Kinetik Holdings Inc.KNTK
Kinetik Holdings Inc. Commitments Disclosure
COMMITMENTS AND CONTINGENCIES
Accruals for loss contingencies arising from claims, assessments, litigation, environmental, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. As of December 31, 2025 and 2024, there were no material accruals for loss contingencies.
Litigation
The Company is a party to various legal actions arising in the ordinary course of its business. In accordance with FASB ASC 450, Contingencies, the Company accrues reserves for outstanding lawsuits, claims and proceedings when a loss contingency is probable and can be reasonably estimated. The Company expenses legal costs as incurred and estimates the amount of loss contingencies using current available information from legal proceedings, advice from legal counsel and other relevant external experts. Due to the inherent subjectivity of the assessments and unpredictability of the outcomes of any legal proceedings, any amounts estimated or accrued may not represent the ultimate loss to the Company from the legal proceedings in question.
The Company and certain of its affiliates are currently defending against two lawsuits brought by Energy Transfer GC NGL Product Services, LLC (formerly Lone Star NGL Product Services, LLC) individually and on behalf of certain of its affiliates, which allege breach of contract and related tort claims arising from two long-term NGL purchase agreements, and which seek remedies in the form of monetary damages, declaratory relief, and specific performance. The first lawsuit was filed in 2021, and the second was filed in 2025 to assert similar claims against additional subsidiaries of the Company. The lawsuits have been consolidated in Texas Business Court and are set to proceed to a bench trial on March 30, 2026. The Company intends to vigorously defend against these claims. At this time, the Company has accrued immaterial reserves, however, we cannot predict with certainty how these matters may ultimately be resolved.
As previously disclosed, the Company is involved in two litigation matters arising from Winter Storm Uri in February 2021. The first matter relates to the Company’s efforts to recover approximately $11.6 million in receivables from a third party. The second matter involves a dispute with another counterparty concerning approximately $8.0 million in vendor credits. The parties have asserted counterclaims against one another, and the ultimate outcome remains uncertain given the current stage of the proceedings. Based on the creditworthiness of the counterparties and management’s assessment of the claims, defenses, and related uncertainties, no allowances have been recorded. The Company will continue to monitor developments in both matters and update its evaluation as warranted.
Environmental Matters
The Company is subject to various local, state, and federal laws and regulations relating to various environmental matters during the ordinary course of business. Although we believe our operations are in substantial compliance with applicable environmental laws and regulations, risks of additional costs and liabilities are inherent in our operations. Moreover, changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly requirements could require the Company to make significant expenditures to attain and maintain compliance or may otherwise have a material adverse effect on its operations, competitive position, or financial condition.
As of the Durango Closing Date, the Company has become potentially liable for civil penalties related to excess emission violations of certain gas plants and compressor stations acquired. The Company recorded an initial liability of $24.0 million based on information related to the alleged violations available as of the Durango Closing Date. The estimated environmental matter-related liability was $14.0 million and $24.0 million as of December 31, 2025 and 2024, respectively. The estimated environmental matter-related liability was classified as a noncurrent liability and included in “” in the Consolidated Balance Sheets as of December 31, 2025 as the Company expects the matter to be settled beyond the next 12 months. The revision of the estimated liability was based on information available to both management and external subject matter experts in identifying penalties, cost of remediations and probable settlement outcomes. The change in estimated environmental matter-related liability of $10.0 million was included in “Operating expenses” of the Consolidated Statement of Operations for the year ended December 31, 2025.
Contingent Liabilities
Durango Acquisition
On June 24, 2024, the Company consummated the previously announced Durango Acquisition. Pursuant to the Durango MIPA, Durango Seller is entitled to an earnout of up to $75.0 million in cash contingent upon the completion of the Kings Landing Project and placing it into service in Eddy County, New Mexico. This earnout is subject to reduction based on actual capital costs associated with the Kings Landing Project.
Upon closing, the Company evaluated the earnout consideration classification in accordance with ASC 480. The Company determined the earnout consideration to be classified as a liability based on the settlement provision. As of closing of the Durango Acquisition, the Company recorded an initial contingent liability based on the project’s completion probability and
projected expenditure. The estimated contingent liability associated with the Kings Landing Project was $4.7 million as of December 31, 2024. In the fourth quarter 2025, the Company paid $9.9 million to settle the contingent liability, which amount, in accordance with the MIPA, is subject to review by the Durango Seller, and may be subject to adjustment. Pursuant to ASC 805, the Company recorded fair value adjustments of $5.2 million and $0.2 million within “Costs of sales (excluding of depreciation and amortization expenses)” of the Consolidated Statement of Operations for the years ended December 31, 2025 and 2024, respectively.
2019 PDC Acquisition
As part of the acquisition of Permian Gas on June 11, 2019, consideration included a contingent liability arrangement with PDC Permian, Inc. (“PDC”). The arrangement requires additional monies to be paid by the Company to PDC on a per Mcf basis if the actual annual Mcf volume amounts exceed forecasted annual Mcf volume amounts starting in 2020 and continuing through 2029. The total monies paid under this arrangement are capped at $60.5 million and are payable on an annual basis over the earnout period. PDC’s actual annual Mcf volume did not exceed the incentive forecast volume during the past six years and is not expected to over the next four years; therefore, the estimated fair value of the contingent consideration liability was zero as of December 31, 2025 and 2024.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
| 2023 | Mar 5, 2024 | |
| 2022 | Mar 7, 2023 | |
| 2021 | Feb 22, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 1, 2019 | |
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.