Kinetik Holdings Inc. - Quarter Report: 2023 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-38048

KINETIK HOLDINGS INC.

(Exact name of registrant as specified in its charter)


Delaware						81-4675947
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2700 Post Oak Blvd, Suite 300

Houston, Texas, 77056

(Address of principal executive offices)

(Zip Code)

(713) 621-7330

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.0001 par value

KNTK

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒


Number of shares of registrant’s Class A Common Stock, par value $0.0001 per share issued and outstanding as of July 31, 2023												51,973,472
Number of shares of registrant’s Class C Common Stock, par value $0.0001 per share issued and outstanding as of July 31, 2023												94,089,038

TABLE OF CONTENTS


Item		Page
	PART I — FINANCIAL INFORMATION

1.	FINANCIAL STATEMENTS (UNAUDITED)	1

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022	1

	CONDENSED CONSOLIDATED BALANCE SHEETS - AS OF JUNE 30, 2023 AND DECEMBER 31, 2022	2

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - SIX MONTHS ENDED JUNE 30 , 2023 AND 2022	3

	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND NONCONTROLLING INTERESTS - THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022	4

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7

	1.DESCRIPTION OF THE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	7

	2.BUSINESS COMBINATIONS	9

	3.REVENUE RECOGNITION	10

	4.PROPERTY, PLANT AND EQUIPMENT	11

	5.GOODWILL AND INTANGIBLE ASSETS, NET	11

	6.EQUITY METHOD INVESTMENTS	12

	7.DEBT AND FINANCING COSTS	14

	8.ACCRUED EXPENSES	15

	9.LEASE	15

	10.EQUITY AND WARRANTS	15

	11.FAIR VALUE MEASUREMENTS	17

	12.DERIVATIVES AND HEDGING ACTIVITIES	18

	13.SHARE-BASED COMPENSATION	19

	14.INCOME TAXES	20

	15.NET INCOME PER SHARE	21

	16.COMMITMENTS AND CONTINGENCIES	21

	17.SEGMENTS	22

	18.SUBSEQUENT EVENTS	25

2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	26

3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37

4.	CONTROLS AND PROCEDURES	38

	PART II — OTHER INFORMATION

1.	LEGAL PROCEEDINGS	40

1A.	RISK FACTORS	40

2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	40

5.	OTHER INFORMATION	40

6.	EXHIBITS	42
	SIGNATURES	43

GLOSSARY OF TERMS

The following are abbreviations and definitions of certain terms which may be used in this Quarterly Report on Form 10-Q and certain terms which are commonly used in the exploration, production and midstream sectors of the oil and natural gas industry:

•ASC. Accounting Standards Codification

•Bbl. One stock tank barrel of 42 United States (“U.S.”) gallons liquid volume used herein in reference to crude oil, condensate or natural gas liquids

•Bcf. One billion cubic feet

•Bcf/d. One Bcf per day

•Btu. One British thermal unit, which is the quantity of heat required to raise the temperature of a one-pound mass of water by one degree Fahrenheit

•CODM. Chief Operating Decision Maker

•Delaware Basin. Located on the western section of the Permian Basin. The Delaware Basin covers a 6.4 million acre area

•Field. An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations

•GAAP. United States Generally Accepted Accounting Principles

•MBbl. One thousand barrels of crude oil, condensate or NGLs

•MBbl/d. One MBbl per day

•Mcf. One thousand cubic feet of natural gas

•Mcf/d. One Mcf per day

•MMBtu. One million Btus

•MMcf. One million cubic feet of natural gas

•MMcf/d. One MMcf per day

•MVC. Minimum volume commitments

•NGLs. Natural gas liquids. Hydrocarbons found in natural gas, which may be extracted as liquefied petroleum gas and natural gasoline

•Throughput. The volume of crude oil, natural gas, NGLs, water and refined petroleum products transported or passing through a pipeline, plant, terminal or other facility during a particular period

•SEC. United States Securities and Exchange Commission

•SOFR. Secured Overnight Financing Rate

•WTI. West Texas Intermediate crude oil

FORWARD-LOOKING STATEMENTS AND RISK

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included or incorporated by reference in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans, and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “plan,” “believe,” “continue,” “seek,” “guidance,” “might,” “outlook,” “possibly,” “potential,” “prospect,” “should,” “would,” or similar terminology. The absence of these words does not mean that a statement is not forward looking. Although we believe that the expectations reflected in such forward-looking statements are reasonable under the circumstances, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, assumptions about:

•the market prices of oil, natural gas, NGLs and other products or services;

•competition from other pipelines, terminals or other forms of transportation and competition from other service providers for gathering system capacity and availability;

•production rates, throughput volumes, reserve levels and development success of dedicated oil and gas fields;

•our future financial condition, results of operations, liquidity, compliance with debt covenants and competitive position;

•our future revenues, cash flows and expenses;

•our access to capital and our anticipated liquidity;

•our future business strategy and other plans and objectives for future operations;

•the amount, nature and timing of our future capital expenditures, including future development costs;

•the risks associated with potential acquisitions, divestitures, new joint ventures or other strategic opportunities;

•the recruitment and retention of our officers and personnel;

•the likelihood of success of and impact of litigation and other proceedings, including regulatory proceedings;

•our assessment of our counterparty risk and the ability of our counterparties to perform their future obligations;

•the impact of federal, state and local political, regulatory and environmental developments where we conduct our business operations;

•the occurrence of an extreme weather event, terrorist attack or other event that materially impacts project construction and our operations, including cyber or other attached-on electronic systems;

•our ability to successfully implement, execute and achieve our environmental, social and governance goals and initiatives;

•our ability to successfully implement our share repurchase program;

•our ability to integrate operations or realize any anticipated benefits, savings or growth of the Transaction (as defined herein). See Note 2 – Business Combination in the Notes to Condensed Consolidated Financial Statements set forth in this Form 10-Q;

•general economic and political conditions, including the armed conflict in Ukraine, epidemics or pandemics and actions taken by third parties in response to such epidemics or pandemics, the impact of continued inflation, central bank policy actions, bank failures and associated liquidity risks and other factors; and other factors disclosed in “Part I, Item 1A. — Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 7, 2023.

iii

Other factors or events that could cause the Company’s actual results to differ materially from the Company’s expectations may emerge from time to time, and it is not possible for the Company to predict all such factors or events. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, the Company disclaims any obligation to update or revise its forward-looking statements, whether based on changes in internal estimates or expectations, new information, future developments or otherwise.

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

KINETIK HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022(1)

	(In thousands, except per share data)
Operating revenues:
Service revenue	$	102,551	$	102,080	$	205,976	$	182,525
Product revenue	191,430		229,651		365,254		404,579
Other revenue	2,222		3,841		6,013		5,717
Total operating revenues(3)	296,203		335,572		577,243		592,821
Operating costs and expenses:
Costs of sales (exclusive of depreciation and amortization)(4)	110,467		152,714		226,344		272,989
Operating expenses	39,906		35,280		75,879		65,151
Ad valorem taxes	3,889		5,880		9,347		10,033
General and administrative expenses	22,869		25,960		50,380		48,712
Depreciation and amortization expenses	69,482		66,581		138,336		127,604
Loss on disposal of assets	12,137		8,546		12,239		8,656

Total operating costs and expenses	258,750		294,961		512,525		533,145
Operating income	37,453		40,611		64,718		59,676
Other income (expense):
Interest and other income	1,042		—		1,336		250
Gain on redemption of mandatorily redeemable Preferred Units	—		5,087		—		9,580
Loss on debt extinguishment	—		(27,975)		—		(27,975)
Gain on embedded derivative	—		91,448		—		88,562
Interest expense	(16,126)		(25,347)		(85,434)		(52,121)
Equity in earnings of unconsolidated affiliates	49,610		47,786		96,074		75,703

Total other income, net	34,526		90,999		11,976		93,999
Income before income taxes	71,979		131,610		76,694		153,675
Income tax expense	311		162		727		838
Net income including noncontrolling interest	71,668		131,448		75,967		152,837
Net income attributable to Preferred Unit limited partners	—		109,502		—		114,495
Net income attributable to common shareholders	71,668		21,946		75,967		38,342
Net income attributable to Common Unit limited partners	46,654		15,508		49,517		28,039
Net income attributable to Class A Common Stock Shareholders	$	25,014	$	6,438	$	26,450	$	10,303

Net income attributable to Class A Common Shareholders per share
Basic	$	0.41	$	0.06	$	0.36	$	0.16
Diluted	$	0.41	$	0.06	$	0.36	$	0.16
Weighted-average shares(2)
Basic	50,553		39,297		48,980		38,766
Diluted	50,625		39,329		49,220		38,796

(1)The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to the basis of presentation in Note 1—Description of the Organization and Summary of Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for further information.

(2)Class A share and per share amounts have been retrospectively restated to reflect the Company’s reverse stock split, which was effected June 8, 2022.

(3)Includes amounts associated with related parties of $24.8 million and $30.5 million for the three months ended June 30, 2023 and 2022, respectively, and $50.1 million and $46.2 million for the six months ended June 30, 2023 and 2022, respectively.

(4)Includes amounts associated with related parties of $10.8 million and $3.4 million for the three months ended June 30, 2023 and 2022, respectively, and $25.4 million and $7.1 million for the six months ended June 30, 2023 and 2022, respectively.

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

KINETIK HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30,		December 31,
	2023		2022

	(In thousands, except per share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,237	$	6,394
Accounts receivable, net of allowance for credit losses of $1,000 in 2023 and 2022(2)	181,536		204,036
Derivative assets	27,604		6,963
Prepaid and other current assets	36,458		24,474
	247,835		241,867
NONCURRENT ASSETS:
Property, plant and equipment, net	2,691,906		2,535,212
Intangible assets, net	649,897		695,389

Operating lease right-of-use assets	58,581		28,551
Deferred charges and other assets	83,513		32,275
Investments in unconsolidated affiliates	2,490,112		2,381,340
Goodwill	5,077		5,077
	5,979,086		5,677,844
Total assets	$	6,226,921	$	5,919,711
LIABILITIES, NONCONTROLLING INTEREST, AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	36,248	$	17,899
Accrued expenses	112,086		173,914
Derivative liabilities	4,585		5,718
Current portion of operating lease liabilities	37,826		22,810

Other current liabilities	8,605		7,487
	199,350		227,828
NONCURRENT LIABILITIES
Long term debt, net	3,625,799		3,368,510
Contract liabilities	24,535		22,693
Operating lease liabilities	21,715		6,023

Derivative liabilities	3,761		8,328
Other liabilities	3,278		2,677

Deferred tax liabilities	11,621		11,018
	3,690,709		3,419,249
Total liabilities	3,890,059		3,647,077
COMMITMENTS AND CONTINGENCIES (Note 16)
Redeemable noncontrolling interest — Common Unit limited partners	3,242,619		3,112,409
EQUITY:
Class A Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 52,085,784 shares issued 51,973,472 shares outstanding at June 30, 2023 and 45,679,447 shares issued and outstanding and December 31, 2022, respectively(1)	5		5
Class C Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 94,089,038 and 94,270,000 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively(1)	9		9
Additional paid-in capital	—		118,840
Accumulated deficit	(902,446)		(958,629)
Treasury stock, at cost (112,312 and nil shares as of June 30, 2023 and December 31, 2022, respectively)	(3,325)		—
Total equity	(905,757)		(839,775)
Total liabilities, noncontrolling interest, and equity	$	6,226,921	$	5,919,711

(1)Share amounts have been retrospectively restated to reflect the Company’s stock split, which was effected June 8, 2022.

(2)Includes amounts of $16.9 million and $17.6 million associated with related parties as of June 30, 2023 and December 31, 2022, respectively.

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

KINETIK HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2023		2022

	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income including noncontrolling interests	$	75,967	$	152,837
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	138,336		127,604
Amortization of deferred financing costs	3,055		6,538
Amortization of contract costs	3,310		896
Contingent liabilities remeasurement	—		(839)
Distributions from unconsolidated affiliates	136,230		117,544
Derivatives settlement	10,270		11,115
Derivative fair value adjustment	(36,611)		(102,544)
Warrants fair value adjustment	(77)		—
Gain on redemption of mandatorily redeemable Preferred Units	—		(9,580)
Loss on disposal of assets	12,239		8,656
Equity in earnings from unconsolidated affiliates	(96,074)		(75,703)
Loss on debt extinguishment	—		27,975
Share-based compensation	30,839		18,304
Deferred income taxes	603		613

Changes in operating assets and liabilities:
Accounts receivable	22,055		(100,511)
Other assets	(7,298)		(11,892)
Accounts payable	2,909		(3,844)
Accrued liabilities	(66,062)		102,094
Other non-current liabilities	678		—
Operating leases	678		(345)
Net cash provided by operating activities	231,047		268,918
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment expenditures	(160,167)		(71,429)
Intangible assets expenditures	(13,957)		(8,516)
Investments in unconsolidated affiliates	(154,721)		(2,675)
Distributions from unconsolidated affiliate	5,793		—
Cash proceeds from disposals	149		160
Net cash (paid for) acquired in acquisitions	(125,000)		13,401
Net cash used in investing activities	(447,903)		(69,059)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt	—		3,000,000
Principal payments on long-term debt	—		(2,294,130)
Payments on debt issuance cost	—		(37,042)
Proceeds from revolver	563,000		7,000
Payments on revolver	(308,000)		(716,000)
Redemption of mandatorily redeemable Preferred Units	—		(152,580)

Distributions paid to mandatorily redeemable Preferred Unit holders	—		(1,850)
Distributions paid to redeemable noncontrolling interest Preferred Unit limited partners	—		(6,937)
Cash dividends paid to Class A Common Stock shareholders	(36,196)		(11,239)
Distribution paid to Class C Common Unit limited partners	(348)		(491)

Repurchase of Class A Common Stock	(5,757)		—
Net cash provided by (used in) financing activities	212,699		(213,269)
Net change in cash	(4,157)		(13,410)
CASH, BEGINNING OF PERIOD	6,394		18,729
CASH, END OF PERIOD	$	2,237	$	5,319
SUPPLEMENTAL SCHEDULE OF INVESTING AND FINANCING ACTIVITIES
Cash paid for interest, net of amounts capitalized	$	125,411	$	52,982
Property and equipment and intangible accruals in accounts payable and accrued liabilities	$	39,631	$	20,344
Class A Common Stock issued through dividend and distribution reinvestment plan	$	175,626	$	87,697

Fair value of ALTM assets acquired	$	—	$	2,446,430
Class A Common Stock issued in exchange	—		1,013,745
ALTM liabilities and mezzanine equity assumed	$	—	$	1,432,685

The accompanying notes are an integral part of the condensed consolidated financial statements.

KINETIK HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND NONCONTROLLING INTERESTS

(Unaudited)


	Redeemable Noncontrolling Interest — Preferred Unit Limited Partners(2)		Redeemable Noncontrolling Interest — Common Unit Limited Partners		Class A Common Stock			Class C Common Stock			Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total Equity
					Shares(1)	Amount		Shares(1)	Amount

	(In thousands)				(In thousands)
For the Quarter Ended June 30, 2022
Balance at March 31, 2022	$	460,773	$	3,185,431	37,973	$	4	94,520	$	9	$	—	$	(1,137,873)	$	—	$	(1,137,860)

Distributions payable to Preferred Unit limited partners	(6,937)		—		—	—		—	—		—		—		—		—
Redemption of Common Units	—		(2,499)		70	—		(70)	—		2,499		—		—		2,499
Issuance of Class A Common Stock through dividend and distribution reinvestment plan	—		—		2,504	—		—	—		87,697		—		—		87,697
Share-based compensation	—		—		4	—		—	—		12,173		—		—		12,173
Net income	109,502		15,508		—	—		—	—		—		6,438		—		6,438
Change in redemption value of noncontrolling interests	—		123,741		—	—		—	—		(102,369)		(21,372)		—		(123,741)
Distributions paid to Common Unit limited partners	—		(70,891)		—	—		—	—		—		—		—		—
Cash dividends on Class A Common Stock ($0.75 per share)	—		—		—	—		—	—		—		(28,536)		—		(28,536)
Balance at June 30, 2022	$	563,338	$	3,251,290	40,551	$	4	94,450	$	9	$	—	$	(1,181,343)	$	—	$	(1,181,330)

For the Quarter Ended June 30, 2023
Balance at March 31, 2023	$	—	$	2,910,861	49,054	$	5	94,089	$	9	$	229,672	$	(863,452)	$	(2,432)	$	(636,198)

Issuance of common stock through dividend and distribution reinvestment plan	—		—		3,024	—		—	—		87,968		—		—		87,968
Retirement of treasury stock	—		—		—	—		—	—		—		(2,432)		2,432		—
Repurchase of Class A Common Stock	—		—		(112)	—		—	—		—		—		(3,325)		(3,325)
Share-based compensation	—		—		7	—		—	—		13,299		—		—		13,299
Net income	—		46,654		—	—		—	—		—		25,014		—		25,014
Change in redemption value of noncontrolling interests	—		355,670		—	—		—	—		(330,939)		(24,731)		—		(355,670)
Distribution paid to Common Units limited partners	—		(70,392)		—	—		—	—		—		—		—		—
Cash dividends on Class A Common Stock ($0.75 per share)	—		(174)		—	—		—	—		—		(36,845)		—		(36,845)
Balance at June 30, 2023	$	—	$	3,242,619	51,973	$	5	94,089	$	9	$	—	$	(902,446)	$	(3,325)	$	(905,757)

KINETIK HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND NONCONTROLLING INTERESTS

(Unaudited)


	Redeemable Noncontrolling Interest — Preferred Unit Limited Partners(2)		Redeemable Noncontrolling Interest — Common Unit Limited Partners		Class A Common Stock			Class C Common Stock			Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total Equity
					Shares(1)	Amount		Shares(1)	Amount

	(In thousands)				(In thousands)

For the Six Months Ended June 30, 2022
Balance at December 31, 2021	$	—	$	1,006,838	—	$	—	100,000	$	10	$	—	$	—	$	—	$	10
ALTM acquisition	462,717		—		32,493	3		—	—		1,013,742		—		—		1,013,745
Distributions paid to Preferred Unit limited partners	(6,937)		—		—	—		—	—		—		—		—		—
Distributions payable to Preferred Unit limited partners	(6,937)		—		—	—		—	—		—		—		—		—
Redemption of Common Units	—		(172,559)		5,550	1		(5,550)	(1)		172,559		—		—		172,559
Issuance of common stock through dividend and distribution reinvestment plan	—		—		2,504	—		—	—		87,697		—		—		87,697
Share-based compensation	—		—		4	—		—	—		18,304		—		—		18,304
Remeasurement of contingent consideration	—		—		—	—		—	—		4,451		—		—		4,451
Net income	114,495		28,039		—	—		—	—		—		10,303		—		10,303
Change in redemption value of noncontrolling interests	—		2,459,863		—	—		—	—		(1,296,753)		(1,163,110)		—		(2,459,863)
Distribution paid to Common Units limited partners	—		(70,891)		—	—		—	—		—		—		—		—
Cash dividends on Class A Common Stock ($0.75 per share)	—		—		—	—		—	—		—		(28,536)		—		(28,536)
Balance at June 30, 2022	$	563,338	$	3,251,290	40,551	$	4	94,450	$	9	$	—	$	(1,181,343)	$	—	$	(1,181,330)

For the Six Months Ended June 30, 2023
Balance at December 31, 2022	$	—	$	3,112,409	45,679	$	5	94,270	$	9	$	118,840	$	(958,629)	$	—	$	(839,775)
Redemption of Common Units	—		(5,634)		181	—		(181)	—		5,634		—		—		5,634
Issuance of common stock through dividend and distribution reinvestment plan	—		—		6,095	—		—	—		175,626		—		—		175,626
Retirement of treasury stock	—		—		—	—		—	—		—		(2,432)		2,432		—
Repurchase of Class A Common Stock	—		—		(194)	—		—	—		—		—		(5,757)		(5,757)
Share-based compensation	—		—		212	—		—	—		30,839		—		—		30,839
Net income	—		49,517		—	—		—	—		—		26,450		—		26,450
Change in redemption value of noncontrolling interests	—		227,459		—	—		—	—		(330,939)		103,480		—		(227,459)
Distribution paid to Common Units limited partners	—		(141,132)		—	—		—	—		—		—		—		—

KINETIK HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND NONCONTROLLING INTERESTS

(Unaudited)


	Redeemable Noncontrolling Interest — Preferred Unit Limited Partners(2)		Redeemable Noncontrolling Interest — Common Unit Limited Partners		Class A Common Stock			Class C Common Stock			Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total Equity
					Shares(1)	Amount		Shares(1)	Amount

	(In thousands)				(In thousands)
Cash dividends on Class A Common Stock ($0.75 per share)	—		—		—	—		—	—		—		(71,315)		—		(71,315)
Balance at June 30, 2023	$	—	$	3,242,619	51,973	$	5	94,089	$	9	$	—	$	(902,446)	$	(3,325)	$	(905,757)

(1)Share amounts have been retrospectively restated to reflect the Company’s Stock Split, which was effected on June 8, 2022. Refer to Note 10—Equity and Warrants in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for further information.

(2)Certain redemption features embedded within the Preferred Units require bifurcation and measurement at fair value. For further detail, refer to Note 12—Series A Cumulative Redeemable Preferred Units in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Commission on March 7, 2023.

The accompanying notes are an integral part of the condensed consolidated financial statements.

KINETIK HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

These condensed consolidated financial statements have been prepared by Kinetik Holdings Inc. (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). They reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for interim periods, on a basis consistent with the annual audited financial statements, with the exception of recently adopted accounting pronouncements. All such adjustments are of a normal recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10-Q should be read along with the Company’s audited financial statements and related notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 7, 2023.

1. DESCRIPTION OF THE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

BCP Raptor Holdco, LP (“BCP”), the Company’s predecessor for accounting purposes, was formed on April 25, 2017 as a Delaware limited partnership to acquire and develop midstream oil and gas assets. BCP’s primary operating subsidiaries are EagleClaw Midstream Ventures, LLC and CR Permian Holdings, LLC. Both subsidiaries were formed to design, engineer, install, own and operate facilities and provide services for produced natural gas gathering, compression, processing, treating and dehydration, and condensate separation, stabilization, and storage, crude oil gathering and storage and produced water gathering and disposal assets.

Altus Midstream Company (“ALTM”) was originally incorporated on December 12, 2016 in Delaware under the name Kayne Anderson Acquisition Corp. (“KAAC”) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. KAAC completed its initial public offering in the second quarter of 2017. On August 3, 2018, Altus Midstream LP was formed in Delaware as a limited partnership and wholly-owned subsidiary of KAAC and entered into a contribution agreement with certain affiliates of Apache Corporation (“Apache” and such affiliates the “Altus Midstream Entities”), formed by Apache between May 2016 and January 2017, for the purpose of acquiring, developing and operating midstream oil and gas assets in the Alpine High resource play and surrounding areas. On November 9, 2018, KAAC acquired all equity interests of the Altus Midstream Entities and changed its name to Altus Midstream Company.

On February 22, 2022 (the “Closing Date”), Kinetik Holdings Inc., a Delaware corporation (formerly known as Altus Midstream Company), consummated the previously announced 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 (“Contributor”) and BCP. The transactions contemplated by the Contribution Agreement are referred to herein as the “Transaction.” In connection with the closing of the Transaction (the “Closing”), the Company changed its name from “Altus Midstream Company” to “Kinetik Holdings Inc.” Unless the context otherwise requires, “ALTM” refers to the registrant prior to the Closing and “we,” “us,” “our” and the “Company” refer to Kinetik Holdings Inc., the registrant and its subsidiaries following the Closing.

Through its consolidated subsidiaries, the Company provides comprehensive gathering, produced water disposal, transportation, compression, processing and treating services necessary to bring natural gas, NGLs and crude oil to market. Additionally, the Company owns equity interests in four separate Permian Basin pipeline entities that have access to various markets along the Texas Gulf Coast.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP. Certain reclassifications of prior year balances have been made to conform such amounts to current year presentation. These reclassifications have no impact on net income. All adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim periods are not necessarily indicative of results of operations for a

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full year; accordingly, you should read these condensed consolidated financial statements in conjunction with our consolidated financial statements and related notes included in our 2022 Form 10-K. All intercompany balances and transactions have been eliminated in consolidation.

Prior to the Closing, the Company’s financial statements that were filed with the SEC were derived from ALTM’s accounting records. As the Transaction was determined to be a reverse merger, BCP was considered the accounting acquirer and ALTM was the legal acquirer. The accompanying condensed consolidated financial statements herein include (1) BCP’s net assets carried at historical value, (2) BCP’s historical results of operations prior to the Transaction, (3) the ALTM’s net assets carried at fair value as of the Closing Date and (4) the combined results of operations with the Company’s results presented within the condensed consolidated financial statements from February 22, 2022 going forward. Therefore, the results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to Note 2—Business Combination to our condensed consolidated financial statements in this Form 10-Q for additional discussion.

The Company completed a two-for-one Stock Split on June 8, 2022. All corresponding per-share and share amounts for periods prior to June 8, 2022 have been retrospectively restated in this Form 10-Q to reflect the two-for-one Stock Split, except for the number of Common Units and shares of Class C Common Stock described above in relation to the Transaction, which are presented at pre-Stock-Split amounts. This presentation is consistent with our previous public filings and the terms of the Contribution Agreement.

Significant Accounting Policies

The accounting policies that we follow are set forth in Note 2 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our Annual Report. There were no significant updates or revisions to our accounting policies during the six months ended June 30, 2023.

Inventory

Other current assets include condensate, residue gas and NGLs inventories that are valued at the lower of cost or market. Inventory was valued at $7.3 million and $4.8 million as of June 30, 2023 and December 31, 2022, respectively.

Transactions with Affiliates

The accounts receivable from or payable to affiliates represent the net result of the Company’s monthly revenue, capital and operating expenditures, and other miscellaneous transactions to be settled with Apache and its subsidiaries, who controlled the Company prior to the Transaction. Accounts receivable from affiliates was $16.9 million and $17.6 million as of June 30, 2023 and December 31, 2022, respectively. Revenue from affiliates was $24.8 million and $30.5 million for the three months ended June 30, 2023 and 2022, respectively, and $50.1 million and $46.2 million for the six months ended June 30, 2023 and 2022, respectively. Accrued expense due to affiliates was immaterial as of June 30, 2023 and December 31, 2022. The Company incurred operating expenses with affiliates of $0.2 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively, and $0.4 million and $0.2 million for the six months ended June 30, 2023 and 2022, respectively.

The Company recorded cost of sales with an affiliate of $10.8 million and $3.4 million for the three months ended June 30, 2023 and 2022, respectively, and $25.4 million and $7.1 million, for the six months ended June 30, 2023 and 2022, respectively.

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2. BUSINESS COMBINATIONS

As of June 30, 2023, our allocation of purchase price for acquisitions made during 2023 and 2022 are detailed below:


	Acquisition Date	Acquisition	Considerations Transferred		Current Assets		Property Plant & Equipment		Intangible Assets		Other Long Term Assets		Goodwill		Liabilities		Noncontrolling Interest
			(In thousands)
(1)	Q1 2023	Midstream Infrastructure Assets and Incentive and Acceleration Agreement(a)	$	125,000	$	4,736	$	61,850	$	3,150	$	55,264	$	—	$	—	$	—
(2)	Q1 2022	Altus Midstream Company (“ALTM”)	$	1,013,745	$	38,750	$	634,923	$	13,200	$	1,752,500	$	5,077	$	(967,988)	$	(462,717)

(a)Consideration includes $65 million paid for certain midstream assets and the $60 million paid related to the incentive and acceleration agreement.

Midstream Infrastructure Assets

In the first quarter of 2023, the Partnership closed on a purchase and sale agreement for certain midstream assets for $65.0 million together with a new 20-year midstream service agreement. In addition, the Partnership entered into an incentive and acceleration agreement related to near term supplemental development activities on acreage dedicated for midstream services to affiliates of the Partnership. Such development activities will begin in 2023 and are subject to semi-annual performance milestones and subject to refund with consequential monetary penalty if not satisfied. Consideration for the incentive and acceleration agreement of $60.0 million was capitalized as a contract asset in accordance with ASC 606, of which $4.7 million was included in “Prepaid and Other Current Assets” and $55.3 million was included in “Deferred Charges and Other Assets” in the condensed consolidated balance sheet as of the date of acquisition. These transactions were accounted for as a business combination in accordance with ASC 805. Certain data necessary to complete the purchase price allocation is not yet available, including, but not limited to, the completion of the valuation of the underlying assets and liabilities assumed. The Company is continuing its review of these matters during the measurement period. Acquisition-related costs were immaterial for this transaction.

Altus Midstream Company

On February 22, 2022, the Company consummated the Transaction. Pursuant to the Contribution Agreement, in connection with the Closing, (i) Contributor contributed all of the equity interests of BCP and BCP Raptor Holdco GP, LLC, a Delaware limited liability company and the general partner of BCP (the “Contributed Entities”) to the Partnership; and (ii) in exchange for such contribution, the Partnership transferred to Contributor 50,000,000 common units representing limited partner interests in the Partnership and 50,000,000 shares of the Company’s Class C Common Stock, par value $0.0001 per share.

The Transaction was accounted as a reverse merger in accordance with ASC 805, which, among other things, requires assets acquired and liabilities assumed to be measured at their acquisition date fair value. During the 12-month measurement period following the acquisition date, the Company made necessary adjustments as information became available to the purchase price allocation, including, but not limited to, working capital and valuation of the underlying assets of the equity method investments. The Company recorded goodwill of $5.1 million as of December 31, 2022 related to operational synergies. The Company incurred acquisition-related costs of nil and $0.7 million for the three months ended June 30, 2023 and 2022, respectively, and nil and $6.4 million for the six months ended June 30, 2023 and 2022, respectively, related to the Transaction.

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3. REVENUE RECOGNITION

Disaggregation of Revenue

The following table presents a disaggregation of the Company’s revenue:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(In thousands)
Gathering and processing services	$	102,551	$	102,080	$	205,976	$	182,525
Natural gas, NGLs and condensate sales	191,430		229,651		365,254		404,579
Other revenue	2,222		3,841		6,013		5,717
Total revenues and other	$	296,203	$	335,572	$	577,243	$	592,821

There have been no significant changes to the Company’s contracts with customers during the three and six months ended June 30, 2023. The Company recognized revenues from minimum volume commitment (“MVC”) deficiency payments of $0.1 million and $0.3 million for the three months ended June 30, 2023 and 2022, respectively, and $1.2 million and $0.3 million for the six months ended June 30, 2023 and 2022, respectively.

Remaining Performance Obligations

The following table presents our estimated revenue from contracts with customers for remaining performance obligations that has not yet been recognized, representing our contractually committed revenues as of June 30, 2023:


	Amount

Fiscal Year	(In thousands)
Remaining of 2023	$	18,586
2024	53,639
2025	74,147
2026	56,166
2027	56,940
Thereafter	243,352
	$	502,830

Our contractually committed revenue, for purposes of the tabular presentation above, is generally limited to customer contracts that have fixed pricing and fixed volume terms and conditions, generally including contracts with payment obligations associated with MVCs.

Contract Liabilities

The following table provides information about contract liabilities from contracts with customers as of June 30, 2023:


	Amount

	(In thousands)
Balance at December 31, 2022	$	29,300
Reclassification of beginning contract liabilities to revenue as a result of performance obligations being satisfied	(4,331)
Cash received in advance and not recognized as revenue	6,872
Balance at June 30, 2023	31,841
Less: Current portion	7,306
Non-current portion	$	24,535

Contract liabilities relate to payments received in advance of satisfying performance obligations under a contract, which result from contribution in aid of construction payments. Current and noncurrent contract liabilities are included in “Other Current Liabilities” and “Contract Liabilities,” respectively, of the Condensed Consolidated Balance Sheets.

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Contract Cost Assets

The Company has capitalized certain costs incurred to obtain a contract that would not have been incurred otherwise. These costs are recovered through the net cash flows of the associated contract. As of June 30, 2023 and December 31, 2022, the Company had contract acquisition cost assets of $74.5 million and $17.8 million, respectively. Current and noncurrent contract cost assets are included in “Prepaid and Other Current Assets” and “Deferred Charges and Other Assets,” respectively, of the Condensed Consolidated Balance Sheets. The Company amortizes these assets as cost of sales on a straight-line basis over the life of the associated long-term customer contracts. The Company recognized cost of sales associated with these assets of $1.7 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively, and $3.3 million and $0.9 million for the six months ended June 30, 2023 and 2022, respectively.

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at carrying value, is as follows:


	June 30,		December 31,
	2023		2022

	(In thousands)
Gathering, processing, and transmission systems and facilities	$	3,017,501	$	2,904,084
Vehicles	11,674		9,290
Computers and equipment	6,048		4,289
Less: accumulated depreciation	(547,712)		(474,258)
Total depreciable assets, net	2,487,511		2,443,405
Construction in progress	182,348		70,325
Land	22,047		21,482
Total property, plant, and equipment, net	$	2,691,906	$	2,535,212

The cost of property classified as “Construction in progress” is excluded from capitalized costs being depreciated. These amounts represent property that is not yet available to be placed into productive service as of the respective reporting date. The Company recorded $38.9 million and $36.6 million of depreciation expense for the three months ended June 30, 2023 and 2022, respectively, and $77.3 million and $67.5 million of depreciation expense for the six months ended June 30, 2023 and 2022, respectively. There were no triggering events for property, plant and equipment during the three and six months ended June 30, 2023 and 2022.

5. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

Goodwill totaled $5.1 million as of June 30, 2023 and December 31, 2022. The goodwill of $5.1 million is within the Midstream Logistics segment, and pertains to excess of the purchase price over net assets acquired in connection with the Transaction.

Goodwill is tested at least annually as of November 30 of each year, or more frequently as events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. Company’s management assesses whether there have been events or circumstances that trigger the fair value of the reporting unit to be lower than its net carrying value since consummation of the Transaction and concluded that goodwill was not impaired as of June 30, 2023.

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Intangible Assets

Intangible assets, net, are comprised of the following:


	June 30,		December 31,
	2023		2022

	(In thousands)
Customer contracts	$	1,142,278	$	1,137,831
Right of way assets	138,660		127,539
Less accumulated amortization	(631,041)		(569,981)
Total amortizable intangible assets, net	$	649,897	$	695,389

The fair value of acquired customer contracts was capitalized as a result of acquiring favorable customer contracts as of the closing dates of certain past acquisitions and is being amortized using a straight-line method over the remaining term of the customer contracts, which range from one to twenty years. Right-of-way assets relate primarily to underground pipeline easements, have a useful life of ten years and are amortized using the straight-line method. The right of way agreements are generally for an initial term of ten years with an option to renew for an additional ten years at agreed upon renewal rates based on certain indices or up to 130% of the original consideration paid.

On June 30, 2023, remaining weighted average amortization periods for customer contracts and right of way assets were approximately 7.20 years and 6.90 years, respectively. Overall remaining weighted average amortization period for the intangible assets as of June 30, 2023 was approximately 7.16 years.

The Company recorded $30.6 million and $30.0 million of amortization expense for the three months ended June 30, 2023 and 2022, respectively, and $61.1 million and $60.1 million of amortization expense for the six months ended June 30, 2023 and 2022, respectively. There was no impairment recognized on intangible assets for the three and six months ended June 30, 2023 and 2022.

6. EQUITY METHOD INVESTMENTS

As of June 30, 2023, the Company owned investments in the following long-haul pipeline entities in the Permian Basin. These investments were accounted for using the equity method of accounting. For each EMI pipeline entity, the Company has the ability to exercise significant influence based on certain governance provisions and its participation in the significant activities and decisions that impact the management and economic performance of the EMI pipeline. The table below presents the ownership percentages and investment balances held by the Company for each entity:


		June 30,		December 31,
	Ownership	2023		2022

		(In thousands)
Permian Highway Pipeline LLC ("PHP")	53.3%	$	1,603,140	$	1,474,800
Breviloba, LLC ("Breviloba")	33.0%	448,816		455,057
Gulf Coast Express Pipeline LLC ("GCX")	16.0%	438,156		451,483
		$	2,490,112	$	2,381,340

Additionally, as of June 30, 2023, the Company owned 15.0% of Epic Crude Holdings, LP (“EPIC”). However, no dollar value was assigned through the Transaction’s purchase price allocation as an adjustment was made to eliminate equity in losses of EPIC. No additional contribution was made to EPIC and no distribution or equity income was received from EPIC during the three and six months ended June 30, 2023.

The unamortized basis differences included in the EMI pipeline balances were $356.1 million and $363.2 million as of June 30, 2023 and December 31, 2022, respectively. These amounts represent differences in the Company’s contributions to date and the Company’s underlying equity in the separate net assets within the financial statements of the respective entities. Unamortized basis differences will be amortized into equity income over the useful lives of the underlying pipeline assets. There was capitalized interest of $17.5 million and $13.4 million as of June 30, 2023 and December 31, 2022, respectively. Capitalized interest is amortized on a straight-line basis into equity income.

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The following table presents the activity in the Company’s EMIs for the six months ended June 30, 2023:


	Permian Highway Pipeline LLC		Breviloba, LLC		Gulf Coast Express Pipeline LLC		Total


	(In thousands)
Balance at December 31, 2022	$	1,474,800	$	455,057	$	451,483	$	2,381,340
Acquisitions	—		—				—
Contributions	150,331		—		—		150,331
Distributions	(88,395)		(21,467)		(32,161)		(142,023)
Capitalized interest	4,390		—		—		4,390
Equity income, net(1)	62,014		15,226		18,834		96,074

Balance at June 30, 2023	$	1,603,140	$	448,816	$	438,156	$	2,490,112

(1)For the six months ended June 30, 2023, net of amortization of basis differences and capitalized interests, which represents undistributed earnings, the amortization was $3.7 million from PHP, $0.3 million from Breviloba, LLC and $3.1 million from GCX.

Summarized Financial Information

The following tables represent selected data for the Company’s EMI pipelines (on a 100 percent basis) for the three and six months ended June 30, 2023 and 2022.


	Three Months Ended June 30,
	2023						2022
	Permian Highway Pipeline LLC		Breviloba, LLC		Gulf Coast Express Pipeline LLC		Permian Highway Pipeline LLC		Breviloba, LLC		Gulf Coast Express Pipeline LLC

	(In thousands)
Revenues	$	99,095	$	46,641	$	90,860	$	98,808	$	50,091	$	90,769
Operating income	63,507		22,547		66,256		61,294		25,359		64,816
Net income	64,342		22,651		66,400		61,307		25,284		64,461


	Six Months Ended June 30,
	2023						2022
	Permian Highway Pipeline LLC		Breviloba, LLC		Gulf Coast Express Pipeline LLC		Permian Highway Pipeline LLC		Breviloba, LLC		Gulf Coast Express Pipeline LLC


	(In thousands)
Revenues	$	191,935	$	92,542	$	180,608	$	196,664	$	98,612	$	180,742
Operating income	120,312		44,496		131,472		120,770		51,672		128,259
Net income	124,032		44,863		137,491		120,520		51,651		127,990

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7. DEBT AND FINANCING COSTS

The following table summarizes the Company’s debt obligations as of June 30, 2023 and December 31, 2022:


	June 30,		December 31,
	2023		2022

	(In thousands)
$2.0 billion unsecured term loan	$	2,000,000	$	2,000,000
$1.0 billion 2030 senior unsecured notes	1,000,000		1,000,000
$1.25 billion revolving line of credit	650,000		395,000
Total long-term debt	3,650,000		3,395,000
Less: Debt issuance costs, net(1)	(24,201)		(26,490)
Total long-term debt, net	$	3,625,799	$	3,368,510
Less: Current portion, net	—		—
Long-term portion of debt, net	$	3,625,799	$	3,368,510

(1) Excluded unamortized debt issuance cost related to the revolving line of credit. Unamortized debt issuance cost associated with the revolving line of credit was $6.1 million and $6.9 million as of June 30, 2023 and December 31, 2022, respectively. The current and non-current portion of the unamortized debt issuance costs related to the revolving credit facilities were included in the “Prepaid and other current assets” and the “Deferred charges and other assets” of the Condensed Consolidated Balance Sheets.

The table below presents the components of the Company’s financing costs, net of capitalized interest:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(In thousands)
Capitalized interest	$	(4,811)	$	(197)	$	(7,044)	$	(301)
Debt issuance costs	1,534		3,149		3,055		6,538
Interest expense	19,403		22,395		89,423		45,884
Total financing costs, net of capitalized interest	$	16,126	$	25,347	$	85,434	$	52,121

As of June 30, 2023 and December 31, 2022, unamortized debt issuance costs associated with the senior unsecured notes and the term loan were $24.2 million and $26.5 million, respectively.

Compliance with our Covenants

Both the revolving credit agreement with Bank of America, N.A. as administrative agent, and the term loan credit agreement with PNC Bank as administrative agent, contain customary covenants and restrictive provisions which may, among other things, limit the Partnership’s ability to create liens, incur additional indebtedness, make restricted payments, or liquidate, dissolve, consolidate with or merge into or with any other person. The 5.875% Senior Notes due 2030 also contain covenants and restrictive provisions, which may, among other things, limit the Partnership’s and its subsidiaries’ ability to create liens to secure indebtedness and the Partnership’s ability to consolidate or combine with or merge into any other person.

As of June 30, 2023, the Partnership was in compliance with all customary and financial covenants.

Fair Value of Financial Instruments

The fair value of the Company and its subsidiaries’ consolidated debt as of June 30, 2023 and December 31, 2022 was $3.63 billion and $3.34 billion, respectively. On June 30, 2023, the senior unsecured notes’ fair value was based on Level 1 inputs and the term loan and revolving line of credit’s fair value was based on Level 3 inputs.

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8. ACCRUED EXPENSES

The following table provides detail of the Company’s current accrued expenses on June 30, 2023 and December 31, 2022:


	June 30,		December 31,
	2023		2022

	(In thousands)
Accrued product purchases	$	77,943	$	115,773
Accrued taxes	9,370		19,509
Accrued salaries, vacation, and related benefits	2,540		3,934
Accrued capital expenditures	11,625		3,892
Accrued interest	3,942		24,815
Accrued other expenses	6,666		5,991
Total current accrued expenses	$	112,086	$	173,914

Accrued product purchases mainly accrue the liabilities related to producer payments and any additional business-related miscellaneous fees we owe to third parties, such as transport or capacity fees as of June 30, 2023.

9. LEASE

Components of lease costs are included in the Condensed Consolidated Statements of Operations as general and administrative expense for real-estate leases and operating expense for non-real estate leases. Total operating lease costs were $11.8 million and $9.1 million for the three months ended June 30, 2023 and 2022, respectively, and $22.6 million and $18.3 million for the six months ended June 30, 2023 and 2022, respectively. Short-term lease costs were $1.0 million and $1.5 million for the three months ended June 30, 2023 and 2022, respectively, and $1.0 million and $4.0 million for the six months ended June 30, 2023 and 2022, respectively. Variable lease cost was immaterial for the three and six months ended June 30, 2023 and 2022.

The following table presents other supplemental lease information:


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022

	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases	$	11,739		$	9,133		$	22,371		$	18,287

Right-of-use assets obtained in exchange for new operating lease liabilities	$	4,915		$	16,123		$	4,978		$	21,386
Weighted-average remaining lease term — operating leases (in years)	1.77			1.73			1.77			1.73
Weighted-average discount rate — operating leases	8.82		%	7.46		%	8.82		%	7.46		%

10. EQUITY AND WARRANTS

Redeemable Noncontrolling Interest — Common Unit Limited Partners

On February 22, 2022, the Company consummated a business combination with Altus pursuant to the Contribution Agreement. In connection with the closing, (i) Contributor contributed all of the equity interests of the Contributed Entities to the Partnership; and (ii) in exchange for such contribution, the Partnership transferred to Contributor 50,000,000 common units representing limited partner interests in the Partnership and 50,000,000 shares of the Company’s Class C Common Stock, par value $0.0001 per share. Please refer to the “Transaction” above.

The redemption option of the Common Unit is not legally detachable or separately exercisable from the instrument and is non-transferable, and the Common Unit is redeemable at the option of the holder. Therefore, the Common Unit is accounted for

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as redeemable noncontrolling interest and classified as temporary equity on the Company’s Condensed Consolidated Balance Sheets. During the first three and six months of 2023, 180,962 common units were redeemed on a one-for-one basis for shares of Class A Common Stock and a corresponding number of shares of Class C Common Stock were cancelled. There were 94,089,038 Common Units and an equal number of Class C Common Stock issued and outstanding as of June 30, 2023. The Common Units fair value was approximately $3.24 billion as of June 30, 2023.

Common Stock

As of June 30, 2023, there were 51,973,472 and 94,089,038 shares, respectively, of Class A Common Stock and Class C Common Stock issued and outstanding (collectively, “Common Stock”).

Public Warrants

As of June 30, 2023, there were 12,577,350 Public Warrants (as defined below) outstanding. Each whole public warrant entitles the holder to purchase one tenth of a share of Class A Common Stock at a price of $115.00 per share (the “Public Warrants”). The Public Warrants will expire on November 9, 2023 or upon redemption or liquidation. The Company may call the Public Warrants for redemption, in whole and not in part, at a price of $0.01 per warrant with not less than 30 days’ notice provided to the Public Warrant holders. However, this redemption right can only be exercised if the reported last sale price of the Class A Common Stock equals or exceeds $180.00 per share for any 20-trading days within a 30-trading day period ending three business days prior to sending the notice of redemption to the Public Warrant holders.

Private Placement Warrants

As of June 30, 2023, there were 6,364,281 Private Placement Warrants (as defined below) outstanding, of which Apache holds 3,182,140. The private placement warrants will expire on November 9, 2023 and are identical to the Public Warrants discussed above, except (i) they will not be redeemable by the Company so long as they are held by the initial holders or their respective permitted transferees and (ii) they may be exercised by the holders on a cashless basis (the “Private Placement Warrants” and, together with the Public Warrants, the “Warrants”).

The Company recorded a fair value of $6 thousand for the Public Warrants and a fair value of $4 thousand for the Private Warrants as of June 30, 2023 on the Condensed Consolidated Balance Sheets in other non-current liabilities. Refer to Note 11—Fair Value Measurement in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional discussion regarding valuation of the Warrants.

Share Repurchase Program

In February 2023, the Board of Directors (the “Board”) approved a share repurchase program (“Repurchase Program”), authorizing discretionary purchases of the Company’s Class A Common Stock up to $100.0 million in the aggregate. Repurchases may be made at management’s discretion from time to time, in accordance with applicable securities laws, on the open market or through privately negotiated transactions and may be made pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act. Privately negotiated repurchases from affiliates are also authorized under the Repurchase Program, subject to such affiliates’ interest and other limitations. The repurchases will depend on market conditions and may be discontinued at any time without prior notice. For the three and six months ended June 30, 2023, the Company repurchased 112,312 shares at a total cost of $3.3 million and 194,174 shares at a total cost of $5.8 million, respectively. During the three and six months ended June 30, 2023, the Company retired 81,861 shares of treasury stock.

For more information regarding the 1% U.S. federal excise tax imposed on certain repurchases of stock by publicly traded U.S. corporations, please refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Share Repurchase Program,” included in this Quarterly Report on Form 10-Q.

Dividend

On May 17, 2023 the Company made cash dividend payments of $19.4 million to holders of Class A Common Stock and Class C Common Units and $88.0 million was reinvested in shares of Class A Common Stock by Reinvestment Holders. Cash dividend payments to holders of Class A Common Stock and Class C Common Units totaled $36.5 million for the six months ended June 30, 2023, of which $175.6 million was reinvested in shares of Class A Common Stock by Reinvestment Holders.

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11. FAIR VALUE MEASUREMENTS

The Company’s Condensed Consolidated Balance Sheets reflect a mixture of measurement methods for financial assets and liabilities. Public and private warrants, contingent liabilities and derivative financial instruments are reported at fair value. Other financial instruments are reported at historical cost or amortized cost on our Condensed Consolidated Balance Sheets. Long-term debt is primarily the other financial instrument for which carrying value could vary significantly from fair value. See Note 7—Debt and Financing Costs in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for further information.

Topic 820 establishes a framework for measuring fair value in U.S. GAAP, clarifies the definition of fair value within that framework and requires disclosures about the use of fair value measurements. Topic 820 defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Topic 820 provides a framework for measuring fair value, establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and requires consideration of the counterparty’s creditworthiness when valuing certain assets.

Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets (Level 1 inputs). The three levels of the fair value hierarchy under Topic 820 are described below:

Level 1 inputs: Unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. An active market is defined as a market where transactions for the financial instrument occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 inputs: Inputs, other than quoted prices in active markets, that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 inputs: Prices or valuations that require unobservable inputs which are both significant to the fair value measurement and unobservable. Valuation under Level 3 generally involves a significant degree of judgment from management.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Where available, fair value is based on observable market prices or inventory parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instrument’s complexity.

The following tables present financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022:


	June 30, 2023
	Level 1		Level 2		Level 3		Total

	(In thousands)
Commodity swap	$	—	$	9,850	$	—	$	9,850
Interest rate derivatives	—		17,754		—		17,754
Total assets	$	—	$	27,604	$	—	$	27,604

Commodity swaps	$	—	$	4,585	$	—	$	4,585
Interest rate derivatives	—		3,761		—		3,761

Public warrants	6		—		—		6
Private warrants	—		—		4		4

Total liabilities	$	6	$	8,346	$	4	$	8,356

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	December 31, 2022
	Level 1		Level 2		Level 3		Total

	(In thousands)
Commodity swap	$	—	$	4,288	$	—	$	4,288
Interest rate derivatives	—		2,675		—		2,675
Total assets	$	—	$	6,963	$	—	$	6,963

Commodity swaps	$	—	$	5,718	$	—	$	5,718
Interest rate derivatives	—		8,328		—		8,328

Public warrants	50		—		—		50
Private warrants	—		—		38		38

Total liabilities	$	50	$	14,046	$	38	$	14,134

Our derivative contracts consist of interest rate swaps and commodity swaps. Valuation of these derivative contracts involved both observable publicly quoted prices and certain inputs to the credit valuation that may not be readily observable in the marketplace. As such our derivative contracts are classified as Level 2 in the hierarchy. Refer to Note 12—Derivatives and Hedging Activities in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for further discussion related to commodity swaps and interest rate derivatives.

The carrying value of the Company’s Public Warrants are recorded at fair value based on quoted market prices, a Level 1 fair value measurement. The carrying value of the Company’s Private Placement Warrants are recorded at fair value determined using an option pricing model, a Level 3 fair value measurement, which is calculated based on key assumptions related to expected volatility of the Company’s common stock, an expected dividend yield, the remaining term of the warrants outstanding and the risk-free rate based on the U.S. Treasury yield curve in effect at the time of the valuation. These assumptions are estimated utilizing historical trends of the Company’s common stock, Public Warrants and other factors. Change in fair value of the warrants since closing of the Transaction through reporting date was recorded in “Interest and other income” of the Condensed Consolidated Statements of Operations.

The carrying amounts reported on the Condensed Consolidated Balance Sheets for the Company’s remaining financial assets and liabilities approximate fair value due to their short-term nature. There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the six months ended June 30, 2023 and 2022.

12. DERIVATIVES AND HEDGING ACTIVITIES

The Company is exposed to certain risks arising from both its business operations and economic conditions, and it enters into certain derivative contracts to manage exposure to these risks. To minimize counterparty credit risk in derivative instruments, the Company enters into transactions with high credit-rating counterparties. The Company did not elect to apply hedge accounting to these derivative contracts and recorded the fair value of the derivatives on the Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022.

Interest Rate Risk

The Company manages market risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its debt funding and by using derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract.

During November 2022 and March 2023, the Company entered into three interest rate swaps with total notional amounts of $2.25 billion that are effective on May 1, 2023 and mature on May 31, 2025. Under these swaps, the Company pays a fixed rate ranging from 4.38% to 4.49% for the respective notional amounts.

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The fair value or settlement value of the consolidated interest rate swaps outstanding are presented on a gross basis on the Condensed Consolidated Balance Sheets. Interest rate swap derivative assets were $17.8 million and $2.7 million as of June 30, 2023 and December 31, 2022, respectively. Interest rate swap derivative liabilities were $3.8 million and $8.3 million as of June 30, 2023 and December 31, 2022, respectively. The Company recorded cash settlements on interest rate swap derivatives of $2.4 million and $12.0 million for the three months ended June 30, 2023 and 2022, respectively, and $2.4 million and $11.3 million for the six months ended June 30, 2023 and 2022, respectively. In addition, the Company recorded fair value adjustments of $39.3 million and $2.4 million for the change in fair value of the interest rate swap derivatives for the three months ended June 30, 2023 and 2022, respectively, and $22.1 million and $14.0 million for the six months ended June 30, 2023 and 2022, respectively, in “Interest expense” of the Condensed Consolidated Statements of Operations.

Commodity Price Risk

The results of the Company’s operations may be affected by the market prices of oil, natural gas and NGLs. A portion of the Company’s revenue is directly tied to local natural gas, natural gas liquids and condensate prices in the Permian Basin and the U.S. Gulf Coast. Fluctuations in commodity prices also impact operating cost elements both directly and indirectly. Management regularly reviews the Company’s potential exposure to commodity price risk and manages exposure of such risk through commodity hedge contracts.

During the past two quarters, the Company has entered into numerous commodity swap contracts based on the OPIS NGL Mont Belvieu prices for ethane, propane and butane, the Waha Basis index and the NYMEX WTI index. These contracts are on various notional quantities of NGLs, natural gas and crude. Similarly, the Company has entered into various natural gas and crude basis spread swaps. These index swaps are effective over the next 1 to 12 months and are used to hedge against location price risk of the respective commodity resulting from supply and demand volatility and protect cash flows against price fluctuations. The table below presents detailed information of commodity swaps outstanding as of June 30, 2023 (in thousands, except volumes):

June 30, 2023

Commodity

Instruments

Unit

Volume

Net Fair Value

Natural Gas

Commodity Swap

MMBtus

2,130,000

(470)

NGL

Commodity Swap

Gallons

98,101,500

2,669

Crude

Commodity Swap

Bbl

110,400

683

Natural Gas Basis Spread Swaps

Commodity Swap

MMBtus

33,510,000

2,155

Crude Gas Basis Spread Swaps

Commodity Swap

Bbl

314,000

228

5,265

The fair value or settlement value of the swaps outstanding are presented on a gross basis on the Condensed Consolidated Balance Sheets. Commodity swap derivative assets were $9.9 million and $4.3 million as of June 30, 2023 and December 31, 2022, respectively. Commodity swap derivative liabilities were $4.6 million and $5.7 million as of June 30, 2023 and December 31, 2022, respectively. The Company recorded cash settlements on commodity swap derivatives of $6.9 million and nil for the three months ended June 30, 2023 and 2022, respectively, and $7.9 million and $0.2 million for the six months ended June 30, 2023 and 2022, respectively. In addition, the Company recorded fair value adjustments of $9.1 million and nil for the three months ended June 30, 2023 and 2022, respectively, and $14.5 million and nil for the change in fair value of commodity swap derivatives for the six months ended June 30, 2023 and 2022, respectively, in “Product revenue” of the Condensed Consolidated Statements of Operations.

13. SHARE-BASED COMPENSATION

Prior to the Closing, the Company issued incentive units, which included performance and service conditions, to certain employees and Board members. The units consisted of Class A-1, Class A-2 and Class A-3 units. These units derived value from the Company’s certain wholly owned subsidiaries. Class A-1 and A-2 units would have vested upon either (i) the date of consummation of a change in control or (ii) the date that is 1-year following the consummation of the initial public offering of the Company (or its successor). Class A-3 units would have vested upon a change in control, if the participants were employed at the time of the event, or upon termination of the participant by the Company.

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Immediately upon Closing, all outstanding Class A-1 and Class A-2 units were cancelled and exchanged for 5,300,000 shares (the “Class A Shares”), post-Stock Split, of the Company’s Class A Common Stock. These Class A Shares are issued and outstanding as they were distributed pro rata to all holders of Class A-1 and Class A-2 units by the Common Unit limited partners from the 50,000,000 common units, pre-Stock-Split, that such limited partners received upon the Closing. The Common Unit limited partners redeemed Common Units needed for the Class A Shares distribution upon the Closing. The Class A Shares are held in escrow and will vest over three to four years. Similarly, the Class A-3 units were exchanged for approximately 326,000, post Stock Split, Class C Common Stock and Common Units (the “Class C Shares”) and will vest over four years. The Company also issued approximately 76,000, post Stock Split, replacement restricted share awards (“Replacement Awards”) to new employees that transitioned from ALTM as part of the Transaction. These changes for all three share types established a new measurement date. The Class A Shares, Class C Shares and Replacement Awards were valued based on the Company’s publicly quoted stock price on the measurement date, which was the Closing Date of the Transaction.

During the first quarter of 2023, pursuant to the Company’s 2019 Omnibus Compensation Plan, as amended from time to time, the Company granted approximately 370,000 restricted stock units (“RSUs”) to its employees with cliff vesting on January 1, 2026 and approximately 181,000 RSUs to employees that were vested immediately. The 181,000 RSUs that vested immediately were granted to employees who received their bonus in Company stock in lieu of cash bonus awards.

With respect to the above shares, the Company recorded compensation expenses of $13.3 million and $12.2 million for the three months ended June 30, 2023 and 2022, respectively, and $30.8 million and $18.3 million for the six months ended June 30, 2023 and 2022, respectively, based on a straight-line amortization of the associated awards’ fair value over the respective vesting life of the shares.

14. INCOME TAXES

The Company is subject to U.S. federal income tax and the Texas margin tax. Income tax expense included in the condensed consolidated financial statements in this Form 10-Q is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022

	(In thousands)
Income before income taxes	$	71,979		$	131,610		$	76,694		$	153,675
Income tax expense	$	311		$	162		$	727		$	838
Effective tax rate	0.43		%	0.12		%	0.95		%	0.55		%

The effective tax rate for the three and six months ended June 30, 2023 was lower than the statutory rate mainly due to the impact of tax attributable to noncontrolling interests related to the Common Units limited partners and valuation allowance.

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15. NET INCOME PER SHARE

The computation of basic and diluted net income per share for the periods presented in the condensed consolidated financial statements is shown in the tables below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

	(In thousands, except per share amounts)
Net income attributable to Class A common shareholders	$	25,014	$	6,438	$	26,450	$	10,303
Less: Net income available to participating unvested restricted Class A common shareholders(1)	(4,426)		(4,184)		(8,582)		(4,184)

Total net income attributable to Class A common shareholders	$	20,588	$	2,254	$	17,868	$	6,119

Weighted average shares outstanding - basic(2)	50,553		39,297		48,980		38,766
Dilutive effect of unvested Class A common shares(3)(4)	72		32		240		30
Weighted average shares outstanding - diluted	50,625		39,329		49,220		38,796

Net income (loss) available per common share - basic	$	0.41	$	0.06	$	0.36	$	0.16
Net income (loss) available per common share - diluted	$	0.41	$	0.06	$	0.36	$	0.16

(1)Represents dividends paid to unvested restricted Class A common shareholders.

(2)Share and per share amounts have been retrospectively restated to reflect the Company’s reverse stock split, which was effected June 8, 2022.

(3)The effect of an assumed exchange of the outstanding public and private warrants for shares of Class A Common Stock would have been anti-dilutive for all periods presented in which the public and private warrants were outstanding.

(4)The effect of an assumed exchange of outstanding Common Units (and the cancellation of a corresponding number of shares of outstanding Class C Common Stock) would have been anti-dilutive for all periods presented in which the Common Units were outstanding.

16. COMMITMENTS AND CONTINGENCIES

Accruals for loss contingencies arising from claims, assessments, litigation, environmental and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. As of June 30, 2023 and December 31, 2022, there were no accruals for loss contingencies.

Litigation

The Company is a party to various legal actions arising in the ordinary course of its businesses. In accordance with ASC 450, Contingencies, the Company accrues reserves for outstanding lawsuits, claims and proceedings when a loss contingency is probable and can be reasonably estimated. The Company estimates the amount of loss contingencies using current available information from legal proceedings, advice from legal counsel and available insurance coverage. Due to the inherent subjectivity of the assessments and unpredictability of the outcomes of the legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to the Company from the legal proceedings in question. Thus, the Company’s exposure and ultimate losses may be different than the amounts accrued.

The Company has entered into litigation with two third parties to collect receivables totaling $19.6 million that remain outstanding from the Winter Storm Uri during February of 2021. Given the counterparties’ sufficient creditworthiness and the valid claims that we hold, no allowance has currently been established for these items as we have legally enforceable agreements with these parties.

Environmental Matters

As an owner of infrastructure assets with rights to surface lands, the Company is subject to various local and federal laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the Company for the cost of pollution clean-up resulting from operations and subject the Company to liability for pollution damages. The Company is not aware of any environmental claims existing as of June 30,

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2023, that have not been provided for or would otherwise have a material impact on its financial position, results of operations, or liquidity.

Contingent Liabilities

Permian Gas Acquisition

As part of the acquisition of Permian Gas on June 11, 2019, consideration included a contingent liability arrangement with PDC Permian, Inc. (“PDC”). The arrangement requires additional monies to be paid by the Company to PDC on a per Mcf basis if the actual annual Mcf volume amounts exceed forecasted annual Mcf volume amounts starting in 2020 and continuing through 2029. The total monies paid under this arrangement are capped at $60.5 million. Amounts are payable on an annual basis over the earn-out period. Based on current forecasts and discussions with PDC, management revalues this contingent liability with updated assumptions at each reporting period. PDC’s actual annual Mcf volume did not exceed the incentive rate during the past three years, and the Company did not expect PDC’s actual annual Mcf volume amounts to exceed forecasted amounts as of June 30, 2023; therefore, the estimated fair value of the contingent consideration liability was nil as of June 30, 2023 and December 31, 2022.

Original Altus Transaction

As part of the Transaction, the Company assumed contingent liabilities of $4.5 million related to earn-out consideration of up to 2,500,000 shares of Class A Common Stock, which was part of the original Altus transaction, as follows:

• 1,250,000 shares if the per share closing price of the Class A Common Stock as reported by the New York Stock Exchange (“NYSE”) during any 30-trading-day period ending prior to November 9, 2023 is equal to or greater than $140.00 for any 20 trading days within such 30-trading-day period.

• 1,250,000 shares if the per share closing price of the Class A Common Stock as reported by the NYSE during any 30-trading-day period ending prior to November 9, 2023 is equal to or greater than $160.00 for any 20 trading days within such 30-trading-day period.

Pursuant to ASC 805, this earn-out consideration was a pre-existing contingency and accounted for as an assumed liability to the acquirer on the acquisition date. Immediately subsequent to the Closing, the Company evaluated the earn-out consideration classification in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The Company determined the earn-out consideration to be classified as equity based on the settlement provision.

Letters of Credit

Our $1.25 billion senior unsecured Revolving Credit Facility maturing on June 8, 2027 can be used for letters of credit. Our obligations with respect to related letters of credit totaled $12.6 million and nil as of June 30, 2023 and December 31, 2022, respectively.

17. SEGMENTS

Our two operating segments represent the Company’s segments for which discrete financial information is available and is utilized on a regular basis by our chief operating decision maker (“CODM”) to make key operating decisions, assess performance and allocate resources. Our Chief Executive Officer is the CODM. These segments are strategic business units with differing products and services. No operating segments have been aggregated to form the reportable segments. Therefore, our two operating segments represent our reportable segments. The activities of each of our reportable segments from which the Company earns revenues and incurs expenses are described below:

•Midstream Logistics: The Midstream Logistics segment operates under three streams, 1) gas gathering and processing, 2) crude oil gathering, stabilization and storage services and 3) produced water gathering and disposal.

•Pipeline Transportation: The Pipeline Transportation segment consists of equity investment interests in four Permian Basin pipelines that access various points along the Texas Gulf Coast, Kinetik NGL Pipeline and Delaware Link Pipeline that is under construction. The current operating pipelines transport crude oil, natural gas and NGLs.

The Midstream Logistics segment accounts for more than 99% of the Company’s operating revenues, cost of sales (excluding depreciation and amortization), operating expenses and ad valorem expenses. The Pipeline Transportation segment

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contains all of the Company’s equity method investments, which contribute more than 99% of the segment’s EBITDA. Corporate and Other contains the Company’s executive and administrative functions, including 85% of the Company’s general and administrative expenses and all of the Company’s debt service costs.

The following tables present the reconciliation of the segment profit measure as of and for the three and six months periods ended June 30, 2023 and 2022:


	Midstream Logistics		Pipeline Transportation		Corporate and Other(1)		Consolidated
	(In thousands)
For the Three Months Ended June 30, 2023
Segment net income (loss) including noncontrolling interests	$	55,680	$	49,493	$	(33,505)	$	71,668
Add back:
Interest expense	11		—		16,115		16,126
Income tax expense	—		—		311		311
Depreciation and amortization	69,005		471		6		69,482
Contract assets amortization	1,655		—		—		1,655
Proportionate EMI EBITDA	—		74,481		—		74,481
Share-based compensation	—		—		13,299		13,299
Loss on disposal of assets	12,137		—		—		12,137
Acquisition transaction costs	2		—		—		2
Integration costs	15		—		26		41
Other one-time costs or amortization	743		—		361		1,104
Deduct:
Warrant valuation adjustment	—		—		33		33
Gain on redemption of mandatorily redeemable Preferred units	—		—		—		—
Unrealized gain on derivatives	2,678		—		—		2,678
Equity income from unconsolidated affiliates	—		49,610		—		49,610
Segment adjusted EBITDA(3)	$	136,570	$	74,835	$	(3,420)	$	207,985


	Midstream Logistics		Pipeline Transportation		Corporate and Other(1)		Consolidated
	(In thousands)
For the Three Months Ended June 30, 2022
Segment net income including noncontrolling interests	$	14,563	$	46,277	$	70,608	$	131,448
Add back:
Interest expense	20,641		942		3,764		25,347
Income tax expense	162		—		—		162
Depreciation and amortization	66,459		122		—		66,581
Contract assets amortization	448		—		—		448
Proportionate EMI EBITDA	—		71,340		—		71,340
Share-based compensation	—		—		12,173		12,173
Loss on disposal of assets	8,580		—		(34)		8,546
Loss on debt extinguishment	27,983		(8)		—		27,975
Integration costs	579		—		4,707		5,286
Acquisition transaction costs	—		—		674		674
Other one-time costs or amortization	1,239		—		1,020		2,259
Deduct:
Gain on redemption of mandatorily redeemable Preferred units	—		—		5,087		5,087
Gain on embedded derivative	—		—		91,448		91,448
Equity income from unconsolidated affiliates	—		47,786		—		47,786
Segment adjusted EBITDA(3)	$	140,654	$	70,887	$	(3,623)	$	207,918

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	Midstream Logistics		Pipeline Transportation		Corporate and Other(1)		Consolidated
	(In thousands)
For the Six Months Ended June 30, 2023
Segment net income (loss) including noncontrolling interests	$	107,211	$	95,927	$	(127,171)	$	75,967
Add back:
Interest expense	21		—		85,413		85,434
Income tax expense	—		—		727		727
Depreciation and amortization	137,398		926		12		138,336
Contract assets amortization	3,310		—		—		3,310

Proportionate EMI EBITDA	—		146,348		—		146,348
Share-based compensation	—		—		30,839		30,839
Loss on disposal of assets	12,239		—		—		12,239
Loss (gain) on debt extinguishment	—		—		—		—
Integration costs	—		—		953		953
Acquisition transaction costs	33		—		237		270
Other one-time costs or amortization	3,793		—		1,071		4,864
Deduct:
Warrant valuation adjustment	—		—		77		77
Unrealized gain on derivatives	7,643		—		—		7,643
Gain on embedded derivative	—		—		—		—
Equity income from unconsolidated affiliates	—		96,074		—		96,074
Segment adjusted EBITDA(3)	$	256,362	$	147,127	$	(7,996)	$	395,493


	Midstream Logistics		Pipeline Transportation		Corporate and Other(1)		Consolidated(2)

	(In thousands)
For the Six Months Ended June 30, 2022
Segment net income including noncontrolling interests	$	23,749	$	75,412	$	53,676	$	152,837
Add back:
Interest expense (income)	47,412		(672)		5,381		52,121
Income tax expense (benefit)	457		(39)		420		838
Depreciation and amortization	127,352		252		—		127,604
Contract assets amortization	896		—		—		896
Proportionate EMI EBITDA	—		112,081		—		112,081
Share-based compensation	—		—		18,304		18,304
Loss (gain) on disposal of assets	8,690		—		(34)		8,656
Loss (gain) on debt extinguishment	27,983		(8)		—		27,975
Integration costs	4,683		—		6,755		11,438
Acquisition transaction costs	4		—		6,346		6,350
Other one-time costs or amortization	2,157		—		1,297		3,454
Deduct:

Gain on redemption of mandatorily redeemable Preferred units	—		—		9,580		9,580
Gain on embedded derivative	—		—		88,562		88,562
Equity income from unconsolidated affiliates	—		75,703		—		75,703
Segment adjusted EBITDA(3)	$	243,383	$	111,323	$	(5,997)	$	348,709

(1)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.

(2)Results do not include legacy ALTM prior to February 22, 2022. Refer to Note 1 —Description of the Organization and Summary of Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q, for further information on the Company’s basis of presentation.

(3)Adjusted EBITDA is a non-GAAP measure; please see Key Performance Metrics in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q, for a definition and reconciliation to the most directly comparable GAAP measure.

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The following tables present the revenue for individual operating segment for the three and six month periods ended June 30, 2023 and 2022:


	Midstream Logistics		Pipeline Transportation		Consolidated

	(In thousands)
For the Three Months Ended June 30, 2023
Revenue	$	293,251	$	730	$	293,981
Other revenue	2,220		2		2,222
Total segment operating revenue	$	295,471	$	732	$	296,203


	Midstream Logistics		Pipeline Transportation		Consolidated

	(In thousands)
For the Three Months Ended June 30, 2022
Revenue	$	331,731	$	—	$	331,731
Other revenue	3,839		2		3,841
Total segment operating revenue	$	335,570	$	2	$	335,572


	Midstream Logistics		Pipeline Transportation		Consolidated

	(In thousands)
For the Six Months Ended June 30, 2023
Revenue	$	569,806	$	1,424	$	571,230
Other revenue	6,009		4		6,013
Total segment operating revenue	$	575,815	$	1,428	$	577,243


	Midstream Logistics		Pipeline Transportation		Consolidated

	(In thousands)
For the Six Months Ended June 30, 2022
Revenue	$	587,104	$	—	$	587,104
Other revenue	5,713		4		5,717
Total segment operating revenue	$	592,817	$	4	$	592,821

The following table presents total assets for each operating segment as of June 30, 2023 and December 31, 2022:


	June 30,		December 31,
	2023		2022

	(In thousands)
Midstream Logistics	$	3,582,410	$	3,486,948
Pipeline Transportation(1)	2,602,385		2,414,829
Segment total assets	6,184,795		5,901,777
Corporate and other	42,126		17,934
Total assets	$	6,226,921	$	5,919,711

(1)Includes investment in unconsolidated affiliates of $2.49 billion and $2.38 billion as of June 30, 2023 and December 31, 2022, respectively.

18. SUBSEQUENT EVENTS

On July 20, 2023, the Board declared a cash dividend of $0.75 per share on the Company’s Class A Common Stock which will be payable to stockholders of record as of August 4, 2023 on August 16, 2023. The Company, through its ownership of the general partner of the Partnership, declared a distribution of $0.75 per Common Unit from the Partnership to the holders of Common Units, which will be payable on August 16, 2023..

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis addresses the results of our operations for the three and six month periods ended June 30, 2023, as compared to our results of operations for the same periods in 2022. In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods. The business combination of Altus Midstream Company (“ALTM”) and BCP Raptor Holdco, LP (“BCP”) and their respective consolidated subsidiaries closed on February 22, 2022. As the transaction was determined to be a reverse merger, BCP was considered the accounting acquirer and ALTM was considered the legal acquirer. Therefore, BCP’s net assets, carried at historical value, were presented as the predecessor to Kinetik Holdings Inc.’s (the “Company”) historical financial statements and the comparable period presented herein reflects the results of operations of BCP for the three and six months ended June 30, 2022 and results of operations of ALTM from the Closing Date (as defined below) through June 30, 2022.

Unless otherwise noted or the context requires otherwise, references herein to Kinetik Holdings Inc. “the Company”, “us”, “our”, “we” or similar terms, with respect to time periods prior to February 22, 2022, include BCP and its consolidated subsidiaries and do not include ALTM and its consolidated subsidiaries, while references herein to Kinetik Holdings Inc. with respect to time periods from and after February 22, 2022, include ALTM and its consolidated subsidiaries.

Business Combination

On February 22, 2022 (the “Closing Date”), Kinetik Holdings Inc., a Delaware corporation (formerly known as Altus Midstream Company), consummated the previously announced 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. The transactions contemplated by the Contribution Agreement are referred to herein as the “Transaction.” In connection with the closing of the Transaction (the “Closing”), the Company changed its name from “Altus Midstream Company” to “Kinetik Holdings Inc.” Upon closing of the business combination, BCP and its subsidiaries became wholly owned subsidiaries of the Partnership. The Transaction was accounted for as a reverse merger pursuant to ASC 805 Business Combination (“ASC 805”).

Refer to Note 2—Business Combination in the Notes to Condensed Consolidated Financial Statements for further information.

Overview

We are an integrated midstream energy company in the Permian Basin providing comprehensive gathering, transportation, compression, processing and treating services. 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.

Our Operations and Segments

Upon Closing, the Company renamed its Gathering and Processing segment to Midstream Logistics and renamed its Transmission segment to Pipeline Transportation. These name changes were made to better align segment activities with the name of each respective segment. 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. The Pipeline Transportation segment consists of four equity method investment (“EMI”) pipelines originating in the Permian Basin with various access points to the Texas Gulf Coast, Kinetik NGL Pipeline and Delaware Link Pipeline that is under development. The pipelines transport crude oil, natural gas and NGLs within the Permian Basin and to the Texas Gulf Coast.

Midstream Logistics

Gas Gathering and Processing. The Midstream Logistics segment provides gas gathering and processing services with over 1,500 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.

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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. The system includes over 360 miles of gathering pipeline and approximately 760,000 barrels per day of permitted disposal capacity.

Pipeline Transportation

EMI pipelines. 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 Permian Highway Pipeline LLC (“PHP”), which is also owned and operated by Kinder Morgan; 2) 16% equity interest in Gulf Coast Express Pipeline LLC (“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 Crude Holdings, LP (“EPIC”), which is operated by EPIC Consolidated Operations, LLC.

Kinetik NGL Pipeline. Approximately 30 miles of 20-inch NGL pipelines connected to our Diamond Cryogenic complex.

Delaware Link Pipeline. The Company is currently building the Delaware Link Pipeline, which will provide additional transportation capacity to Waha when it is put into service. The project is expected to be complete in the fourth quarter of 2023. Upon completion, this pipeline is estimated to be 40 miles and to have a capacity of approximately 1.0 Bcf/d.

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. 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, and uncertainty from the recent banking turmoil and its effects on financial markets, global oil and natural gas commodity prices continue to remain volatile. The volatility and uncertainty of natural gas, crude oil and NGL prices impact drilling, completion and other investment decisions by producers and ultimately supply to our systems. Although the armed conflict in Ukraine generated 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 conflict would have a highly uncertain impact on the U.S. economy, which in turn, might affect our business and operations adversely. 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. Also, after a rapid rise of oil and natural gas prices in the first half of 2022, oil and natural gas prices have moderated from their peaks during the past twelve months. 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. In addition, the Company, when economically appropriate, enters into fee-based arrangements that insulate the Company from commodity price volatility.

Inflation and Interest Rates

The annual rate of inflation in the United States dropped slightly to 3.0% in June 2023 compared to 9.1% in June 2022, as measured by the Consumer Price Index, which was the lowest since May 2021. 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 raised the target range for the federal funds rate to 5.25% - 5.50% during its meeting in July 2023. FOMC has acknowledged the current stress on the banking system, stating that while the United States banking system is sound and resilient, recent developments are likely to result in tighter credit conditions for households and businesses and to affect economic activity, hiring and inflation. The extent of these effects is uncertain. There is uncertainty regarding whether inflation will continue to be tamed by the FOMC’s effort or whether the FOMC will continue to tighten its monetary policy in the next 12 months. Increased interest rates beyond the term of our hedges will increase our operating 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.

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Results of Operations

The following table presents the Company’s results of operations for the periods presented:


	Three Months Ended June 30,						Six Months Ended June 30,
	2023		2022*		% Change		2023		2022*		% Change

	(In thousands, except percentages)
Revenues:
Service revenue	$	102,551	$	102,080	—	%	$	205,976	$	182,525	13	%
Product revenue	191,430		229,651		(17	%)	365,254		404,579		(10	%)
Other revenue	2,222		3,841		(42	%)	6,013		5,717		5	%
Total revenues	296,203		335,572		(12	%)	577,243		592,821		(3	%)
Operating costs and expenses:
Cost of sales (exclusive of depreciation and amortization)	110,467		152,714		(28	%)	226,344		272,989		(17	%)
Operating expense	39,906		35,280		13	%	75,879		65,151		16	%
Ad valorem taxes	3,889		5,880		(34	%)	9,347		10,033		(7	%)
General and administrative	22,869		25,960		(12	%)	50,380		48,712		3	%
Depreciation and amortization	69,482		66,581		4	%	138,336		127,604		8	%
Loss on disposal of assets	12,137		8,546		42	%	12,239		8,656		41	%
Total operating costs and expenses	258,750		294,961		(12	%)	512,525		533,145		(4	%)
Operating income	37,453		40,611		(8	%)	64,718		59,676		8	%
Other income (expense):
Interest and other income	1,042		—		100	%	1,336		250		NM
Gain on redemption of mandatorily redeemable Preferred Units	—		5,087		(100	%)	—		9,580		(100	%)
Loss on debt extinguishment	—		(27,975)		(100	%)	—		(27,975)		(100	%)
Gain on embedded derivative	—		91,448		(100	%)	—		88,562		(100	%)
Interest expense	(16,126)		(25,347)		(36	%)	(85,434)		(52,121)		64	%
Equity in earnings of unconsolidated affiliates	49,610		47,786		4	%	96,074		75,703		27	%
Total other income, net	34,526		90,999		(62	%)	11,976		93,999		(87	%)
Income before income taxes	71,979		131,610		(45	%)	76,694		153,675		(50	%)
Income tax expense	311		162		92	%	727		838		(13	%)
Net income including noncontrolling interest	$	71,668	$	131,448	(45	%)	$	75,967	$	152,837	(50	%)

* The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to the Form 10-Q basis of presentation in Note 1—Description of the Organization and Summary of Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q, for further information.

NM - Not meaningful

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Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Revenues

For the three months ended June 30, 2023, revenue decreased $39.4 million, or 12%, to $296.2 million, compared to $335.6 million for the same period in 2022. The decrease was primarily driven by period-to-period lower product revenues related to decreases in commodity prices, partially offset by increases in volumes sold.

Service revenue

Service revenue consists of service fees paid to us by our customers for providing comprehensive gathering, treating, processing and produced water disposal services necessary to bring natural gas, NGLs and crude oil to market. Service revenue for the three months ended June 30, 2023, increased by $0.5 million, or less than 1%, to $102.6 million, compared to $102.1 million for the same period in 2022. Period-over-period gathered and processed gas volumes increased 296.9 Mcf per day and 320.4 Mcf per day, respectively, but the contract mix driving the increase in volumes did not lead to a commensurate increase in service fees. Over 99% of service revenues are included in the Midstream Logistics segment.

Product revenue

Product revenue consists of commodity sales (including condensate, natural gas residue and NGLs). Product revenue for the three months ended June 30, 2023, decreased by $38.2 million, or 17%, to $191.4 million, compared to $229.7 million for the same period in 2022, primarily due to period over period decreases in commodity prices. Period over period NGL prices decreased $21.54 per barrel, or 53%, condensate prices decreased $36.71 per barrel or 35% and residue prices decreased $5.75 per MMBtu or 84%. These decreases were partially offset by increases in NGL and condensate volumes sold of 2.8 million barrels, or 62%. Natural gas residue sales volumes decreased 10.4 million MMBtu, or 207%. The period over period increase in NGL and condensate volumes and related decrease in residue volumes was partially driven by running our plants in recovery during the three months ended June 30, 2023 versus rejection for one month during the same period in 2022. Product revenues are included entirely in the Midstream Logistics segment.

Operating Costs and Expenses

Costs of sales (exclusive of depreciation and amortization)

Cost of sales (exclusive of depreciation and amortization) primarily consists of purchases of NGLs and natural gas from our producers at contracted market prices to support product sales to other third parties. For the three months ended June 30, 2023, cost of sales decreased $42.2 million, or 28%, to $110.5 million, compared to $152.7 million for the same period in 2022. The decrease was primarily driven by period over period decreases in commodity prices as discussed above. Cost of sales (exclusive of depreciation and amortization) are included entirely in the Midstream Logistics segment.

Operating expenses

Operating expenses increased by $4.6 million, or 13%, to $39.9 million for the three months ended June 30, 2023, compared to $35.3 million for the same period in 2022. Of the total increase, $4.3 million was driven by higher leased compression and electricity expenses from the increased gathered and processed volumes discussed above.

General and administrative

General and administrative (“G&A”) expense decreased by $3.1 million, or 12%, to $22.9 million for the three months ended June 30, 2023, compared to $26.0 million for the same period in 2022. The decrease was driven by lower legal fees of $2.6 million that were primarily related to the Transaction and associated integration. The remaining decrease relates primarily to lower labor costs that is also associated with the integration of the Transaction.

Other Income (Expense)

Loss on debt extinguishment

For the three months ended June 30, 2022, the Company recognized a loss on debt extinguishment of $28.0 million in relation to the comprehensive refinancing completed in June 2022.

Unrealized gain on embedded derivative

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For the three months ended June 30, 2022, the Company recognized an unrealized gain on an embedded derivative of $91.4 million. The unrealized gain was a result of the decrease in fair value of the embedded derivative related to the redeemable noncontrolling interest Preferred Units. The substantial decrease in fair value of this derivative related to the comprehensive debt refinancing that achieved more favorable interest terms for the Company and the partial redemption of these Preferred Units on July 1, 2022, which was known as of the end of the second quarter.

Interest Expense

Interest expense decreased by $9.2 million, or 36%, to $16.1 million for the three months ended June 30, 2023, compared to $25.3 million for the same period in 2022. The decrease was primarily driven by interest rate swap valuation marks of $37.4 million when comparing the second quarter of 2023 to the same period in 2022. The decrease was partially offset by increased interest expense of $26.1 million related to higher debt obligations from the comprehensive refinancing completed in June 2022, as well as an overall increase in interest rates associated with the Term Loan Credit Facility (as defined below) and Revolving Credit Facility (as defined below), which carried some variability. Refer to Note—12 Derivatives and Hedging Activities in the Notes to Condensed Consolidated Financial Statements regarding the Company’s strategy in managing interest rate risk.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Revenues

For the six months ended June 30, 2023, revenue decreased $15.6 million, or 3%, to $577.2 million, compared to $592.8 million for the same period in 2022. The decrease was primarily driven by period-to-period lower product revenues related to decreases in commodity prices, offset by higher service revenues related to increases in gathered and processed gas volumes.

Service revenue

Service revenue consists of service fees paid to us by our customers for providing comprehensive gathering, treating, processing and water disposal services necessary to bring natural gas, NGLs and crude oil to market. Service revenue for the six months ended June 30, 2023, increased by $23.5 million, or 13%, to $206.0 million, compared to $182.5 million for the same period in 2022. This increase was primarily due to a period-over-period increase in gathered and processed gas volumes of 330.4 Mcf per day and 339.7 Mcf per day, respectively. Over 99% of service revenues are included in the Midstream Logistics segment.

Product revenue

Product revenue consists of commodity sales (including condensate, natural gas residue and NGLs). Product revenue for the six months ended June 30, 2023, decreased by $39.3 million, or 10%, to $365.3 million, compared to $404.6 million for the same period in 2022, primarily due to period over period decreases in commodity prices. Period over period NGL prices decreased $21.71 per barrel, or 51%, condensate prices decreased $28.39 per barrel or 29% and residue prices decreased $4.37 per MMBtu, or 78%. The overall decrease was partially offset by increases in NGL and condensate volumes sold of 6.6 million barrels, or 96%. Natural gas residue sales volumes decreased 11.3 million MMBtu, or 77%. The period over period increase in NGL and condensate volumes and related decrease in residue volumes was partially driven by running our plants in recovery during the six months ended June 30, 2023 versus rejection for certain months during the same period in 2022. Product revenues are included entirely in the Midstream Logistics segment.

Operating Costs and Expenses

Costs of sales (exclusive of depreciation and amortization)

Cost of sales (exclusive of depreciation and amortization) primarily consists of purchases of NGLs and natural gas from our producers at contracted market prices to support product sales to other third parties. For the six months ended June 30, 2023, cost of sales decreased $46.6 million, or 17%, to $226.3 million, compared to $273.0 million for the same period in 2022. The decrease was primarily driven by a period to period decrease in commodity prices, slightly offset by increases in condensate and NGL volumes sold. Cost of sales (exclusive of depreciation and amortization) are included entirely in the Midstream Logistics segment.

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Operating expenses

Operating expenses increased by $10.7 million, or 16%, to $75.9 million for the six months ended June 30, 2023, compared to $65.2 million for the same period in 2022. Of the total increase, $4.5 million was driven by the inclusion of Altus operations for the entire period, versus just over four months during the same period of 2022. The remaining increase is primarily the result of higher compression and electricity expenses from the increased gathered and processed volumes discussed above. Over 99% of operating expenses are included in the Midstream Logistics segment.

General and administrative

General and administrative expense increased by $1.7 million, or 3%, to $50.4 million for the six months ended June 30, 2023, compared to $48.7 million for the same period in 2022. The increase was driven by higher share-based compensation of $12.5 million related to a full six months of stock compensation amortization during 2023 versus just over four months of amortization during the same period of 2022 and due to certain members of management opting to receive their bonuses in the form of stock compensation during March 2023. This increase was partially offset by a decrease of $10.9 million in labor, professional fees and legal fees that were primarily related to the Transaction and its related integration.

Other Income (Expense)

Loss on debt extinguishment

For the six months ended June 30, 2022, the Company recognized a loss on debt extinguishment of $28.0 million in relation to the comprehensive refinancing completed in June 2022.

Unrealized gain on embedded derivative

For the six months ended June 30, 2022, the Company recognized an unrealized gain on an embedded derivative of $88.6 million. The unrealized gain was a result of the decrease in fair value of the embedded derivative related to the redeemable noncontrolling interest Preferred Units. The substantial decrease in fair value of this derivative related to the comprehensive debt refinancing that achieved more favorable interest terms for the Company and the partial redemption of these Preferred Units on July 1, 2022, which was known as of the end of the second quarter.

Interest Expense

Interest expense increased by $33.3 million, or 64%, to $85.4 million for the six months ended June 30, 2023, compared to $52.1 million for the same period in 2022. $42.7 million of the increase was driven by higher debt obligations from the comprehensive refinancing completed in June 2022, as well as an overall increase in interest rates associated with the Term Loan Credit Facility (as defined below) and Revolving Credit Facility (as defined below), which carried some variability. The increase was partially offset by higher interest rate swap valuation marks of $8.6 million when comparing the six months ended June 30, 2023 to the same period in 2022. Refer to Note—12 Derivatives and Hedging Activities in the Notes to Condensed 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 $20.4 million, or 27%, to $96.1 million for the six months ended June 30, 2023, compared to $75.7 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, which closed in February 2022. Equity in earnings of unconsolidated affiliates is included entirely in the Pipeline Transportation segment.

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. Adjusted EBITDA provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

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We believe that Adjusted EBITDA provides a meaningful understanding of certain aspects of earnings before the impact of investing and financing charges and income taxes. 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 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. 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. Adjusted EBITDA should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. 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.

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 interest, and incorporating this knowledge into its decision-making processes. Management believes that investors benefit from having access to the same financial measure that the Company uses in evaluating operating results.

The following table presents a reconciliation of the GAAP financial measure of net income including noncontrolling interest to the non-GAAP financial measure of Adjusted EBITDA.

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	Three Months Ended June 30,						Six Months Ended June 30,
	2023		2022		% Change		2023		2022*		% Change

	(In thousands, except percentages)
Reconciliation of net income including noncontrolling interest to Adjusted EBITDA			(*)
Net income including noncontrolling interest	71,668		131,448		(45)	%	$	75,967	$	152,837	(50)	%
Add back:
Interest expense	16,126		25,347		(36)	%	85,434		52,121		64	%
Income tax expense	311		162		92	%	727		838		(13)	%
Depreciation and amortization	69,482		66,581		4	%	138,336		127,604		8	%
Amortization of contract costs	1,655		448		NM		3,310		896		NM
Proportionate EMI EBITDA	74,481		71,340		4	%	146,348		112,081		31	%
Share-based compensation	13,299		12173		9	%	30,839		18,304		68	%
Loss on disposal of assets	12,137		8,546		42	%	12,239		8,656		41	%
Loss on debt extinguishment	—		27,975		(100)	%	—		27,975		(100)	%

Integration Costs	41		5,286		(99)	%	953		11,438		(92)	%
Transaction Costs	2		674		(100)	%	270		6,350		(96)	%
Other one-time cost or amortization	1,104		2,259		(51)	%	4,864		3,454		41	%

Deduct:
Unrealized gain on derivatives	2,678		—		100	%	7,643		—		100	%
Warrant valuation adjustment	33		—		100	%	77		—		100	%
Gain on redemption of mandatorily redeemable Preferred Units	—		5,087		(100)	%	—		9,580		(100)	%
Gain on embedded derivative	—		91,448		(100)	%	—		88,562		(100)	%
Equity income from EMI's	49,610		47,786		4	%	96,074		75,703		27	%
Adjusted EBITDA	$	207,985	$	207,918	—	%	$	395,493	$	348,709	13	%

* The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to Note 1—Description of the Organization and Summary of Significant Accounting Policies for further information on the Company’s basis of presentation.

NM - not meaningful

Adjusted EBITDA increased by $0.1 million, or 0%, to $208.0 million for the three months ended June 30, 2023, compared to $207.9 million for the same period in 2022.

Adjusted EBITDA increased by $46.8 million, or 13%, to $395.5 million for the six months ended June 30, 2023, compared to $348.7 million for the same period in 2022. The increase was primarily driven by increases in the Company’s proportionate share of its EMI pipelines’ EBITDA of $34.3 million due to the acquisition of new EMI pipelines and additional equity interests in the Company’s existing EMI pipeline, PHP, through the Transaction. The remaining increase is primarily due to owning the legacy Altus assets for the entire period during 2023 versus approximately four months during 2022.

Segment Adjusted EBITDA

Segment adjusted EBITDA is defined as segment net earnings adjusted to exclude interest expense, income tax expense, depreciation and amortization, the proportionate effect of these same items for our equity method investments and other non-recurring items. The following table presents segment adjusted EBITDA for the three and six month periods ended June 30, 2023 and 2022. Also refer to Note 1 7 —Segments in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for a reconciliation of segment adjusted EBITDA to net income including noncontrolling interest.

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	Three Months Ended June 30, 2023
	2023		2022		% Change


Midstream Logistics	$	136,570	$	140,654	(3	%)
Pipeline Transportation	74,835		70,887		6	%
Corporate and Other**	(3,420)		(3,622)		(6	%)
Total segment adjusted EBITDA	$	207,985	$	207,919	—	%


	Six Months Ended June 30,
	2023		2022*		% Change


Midstream Logistics	$	256,362	$	243,383	5	%
Pipeline Transportation	147,127		111,323		32	%
Corporate and Other**	(7,996)		(5,997)		33	%
Total segment adjusted EBITDA	$	395,493	$	348,709	13	%

* The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to Note 1—Description of the Organization and Summary of Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q 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.

Midstream Logistics segment adjusted EBITDA decreased by $4.1 million, or 3%, to $136.6 million for the three months ended June 30, 2023, compared to $140.7 million for the same period in 2022. The decrease was primarily driven by decrease in add backs related to interest expense of $20.6 million and loss on debt extinguishment of $28.0 million recognized in 2022, partially offset by an increase in segment net income including noncontrolling interests of $41.1 million and increase in add back related to loss on disposal of assets of $3.6 million.

Midstream Logistics segment adjusted EBITDA increased by $13.0 million, or 5%, to $256.4 million for the six months ended June 30, 2023, compared to $243.4 million for the same period in 2022. The increase was primarily driven by an increase in segment net income including noncontrolling interests of $83.5 million and increases in the add back related to depreciation and amortization expense of $10.0 million due to new operations acquired through the Transaction and loss on disposal of assets of $3.5 million. The increase in adjusted EBITDA was partially offset by decrease in add back related to interest expense of $47.4 million, loss on debt extinguishment of $28.0 million recognized in 2022 and integration and acquisition costs of $4.7 million.

Pipeline Transportation segment adjusted EBITDA increased by $3.9 million, or 6%, to $74.8 million for the three months ended June 30, 2023, compared to $70.9 million for the same period in 2022. The increase was driven by investments in GCX, EPIC, Shin Oak and PHP, which were all acquired through the Transaction closed in February 2022.

Pipeline Transportation segment adjusted EBITDA increased by $35.8 million, or 32%, to $147.1 million for the six months ended June 30, 2023, compared to $111.3 million for the same period in 2022. The increase was driven by investments in GCX, EPIC, Shin Oak and PHP, which were all acquired through the Transaction closed in February 2022.

Contractual Obligations

We have contractual obligations for principal and interest payments on our Term Loan Credit Facility. See Note 7—Debt and Financing Costs in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.

Under certain of our transportation services agreements with third party pipelines to transport natural gas and NGLs, if we fail to ship a minimum throughput volume during any year, then we will pay a deficiency payment for transportation based on the volume shortfall up to the MVC amount. The Company has made no historical shortfall payments through June 30, 2023.

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Capital Resources and Liquidity

The Company’s primary use of capital since inception has been for the initial construction of gathering and processing assets, as well as the acquisition of the EMI pipelines and associated subsequent construction costs. For 2023, the Company’s primary capital spending requirements are related to the PHP expansion project, the midstream infrastructure acquisition 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 the Reinvestment Holders (as defined below) and management reinvest 100% of their 2023 distributions and dividends into shares of our Class A Common Stock. In addition, the Board of Directors (the “Board”) has approved the Repurchase Program (as defined below) authorizing discretionary purchases of the Company’s Class A Common Stock up to $100 million in aggregate.

During the six months ended June 30, 2023, the Company’s primary sources of cash were distributions from the EMI pipelines, borrowings under the Revolving Credit Facility and cash generated from operations. Based on the Company’s current financial plan and related assumptions including the Reinvestment Agreement (as defined below), 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. Additionally, the Company has locked in the floating base rate on its Term Loan Credit Facility with interest rate swaps with a $2.25 billion notional that are effective through May 31, 2025 swapping floating SOFR for a fixed swap rate between 4.38% and 4.49%.

Comprehensive Refinancing

On June 8, 2022, the Partnership completed the private placement of $1.00 billion aggregate principal amount of 5.875% Senior Notes due 2030, which are fully and unconditionally guaranteed by the Company. The Notes are issued under our Sustainability-Linked Financing Framework and include sustainability-linked features. In addition, the Partnership entered into the revolving credit agreement with Bank of America, N.A. as administrative agent, which provides for a $1.25 billion senior unsecured Revolving Credit Facility maturing on June 8, 2027 (the “Revolving Credit Facility”), and the term loan credit agreement with PNC Bank as administrative agent, which provides for a $2.00 billion senior unsecured Term Loan Credit Facility maturing on June 8, 2025 (the “Term Loan Credit Facility”). 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. See Note 8—Debt and Financing Costs in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for further information.

Capital Requirements and Expenditures

Our operations can be capital intensive, requiring investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational regulations. During the six months ended June 30, 2023 and 2022, capital spending for property, plant and equipment totaled $160.2 million and $71.4 million, respectively and intangible asset purchases of $14.0 million and $8.5 million, respectively. The first quarter of 2023 also included capital spend of $65 million for certain midstream infrastructure assets, as discussed in Note 2 -- Business Combinations. Management believes its existing gathering, processing and transmission infrastructure capacity is capable of fulfilling its midstream contracts to service its customers. During the six months ended June 30, 2023, the Company contributed $154.7 million to PHP for the capacity expansion project, which started in June 2022.

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 6—Equity Method Investments in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.

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Cash Flow

The following tables present cash flows from operating, investing and financing activities during the periods presented:


	Six Months Ended June 30,
	2023		2022

	(In thousands)
Cash provided by operating activities	$	231,047	$	268,918
Cash used in investing activities	$	(447,903)	$	(69,059)
Cash provided by (used in) financing activities	$	212,699	$	(213,269)

Operating activities. Net cash provided by operating activities decreased by $37.9 million for the six months ended June 30, 2023 compared with the same period in 2022. The change in the operating cash flows reflected increases in adjustments related to non-cash items of $71.5 million, offset by decreases in working capital of $32.5 million and a decrease in net income including noncontrolling interests of $76.9 million.

Investing activities. Net cash used in investing activities increased by $378.8 million for the six months ended June 30, 2023 compared with the same period in 2022. The increase was primarily driven by an increase in net cash (paid for) acquired in acquisition of $138.4 million related to the current year acquisition of midstream infrastructure assets, an increase in property, plant and equipment expenditures of $88.7 million, an increase in contributions made to unconsolidated affiliates of $152.0 million related to the PHP expansion project and an increase in intangible assets expenditure of $5.4 million.

Financing activities. Net cash provided by financing activities was $212.7 million for the six months ended June 30, 2023, which was comprised of net borrowings from the Company’s Revolving Credit Facility of $255.0 million, offset by cash dividends of $36.5 million and repurchase of Class A common stock of $5.8 million. Net cash used in financing activities was $213.3 million for the six months ended June 30, 2022, which was comprised of redemption of mandatorily redeemable Preferred Units of $152.6 million, payments on debt issuance costs of $37.0 million, cash dividends of $20.5 million and net payments on the Company’s outstanding indebtedness of $3.1 million.

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”). 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. The Audit Committee resolved that for the calendar year 2023, 100% of all distributions or dividends received by each Reinvestment Holder would be reinvested in shares of Class A Common Stock.

During the first six months of 2023, the Company made cash dividend payments of $36.5 million to holders of Class A Common Stock and Class C Common Units and $175.6 million was reinvested in shares of Class A Common Stock by the Reinvestment Holders.

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. The Stock Split was accomplished by distributing one additional share of Class A Common Stock for each share of Class A Common Stock outstanding and one additional share of Class C Common Stock for each share of Class C Common Stock outstanding. 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.

Dividend

On July 20, 2023, the Board declared a cash dividend of $0.75 per share on the Company’s Class A Common Stock which will be payable to stockholders on August 16, 2023. The Company, through its ownership of the general partner of the Partnership, declared a distribution of $0.75 per Common Unit from the Partnership to the holders of Common Units, which will be payable on August 16, 2023.

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Share Repurchase Program

In February 2023, the Board approved a share repurchase program (the “Repurchase Program”), authorizing discretionary purchases of the Company’s Class A Common Stock up to $100.0 million in the aggregate. Repurchases may be made at management’s discretion from time to time, in accordance with applicable securities laws, on the open market or through privately negotiated transactions and may be made pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act. Privately negotiated repurchases from affiliates are also authorized under the Repurchase Program, subject to such affiliates’ interest and other limitations. The repurchases will depend on market conditions and may be discontinued at any time without prior notice. For the three and six months ended June 30, 2023, the Company repurchased 112,312 shares at a total cost of $3.3 million and 194,174 shares at a total cost of $5.8 million, respectively. For additional information regarding the Repurchase Program, see “Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” in this Quarterly Report on Form 10-Q.

The Inflation Reduction Act of 2022 provides for, among other things, the imposition of a 1% U.S. federal excise tax (the “Stock Buyback Tax”) on certain repurchases of stock by publicly traded U.S. corporations such as us after December 31, 2022. Accordingly, the Stock Buyback Tax will apply to our share repurchase program in 2023 and in subsequent taxable years. The Biden Administration has proposed increasing the amount of the Stock Buyback Tax from 1% to 4%; however, it is unclear whether such a change in the amount of the Stock Buyback Tax will be enacted and, if enacted, how soon any such change could take effect.

Liquidity

The following table presents a summary of the Company’s key liquidity indicators at the dates presented:


	June 30,		December 31,
	2023		2022
	(In thousands)
Cash and cash equivalents	$	2,237	$	6,394
Total debt, net of unamortized deferred financing cost	$	3,625,799	$	3,368,510
Available committed borrowing capacity	$	587,422	$	855,000

Cash and cash equivalents

As of June 30, 2023 and December 31, 2022, the Company had $2.2 million and $6.4 million, respectively, in cash and cash equivalents.

Total debt and available credit facilities

There is no assurance that the financial condition of banks with lending commitments to the Company will not deteriorate. The Company closely monitors the ratings of the banks in the Company’s bank group. Having a large bank group allows the Company to mitigate the potential impact of any bank’s failure to honor its lending commitment.

Off-Balance Sheet Arrangements

As of June 30, 2023, there were no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates from those disclosed on our Annual Report Form 10-K for the year ended December 31, 2022. Please refer to information regarding our critical accounting policies and estimates included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Commission on March 7, 2023.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosure About Market Risk

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The Company is exposed to various market risks, including the effects of adverse changes in commodity prices and credit risk as described below. 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 continued to have significant impact on volatility and uncertainties in the financial markets during the second quarter of 2023.

Commodity Price Risk

The results of the Company’s operations may be affected by the market prices of oil 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. For example, commodity prices directly impact costs such as power and fuel, which are expenses that increase or decrease in line with changes in commodity prices. Commodity prices also affect industry activity and demand, thus indirectly impacting the cost of items such as labor and equipment rentals. 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 12—Derivatives and Hedging Activities in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional discussion regarding our hedging strategies and objectives.

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 June 30, 2023, the Company had interest bearing debt, net of deferred financing costs, with principal amount of $3.63 billion. The interest rates for the Revolving Credit Facility and the Term Loan Credit Facility 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. As of June 30, 2023, $2.25 billion of floating rate debt (out of $2.65 billion) has been hedged until June 2025. If interest rates increase by 10.0%, the Company’s consolidated interest expense would have increased by approximately $126 million for the quarter ended June 30, 2023. The Company may periodically enter into interest rate derivatives to add stability to interest expense and to manage its exposure to interest rate movements. Refer to Note 12—Derivatives and Hedging Activities in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional discussion regarding our hedging strategies and objectives. The Company will 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 rate reductions were dependent upon the Company meeting certain sustainability targets during 2022, which were subject to the completion of certain attestation procedures, which have been successfully completed as of June 30, 2023.

Credit Risk

The Company is subject to credit risk resulting from nonpayment or nonperformance by, or the insolvency or liquidation of, third-party customers. 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.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of June 30, 2023, pursuant to Rule 13a-15(b) of the Exchange Act, the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Accounting and Administrative Operating Officer, who serves as the principal accounting officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(r) and 15d-15(e) of the Exchange Act). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Accounting and Administrative Operating Officer, concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2023.

The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. The Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that the Company files under the Exchange Act is accumulated and communicated to the Company’s

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management, including the Chief Executive Officer and Chief Accounting and Administrative Operating Officer, as appropriate, to allow timely decisions regarding required disclosure.

Change in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended June 30, 2023, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For further information regarding legal proceedings, refer to Note 16—Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.

ITEM 1A. RISK FACTORS

Please refer to “Part II, Item 1A — Risk Factors” in the Company’s Annual Report Form 10-K for the year ended December 31, 2022 filed on March 7, 2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Repurchase of Class A Common Stock


Period	Total Number of Shares Purchased(1)	Average Price per Share(2)		Total Number of Shares Purchased as Part of Publicly Announced Plan(1)	Maximum number (or approximate dollar value) of Shares that May Yet be Purchased under the Plans
April 1 to April 30, 2023	—	—		—	97,567,798
May 1 to May 31, 2023	112,312	29.60		112,312	94,243,313
June 1 to June 30, 2023	—	—		—	94,243,313
Total	112,312	$	29.60	112,312	$	94,243,313

(1)On February 28, 2023, the Company announced that the Board had approved the Repurchase Program, authorizing discretionary purchases of the Company’s Class A Common Stock up to $100 million in the aggregate.

(2)Average price paid per share included commission to repurchase shares.

ITEM 5. OTHER INFORMATION

Trading Arrangements

During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934

Pursuant to Section 13(r) of the Exchange Act, we may be required to disclose in our annual and quarterly reports to the SEC whether we or any of our “affiliates” knowingly engaged in certain activities, transactions or dealings relating to Iran or with certain individuals or entities targeted by US economic sanctions. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law. Because the SEC defines the term “affiliate” broadly, it includes any entity under common “control” with us (and the term “control” is also construed broadly by the SEC).

The description of the activities below has been provided to us by Blackstone Inc. (“BX”), affiliates of which: (i) beneficially own more than 10% of our outstanding common stock and are members of our board of directors, and (ii) hold a minority non-controlling interest in Mundys S.p.A (formerly Atlantia S.p.A). Mundys S.p.A. may therefore be deemed to be under common “control” with us; however, this statement is not meant to be an admission that common control exists.

The disclosure below relates solely to activities conducted by Mundys S.p.A. The disclosure does not relate to any activities conducted by us or by BX and does not involve our or BX’s management. Neither we nor BX has had any involvement in or control over the disclosed activities, and neither we nor BX has independently verified or participated in the preparation of the disclosure. Neither we nor BX is representing as to the accuracy or completeness of the disclosure nor do we or BX undertake any obligation to correct or update it.

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We understand that BX disclosed the following in their most recent quarterly report on Form 10-Q, and as of August 8, 2023, the Company is unaware of any changes to the relationship status between BX and Mundys S.p.A, therefore, the Company included BX’s disclosure of certain activities, transactions or dealings between BX and Iran.

Disclosure pursuant to Section 13(r) of the Securities Exchange Act of 1934. Funds affiliated with Blackstone first invested in Mundys S.p.A. on November 18, 2022 in connection with the voluntary public tender offer by Schema Alfa S.p.A. for all of the shares of Mundys S.p.A., pursuant to which such funds obtained a minority non-controlling interest in Mundys S.p.A. Mundys S.p.A. owns and controls Aeroporti di Roma S.p.A. (“ADR”), an operator of airports in Italy including Leonardo da Vinci-Fiumicino Airport. Iran Air has historically operated periodic flights to and from Leonardo da Vinci-Fiumicino Airport as authorized, from time to time, by an aviation-related bilateral agreement between Italy and Iran, scheduled in compliance with European Regulation 95/93, and approved by the Italian Civil Aviation Authority. ADR, as airport operator, is under a mandatory obligation to provide airport services to all air carriers (including Iran Air) authorized by the applicable Italian authority. The relevant turnover attributable to these activities (whose consideration is calculated on the basis of general tariffs determined by such independent Italian authority) in the quarter ended June 30, 2023 was less than €50,000. Mundys S.p.A. does not track profits specifically attributable to these activities.

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ITEM 6. EXHIBITS


EXHIBIT NO.		DESCRIPTION
2.1***	–	Contribution Agreement, dated October 21, 2021, by and among Altus Midstream Company, Altus Midstream LP, New BCP Raptor Holdco, LLC, and BCP Raptor Holdco, LP (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on October 21, 2021).
3.1	–	Third Amended and Restated Certificate of Incorporation of Kinetik Holdings Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on February 22, 2022).
3.2	–	Amended and Restated Bylaws of Kinetik Holdings Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on February 22, 2022).
3.3	–	Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation of Kinetik Holdings Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on June 2, 2023).
4.1	–	Amended and Restated Stockholders Agreement, dated October 21, 2021, by and among APA Corporation, Apache Midstream LLC, Altus Midstream Company, New BCP Raptor Holdco, LLC, Raptor Aggregator, LP, BX Permian Pipeline Aggregator, LP, Buzzard Midstream LLC, and BCP Raptor Holdco, LP. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on February 22, 2022).
4.2	–	Second Amended and Restated Registration Rights Agreement, dated February 22, 2022, by and among Altus Midstream Company, Apache Midstream LLC, Raptor Aggregator, LP, BX Permian Pipeline Aggregator, LP, Buzzard Midstream LLC and the other holders party thereto. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on February 22, 2022).
4.3	–	Indenture, dated June 8, 2022, by and among Kinetik Holdings Inc., as parent, Kinetik Holdings LP, as issuer, and U.S. Bank Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on June 14, 2022).
4.4	–	Form of 5.875% Senior Notes Due 20 30 (included in Exhibit 4.3) (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on June 14, 2022).
10.1	–	Third Amended and Restated Agreement of Limited Partnership of Altus Midstream LP, dated as of October 22, 2021 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on February 22, 2022)..


31.1*	–	Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
31.2*	–	Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
32.1**	–	Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(b) and 18 U.S.C. 1350
32.2**	–	Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(b) and 18 U.S.C. 1350
101*	–	The following financial statements from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Cash Flows, (iv) Condensed Consolidated Statements of Changes in Equity and Noncontrolling Interests and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
101.SCH*	–	Inline XBRL Taxonomy Schema Document.
101.CAL*	–	Inline XBRL Calculation Linkbase Document.
101.DEF*	–	Inline XBRL Definition Linkbase Document.
101.LAB*	–	Inline XBRL Label Linkbase Document.
101.PRE*	–	Inline XBRL Presentation Linkbase Document.
104*	–	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


* Filed herewith.
** Furnished herewith.
*** Schedules and exhibits to this Exhibit have been omitted pursuant to Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


		KINETIK HOLDINGS INC.

Dated:	August 8, 2023	/s/ Jamie Welch
		Jamie Welch
		Chief Executive Officer, President, Chief Financial Officer and Director
		(Principal Executive Officer)

Dated:	August 8, 2023	/s/ Steven Stellato
		Steven Stellato
		Executive Vice President, Chief Accounting and Chief Administrative Officer
		(Principal Financial Officer)