Kinetik Holdings announces secondary share offering by Apache Midstream

• Kinetik Holdings (NASDAQ:KNTK) announced the commencement of an underwritten secondary offering of 2.5M class A shares by Apache Midstream, a subsidiary of Apache (NASDAQ:APA).
• Kinetik is not selling any class A shares in the offering and will not receive the proceeds from any sale of shares by the selling stockholder.
• Apache Midstream intends to grant to underwriters a 30-day option to purchase up to an additional 375K class A shares.
• KNTK stock dropped 10% in aftermarket trade following the announcement.

Comments

[Darren McCammon]

Thanks for the opportunity to add more KNTK Mr. Market.

Kinetik (formerly Altius Midstream), was down over 15% with a dividend yield over 10.1% after they announced this secondary offering of 2.5 million KNTK shares held by Apache (APA). It represents approximately 13% of outstanding, but importantly they are not additional new shares. Rather APA holds shares that KNTK is helping them sell (none of the funds will go to KNTK).

This has always been part of the plan with the Altius-EagleClaw merger. In fact, at least half of these funds will help increase Alpine High volume into the KNTK gathering and processing system. By contract, the first $75 million of capital raised by APA from KNTK sales has to be spent on Alpine High drilling (about half the total $ amount here). So this is actually a positive for KNTK's Adj EBITDA per share as there is no dilution, and at least half the money realized goes towards adding volume into the KNTK system.

From last quarter's APA conference call:
Scott Gruber
"Got it. And then just a quick 1 on Alpine High. The 4 million share early sell-down option associated with Altus EagleClaw combo, I believe it came with the stipulation that you invest the first $75 million in new Alpine High development activities over the subsequent 18 months. Is that spend in the budget for '22? And can you talk about the plan for Alpine High at these commodity prices within the multiyear plan?"
David Pursell
"Yes, Scott, this is Dave Pursell. Yes, that's -- it's in the budget. We have the fourth rig in the U.S. We're adding. Think about that as a Delaware Basin focused rigs. It will do some drilling in Alpine and also do some drilling at our DXL field, which flows into the Altus Midstream assets. And so there's a -- it will move around in the basin over the next couple of years. But it will do a fair amount of drilling at Alpine specific."

If you were a member of Cash Flow Kingdom (rc.seekingalpha.com/...), you would have know this the night of March 8th and thus been in a position to buy or add the morning of the 9th. We did.

[bean78624]

For good or ill, this Apache move has let me reload shares under $60 again. I like KNTK a bunch, but if it soon roars upward again to near recent highs I will likely flip them again. It's just too tempting to make ~2+ years of dividends in a month or so. My goodness.

[everlast00]

Let’s see if Apache gets $60 in this secondary…I wouldn’t be surprised if it’s $55. It’s just too much stock to sell all at once.

The float is just so small - take advantage of the wild price swings with a trading position or just use it as a trading vehicle. Buy sub-$60, sell around $70. Can do this a few times a year, it seems. Maybe collect the divvy too.

[ISTJ Investor]

Isn't this the sale of shares by APA (representing part of their interest) that was contemplated and previously publicized (albeit without a scheduled date) in the merger agreement presentations?

[BDHPlayer]

Not sure where you are getting the zero activity in Apache High. The below text is from Apache's Q4 earnings call transcript:

"Is that spend in the budget for '22? And can you talk about the plan for Alpine High at these commodity prices within the multiyear plan?

David Pursell

Yes, Scott, this is Dave Pursell. Yes, that's -- it's in the budget. We have the fourth rig in the U.S. We're adding. Think about that as a Delaware Basin focused rigs. It will do some drilling in Alpine and also do some drilling at our DXL field, which flows into the Altus Midstream assets. And so there's a -- it will move around in the basin over the next couple of years. But it will do a fair amount of drilling at Alpine specific."

[matttrakker]

So… now I’m confused. In their investor presentation they said zero activity at alpine high, but in selling these shares they are required to invest a significant amount of the sale proceeds ramping up alpine high according to the kntk merger. So did they not know they were going to do this a week ago?

[elliot_mllr]

@matttrakker :
Apache is required to use all of the proceeds to invest in Aline High, which will benefit KNTK, as will the increase in the number of KNTK's shares allocated to the retail investment sector.
The comment made previously dealt with the situation of KNTK as of the date of its issuance. It would have been improper for KNTK to disclose Apache's intent even if KNTK was aware of it.
Elliot Miller

[elliot_mllr]

@elliot_mllr :
Forgive my bad typing. In my above Comment "Aline" should have been "Alpine."
Elliot Miller

[everlast00]

@elliot_mllr Down to $63 now…as I said, totally foreseeable.