Kinetik Holdings Inc. (KNTK) FY 2022 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K, and the risk factors and related information set forth in Part I, Item 1A and Part II, Item 7A of this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are omitted in this Annual Report on Form 10-K are incorporated by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Exhibit 99.6 of the Company’s Current Report on Form 8-K, filed on February 28, 2022.

Unless otherwise noted or the context requires otherwise, references herein to Kinetik Holdings Inc., “the Company”, “us”, “our”, “we” or similar terms, with respect to time periods prior to February 22, 2022, include BCP and its consolidated subsidiaries and do not include ALTM and its consolidated subsidiaries, while references herein to Kinetik Holdings Inc., “the Company”, “us”, “our”, “we” or similar terms, with respect to time periods from and after February 22, 2022, include ALTM and its consolidated subsidiaries.

The Transaction

On February 22, 2022, the Company consummated the business combination transactions contemplated by the Contribution Agreement, dated as of October 21, 2021, by and among the Company, the Partnership, Contributor and BCP. Pursuant to the Contribution Agreement, in connection with the Closing, (i) Contributor contributed all the equity interests in BCP and BCP Raptor Holdco GP, LLC, a Delaware limited liability company and the general partner of BCP (“BCP GP”), to the Partnership; and (ii) in exchange for such contribution, the Partnership transferred to Contributor 50,000,000 Common Units and 50,000,000 shares of the Company’s Class C Common Stock.

The Company’s public stockholders immediately prior to the Closing continued to hold their shares of the Company’s Class A Common Stock. As a result of the Transaction, immediately following the Closing (i) Contributor held approximately 75% of the issued and outstanding Common Stock, (ii) Apache Midstream held approximately 20% of the issued and outstanding Common Stock, and (iii) the Company’s remaining stockholders held approximately 5% of the issued and outstanding Common Stock. Upon close of the Transaction, the Company’s Pipeline Transportation segment expanded to include three additional EMI pipelines and to increase its ownership interest in PHP. Further, a secondary offering of 4 million shares held by Apache Midstream was closed during March of 2022, reducing Apache’s ownership to approximately 13%.

The Transaction also brought in additional volume capacity from ALTM for the Midstream Logistics segment, including a total of 600 MMcf/d of existing state-of-the-art operating processing capacity, 182 miles of in-service natural gas gathering pipelines, approximately 46 miles of residue gas pipelines with four market connections, and approximately 66 miles of NGLs pipelines. The increased volume capacity has contributed to the increase in operating revenue for the year ended December 31, 2022 compared to the same periods in 2021.

Overview

We are an integrated midstream energy company in the Permian Basin providing comprehensive gathering, transportation, compression, processing, and treating services. Our core capabilities include a variety of service offerings including natural gas gathering, transportation, compression, treating and processing; NGLs stabilization and transportation; produced water gathering and disposal; and crude oil gathering, stabilization, storage and transportation. The Company’s corporate office is located in Houston, TX and our operations are strategically located in the heart of the Delaware Basin in the Permian.

Our Operations and Segments

Upon Closing, the Company renamed its Gathering and Processing segment to Midstream Logistics and renamed its Transmission segment to Pipeline Transportation. These name changes were made to better align segment activities with the name of each respective segment. The Midstream Logistics segment operates under three service offerings, 1) gas gathering and processing, 2) crude oil gathering, stabilization, and storage services, and 3) water gathering and disposal. The Pipeline Transportation segment consists of four EMI pipelines in the Permian Basin with various access points to the Texas Gulf Coast, Kinetik NGL Pipeline and our Delaware Link Pipeline that is under construction. The EMI pipelines transport crude oil, natural gas, and NGLs within the Permian Basin and to the Texas Gulf Coast.

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Midstream Logistics

Gas Gathering and Processing. The Midstream Logistics segment provides gas gathering and processing services with approximately 1,500 miles of low and high-pressure steel pipeline located throughout the Southern Delaware Basin. Gas processing assets are centralized at five processing complexes with total cryogenic processing capacity of approximately 2.0 Bcf/d.

Crude Oil Gathering, Stabilization, and Storage Services. Crude gathering assets are centralized at the Caprock Stampede Terminal and the Pinnacle Sierra Grande Terminal. The system includes approximately 220 miles of gathering pipeline and 90,000 barrels of crude storage.

Water Gathering and Disposal. The system includes approximately 80 miles of gathering pipeline and approximately 490,000 barrels per day of permitted disposal capacity.

Pipeline Transportation

EMI pipelines. The Company owns the following equity interests in four EMI pipelines in the Permian Basin with access to various points along the Texas Gulf Coast: 1) an approximate 53.3% equity interest in PHP, which is also owned and operated by Kinder Morgan; 2) 16% equity interest in GCX, which is owned and operated by Kinder Morgan; 3) 33% equity interest in Shin Oak, which is owned by Breviloba, LLC, and operated by Enterprise Products Operating LLC; and 4) 15% equity interest in EPIC, which is operated by EPIC Consolidated Operations, LLC.

Brandywine NGL Pipeline. Approximately 30 miles of 20-inch NGL pipelines connected to our Diamond Cryogenic complex.

Delaware Link Pipeline. The Company is currently building the Delaware Link Pipeline, which will provide additional transportation capacity to Waha when it is put into service. The project is expected to be complete in the fourth quarter of 2023. Upon completion, this pipeline is estimated to be 40 miles and to have a capacity of 1.0 Bcf/d.

Recent Developments

Transfer to the New York Stock Exchange

On October 10, 2022, the Company notified the Nasdaq Global Select Market (“Nasdaq”) that it would voluntarily transfer the listing of its Class A Common Stock from Nasdaq to the New York Stock Exchange (the “NYSE”). The listing and trading of the Common Stock on Nasdaq ended at market close on October 21, 2022, and trading commenced on the NYSE at market open on October 24, 2022. The Class A Common Stock continues to trade under the current stock symbol “KNTK”.

Brandywine NGL Acquisition

In September 2022, the Company acquired approximately 30 miles of 20-inch NGL pipelines connected to our Diamond Cryogenic complex, Brandywine, for approximately $25 million. Brandywine is a strategic intrabasin natural gas liquids pipeline, affording Kinetik greater control over its system’s NGLs and providing interconnectivity to Shin Oak.

Comprehensive Refinancing

On June 8, 2022, the Partnership, completed a private placement of $1.0 billion aggregate principal amount of its 5.875% Senior Notes due 2030 (the “Notes”), which are fully and unconditionally guaranteed by the Company. The Notes are issued under our Sustainability-Linked Financing Framework and include sustainability-linked features. In addition, the Partnership entered into a new revolving credit agreement (the “RCA”), which provides for a $1.25 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”) maturing on June 8, 2027, and a new term loan agreement (the “TLA”), which provides for a $2.00 billion senior unsecured term loan credit facility (the “Term Loan Credit Facility”) maturing on June 8, 2025. Proceeds from the Notes and the Term Loan Credit Facility were used to repay all outstanding borrowings under our existing credit facilities and to pay fees and expenses related to the offering. Refer to Note 8 — Debt and Financing Costs in the Notes to our Consolidated Financial Statements in this Form 10-K for further information.

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PHP Expansion Project

In June 2022, PHP announced a final investment decision to proceed with its expansion project to increase total capacity to 2.65 Bcf/d fully subscribed under 10 year take-or-pay contracts. The expansion project will increase PHP’s capacity by nearly 550 MMcf/d with a target in-service date in November 2023. Approximately 67% of the funding for the expansion project will be borne and the remainder by Kinder Morgan. As a result, following the in-service date of the expansion, Kinetik’s ownership interest in PHP will increase to approximately 55.5%. During 2022, the Company contributed $78.2 million to the expansion project.

Sustainability-Linked Financing Framework

On May 16, 2022, we published our Sustainability-Linked Financing Framework, which we developed in alignment with the five components outlined in the International Capital Markets Association Sustainability-Linked Bond Principles as of June 2020 and the Loan Syndications and Trading Association Sustainability-Linked Loan Principles as of July 2021 (each as referred to in our Sustainability-Linked Financing Framework) and corresponding Second Party Opinion provided by ISS ESG.

This framework establishes KPIs that will be used to measure our progress against SPTs. Under this framework, our KPIs are (1) Scope 1 and Scope 2 greenhouse gas emissions intensity, (2) Scope 1 and Scope 2 methane gas emissions intensity and (3) female representation in corporate officer positions and our SPTs are (1) reducing the intensity of all Scope 1 and Scope 2 greenhouse gas emissions from our operations by 35% by 2030 from a 2021 baseline year (as described in the Sustainability-Linked Financing Framework), (2) reducing the intensity of Scope 1 and Scope 2 methane gas emissions from our operations by 30% by 2030 from a 2021 baseline year, and (3) increasing female representation in corporate officer positions of Vice President and above to 20% by year-end 2026 from a 2021 baseline year.

Stock Split

On May 19, 2022, the Company announced the Stock Split with respect to its Class A Common Stock and Class C Common Stock in the form of a stock dividend. The Stock Split was accomplished by distributing one additional share of Class A Common Stock for each share of Class A Common Stock outstanding and one additional share of Class C Common Stock for each share of Class C Common Stock outstanding. The additional shares of Common Stock were issued on June 8, 2022 to holders of record at the close of business on May 31, 2022.

Factors Affecting Our Business

Commodity Price Volatility

There has been, and we believe there will continue to be, volatility in commodity prices and in the relationships among NGLs, crude oil and natural gas prices. As a result of uncertainty around global commodity supply and demand, uncertainty in global economic recovery from the aftereffects of the COVID-19 pandemic and the armed conflict in Ukraine, global oil and natural gas commodity prices continue to remain volatile. The volatility and uncertainty of natural gas, crude oil and NGL prices impact drilling, completion and other investment decisions by producers and ultimately supply to our systems. Although the armed conflict in Ukraine generated commodity price upward pressure, and our operation could benefit in an environment of higher natural gas, NGLs and condensate prices, the instability of international political environment and human and economic hardship resulting from the conflict would have a highly uncertain impact on the U.S. economy, which in turn, might affect our business and operations adversely. Our product sales revenue is exposed to commodity price fluctuations. Therefore, commodity price decline and sustained periods of low natural gas and NGL prices could have an adverse effect on our product revenue stream. The Company continues to monitor commodity prices closely and may enter into commodity price hedges from time to time as necessary to mitigate the volatility risk. In addition, the Company, when economically appropriate, enters into fee-based arrangements that insulate the Company from commodity price volatility.

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Inflation and Interest Rates

The annual rate of inflation in the United States dropped slightly to 6.40% in January 2023, as measured by the Consumer Price Index, which was the lowest since October 2021. However, the Federal Open Market Committee (“FOMC”) maintains its long run goals of maximum employment and inflation at the rate of 2.00%. In support of these goals, the FOMC decided to raise the target range for the federal funds rate to 4.50% and 4.75% during its meeting in January 2023. There is uncertainty regarding whether inflation will continue to be tamed by the FOMC’s effort or whether the FOMC will continue to tighten its monetary policy in the next 12 months. Increased interest rates will increase our operating costs and have a negative impact on the Company’s ability to meet its contractual debt obligations and to fund its operating expenses, capital expenditures, dividends and distributions. The Company will continue to actively evaluate and analyze whether any additional forms of interest rate hedging should be implemented to mitigate interest rate exposure.

Supply Chain Considerations

During 2021 and 2022, challenging supply chain issues have emerged that will continue at least through the first half of 2023. Geopolitical events have further disrupted global supply chains and caused volatile commodity prices for natural gas, NGLs and crude oil. The United States has banned the import of Russian oil, NGLs and other energy commodities and the European Union has taken steps to reduce imports of Russian oil and natural gas. The principal supply issues facing our industry for the next twelve months include: raw materials availability, finished good inventory, rising freight costs, delays due to port congestion and overall labor shortages.

All bidding will require the risk of shipping costs and delays to be factored into proposals. Trucking availability and pricing will impact North American opportunities while sea-freight costs will impact sales of North American manufactured goods being delivered internationally for the foreseeable future. The import of raw materials from China will also incur price increases. To that end, accelerating tensions between China and the U.S. could also result in further supply disruption.

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Results of Operations

The following table presents the Company’s results of operations for the periods presented:

*The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to the Form 10-K basis of presentation in Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements in this Form 10-K, for further information.

NM - Not meaningful

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Revenues

For the year ended December 31, 2022, revenue increased $551.4 million, or 83%, to $1,213.5 million, compared to $662.0 million for the same period in 2021. The increase was primarily driven by period-to-period higher commodity prices, increases in gas gathered and processed volumes, as well as similar increases in condensate and NGL volumes sold. Volume increase reflected synergy realized from the new operations acquired through the Transaction.

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Service revenue

Service revenue consists of service fees paid to the Company by its customers for providing comprehensive gathering, treating, processing and water disposal services necessary to bring natural gas, NGLs and crude oil to the market. Service revenue for the year ended December 31, 2022, increased by $121.3 million, or 44%, to $394.0 million, compared to $272.7 million for the same period in 2021. This increase is primarily due to a period over period increase in gathered and processed gas volumes of 556.4 Mcf per day and 522.9 Mcf per day, respectively, of which 318.7 Mcf per day of gathered gas volume and 236.6 Mcf/d of processed gas volume were result of new operations acquired through the Transaction. Over 99% of service revenues are included entirely in the Midstream Logistics segment.

Product revenue

Product revenue consists of commodity sales (including condensate, natural gas residue, and NGLs). Product revenue for the year ended December 31, 2022, increased by $420.7 million, or 109%, to $806.4 million, compared to $385.6 million for the same period in 2021, primarily due to period-to-period increases in condensate prices combined with increased NGL and condensate sales volumes. Condensate prices increased $27.80 per barrel, or 44%. NGL and condensate sales volumes increased 12.7 million barrels, or over 300%. The increase in NGL and condensate sales volumes offset the decreased NGL prices of $0.80 per barrel, or 2%. This substantial increase in NGL and condensate revenue was due to our plants being run in recovery for part of the year ended December 31, 2022 versus rejection during the same period in 2021. For the same reason, natural gas residue sales volumes decreased 6.3 million MMBtu, or 25%. Partially offsetting this decrease in volumes, natural gas prices increased period over period $1.44 per MMBtu, or 37%. Product revenues are included entirely in the Midstream Logistics segment.

Operating Costs and Expenses

Costs of sales (exclusive of depreciation and amortization)

Cost of sales (exclusive of depreciation and amortization) primarily consists of purchases of NGLs and natural gas from our producers at contracted market prices to support product sales to other third parties. For the year ended December 31, 2022, cost of sales increased $307.9 million, or 132%, to $541.5 million, compared to $233.6 million for the same period in 2021. The increase was primarily driven by the period-to-period increases in commodity prices and NGL and condensate volumes discussed above. Cost of sales (exclusive of depreciation and amortization) are included entirely in the Midstream Logistics segment.

Operating expenses

Operating expenses increased by $46.4 million, or 51%, to $137.3 million for the year ended December 31, 2022, compared to $90.9 million for the same period in 2021. Of the total increase, $25.0 million was driven by the newly acquired operations. The remaining increase was primarily driven by higher period over period electricity costs of $10.7 million, higher internal and contract labor costs of $5.8 million, and higher repairs and maintenance costs of $3.5 million. The higher electricity costs were primarily due to electricity credits received from one of our primary electricity providers during the month of February 2021 related to the extreme weather caused by Winter Storm Uri while no similar credit was generated in 2022.

General and administrative

General and administrative (“G&A”) expense increased by $65.7 million, or 230%, to $94.3 million for the year ended December 31, 2022, compared to $28.6 million for the same period in 2021. The increase was primarily driven by $42.8 million of recognized share-based compensation, higher insurance costs of $2.9 million and acquisition and integration costs of $20.6 million incurred in relation to the newly acquired operations.

Loss on disposal of assets

For the year ended December 31, 2022, the Company recognized a loss on disposal of assets of $12.6 million compared with $0.4 million for the same period in 2021. The change was primarily related to retirements of compressor or booster stations and a refrigeration plant that had become idle due to operational changes.

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Other Income (Expense)

Gain (loss) on debt extinguishment

For the year ended December 31, 2022, the Company recognized a loss on debt extinguishment of $28.0 million, compared with a gain of $4 thousand for the same period in 2021. The change reflected the loss on debt extinguishment recognized in relation to the comprehensive refinancing completed in June 2022.

Gain on embedded derivatives

For the year ended December 31, 2022, the Company recognized a gain on embedded derivatives of $89.1 million. The gain is a result of the decrease in fair value of the embedded derivative liability related to the redeemable noncontrolling interest Preferred Units, which was eliminated upon the ultimate redemption of these Preferred Units during July of 2022.

Interest expense

The Company incurred interest expense of $149.3 million for the year ended December 31, 2022 compared with $117.4 million for the same period in 2021. The increase was primarily related to higher debt obligations resulting from the comprehensive refinancing completed in June 2022. The increase also reflected an overall increase in interest rates associated with the Term Loan and Revolving Credit Facility, which carried some variability. Refer to Note—14 Derivatives and Hedging Activities in the Notes to our Consolidated Financial Statements regarding the Company’s strategy in managing interest rate risk.

Equity in earnings of unconsolidated affiliates

Income from EMI pipelines increased by $117.9 million, or 187% to $181.0 million for the year ended December 31, 2022, compared to $63.1 million for the same period in 2021. The increase was primarily due to the acquisition of new EMI pipelines and additional equity interests in the Company’s existing EMI pipeline, PHP, through the Transaction and due to higher earnings from our EMI pipelines. Equity in earnings of unconsolidated affiliates is included entirely in the Pipeline Transportation segment.

Key Performance Metrics

Adjusted EBITDA

Adjusted EBITDA is defined as net income including noncontrolling interests adjusted for interest, taxes, depreciation and amortization, impairment charges, asset write-offs, the proportionate EBITDA from our equity method investments, equity in earnings from investments recorded using the equity method, share-based compensation expense, extraordinary losses and unusual or non-recurring charges. Adjusted EBITDA provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

We believe that Adjusted EBITDA provides a meaningful understanding of certain aspects of earnings before the impact of investing and financing charges and income taxes. Adjusted EBITDA is useful to an investor in evaluating our performance because this measure:

•Is widely used by analysts, investors and competitors to measure a company’s operating performance;

•Is a financial measurement that is used by rating agencies, lenders, and other parties to evaluate our credit worthiness; and

•Is used by our management for various purposes, including as a measure of performance and as a basis for strategic planning and forecasting.

Adjusted EBITDA is not defined in GAAP

The GAAP measure used by the Company that is most directly comparable to Adjusted EBITDA is net income including noncontrolling interests. Adjusted EBITDA should not be considered as an alternative to the GAAP measure of net income including noncontrolling interests or any other measure of financial performance presented in accordance with GAAP. Adjusted EBITDA has important limitations as an analytical tool because it excludes some, but not all, items that affect net income including noncontrolling interests. Adjusted EBITDA should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. The Company’s definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies in the industry, thereby diminishing its utility.

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Reconciliation of non-GAAP financial measure

Company management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measure, understanding the differences between Adjusted EBITDA as compared to net income including noncontrolling interests, and incorporating this knowledge into its decision-making processes. Management believes that investors benefit from having access to the same financial measure that the Company uses in evaluating operating results.

The following table presents a reconciliation of the GAAP financial measure of net income including noncontrolling interests to the non-GAAP financial measure of Adjusted EBITDA.

*The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to the Form 10-K basis of presentation in Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements in this Form 10-K, for further information.

NM - Not meaningful

Adjusted EBITDA increased by $356.5 million, or 86% to $772.2 million for the year ended December 31, 2022, compared to $415.7 million for the same period in 2021. The increase was primarily driven by an increase in net income including noncontrolling interest of $249.2 million, or 16818%, and increases in add back related to the Company’s proportionate share of its EMI pipelines’ EBITDA of $185.2 million, or 222%, share-based compensation of $42.8 million, depreciation and amortization expense of $16.8 million and integration costs of $12.2 million, which are results of new operations acquired through the Transaction. The increase in add back was also due to increases in interest expense of $31.9 million and loss on debt extinguishment of $28.0 million as the Company completed its comprehensive refinance in June 2022. The increase in adjusted EBITDA was partially offset by increases in EMI pipelines equity income of $117.9 million and gain on embedded derivatives of $89.1 million, and a decrease in derivative loss add back due to the Winter Storm Uri of $13.5 million as no similar credit was taken during 2022.

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Segment Adjusted EBITDA

Segment Adjusted EBITDA is defined as segment net earnings adjusted to exclude interest expense, income tax expense, depreciation and amortization, the proportionate effect of these same items for our equity method investments and other non-recurring items. The following table presents segment adjusted EBITDA for the year ended December 31, 2022. Also refer to Note 20—Segments in the Notes to our Consolidated Financial Statements in this Form 10-K for reconciliation of segment adjusted EBITDA to net income including noncontrolling interests.

* The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022. Refer to Note 1—Description of Business and Basis of Presentation in the Notes to the Consolidated Financial Statements of this Form 10-K for further information on the Company’s financial statement consolidation.

** Corporate and Other represents those results that: (i) are not specifically attributable to a reportable segment; (ii) are not individually reportable or (iii) have not been allocated to a reportable segment for the purpose of evaluating their performance, including certain general and administrative expense items.

NM - Not meaningful

Midstream Logistics segment adjusted EBITDA increased by $172.2 million, or 50%, to $516.0 million for the year ended December 31, 2022, compared to $343.8 million for the same period in 2021. The increase was primarily driven by an increase in segment net income including noncontrolling interests of $186.9 million and increases in the add back related to loss on debt extinguishment of $28.0 million as the Company completed its comprehensive refinancing in June 2022, depreciation and amortization expense of $16.3 million and other one-time costs or amortization of $11.6 million due to new operations acquired through the Transaction, and loss on disposal of assets of $12.3 million for assets retired during 2022. The increase was offset by decreases in add back related to derivative loss due to the Winter Storm Uri of $13.5 million and producer settlement of $6.8 million as no similar credits were taken in 2022 and interest expense of $63.0 million as refinanced debt was consolidated under Corporate and Other for better risk management.

Pipeline Transportation segment adjusted EBITDA increased by $187.4 million, or NM, to $269.2 million for the year ended December 31, 2022, compared to $81.9 million for the same period in 2021. The increase was driven by investments in GCX and Shin Oak and a 100% increase in the Company’s investment in PHP, which were all acquired through the Transaction in February 2022. During the year ended December 31, 2021, the Company only held a 26.67% interest in PHP.

Capital Resources and Liquidity

The Company’s primary use of capital since inception has been for the initial construction of gathering and processing assets, as well as the acquisition of the EMI pipelines and associated subsequent construction costs. For 2022, the Company’s primary capital spending requirements were related to the PHP expansion project, integration by pipeline of the Alpine High gathering system with the legacy BCP system, certain integration-related synergies including the relocation of compression units and treating assets to the legacy BCP processing plants, the Company’s contractual debt obligation, the Company’s payment of quarterly cash dividends on its Class A Common Stock and distributions on Common Units as may be declared by the Board and cash payment upon redemption of all remaining mandatorily redeemable Preferred Units.

For 2023, the Company’s primary capital spending requirements are related to the PHP expansion project and other budgeted capital expenditures for construction of gathering and processing assets and the Company’s contractual debt obligations. The Company will continue to have Apache, Blackstone and I Squared reinvest 100% of their 2023 distribution and dividends into shares of our Class A Common Stock. In addition, the Board has approved a share repurchase program (“Repurchase Program”) authorizing discretionary purchases of the Company’s Class A Common Stock up to $100 million in aggregate.

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During the year ended December 31, 2022, the Company’s primary sources of cash were distributions from the EMI pipelines, borrowings under the Term Loan and Revolving Credit Facility, proceeds from the offering of the Notes, and cash generated from operations. Based on the Company’s current financial plan and related assumptions, including the Reinvestment Agreement and Class A Common Stock Repurchase Program, the Company believes that cash from operations and distributions from the EMI pipelines will generate cash flows in excess of capital expenditures and the amount required to fund the Company’s planned quarterly dividend over the next 12 months. Additionally, the Company has locked in the floating base rate, see more information of floating base rate on its Term Loan through April 2023 to reduce short-term interest rate risk. See more information regarding the floating base rate in Note 8—Debt and Financing Costs in the Notes to our Consolidated Financial Statements in this Annual Report Form 10-K. Further, the Company entered into an interest rate swap with a $1.00 billion notional that is effective from May 1, 2023 through May 31, 2025 swapping floating SOFR for a fixed swap rate of 4.46%.

Comprehensive Refinancing

On June 8, 2022, the Partnership completed the private placement of $1.00 billion aggregate principal amount of the Notes, which are fully and unconditionally guaranteed by the Company. The Notes are issued under our Sustainability-Linked Financing Framework and include sustainability-linked features. In addition, the Partnership entered into a new Revolving Credit Agreement, which provides for a $1.25 billion senior unsecured Revolving Credit Facility maturing on June 8, 2027, and a new term loan agreement, which provides for a $2.00 billion senior unsecured Term Loan Credit Facility maturing on June 8, 2025. Proceeds from the Notes and the Term Loan Credit Facility were used to repay all outstanding borrowings under our existing credit facilities and to pay fees and expenses related to the offering. Refer to Note 8 — Debt and Financing Costs in the Notes to our Consolidated Financial Statements in this Form 10-K for further information.

Capital Requirements and Expenditures

Our operations can be capital intensive, requiring investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational regulations. During the year ended December 31, 2022 and 2021, capital spending for property, plant and equipment totaled $206.2 million, which included the Brandywine NGL Pipeline acquisition, and $78.0 million, respectively and intangible assets purchases of $15.4 million and $4.7 million, respectively. Management believes its existing gathering, processing, and transmission infrastructure capacity is capable of fulfilling its contracts to service its customers. During the year ended December 31, 2022, the Company contributed $78.2 million to one of its EMI pipelines, PHP, for the 2022 Capacity Expansion Project, compared to $20.5 million contributed to the same period of 2021. See Note 20—Segments in the Notes to the Consolidated Financial Statements in this Form 10-K for capital expenditure for each operating segment.

The Company estimates 2023 capital expenditures to be between $490 million and $540 million, which includes between $235 million and $265 million of Midstream Logistics capital and between $255 million and $275 million of Pipeline Transportation capital.

The Company anticipates its existing capital resources will be sufficient to fund the future capital expenditures for EMI pipelines and the Company’s existing infrastructure assets over the next 12 months. For further information on EMIs, refer to Note 7—Equity Method Investments in the Notes to our Consolidated Financial Statements in this Form 10-K.

Cash Flows

The following tables present cash flows from operating, investing, and financing activities during the periods presented:

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Operating Activities. Net cash provided by operating activities increased by $377.4 million for the year ended December 31, 2022 compared with the same period in 2021. The change in the operating cash flows reflected increases in net income including noncontrolling interests of $249.2 million, adjustments related to non-cash items of $79.0 million and cash provided by changes in working capital of $49.2 million. Period-to-period increase in non-cash adjustments was primarily driven by the new operations acquired through the Transaction, including three EMI pipelines and additional equity interests of the Company’s existing EMI pipeline, PHP, acquired through the Transaction. The increase was offset by derivative fair value adjustment recognized during 2022. Period-to-period changes in working capital was primarily related to fluctuations in trade receivables and accrued liabilities due to timing of collection and payments.

Investing Activities. Net cash used in investing activities increased by $186.5 million for the year ended December 31, 2022 compared with the same period in 2021. The increase was primarily driven by an increase in property, plant and equipment expenditure of $128.1 million, contributions made to the PHP expansion project of $57.6 million and intangible assets expenditure of $10.7 million. The increase in cash outflow was offset by an increase in cash inflow of $13.4 million acquired through the Transaction closed in February 2022.

Financing Activities. Net cash used in financing activities increased by $202.4 million for the year ended December 31, 2022 compared with the same period in 2021. The increase was primarily due to increases in cash outflow for redemption of noncontrolling interest Preferred Units of $461.5 million and redemption of mandatorily redeemable Preferred Units of $183.3 million, cash dividends paid to holders of Class A Common Stock of $39.3 million, cash distributions paid to holders of Preferred Units of $8.8 million and reduction of equity contribution receipt of $14.9 million. The increase in cash outflow was offset by net proceeds from long-term debt of net payments to the Company’s outstanding debts of $455.4 million and a reduction of cash distributions paid to holders of Class C Common Units of $50.0 million.

Dividend and Distribution Reinvestment Agreement

On February 22, 2022, the Company entered into a Dividend and Distribution Reinvestment Agreement (the “Reinvestment Agreement”) with certain stockholders including BCP Raptor Aggregator, LP, BX Permian Pipeline Aggregator, LP, Buzzard Midstream LLC, APA Corporation Apache Midstream LLC, and certain individuals (each, a “Reinvestment Holder”). Under the Reinvestment Agreement, each Reinvestment Holder is obligated to reinvest at least 20% of all distributions on Common Units or dividends on shares of Class A Common Stock in the Company’s Class A Common Stock. Additionally, the Audit Committee resolved that for the calendar year 2022, 100% of all distributions or dividends received by each Reinvestment Holder would be reinvested in shares of Class A Common Stock. The Audit Committee approved a similar determination for 2023. In addition, the Board approved the Repurchase Program in February 2023 authorizing discretionary purchase of the Company’s Class A Common Stock up to $100 million in aggregate. Shares acquired under the Repurchase Program are expected to be reissued under the Company’s reinvestment plan, pursuant to the Reinvestment Agreement.

During 2022, the Company made cash dividend payments of $40.5 million to holders of Class A Common Stock and Common Units and $263.3 million was reinvested in shares of Class A Common Stock by each Reinvestment Holder.

Stock Split

On May 19, 2022, the Company announced the Stock Split with respect to its Class A Common Stock and Class C Common Stock in the form of a stock dividend. The Stock Split was accomplished by distributing one additional share of Class A Common Stock for each share of Class A Common Stock outstanding and one additional share of Class C Common Stock for each share of Class C Common Stock outstanding. The additional shares of Common Stock were issued on June 8, 2022 to holders of record at the close of business on May 31, 2022.

Dividend

On January 17, 2023, the Company declared a cash dividend of $0.75 per share on the Company’s Class A Common Stock and a distribution of $0.75 per Common Unit from the Partnership to the holders of Common Units. Dividends are payable on February 16, 2023. Certain holders of Class A Common Stock and Class C Common Stock will receive a cash dividend with the balance receiving additional shares of Class A Common Stock under the Reinvestment Agreement.

Series A Cumulative Redeemable Preferred Units

The Company issued Preferred Units on June 12, 2019. Because the Transaction was accounted for as a reverse merger, certain Preferred Units that were issued and outstanding were assumed at Closing for accounting purposes. The Company assumed 525,000 Preferred Units as well as 29,983 paid-in-kind (“PIK”) Preferred Units immediately after the Closing.

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Since the Closing, the Company redeemed all outstanding Preferred Units and PIK units for an aggregate redemption price of $644.8 million. The Company recognized a gain of $9.6 million on redemption of the mandatorily redeemable Preferred Units and excess of carrying amount over redemption price of $109.5 million on redemption of the redeemable noncontrolling interest Preferred Units. Refer to Note 12—Series A Cumulative Redeemable Preferred Units in the Notes to our Consolidated Financial Statements in this Form 10-K.

Liquidity

The following table presents a summary of the Company’s key financial indicators at the dates presented:

Cash and cash equivalents

At December 31, 2022 and 2021, the Company had $6.4 million and $18.7 million, respectively, in cash and cash equivalents.

Total Debt and Available credit facilities

There is no assurance that the financial condition of banks with lending commitments to the Company will not deteriorate. The Company closely monitors the ratings of the banks in the Company’s bank group. Having a large bank group allows the Company to mitigate the potential impact of any bank’s failure to honor its lending commitment.

Off-Balance Sheet Arrangements

As of December 31, 2022, there were no off-balance sheet arrangements.

Contractual Obligations

We have contractual obligations for principal and interest payments on our term loan credit facility. See Note 8—Debt and Financing Costs in the Notes to our Consolidated Financial Statements in this Form 10-K.

Under certain clauses of our transportation services agreements with third party pipelines to transport natural gas and NGLs, if we fail to ship a minimum throughput volume, then we will pay certain deficiency payments for transportation based on the volume shortfall up to the MVC amount.

For additional information regarding the Company’s obligations, please see Note 8—Debt and Financing Costs, and Note 18—Commitments and Contingencies in the Notes to the Consolidated Financial Statements in this Form 10-K.

Critical Accounting Policies and Estimates

Our significant accounting policies are described in Part IV, Item 15. Exhibits, Financial Statement Schedules, Note 2—Summary of Significant Accounting Policies of this Annual Report on Form 10-K.

The Company prepares its financial statements and the accompanying notes in conformity with GAAP, which require management to make estimates and assumptions about future events that affect the reported amounts in the financial statements and the accompanying notes. We consider our critical accounting estimates to be those that require difficult, complex, or subjective judgment necessary in accounting for inherently uncertain matters and those that could significantly influence our financial results based on changes in those judgments. Critical accounting estimates cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. Management routinely discusses the development, selection, and disclosure of the following critical accounting estimates.

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Business Combination

For acquired businesses, we recognize the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their estimated fair values on the date of acquisition with any excess purchase price over the fair value of net assets acquired is recorded to goodwill. Determining the fair value of these items requires management’s judgment and/or the utilization of independent valuation specialists and involves the use of significant estimates and assumptions. The judgments made in the determination of the estimated fair value assigned to the assets acquired, the liabilities assumed and any noncontrolling interest in the investee, as well as the estimated useful life of each asset and the duration of each liability, can materially impact the financial statements in periods after acquisition, such as through depreciation and amortization expense. See Note 3—Business Combination in our Notes to the Consolidated Financial Statements in this Annual Report Form 10-K for more information regarding our valuation approach.

Impairment of Long-lived Assets

Long-lived assets used in operations are evaluated for potential impairment when events or changes in circumstances indicate a possible significant deterioration in future cash flows expected to be generated by an asset group. Individual assets are grouped for impairment purposes based on a judgmental assessment of the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. If there is an indication that the carrying amount of an asset may not be recovered, the asset is assessed for impairment through an established process in which changes to significant assumptions such as service prices, throughput volumes, future development plans and fluctuation of commodity pricing are reviewed. If, upon review, the sum of the undiscounted pre-tax cash flows is less than the carrying value of the asset group, the carrying value is written down to an estimated fair value. Such fair value is generally determined by discounting anticipated future net cash flows, an income valuation approach, or by a market-based valuation approach, which are Level 3 fair value measurements. The estimates and assumptions can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. An estimate of the sensitivity to changes in underlying assumptions of a fair value calculation is not practicable, given the numerous assumptions that can materially affect our estimates.

Equity Method Investment

We evaluate our equity method investments for impairment when events or circumstances indicate that the carrying value of the equity method investment may be impaired and that impairment is other than temporary. If an event occurs, we evaluate the recoverability of our carrying value based on the fair value of the investment. If an impairment is indicated, we adjust the carrying values of the investment downward, if necessary, to their estimated fair values.

We estimate the fair value of our equity method investments based on a number of factors, including discount rates, projected cash flows, and enterprise value. Estimating projected cash flows requires us to make certain assumptions as it relates to the future operating performance of each of our equity method investments (which includes assumptions, among others, about estimating future operating margins and related future growth in those margins, contracting efforts and the cost and timing of facility expansions) and assumptions related to our equity method investments, such as their future capital and operating plans and their financial condition.

Derivatives and Hedging Activities

All our derivative contracts are recorded at estimated fair value. We utilize published prices, broker quotes, and estimates of market prices to estimate the fair value of these contracts; however, actual amounts could vary materially from estimated fair values as a result of changes in market prices. In addition, changes in the methods used to determine the fair value of these contracts could have a material effect on our results of operations. We do not anticipate future changes in the methods used to determine the fair value of these derivative contracts.

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