Kinetik Holdings Inc

Hello, everyone. Thank you for joining us and welcome to the Kinetic First Quarter 2026 results. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Alex Durkee, Head of Investor Relations. Please go ahead.

Good morning, and welcome to Kinetic's first quarter 2026 earnings conference call. Our speakers today are Jamie Welch, President and Chief Executive Officer, and Trevor Howard, Senior Vice President and Chief Financial Officer. Other members of our senior management team are also in attendance for this morning's call. As a reminder, today's discussion will include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of these factors, please refer to our SEC filings. We will also reference certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures can be found in our earnings materials and on our website. With that, I will turn the call over to Jamie.

Thank you, Alex. Good morning, everyone. Kinetic delivered record earnings in the first quarter. This reflects key execution across our three core pillars, commercial, operations, and financials. Before walking through each in more detail, I wanted to briefly touch on recent geopolitical developments. The global macroeconomic landscape has shifted meaningfully since reporting fourth quarter 2025 results. While Trevor will cover the implications that we see today in more detail, we believe that Kinetic is incredibly well positioned as these dynamics continue to play out. Commercially, Our team has been highly productive. We've seen strong conversion of opportunities into new and amended agreements across both Texas and New Mexico. Over the past few months, we've added new customers across our gas, crude, and water service offerings, while continuing to advance our strategy of revising commercial terms and extending legacy Durango contracts. During the quarter, we completed a significant contract amendment with a large existing customer in New Mexico that expands the original dedicated acreage by roughly 25%. It consolidates multiple agreements into a single contract and extends terms through 2039. As a result, approximately 75% of legacy Durango gas processing volumes have now been amended over the past four months. Collectively, these new and amended contracts extend terms into the mid and late 2030s, increase margin, expand dedicated acreage, broaden services rendered, provide downstream control of plant products, and reinforce long-term visibility across our New Mexico system. As we've said before, the message from customers has been clear. Incremental sour gas treating and processing capacity is a necessity to support their development plans in New Mexico. Our strong runtime performance at King's Landing and continued progress on the sour conversion project, combined with the recent contract amendments and new agreements, have created strong commercial momentum in support of potentially advancing a processing capacity expansion at King's Landing Complex. We also continue to pursue highly capital-efficient power generation-related opportunities. We signed a zero-capex interconnection with Pecos Power, connecting our Delaware Link residue gas pipeline to the Pecos Power plant in Rees County. Combined with the CPV Basin Ranch interconnection announced late last year, we have again demonstrated a fee-based template for monetizing our existing footprint as Permian power generation demand grows. On the operations front, field operations executed at a high level this quarter, delivering reliable performance across the system, while maintaining a strong focus on safety. We've also made solid progress across our capital projects in the quarter. We are nearing completion now of the ECCC pipeline within service later this quarter. At King's Landing, we received all required approvals from the BLM and the NMOCD. allowing us to proceed with the AGI and sour gas conversion project for the full 20 million cubic feet per day of total acid gas, or TAG, capacity. All long lead materials have been ordered, construction is underway, and we plan to spud the first acid gas injection well this summer. Once complete, the project will enable us to handle elevated H2S and CO2 levels across all three Delaware North processing complexes, providing total operational tag capacity of 26.5 million cubic feet per day and permitted capacity in excess of 31 million cubic feet per day. Phase one of the SALAR conversion for King's Landing remains on track for in-service by year-end 2026. and meaningfully enhances the long-term value of our New Mexico business. In Delaware South, we advanced our 40 megawatt behind-the-meter power generation solution at Diamond Cryer. Turbine equipment has started to arrive on site, and engineering, procurement, and permitting work is well underway. And financially, we remain highly focused on executing on our priorities. including leveraging data and technology to drive efficiency across our business. In February, we began our pilot program with Palantir and have been encouraged by early results which are reinforcing more data-driven execution across the organization. Now, at the same time, our finance and operations teams are progressing on our operating cost reduction initiatives. Importantly, Operating and G&A expenses are tracking in line with our budget estimates. And through our efforts so far, the teams have identified additional efficiencies that optimize our cost structure for 2027 and thereafter. At the end of last year, we secured more residue gas transport capacity to the Gulf Coast, which provided financial insulation to the pronounced price-related production shut-ins. we had seen and expect for much of 2026. As new Gulf Coast takeaway capacity comes online and hub differentials tighten into 2027, Kinetic remains well-positioned as curtailed volumes return and gross margin normalises, reducing the contribution from this spread-driven financial offset. We remain extremely vigilant about managing our medium and long-term Gulf Coast transportation capacity portfolio. Not only is it important for our customers to receive Gulf Coast hub pricing, but also critical for growing with new customers. We recently secured additional Gulf Coast pricing exposure starting in 2028. And we also have our European LNG price contract with INEOS starting in early 2027. Since 2018, we have shown that we think outside the box and believe it is one of our corporate core strengths to creatively find premium pricing solutions for our customers' natural gas. Stepping back, the contracts we have signed, the commercial opportunities we are pursuing, and the takeaway we have secured all extend Kinetics earnings durability well into the next decade. The near-term gas price environment is a cycle to manage through, not a thesis to revisit. We are managing through it from a position of strength and our confidence in the multi-year plan has only increased over the passage of the last 90 days. And with that, I'll turn it over to Trevor.

First quarter adjusted EBITDA of $251 million was a quarterly record and came in above the high end of the range that I outlined during our fourth quarter earnings conference call. Distributable cash flow totaled $181 million and free cash flow was $101 million. The midstream logistics segment delivered a record $179 million of adjusted EBITDA of 12% year over year, essentially on flat volumes. The result is a direct payoff from the Gulf Coast takeaway capacity that we contracted late last year. Spread-based marketing gains have more than offset approximately 170 million cubic feet per day of Waha price-related production shut-ins in the quarter, converting what would have been a volume headwind into a margin tailwind. In addition to the wider basis spread, outperformance relative to our internal expectations was also driven by stronger-than-expected system operating performance that yielded more condensate and NGL recoveries, higher fee-based margins, stronger commodity prices, and slightly lower unit operating costs than budgeted. Our pipeline transportation segment generated $78 million of adjusted EBITDA, down year-over-year reflecting the epic crude divestiture that closed on October 31st and lower throughput volumes on Chinook. Turning to our updated outlook, as Jamie noted earlier, the macroeconomic environment has shifted meaningfully. Higher commodity prices in response to the conflict in the Middle East have driven improvements in the forward pricing curve, implying stronger commodity margins relative to the underlying assumptions in our guidance. While we have seen activity pull forwards with certain customers, primarily pertaining to 2027 activity, overall producer behavior remains disciplined. In stark contrast, we have experienced a significantly more challenged price environment at the Waha hub. In March and April, the gas daily average price at Waha was negative $4.81. Given the push and pull dynamic of higher crude prices and a highly oversupplied local natural gas market, a few of the assumptions underpinning our guidance have changed. First, process natural gas volumes expectations. In February, we called for high single-digit percentage volume growth year-over-year in 2026, inclusive of 100 million cubic feet per day of curtailments from gas price-sensitive customers. Actual production shut-ins to date have been materially higher than that expectation. We now forecast low to mid-single-digit percentage growth in processed gas volumes year-over-year, which reflects approximately 220 million cubic feet per day of curtailments on average for 2026. At current process gas volumes of approximately 1.8 BCF per day, the incremental 120 million cubic feet per day of curtailments represents a decline of more than 6 percentage points relative to our original growth expectations. In conclusion, the reduction in volume growth expectations is driven by our assumptions on price-related shut-ins, which are temporary in nature. Second, financially offsetting the impact from the Waha price-related production shut-ins are the wider natural gas hub price differentials. To date, the Waha to Houston ship channel spread has been wider than assumed in guidance, enabling stronger-than-expected marketing gains. We have approximately 50% of our transport spread exposure hedged in 2026. And as a reminder, our spread hedging tends to be lower during the spring and fall pipeline maintenance seasons, and higher during the summer and winter months. And third, commodity prices have moved higher since the onset of the conflict in the Middle East. While ethane has remained relatively flat, the NGL composite and propane have increased over 20% since the February 13th strip used in our guidance assumptions, and WTI is up over 30%. We have capitalized on higher prices with incremental hedges. Specifically, we estimate our equity volume exposures are approximately 75% hedged for propane and butane volumes and approximately 85% hedged for crude and C5 plus volumes. Marking to market our commodity price exposure, we estimate an uplift of approximately $20 million to full year 2026 adjusted EBITDA at current forward pricing, excluding our Gulf Coast marketing spreads. we are affirming our 2026 adjusted EBITDA guidance range of $950 million to $1.05 billion. Relative to our underlying assumptions in our February guidance, we expect to benefit from improved commodity margin and Gulf Coast marketing opportunities partially offset by lower volume expectations associated with the temporary price-related shut-ins. With respect to earnings growth cadence for the remainder of 2026, I would reiterate my comments from our fourth quarter call. We expected the first and second quarter results to be in the $230 to $240 million range and the third and fourth quarter results to be in the $260 to $270 million range. Given our first quarter results exceeded that expectation, we are tracking ahead of plan. We continue to expect quarterly performance to generally align with the cadence originally outlined for the balance of the year. We continue to expect 2026 capital expenditures guidance in the range of $450 million to $510 million. CapEx including growth and maintenance was $91 million in the first quarter. As we look to the balance of the year, we currently anticipate the remaining spend to be pretty evenly weighted across quarters. Now turning to the balance sheet, we ended the quarter with ample revolver capacity and leverage of 3.9 times, which was within our targeted range. Our healthy balance sheet combined with our cash flow profile provides the flexibility to fund our growth program without compromising our return of capital to our shareholders. Looking ahead, the pace and scale of incremental residue gas takeaway capacity continues to reshape the long-term outlook for the Permian. More than 5 billion cubic feet per day of new capacity is expected to be in service by early 2027, with an additional 6 billion cubic feet per day anticipated across 2028 and 2029. This structural shift has reinforced the constructive view on long-term Permian gas growth. Combined with the direct feedback from our customers, our confidence in the durability of our multi-year plan continues to strengthen. Execution in the near term remains critical to sustaining that trajectory, and we remain focused on consistently delivering across our three priorities – discipline, commercial, conversion – reliable operational execution, and conservative financial stewardship. And with that, we can open the line for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A list. Your first question comes from Michael Blum with Wells Fargo. Please go ahead.

Thanks. Good morning, everyone. I wanted to ask, I wanted to ask about the Durango agreements that you amended and extended here. How do we think about the incremental EBITDA contribution for 26 and beyond? And with these new agreements, does this change at all the mix of your contract portfolio between fee, you know, versus POP and key call or just your overall commodity exposure?

Yeah, thanks, Michael, for the question. This is Trevor. In terms of 2026, I would call it – I think we've characterized it in the past as modest uplifts, so 1% to 2% of the overall base business. So it's a nice uplift, but it really sets the stage for investing in the field and then also investing in King's Landing further with the sour conversion and then the potential processing expansion by pushing out the duration in term of those agreements and And it also does – or it also has removed a portion of commodity within the business. When we acquired Durango, the system was, you know, about 60% fee, 40% commodity. And through these restructurings and amended and restated agreements, we've taken that fee-based percentage up. Not quite like our business down south where that's an 85% to 90% fee margin business, but we are closing the gap there.

Got it. Thanks for that. And then I wanted to ask on this Pecos Power deal, I guess the question is how do we think about returns for a project like this, and do you see other opportunities in the basin to sort of replicate this? Because obviously that is another way to sort of deal with Waha is to find more in-basin demand for gas.

Thanks. Michael, it's Jamie. As far as the returns, there's no capital, so it's infinite in the context. We're seeing a lot of new gas-fired power generation located in and around West Texas. The footprint of our system is such that we have a lot of connectivity. We have the ability to provide residue natural gas to these new power generation plants and we've got a very active dialogue with a number of them. That's how we see our sort of role. You're correct. We look at it much the same way you pointed out, which is this is a little bit of self-help for Waha on the basis of creating incremental demand. So we will continue to capitalize on it from our vantage point. It's just a nice incremental base of fee revenue.

Hey, Michael, this is Chris. As Jamie alluded to, it's an earnings opportunity. Not only to sell residue gas transportation, but a lot of these power companies want hourly services. So to the extent we can provide that flexibility, that's additional margin. So, again, we're in conversations with these parties right now, but it's future upside that we're working with.

Thank you.

Your next question comes from Spiro Dunas with Citi. Please go ahead.

Thanks, operator. Morning, team. I want to start with King's Landing, too. So you announced these new dedications. You talked about growth accelerating. It's early 27, and Trevor, you just mentioned that a lot of this sort of sets the stage for an expansion. So just kind of curious how close you are. I think originally the potential FID was a 2026 line item. I just want to get a sense of where that stands, or if there's maybe even a capital light option you could pursue first.

Spiro, good morning. It's Jamie. I think as far as King's Landing 2 is concerned, we have been actively engaged in commercializing that project opportunity for some time. We have knocked down incremental steps along the way, which we think brings us closer and closer to the end point of finally being able to FID that particular plant. So I think we are getting close. And I think the overall level of activity that we continue to see reinforces our belief in just the prospects and opportunity that we find presented in New Mexico. So I think we're pretty excited. In the interim, as you know, ECCC will come into service. Effectively, it will be sort of in a month from now. And we'll obviously be able to start taking incremental, what we would say, sweet New Mexico volumes down south for processing capacity. And we'll continue to look at the, you know, the level of activity just more broadly in New Mexico, which remains very robust.

Trevor, on your last comment, just about the capital light option, really, ECCC was that option, right? Because Delaware North was on an island and not connected to our Delaware South system, we would, you know, Kings Landing 1 is going to get filled this year. And so we would, you know, we would already have a Kings Landing 2 in service by the end of this year in order to take incremental gas. And so we've taken that measure with ECCC and being able to utilize processing capacity in other parts of our system. And then also there's just more markets and more optionality down in Texas.

Got it. Understood. Second question, maybe just going back to the 2026 EBITDA cadence. Trevor, you kind of walked through it a little bit, but could you just maybe give us a little more detail on the drivers for the back half of the year ramp? Obviously, you've got some ramping assets, but, you know, while it likely isn't improving until maybe midsummer, there's some indications Hugh Brinson could come online by that timeframe and help provide some relief. I'm curious how you're thinking about when the marketing gains flip to, curtailments coming back online and volumes being the bigger driver. It sounds like that's what you're counting on for the back half of the year. I just want to make sure that's right.

Well, I think Trevor will answer this, but I think, Spiro, what we've announced with the incremental expectation for curtailment is that we foresee a continuing period of challenge for Waha. And for the sake of being conservative... we wanted to communicate that the overall level of curtailments were actually higher than we anticipated, obviously in our original guidance. And more importantly, it's deferred revenue, right? That volume will show up. And in the meantime, we found a bunch of money in the form of these marketing revenues that have obviously been able to, in fact, not only ensure that we've met our financial guidance, but obviously I think there's a net windfall here for our overall stakeholders. because you've got money for marketing, and you're going to have deferred revenue coming from the return of production.

It also makes it, just kind of piggybacking off of Jamie's comments, it makes it easier to grow in 2027, because the PDP may be starting off with, and January of 2027 will be higher. Again, Jamie's comments are right. It's deferred revenue. PDP will be higher entering into 2027. So it really sets up 2027 well. And in the meantime, we've talked ad nauseum about this, but the strategy that we've employed is, with the Gulf Coast marketing hedge as an offset to curtailments has been effective. But with respect to the ramp in the back half of the year, I'd reiterate my comments and the prepared remarks where no changes to our second through fourth quarter earnings cadence, 230 to 240 in the second quarter and 260 to 270, each quarter in the second half of this year. What I would say is that what's driving that is actually not a return of shut-in volume. We're expecting shut-ins to persist through the balance of the year and really resume in December of this year. When you look at the forward spreads, Waha is negative up until October, so we've taken maybe a little bit of conservatism here, just given the fact that that's a maintenance period, and so we wanted to ensure that we're out of the maintenance season before expecting volumes to return. Really, to answer your question, well, what is driving this, we have a very summer-heavy development program, and we have a handful of big packages of gas that are coming online across the system, and particularly in New Mexico, and And then we also, that's really in the third quarter. And then in the fourth quarter, we have some Texas packages that are real needle movers for gas volume growth. And then come December, that's when you have the resumption of curtailed volumes and then Gulf Coast marketing margins declining.

So it's sort of interesting that we sit here on May 7th and we've only had Waha being in positive territory. In other words, greater than zero for 13 days. Six days were attributed to winter storm fern. So if you excluded winter storm fern, seven days and we're now in the fifth month of the year. So it is, I mean, we're dealing with unprecedented volatility. It makes it, you know, I know that there is some elements of frustration in the context of dealing with the level of volume growth, and we've seen some of that come out in the commentary. But put yourself in our shoes. We are dealing with things that, candidly, even in the beginning of this year, we thought that 2026 would be the tale of two halves, but if you're seeing negative pricing for Waha going into October, that is something that is actually truly hard to fathom. One more question.

One more piggyback comment for Jamie Spiro. But in terms of the volume revision lower in our year-over-year volume guidance, as you saw, we increased our curtailments by 120 million cubic feet a day on average for the full year. That's about six percentage points to our overall gas process volumes. And so we went from high single digits year-over-year to low to mid single digits year-over-year, and that is solely attributable to the increase in curtailments.

Understood. Okay. Public caller, as always. Thank you, gentlemen. Thank you.

Your next question comes from Brandon Bigham from Scotiabank. Please go ahead.

Hey, good morning. Thanks for taking the questions. Wanted to maybe go back to the setup into next year, if possible, all the egress capacity coming online at the end of the year into next year. What is your sense in discussions with producer customers that have higher in base and pricing sensitivity about the appetite to maybe accelerate development? Is there a potential slug of call it pent-up supply beyond the expected curtailments as prices normalize?

Brand is Jamie. So as prices normalize, you mean gas prices or we're normalized in the context of wildfire pricing? Yes, yes. Okay. Well, it's interesting because obviously what we try to communicate in both the press release and the prepared remarks is, you know, we have this push-pull impact right now for 2026 of what we're seeing in activity. We are seeing some of the smaller independents. We're seeing some people pull forward packages in a matter of months, weeks. But we're seeing a building momentum in 2027 where we estimated second half of the year, middle of the year, people are pulling forward packages into the very beginning of the year. And I think the longer we have this elevated commodity price environment, the more we are going to see, particularly from our larger public customers, I think we're going to see a lot more activity in the beginning of 2027. that they'll capitalize on that continued tailwind, if you will. So I do think that that's definitely going to set you up for an even better 2027. I think Trevor communicated that in his prepared remarks, that, you know, not only are we going to have the return of the PDP base, which will be even higher because of the effect of the shut-ins, but also I think we've now got a real pull forward of a lot of activity.

Okay, great. Thank you. And then maybe just quickly... You mentioned some incremental cost optimization opportunities for 27-plus. If you could maybe just expand on those to the extent you can.

Yeah, sure. I'm happy to jump in. We have a fair amount of just general equipment that is at least where we are operating it or where it's a true lease. And so just really looking at – You know, all of our cost structure, and I think the biggest opportunity for us is just to integrate a few things that historically we've had others, you know, operate for us or have some kind of capital lease. And that's the majority of what we're seeing, and they're very capitally efficient, quick payback projects for us. And then we are, as Sandy commented on, we're on the early onsets of really, I'd say, transforming from a data perspective how we look at our cost structure and optimizing there. And that's more of a building the framework and the foundation for 2026 and start to see those benefits in 2027. But in 2026, the immediate is buying equipment and services that we've outsourced.

Awesome. Thank you very much.

Your next question comes from Dave Dowd with Truist. Please go ahead.

Thanks, operator. Good morning, everyone. Thanks for all the call this far. Dave, I was hoping maybe you could just get some thoughts around adding more Gulf Coast exposure in the 28 to 30 period. Just looking at the strip, obviously, with all the egress coming on, Waha should improve and experience better days ahead, but just curious around maybe the rationale on the longer-term exposure there.

Yeah, Gabe, thanks for the question. Yeah, it's an interesting question to raise because we've gone from a situation where Waha was a heavily discounted price relative to SHIFT or South Texas, and we talked about it being disadvantaged. We've now gone to a place where it is just outright negative. It's just in such a bad place. So I think the way we think about 28 to 30 is as follows. We expect that this too shall pass. We will get out of literally the purgatory of negative pricing. And that means negative absolute pricing. But it is our estimation and belief that WAHO is going to remain that discounted price point relative to every other gas node, nodal market price in and around Texas. And therefore... The need, if you want premium pricing, will remain Gulf Coast or export. They are your two options. And so securing incremental Gulf Coast supply is going to remain critically important. Likewise, trying to ensure and actually contract for incremental export and LNG opportunities is something that we're also, very much focused on. We start our INEOS contract beginning of next year, which we're looking forward to. So I think that, look, we will get out of this negative pricing paradigm, which is obviously quite, which was making it extremely difficult and volatile for all of us, but it will still remain a heavily discounted price point relative to other options. And so we're going to continue focusing on the premium options and how we can secure more of it for our customers. going forward, because there seems like an endless demand for that from our customers.

Gabe, this is Chris. I think the important point Jamie said was for our customers. Our customers want to get out of Waha. The time period of 28 to 30 is important. We have renewal options on our Gulf Coast capacity in 2031, so it syncs up well with that. But again, the Fords say Waha gets better, but the last five years, the Fords have been wrong. And we're seeing the gas growth out of the basin. And so it's been an important differentiator for us, so we're going to continue to get exposure in basins other than Waha.

Awesome. No, that certainly makes sense. And as you noted, the curve has been wrong in the past, so I appreciate that, caller. And then maybe just as a quick follow-up, can you maybe just remind us what your key floors are on the GMP side, just given these curtailments that you've highlighted? Thanks, guys.

I'm happy to jump in here. So we don't have C4s in our business, Gabe.

Okay. Got it. Got it. Thanks, guys.

The next question comes from Jeremy Tonnet with JPMorgan Securities LLC. Please go ahead.

Hi. Good morning. Good morning, Jeremy. Just wanted to, you know, build on some of the commentary before at the risk of getting ahead of ourselves. But it seems like 26, you're tracking ahead of expectations at this point, but don't want to lift the guide, want to see how more unfolds. But you still have 4Q intact, as you said, as far as, like, gradually increasing over the course of the year. And wondering, you know, what that means for 27, I guess, if there's any way you can frame, I guess, how you see the momentum going what type of growth this could generate or kind of like normalize growth for the business at this point?

So, Jeremy, look, I think you're right. Let's go back to your very first words. You're talking to, you know, Trevor and myself and the management team here, you know, look, this was our second consecutive beat. It followed, obviously, a series of misses, which we took quite personally and actually felt like we, you know, we needed to do better. and so we are being very cautious and conservative, and it's not lost on us that we obviously had a very strong first quarter, and we are hopeful that that will shape up for the balance of this year, and we will just sit with the guys that we've got until such time as we conclude that it makes sense for any changes. But what is important, I think, is from transparency and communication is to understand that incremental PDP base, on average, 120 million cubic feet a day is 60% of one of our existing crias. That's the average, right? And obviously, it peaks and troughs as it relates... Well, it peaks and declines depending upon the period. But certainly, there was already, I think, a heightened expectation for 2027, which we certainly agree with. Obviously, we have a lot of benefits flowing through into 2027, NGL contract resets, we've got a lot of incremental benefits, we've got the first full year of our salad gas conversion project with King's Landing. There was a lot. And with a high PDP base, accelerated activity, bringing it early into the year sets you up. I think it's premature to think about what that means as far as actual dollars and cents or percentages of growth. but certainly it is the sun, the moon, and the stars are aligning for it to be a very, you know, we think a very strong and positive year post-2026.

Jeremy, the other thing that I point you to is historically we've guided some projects across our entire portfolio as being the single-digit multiples. We give a total capital number, but if you were to strip out maintenance, you're looking at, you know, $400 to $425 million of growth last year and this year, looking at 2025 actuals and then adjusting out for the Epic crude sale. This year, you're looking at double-digit growth, and that ties to a reinvestment multiple on the growth capital that we had spent in 2025. And so, just to provide you some additional color there based on prior comments that we've made.

That's helpful there. Thanks for that. And At the risk of pushing my luck here, I was just curious, I guess some of your peers in the basin have talked of a certain cadence that they think that processing capacity expansions might be required with their footprint, you know, X plants per year, what have you. Just didn't know if you had any high-level thoughts on, you know, what it might look like for Kinetic in framing it in a similar term.

Look, I think that's not – we, too, take note of some of those statements from some of our competitors. I think we're probably getting on the cusp of being big enough that we can think about what that cadence may look like. I don't think we're at that point quite yet. We'd like to sort of first get King's Landing 2 sorted and done and behind us and then we can think about it because we're really still exploring the full benefits and breadth of opportunity set that exists in New Mexico and And I think that will then further reinforce the color and perspective of just exactly what processing cadence and growth needs to look like for this company going forward.

Got it. That's helpful. Thank you. Thank you.

Your next question comes from John McKay with Goldman Sachs. Please go ahead.

Thank you. Thank you for the time. Maybe we'll go back to the shut-ins. Back in October, you guys had talked about shut-ins from some oil-directed wells at all. I just wanted to check in, and the shut-ins you're talking about, either for first quarter or balance of the year, is that all effectively on the, you know, alpine high side, or are you expecting some kind of more regular oil-directed activity to be impacted as well?

You got it right in the context of the impact. Impact, Alpine High, and more of our gas-sensitive customers. Clearly, we have not seen oil-directed customers shutting in. To the contrary, some of these smaller guys in particular, obviously, given the current commodity price environment, are looking to accelerate their level of activity. So it is a tale of two cities. Crude folks that are doing cartwheels and backflips, and those that are literally localized Waha gas-centric sellers are literally trying poverty.

Yeah, absolutely. Appreciate that. That's clear.

Second one for me is just going back to the general idea that you guys keep going to, if we're going to see a lot more gas growth, GORs in the basin are coming up. Would you be able to give us a bit of a mark to market on your NGL TNF recontracting expectations? Alongside this, we'd expect NGL volumes to go up. Maybe recontracting gains might not be as high as we could have thought. End of last year, maybe just, again, mark us to market on that if you don't mind. Thanks.

Yeah, no problem. John, I think we said on the call in February that actually the market was even more aggressive than we were anticipating. And still it is early days, and obviously we're in this discovery phase as we've communicated. And we said we would clearly communicate to the market at the appropriate time. But I think to the contrary, I think the expectation is you will have even better net realized margins on our part than what we had previously communicated because of the environment that we find ourselves in. So I think it's actually the antithesis of what you've just, as you just described it.

Fair enough. That's interesting. We will stay tuned. Thanks for the time. Yep.

Your next question comes from Keith Stanley with Wolf Research. Please go ahead.

Hi. Good morning. For the new packages of gas coming out in the summer that boost the second half of the year outlook, I want to confirm those producers that are bringing on those new volumes, they have gas takeaway capacity, so they're not sensitive to what's going on with Waha?

Yes, correct, Keith. They've got Gulf Coast transport.

Okay, great. The second question is, I mean, you've had a good couple quarters now on dealing with the Waha issue. How confident or how much visibility do you have that marketing gains can continue to offset curtailment losses this year? And what's the risk around that? I assume it's just if pipes to FFT on experience unexpected downtime, just Can you kind of frame how you're thinking about risks to continuing to be able to manage this this year?

Sure. So, obviously, as it relates to the overall dynamic, we have multiple FT arrangements on multiple pipelines. I think the overall reliability that we've seen continues to remain high, and obviously it would have far – reaching consequences if there were unexpected issues. We're not anticipating any. They have a very regular cadence of maintenance, both in the fall and in the spring, and that's obviously communicated very clearly to the shippers. So as far as managing is concerned, we've been looking at the spread differential between Waha and Houston Ship. We obviously have some hedges in place. We've talked about that. They very much mirror or map the expected capacity profile. So we see more dislocation in Waha in the spring and in the fall during maintenance seasons when there is catalytic capacity, when pipes do come down for days or maybe a week. And I think we've been able to manage it. We feel pretty confident that we're going to be able to manage it. We've managed it now through the first quarter. We've managed it certainly through April, May as well. So I do think that, look, we're starting to find our sea legs as far as managing this exposure, even though it is as volatile as one sort of could potentially possibly believe. But I think Trevor and the team have done a really good job.

Keith, I'd also jump in and just say that, look, I think part of the risk that we have is that we go and test new lows. I think that this company has done a very nice job in managing what are our risks and which customers are more sensitive as you move from positive territory to minus $1 to $2 Waha, then the next tranche being $2 to $6 negative Waha. And then like we saw for a few days in April and March, and then also in October of last year, where you start to see $8, $9, almost $10 negative law. You know, I think the risk, just being totally candid, is do you go and touch new lows that we haven't seen of minus $15 premium BTU? And I think just given the setup of Hugh Brinson starting to have some deliveries in the third quarter, Blackcomb coming online in the fourth quarter, Hugh Brinson reaching full-on service, TCX coming online online, This summer, I think the risk of us touching, you know, new lows is quite low. But, you know, we've also done a really nice job. The commercial team's done a nice job of playing offense in this particular situation and learning from, you know, the feedback that we're seeing from our customers and, you know, migrating the portfolio to primarily Gulf Coast. Gulf Coast sales is important and a long-term strategy of ours, and that will help insulate us from the shut-ins that we've seen. and a lot of woody chop there, but the team's done a really nice job initially, and that's been demonstrated over the last two quarters of performance.

Thank you. That's helpful detail. Thanks, Gabe.

Your next question comes from Julian DeMoulin-Smith with Jefferies. Please go ahead.

Hi, good morning, everyone. It's Rob on for Julian. Just one for me. I think you alluded to in your prepared remarks being a bit less hedged, you know, in a positive sense during the spring. Waha has been even more discounted in April and May. Any reason you wouldn't expect to perform as you did in one queue, if not better, in the second quarter, if you think about maybe that tail to have you alluded to, Jamie?

Rob, thanks for the question. Look, I think let's not get ahead of ourselves. We obviously feel very confident and very good about where we are. Your statement is correct that obviously April and May have been also fairly negative from a Waha pricing standpoint. So I think we'll take each day and each month as we find it. And I think we continue to understand that we're trying to build upon our financial base and outperform.

Understood. Thanks for the time, everyone.

Thank you.

Your next question comes from Samia Jane with UBS. Please go ahead.

Hi, good morning. Thanks for taking my question. So as you keep your 2026 CapEx side, what sorts of growth opportunities are you looking at in New Mexico? Would that be more on the AGI facilities on the sour gas side or maybe infrastructure investments to capture more gas residue? I guess, could you sort of detail what sorts of infrastructure investments are also needed on the gas residue side to expand that opportunity?

Sure. So this is Jamie Welch. I think as far as the infrastructure and the capital is concerned in New Mexico, 70% of our budget is allocated to New Mexico versus Texas. That's the starting point. A lot of it obviously is related to, as we think about New Mexico, the AGI South Conversion Project being one of the larger ones and the completion of ECCC, the pipelines. You've got some long lead items in relation to King's Landing 2. You know, I think on the residue side, we don't, you know, we've got connectivity already to the existing pipeline operators up there, Transwestern, El Paso. We'll have a connection to, we will have other connections going forward to other outlets. So that's not huge dollars from our vantage point. So I think, you know, look, that's all encapsulated within the CapEx that we gave and we've got listed in our prepared materials. So I think it's, you know, if I was going to think about dollars, it's, you know, $10, $20 million, sort of that quantum versus the overall $480 to the midpoint for our guidance.

Okay. Thank you. And then could you comment on any discussions you might have had with customers on technologies increasing recovery in the Permian and if you've seen any notable differences from that already in the Delaware Basin?

Hey, Samia. This is Chris. You know, we've seen the efficiencies. I think that's shown in production data and from at least our public customers and discussing in their calls a A lot of them are reticent to share any sort of competitive advantage they have because it's part of how they optimize their costs. But we are seeing an increase in or a decrease in today's drill and things like that. So there's been a trend of improved technologies over time, but nothing specific to any certain customer.

Great. Thank you.

We have reached the end of the Q&A session. I will now turn the call back to Jamie Welch for closing remarks.

Thank you, everyone, for your time this morning. We look forward to seeing you in a few weeks at EIC, and we wish everyone a great day.

This concludes today's call. Thank you for attending. You may now disconnect.