Kinetik Swaps the Data-Center Pitch for 'Raining Gas'
The 2027 step-change is now a volume-and-margin story out of the Woodford and Penn Shale — and the AI-power narrative quietly left the building just as the market stopped paying for it.
KNTK · Earnings Call · 2026-11-05
The curtailment discount expires
For roughly six quarters, Kinetik's story was about gas it could not move: negative Waha prints, shut-ins, "deferred revenue," and a Gulf Coast marketing hedge that papered over the difference. The third quarter flipped the sign. “Record processed gas volumes, strong system performance, and improving producer activity supported our results as the impact of price-related curtailments diminished.” — Jamie Welch, President and Chief Executive Officer · 2026-11-05 Midstream Logistics EBITDA rose 34% year over year to $204 million on 1.94 Bcf/d, with only an estimated 25 MMcf/d of Waha-related shut-ins left in the quarter. Pipeline Transportation, meanwhile, fell 18% to $79 million on the EPIC Crude divestiture and higher fuel costs at Permian Highway — the old, low-multiple asset mix shrinking while the fee-rich gathering business grows. My favorite exchange was John Mackay's attempt to bridge 1.94 Bcf/d to the ~2.2 Bcf/d fourth-quarter target — Welch practically hugged him and volunteered that October averaged 2.14 Bcf/d, 200 MMcf/d above the third-quarter average, “and that is an actual average number for the month of October” — Jamie Welch, President and Chief Executive Officer · 2026-11-05. Six months ago the same management team was counting consecutive days Waha had printed above zero. The volume growth narrative that tops Kinetik's own keyword list this quarter is not a slogan; it is a print. Note the divergence with the tape. Kinetik is up roughly 17% in 90 trading days while the global data-center complex — AI data centers across a 55-plus ticker cluster — is down about 31% over 30 days. Kinetik sells molecules into the very power-demand complex that is being de-rated, yet it travels the other way, because its earnings driver has shifted from an AI-adjacent option value to physical throughput and fee mix.A new vocabulary: benches, not basins
The most striking shift is linguistic. Kinetik's own keyword history shows Delaware South and Delaware North among the quarter's sharpest decliners — along with Permian Basin — replaced by formation names: Avalon, First Bone Spring, Penn Shale and, above all, Woodford. Woodford and "bench" are the highest-momentum additions to the company vocabulary this quarter. The reason is arithmetic: gas-to-oil ratios have compounded 5%–6% a year, and Trevor Howard frames 2027 as a repeat of 2018's gas growth (about 2.5 Bcf/d per EIA) on barely a third of the crude growth.The strategic tell is where the incremental margin comes from. KL2 was upsized from 300 to 380 MMcf/d for the same ~$260 million — a per-unit build cost step-down that Elvira Scotto rightly probed — and Welch guided a $200–250 million range for the next 400 MMcf/d cryo, 12–15 months on a brownfield. Add the ECCC phase-one expansion to ~225 MMcf/d and over 30,000 gross dedicated acres signed since August, and the capital program gets more productive per dollar, not just bigger. Most of the 2027 lift, Welch argues, comes from low pressure developments that bundle treating, compression and gathering — a unit-margin story, not a volume-only one. Which is why the NGL line matters more than its billing. Management had framed ~$150 million of cumulative margin from Lone Star contract expirations across 2027–2030, roughly $40 million a year. “We're probably looking at over 50% increase relative to that for 2027.” — Jamie Welch, President and Chief Executive Officer · 2026-11-05 That is a fee-reset windfall requiring essentially no capital — the cleanest dollars in the whole deck.That, from a gas gatherer and processor, is like Christmas came all at once, because it is just so much gas. It still has good GPMs to it. It's probably around 4 GPM, so it's a little leaner than some of the other gas we have on the system, but it is such volume.
The 10% CAGR leaves the penalty box
Here is where the prior calls make this one interesting. In February, Welch conspicuously refused to re-underwrite the long-term growth target: “rather than being wedded or bound to a specific, this is the growth rate to anticipate. Our growth rate, we think, is going to be above average.” — Jamie Welch, President and Chief Executive Officer · 2026-02-26 On this call he walked the 10% CAGR back out of the penalty box, noting the building blocks are "still in place, if not actually more pronounced," and sketching $988 million to roughly $1.1 billion as an 11% rate. He also leaned on the credibility he earned by getting punished for it: “I think we're going to be much more on the front foot, not the back foot.” — Jamie Welch, President and Chief Executive Officer · 2025-05-08 Reading this as pure cheerleading would be a mistake, because the capital-return machinery has been deliberately kept tight. Dividend coverage improved to 1.6x from 1.5x, and management is recommending only the high end of its 3%–5% growth range in January — despite a 4-cent raise being trivially affordable — explicitly to fund the 2027 step-up first. Leverage of 3.7x is already below the midpoint of the 3.5x–4.0x range, with an expected exit at the low end; effective net cash of roughly -$3.7 billion looks far less alarming against a run-rate headed toward $1.1 billion. The buyback is the honest tell on valuation. The $500 million authorization is ~40% used, but the heavy buying happened in mid-2025 at far lower prices — repurchases peaked at $100 million in 2025Q3 versus $3 million in the last filed quarter — and Welch and Howard both now prefer organic projects underwritten at 4x–6x. On M&A, Howard was refreshingly blunt:We've been evaluating all of these deals, trying to find ways to make them work, but we've come up short. That doesn't mean that I don't think that we're not going to be successful on a go-forward basis, but what I would just say is that we're in a different environment in 2026 than we were back in 2024.