Strategic Exits in Private Equity: How EQT's KGS Divestment Unlocks Midstream Opportunities

In August 2025, EQT's sale of a 1.5 million-share stake in Kodiak Gas Services (KGS) for $50 million marked more than a routine transaction—it was a calculated move reflecting a seismic shift in private equity strategies within the energy sector. By reducing its ownership to 29.8 million shares and ceding board representation, EQT underscored a broader trend: private equity firms are increasingly prioritizing liquidity, governance efficiency, and capital discipline in midstream infrastructure. This case study offers critical insights for investors seeking to capitalize on undervalued assets ahead of a wave of industry consolidation.

The EQT-KGS Transaction: A Microcosm of Midstream Realignment

EQT's exit from KGS aligns with its broader strategy to streamline operations and focus on core upstream and midstream assets. The sale, executed under KGS's share repurchase program at $33.14 per share, reduced EQT's stake from 31.3 million to 29.8 million shares—a 5% reduction in ownership. This move not only unlocked $50 million in liquidity but also triggered governance changes, including the removal of EQT's veto rights and a reduction in board representation. Such adjustments are emblematic of private equity's evolving approach to midstream investments, where operational autonomy and shareholder returns now take precedence over long-term control.

The transaction also reflects a larger narrative: midstream assets are being repositioned as strategic, rather than core, holdings. EQT's prior sale of 3.2 million KGS shares in May 2025, generating $106 million, highlights a pattern of incremental exits. These actions are part of a $166 million liquidity strategy, enabling EQT to reinvest in high-impact projects like the Olympus Acquisition and MVP Southgate pipeline expansion. For investors, this signals a shift in private equity's risk appetite—favoring short-term gains from divestments over long-term capital deployment in midstream infrastructure.

Broader Industry Trends: Midstream Undervaluation and Consolidation

The EQT-KGS sale is not an isolated event. In 2025, energy infrastructure divestments have surged, driven by upstream operators' push to vertically integrate and midstream firms' struggle to command fair valuations. S&P Global Market Intelligence data reveals that U.S. energy M&A has exceeded $260 billion in the past 18 months, with midstream assets accounting for a significant portion. Operators in the Permian and Haynesville basins are bundling gathering and processing assets to enhance operational efficiency, while regulatory uncertainties—such as U.S. trade tariffs and LNG export policy shifts—have further depressed midstream valuations.

This undervaluation creates a paradox: midstream infrastructure is critical to unlocking upstream value but is often sold at a discount. For example, KGS's remaining $65 million share repurchase program and its role in supporting natural gas demand for power generation and data centers suggest long-term strategic value. Yet, its stock price remains anchored by short-term volatility, presenting an opportunity for patient investors.

Investor Opportunities: Capitalizing on Midstream's “Value Trap”

The undervaluation of midstream assets is not a flaw but a feature—a result of market overcorrection to regulatory and macroeconomic risks. For investors, this creates a unique window to acquire high-yield, fee-based assets at attractive entry points. Three key themes emerge:

1. Fee-Based Revenue Models: Midstream firms like Enterprise Products Partners (EPD) and Brookfield Infrastructure Partners (BIP) generate stable cash flows through long-term, inflation-escalator contracts. EPD, for instance, reported $1.9 billion in distributable cash flow (DCF) in Q2 2025, with a 1.6x DCF coverage ratio, while BIP's 4.8% yield and global infrastructure diversification make it a compelling play.
2. Energy Transition Alignment: Midstream operators are adapting to decarbonization trends by investing in hydrogen infrastructure and carbon capture. KGS's role in supporting natural gas demand for cleaner power generation aligns with this shift, as does EPD's expansion into NGLs (natural gas liquids), a cleaner alternative to coal.
3. Buyback Catalysts: Strategic share repurchases are amplifying returns. KGS's $65 million repurchase program, combined with industry-wide buybacks, is reducing share counts and enhancing per-unit value.

Strategic Recommendations for Investors

1. Prioritize High-Yield, Contracted Assets: Focus on midstream firms with 90%+ fee-based revenue and strong balance sheets. Energy Transfer (ET), with a 7.5% yield and 1.6x DCF coverage, and Cheniere Energy Partners (CQP), with fixed-fee LNG contracts, exemplify this strategy.
2. Leverage Buyback Programs: Companies like KGS and EPD are using repurchase programs to enhance shareholder value. Investors should monitor remaining buyback authorizations and liquidity positions.
3. Diversify Across Traditional and Emerging Midstream Plays: A mix of pipeline operators (e.g., EPD) and energy transition infrastructure (e.g., CWR) mitigates sector-specific risks while capturing growth in hydrogen and carbon capture.

Conclusion: Midstream as the New Core

EQT's exit from KGS is a harbinger of a broader realignment in private equity and energy infrastructure. As midstream assets trade at discounts to intrinsic value, they offer a rare combination of yield, resilience, and growth potential. For investors with a long-term horizon, the current environment presents an opportunity to acquire undervalued infrastructure that will underpin the energy transition and benefit from industry consolidation. The key lies in identifying assets with strong governance, fee-based models, and alignment with decarbonization goals—qualities that will define the next decade of midstream investing.