Kinetik’s (KNTK) Record Quarter Sets Up A Bigger 2027 Bet

Kinetik’s (KNTK) Record Quarter Sets Up A Bigger 2027 Bet

Wed, September 16, 2026 at 6:29 PM GMT+3 4 min read

• KNTK +0.05%

On August 5, Kinetik Holdings Inc. (NYSE:KNTK) reported the strongest quarterly results in company history and raised its full-year 2026 guidance. The Permian-focused midstream operator posted net income, including noncontrolling interest, of $123.1 million for the quarter ended June 30, while Adjusted EBITDA climbed to $280.8 million. Management didn't stop at celebrating the number. It used the quarter as the launchpad for a string of expansion decisions that stretch out to 2028.

Building Toward A Bigger System

The Midstream Logistics segment, Kinetik's largest, grew Adjusted EBITDA 35% year over year to $204.8 million in the second quarter, even though processed natural gas volumes held flat at 1.74 Bcf/d. That flat number actually undersells the quarter. It came despite roughly 250 million cubic feet per day of gas that had been shut in because of weak Waha-area pricing, with stronger natural gas liquid recoveries, condensate yields, and favorable commodity spreads carrying the segment instead.

Management is betting the growth continues well past 2026. In May, Kinetik reached a final investment decision on Kings Landing II, a roughly $260 million project that will lift sour gas processing capacity across the company's Delaware North complex above 700 MMcf/d and push total system capacity to 2.7 Bcf/d when it comes online in mid-2028, earlier than previously communicated. The ECCC Pipeline, which links the system's northern and southern halves between Eddy and Culberson Counties, is now in service, and right-of-way work has already begun on a follow-on expansion for 2027.

Kinetik also locked in new firm Gulf Coast access for residue gas starting in 2027 and signed fresh natural gas liquids transport agreements, both aimed at getting better prices for the gas it moves. On the back of that momentum, Kinetik raised its full-year 2026 Adjusted EBITDA guidance to a range of $1.04 billion to $1.1 billion, a 7% bump from the guidance it issued in February.

Where The Cracks Still Show

Not every part of the business is moving in the same direction. The Pipeline Transportation segment posted Adjusted EBITDA of $83.0 million in the quarter, down 14% year over year, a decline the company attributes to last year's divestiture of its equity stake in EPIC Crude Holdings. That sale removed a source of cash flow the rest of the business now has to make up for. Kinetik also expects gas curtailments to keep running at an average of 25 million cubic feet per day through the second half of 2026, on top of the Waha-driven shut-ins that already weighed on the quarter. Its own pricing assumptions underline the regional problem: the company is now modeling Waha Hub natural gas at negative $0.26 per MMBtu for the full year, meaning gas in parts of the Permian is priced so low that moving it out of the basin is the whole game.

Growth is also getting more expensive. Kinetik raised its 2026 capital expenditure guidance to approximately $560 million to cover Kings Landing II, accelerated customer development, long-lead equipment for yet another processing expansion, and right-of-way work on ECCC. That spending pace is running well ahead of the $206.6 million of free cash flow the company generated in the first half of the year. Net debt stood at $3.94 billion at quarter end, putting the leverage ratio at 3.85 times, a level that leaves less room to absorb a downturn in commodity prices.

What The Market Is Pricing In

Hedge fund ownership of Kinetik rose from 25 funds to 29 in the most recent quarter, pointing to institutions adding rather than trimming positions. Short interest sits at 9.25% of float, high enough to suggest a real contingent of investors betting against the stock even as guidance moves higher. The stock trades at a forward price-to-earnings ratio of 22.12, as of September 16, which prices in meaningful growth from here. Rising fund ownership alongside elevated short interest suggests the market hasn't fully settled how much of Kinetik's expansion story is already in the price.

The Question For 2027

Kinetik heads into the back half of 2026 with record cash flow, a raised guidance range, and a slate of projects stretching to 2028. The tension sits between a Permian system that management describes as structurally under-built for LNG and data center demand, and a balance sheet carrying $3.94 billion of net debt to fund that buildout. For the growth case to hold, projects like Kings Landing II and the ECCC expansion need to land on budget and on schedule. For the skeptics, the negative Waha pricing and the shrinking Pipeline Transportation segment are signs the region's gas bottleneck isn't solved yet.

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