Kinetik Completes Acquisition of Durango Permian

Kinetik Holdings Inc. has completed its purchase of Durango Permian LLC for about $840 million, growing its natural gas processing capacity by 420 million cubic feet per day (MMcfpd).

The acquisition also doubles Kinetik’s gathering pipeline mileage and adds over 60 new customer companies, according to Texas-based Kinetik.

The midstream company funded the cash-and-equity transaction with proceeds from the divestment of its 16 percent equity interest in the Kinder Morgan Inc-operated Gulf Coast Express pipeline, completed earlier this month.

“As a result of the acquisition, Kinetik has significantly enhanced its overall Delaware Basin wide footprint”, Kinetik said in a statement announcing the completion of the Durango agreement. “Taken together, the GCX divestiture and Durango acquisition are immediately deleveraging with Kinetik’s leverage ratio at 3.4 times following the closing”.

Durango expands Kinetik’s operations in the New Mexico counties of Eddy and Lea, “the most active counties in the Permian Basin”, Kinetik said in last month’s announcement of the acquisition deal. Durango also operates in Cheves County, Mexico. Kinetik takes over Durango’s under-construction Kings Landing project in Eddy County, expected to begin service April 2025 with a processing capacity of 200 MMcf.

President and chief executive Jamie Welch said then, “Following on from our tremendous success with our recent Lea County, New Mexico system expansion, we are delighted to now announce this series of strategic transactions that further our expansion into New Mexico and significantly increase our footprint across the Northern Delaware Basin”.

The new Lea gas gathering system started operation in the first quarter of 2024, along with the Delaware Link gas conduit, an expansion of the Permian High Pipeline (PHP). Kinetik now owns over 55 percent of PHP.

The Durango transaction consists of $765 million of cash and equity plus a contingent payment of $75 million tied to capital expenses for the Kings Landing project.

“The structure for the Durango Acquisition has approximately 60 percent upfront consideration with 40 percent of the consideration deferred until July 2025, which is after the expected Kings Landing in-service date”, Welch explained at the time.

“Following the Durango Acquisition and the expected completion of Kings Landing, Kinetik will own and operate over 2.4 billion cubic feet per day of processing capacity, entirely in the Delaware Basin, and approximately 4,600 miles of pipelines across eight counties.

“Proceeds from the GCX Sale and the aggregate issuance of $450 million of Kinetik Class C shares, in two installments, will be reinvested into projects at a mid-single digit EBITDA multiple. These actions efficiently and accretively recycle cash proceeds from a non-operated asset into highly strategic, operated assets”.

Simultaneous with the acquisition deal, Kinetik also signed a 15-year agreement with an unnamed “large existing Kinetik customer in Eddy County” for low-pressure and high-pressure gas gathering and processing services. For this deal, Kinetik will build new infrastructure with a capital of about $200 million through 2026.

“The Durango Acquisition and New Eddy County Agreement offer full control of plant products including more than 350 million cubic feet per day of residue gas and well over 60,000 barrels per day of natural gas liquids, providing significant additional upside value via system optimization, modifications to existing commercial contracts, and integration with our Pipeline Transportation segment”, Welch said.

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