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Kinetik Holdings Inc., in a series of transactions, has added to its Delaware basin natural gas processing capacity, signed a 15-year gathering and processing services agreement, and agreed to divest its 16% equity interest in Gulf Coast Express pipeline (GCX).
Delaware basin growth
Kinetik has agreed to acquire Durango Permian LLC for an aggregate $765 million of cash and equity with up to $75 million of contingent consideration.
Durango’s assets, located in Eddy, Lea, and Chaves Counties, New Mexico, include about 2,400 miles of gas gathering pipelines and about 220 MMcfd of processing capacity. Durango is currently constructing Kings Landing, a new 200 MMcfd greenfield processing complex in Eddy County, which is expected to be completed in April 2025, increasing Durango’s processing capacity to 420 MMcfd. Kinetik estimates an additional $78 million of net capital expenditures required to complete Kings Landing construction.
Consideration for the Durango acquisition includes about $315 million of cash (excluding any contingent consideration) and 11.5 million Kinetik Class C common stock issued to Durango Midstream LLC, an affiliate of Morgan Stanley Energy Partners, in two installments. The deal also includes up to $75 million in contingent consideration tied to the actual capital cost of Kings Landing. The deal is expected to close in June 2024.
In a separate deal, Kinetik executed a new 15-year low-pressure and high-pressure gas gathering and processing agreement with an existing, unnamed customer.
Kinetik will construct low-pressure and high-pressure gathering infrastructure. The contract will begin at yearend, starting with gathering services and extend to processing services starting in second-quarter 2025.
Funding
As one funding source for the Durango acquisition and capital for the new gathering and processing agreement, Kinetik agreed to sell its 16% equity interest in Kinder Morgan Inc.-operated GCX pipeline to an affiliate of ArcLight Capital Partners LLC for $540 million. The price is comprised of $510 million in upfront cash and an additional $30 million deferred cash payment due upon a final investment decision on a capacity expansion project. The transaction is expected to close in the next few weeks.
The series of transactions further the company’s expansion into New Mexico and increase its footprint across the Northern Delaware basin, said Jamie Welch, Kinetik’s president and chief executive officer.
“Additionally, the Durango acquisition and New Eddy County agreement offer full control of plant products including more than 350 MMcfd of residue gas and well over 60,000 b/d of natural gas liquids, providing significant additional upside value via system optimization, modifications to existing commercial contracts, and integration with our pipeline transportation segment,” he continued.
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