.
GAAP, which require management to make estimates and assumptions about future events that affect the reported amounts in the financial statements and the accompanying notes.
For 2023, the Company’s primary capital spending requirements are related to the PHP expansion project and other budgeted capital expenditures for construction of gathering and processing assets and the Company’s contractual debt obligations. The Company will continue to have Apache, Blackstone and I Squared reinvest 100% of their 2023 distribution and dividends into shares of our Class A Common Stock.
For 2023, the Company’s primary capital spending were related to the PHP expansion project, the midstream infrastructure acquisition and other budgeted capital expenditures for construction of gathering and processing assets, the Company’s contractual debt obligations and quarterly cash dividends and distributions.
An estimate of the sensitivity to changes in underlying assumptions of a fair value calculation is not practicable, given the numerous assumptions that can materially affect our estimates.
An estimate of the sensitivity to changes in underlying assumptions of a fair value calculation is not practicable, given the numerous assumptions that can materially affect our estimates. 44 Table of Contents Index to Financial Statements Equity Method Investment We evaluate our EMIs for impairment when events or circumstances indicate that the carrying value of the EMI may be impaired and that impairment is other than temporary.
The Transaction On February 22, 2022, the Company consummated the business combination transactions contemplated by the Contribution Agreement, dated as of October 21, 2021, by and among the Company, the Partnership, Contributor and BCP.
Business Combination On February 22, 2022, (“the Closing Date”), Kinetik Holdings Inc., a Delaware corporation (formerly known as Altus Midstream Company), consummated the business combination transactions contemplated by the Contribution Agreement, dated as of October 21, 2021 (the “Contribution Agreement”), by and among the Company, Altus Midstream LP (now known as Kinetik Holdings LP), a Delaware limited partnership and subsidiary of Altus Midstream Company (the “Partnership”), New BCP Raptor Holdco, LLC, a Delaware limited liability company, and BCP.
See Note 8—Debt and Financing Costs in the Notes to our Consolidated Financial Statements in this Form 10-K.
Contractual Obligations We have contractual obligations for principal and interest payments on our 2028 Notes, 2030 Notes and Term Loan. See Note 8—Debt and Financing Costs in the Notes to our Consolidated Financial Statements in this Annual Report.
Product revenue for the year ended December 31, 2022, increased by $420.7 million, or 109%, to $806.4 million, compared to $385.6 million for the same period in 2021, primarily due to period-to-period increases in condensate prices combined with increased NGL and condensate sales volumes. Condensate prices increased $27.80 per barrel, or 44%.
Product revenue Product revenue consists of commodity sales (including condensate, natural gas residue and NGLs). Product revenue for the year ended December 31, 2023, increased by $16.1 million, or 2%, to $822.4 million, compared to $806.4 million for the same period in 2022, primarily due to a period-over-period increase in NGL and condensate sales volumes.
The change was primarily related to retirements of compressor or booster stations and a refrigeration plant that had become idle due to operational changes. 32 Table of Contents Other Income (Expense) Gain (loss) on debt extinguishment For the year ended December 31, 2022, the Company recognized a loss on debt extinguishment of $28.0 million, compared with a gain of $4 thousand for the same period in 2021.
Other Income (Expense) Loss on debt extinguishment For the year ended December 31, 2023, the Company recognized a loss on debt extinguishment of $1.9 million, compared with a loss of $28.0 million for the same period in 2022.
Pipeline Transportation segment adjusted EBITDA increased by $187.4 million, or NM, to $269.2 million for the year ended December 31, 2022, compared to $81.9 million for the same period in 2021.
The reasons for the fluctuations are discussed in the Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations to this Annual Report. Pipeline Transportation segment adjusted EBITDA increased by $41.9 million, or 16%, to $311.1 million for the year ended December 31, 2023, compared to $269.2 million for the same period in 2022.
The expansion project will increase PHP’s capacity by nearly 550 MMcf/d with a target in-service date in November 2023. Approximately 67% of the funding for the expansion project will be borne and the remainder by Kinder Morgan. As a result, following the in-service date of the expansion, Kinetik’s ownership interest in PHP will increase to approximately 55.5%.
Approximately 67% of the funding for the expansion project was borne by the Company and the remainder by Kinder Morgan. As a result, upon completion of the project, the Company’s ownership interest in PHP increased to approximately 55.5%. The Company contributed $238.8 million to the expansion project during 2023 and the expansion went into service on December 1, 2023.
Liquidity The following table presents a summary of the Company’s key financial indicators at the dates presented: December 31, 2022 December 31, 2021 (In thousands) Cash and cash equivalents $ 6,394 $ 18,729 Total debt, net of unamortized deferred financing cost $ 3,368,510 $ 2,307,702 Available committed borrowing capacity $ 855,000 $ 133,000 Cash and cash equivalents At December 31, 2022 and 2021, the Company had $6.4 million and $18.7 million, respectively, in cash and cash equivalents.
The Company recognized a gain of $9.6 million on redemption of the mandatory redeemable Preferred Units and excess of carrying amount over redemption price of $109.5 million on redemption of the redeemable noncontrolling interest Preferred Units during 2022. 43 Table of Contents Index to Financial Statements Liquidity The following table presents a summary of the Company’s key financial indicators: December 31, 2023 2022 (In thousands) Cash and cash equivalents $ 4,510 $ 6,394 Total debt, net of unamortized deferred financing cost $ 3,562,809 $ 3,368,510 Available committed borrowing capacity $ 643,400 $ 855,000 Off-Balance Sheet Arrangements As of December 31, 2023, there were no off-balance sheet arrangements.
The EMI pipelines transport crude oil, natural gas, and NGLs within the Permian Basin and to the Texas Gulf Coast. 27 Table of Contents Midstream Logistics Gas Gathering and Processing. The Midstream Logistics segment provides gas gathering and processing services with approximately 1,500 miles of low and high-pressure steel pipeline located throughout the Southern Delaware Basin.
The Midstream Logistics segment provides gas gathering and processing services with over 1,600 miles of low and high-pressure steel pipeline located throughout the Delaware Basin. Gas processing assets are centralized at five processing complexes with total cryogenic processing capacity of approximately 2.0 Bcf/d. Crude Oil Gathering, Stabilization and Storage Services.

… 114 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+1 added−3 removed2 unchanged
Biggest changeTo manage its exposure to interest rate movements, in November 2022, the Company entered into an interest rate swap with a notional amount of $1.00 billion at a fixed rate of 4.46% that is effective from May 1, 2023 to May 31, 2025.
Biggest changeAs of December 31, 2023, the Company had two interest rate swap contracts with total notional amounts of $1.70 billion maturing on May 31, 2025 and paying a fixed rate ranging from 4.38% to 4.48% for the respective notional amounts.
Any increase in the nonpayment and nonperformance by, or the insolvency or liquidation of, the Company’s customers could adversely affect the Company’s results of operations.
Any increase in nonpayment and nonperformance by, or the insolvency or liquidation of, the Company’s customers could adversely affect the Company’s results of operations.
The interest rate for the revolving and term loan credit facilities is variable, which exposes the Company to the risk of increased interest expense in the event of increases of short-term interest rates. Accordingly, results of operations, cash flows, financial condition, and the ability to make cash distributions could be adversely affected by significant increases in interest rates.
The interest rates for the Revolving Credit Facility and the Term Loan are variable, which exposes the Company to the risk of increased interest expense in the event of increases to short-term interest rates. Accordingly, results of operations, cash flows, financial condition and the ability to make cash distributions could be adversely affected by significant increases in interest rates.
Interest Rate Risk The market risk inherent in our financial instruments and our financial position represents the potential loss arising from adverse changes in interest rates. As of December 31, 2022, the Company had interest bearing debt, net of deferred financing costs, with principal amount of $3.37 billion.
Interest Rate Risk The market risk inherent in our financial instruments and our financial position represents the potential loss arising from adverse changes in interest rates. As of December 31, 2023, the Company had interest bearing debt, net of deferred financing costs, with a principal amount of $3.56 billion.
A portion of the Company’s revenue is directly tied to local crude, natural gas, NGLs and condensate prices in the Permian Basin. Fluctuations in commodity prices also impact operating cost elements both directly and indirectly.
Commodity Price Risk The results of the Company’s operations may be affected by the market prices of oil, NGLs and natural gas. A portion of the Company’s revenue is directly tied to local crude, natural gas, NGLs and condensate prices in the Permian Basin. Fluctuations in commodity prices also impact operating cost elements both directly and indirectly.
Refer to Note 14—Derivative and Hedging Activities in the Notes to our Consolidated Financial Statements in this Form 10-K for additional discussion regarding our hedging strategies and objectives.
Refer to Note 13—Derivative and Hedging Activities in the Notes to our Consolidated Financial Statements in this Annual Report for additional discussion regarding our hedging strategies and objectives.
The Company also expects to realize 0.05% reductions to the effective interest rates of both the revolving credit facility and the term loan credit facility during 2023 in relation to sustainability adjustment features embedded in these facilities.
The Company also expects to maintain a 0.05% reduction to the effective interest rates of both the Revolving Credit Facility and the Term Loan during 2024 in relation to achieving sustainability adjustment features embedded in these facilities. Credit Risk The Company is subject to credit risk resulting from nonpayment or nonperformance by, or the insolvency or liquidation of, third-party customers.
Management regularly reviews the Company’s potential exposure to commodity price risk and may periodically enter into financial or physical arrangements intended to mitigate potential volatility.
Management regularly reviews the Company’s potential exposure to commodity price risk and may periodically enter into financial or physical arrangements intended to mitigate potential volatility. Refer to Note 13—Derivative and Hedging Activities in the Notes to our Consolidated Financial Statements in this Annual Report for additional discussion regarding our hedging strategies and objectives.
The Company continually monitors its market risk exposure, including the impact and developments related to the armed conflict in Ukraine, increase in interest rate and inflation trend, which introduced significant volatility and uncertainties in the financial markets during 2022. Commodity Price Risk The results of the Company’s operations may be affected by the market prices of oil and natural gas.
The Company continually monitors its market risk exposure, including the impact and developments related to the armed conflicts in Ukraine and Israel, increase in interest rate and inflation trends, which continued to have significant impact on volatility and uncertainties in the financial markets during 2023.
Removed
Refer to Note 14—Derivative and Hedging Activities in the Notes to our Consolidated Financial Statements in this Form 10-K for additional discussion regarding our hedging strategies and objectives, including certain commodity hedges entered into during the fourth quarter of 2022.
Added
Upon closing of the First Amendment in December 2023, the Company terminated one existing interest rate swap contract and partially terminated another.
Removed
If interest rates increase by 10.0%, the Company’s consolidated interest expense would have increased by approximately $63.4 million for the year ended December 31, 2022 on a pro forma basis giving effect to the Company’s comprehensive sustainability-linked refinancing completed at the beginning of the second quarter of 2022.
Removed
The rate reductions are dependent upon the Company meeting certain sustainability targets after 2022, which are currently subject to the completion of certain attestation procedures. Credit Risk The Company is subject to credit risk resulting from nonpayment or nonperformance by, or the insolvency or liquidation of third-party customers.

Other KNTK 10-K year-over-year comparisons