The Daley Note

Western Midstream (WES) has approached Kinetik Holdings (KNTK) about a potential merger, prompting KNTK to begin preparing for a sale, the Financial Times reports. A Kinetik buyout by WES or another investor could jumpstart mergers and acquisitions (M&A) in the Permian Basin, the focus of most midstream investments in the years ahead.

On WES’ 4Q25 earnings call last Wednesday (Feb. 18), executives declined to comment on the rumored tie-up with Kinetik.

A KNTK-WES combination would have gas processing capacity of 5.1 Bcf/d in the Delaware Basin, with backing from a diverse set of leading E&Ps. The figure above, taken from the “Gathering & Processing” tools in East Daley Analytics’ Energy Data Studio, shows capacity, volume and counterparty data for a hypothetical merger. The top producers on the combined assets include Occidental (OXY), Mewbourne Oil, APA Corp., EOG Resources (EOG) and ConocoPhillips (COP).

East Daley has written before about why Kinetik would be an attractive takeout candidate. KNTK operates a solid footprint in the gas- and NGL-rich Delaware, as well as interests in gas and NGL egress to the Gulf Coast via Permian Highway Pipeline and Shin Oak.

Despite these advantages, Kinetik faces some headwinds. A large component of KNTK’s Midstream Logistics segment comes from its marketing arm, which earns substantial gross margin each quarter by taking advantage of the wide Waha–Houston Ship Channel spread. As new Permian gas pipelines come online and spreads tighten between Waha and Gulf Coast hubs, we expect KNTK will see gross margin begin to shrink.

Conversely, on its 4Q25 earnings call, WES management made the case that tighter Waha spreads will benefit its business. The company reported a 4% Q-o-Q decline in gas volumes from the Delaware, citing curtailments by certain customers exposed to depressed Waha prices. A stronger Waha, along with more gas takeaway from the Permian, would encourage producers to ramp up drilling on its Delaware systems, management said. WES expects volumes to increase on its G&P systems in 2027 as producers return with improved prices.

In this sense, a merger between the two companies would take KNTK, looking down the barrel of tighter gas spreads, and pair it with WES, which sees opportunity from the same market dynamic.

While strengthening their position in the Permian, a KNTK-WES merger would fall short of the wellhead-to-water integration strategy favored by leaders in the midstream space. Neither WES nor KNTK can export NGLs produced on their respective systems. In East Daley’s view, Kinetik’s main value as a takeout candidate is as a supplier of NGLs that can be exported to meet global demand. This factor could bring other suitors to the table who are better situated to capitalize on the opportunity.

One obvious candidate is ONEOK (OKE). The company is among the most active in M&A, acquiring Magellan Midstream for $18.8B in 2023 and EnLink Midstream for $4.3B in 2025. OKE is also investing heavily in the Permian and targeting the NGL export market via its joint venture with MPLX. The companies are joining forces to build an LPG export dock in Texas City, expected online in early 2028.

A Kinetik acquisition would provide more NGLs to OKE to transport on its West Texas NGL pipeline (plus incremental capacity on Shin Oak) into Mont Belvieu, where volumes can move to Texas City via the planned MBTC Pipeline. From there, barrels can be fractionated and exported. An OKE-KNTK combination would greatly expand OKE’s footprint in the Delaware and advance the downstream export strategy.

Other major players in the Permian could be interested in buying Kinetik, though most of these names are already well established in the basin and don’t require KNTK’s assets to fill their docks. Targa Resources (TRGP) is following a disciplined capital plan of building new plants and expanding NGL pipelines in tandem to fill the Galena Park export terminal. Energy Transfer (ET) also has a large footprint in the Permian but is already constrained at its Nederland terminal. ET is focused on deploying capital to strengthen and expand its existing value chain.

By contrast, ONEOK is late to the game in the Permian and has been forced to buy its way into the basin. Along with the EnLink and Magellan acquisitions, OKE purchased Medallion Midstream for $2.6B in 2024 and doubled its stake in BridgeTex Pipeline in 2025. Taking a broad view of the industry, East Daley sees the most upside for OKE from a Kinetik acquisition.

Investor takeaway: A merger between Kinetik and WES makes sense on paper and would benefit both businesses. However, wellhead-to-water integration is still the goal of the leading midstream players, and a KNTK-WES combo won’t advance that strategy. Moreover, by forming a much larger company, a KNTK-WES merger could ultimately make it harder for an integrated name like OKE to acquire it in the future. – London Spivey, CFA Tickers: APA, COP, EOG, ET, KNTK, MPLX, OKE, OXY, TRGP.