8-K: Hess Midstream Announces $100 Million Unit Repurchase from Sponsors

Hess Midstream LP will repurchase approximately $100 million of Class B units from its sponsors, Hess Corporation and Global Infrastructure Partners.

Summary

• Hess Midstream LP has entered into an agreement to repurchase approximately $100 million of Class B units from its sponsors, Hess Corporation and Global Infrastructure Partners.
• The repurchase will be executed by Hess Midstream Operations LP, a subsidiary of Hess Midstream LP.
• A total of 2,823,262 Class B units will be repurchased at a price of $35.42 per unit, which was the closing price of Class A shares on September 9, 2024.
• The transaction is expected to close on September 11, 2024, and will be funded through borrowings under Hess Midstream's existing credit facility.
• Following the repurchase, the units will be cancelled, which is expected to increase distributable cash flow per Class A share.
• This is expected to provide capacity for incremental distribution growth above Hess Midstream's annual distribution target of at least 5% through 2026.
• The repurchase was unanimously approved by the Board of Directors of Hess Midstream's general partner, based on the recommendation of its conflicts committee.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the accretive nature of the unit repurchase, the expected increase in distributable cash flow, and the company's financial flexibility. The management's comments and the unanimous approval by the board and conflicts committee further support a positive outlook.

Positives

• The unit repurchase is expected to be immediately accretive to shareholders.
• The cancellation of repurchased units will increase distributable cash flow per Class A share.
• The company expects to have significant financial flexibility for future repurchases.
• The transaction is expected to support incremental distribution growth above the company's annual target.
• The repurchase was unanimously approved by the board and conflicts committee.

Risks

• The company's ability to generate sufficient cash flow to pay current and expected levels of distributions is a risk.
• Reductions in the volumes of crude oil, natural gas, NGLs and produced water the company gathers, processes, terminals or stores could impact results.
• Fluctuations in the prices and demand for crude oil, natural gas and NGLs could affect the company's performance.
• Changes in global economic conditions and the effects of a global economic downturn or inflation could impact the business.
• The company's ability to comply with government regulations and obtain necessary permits is a risk.
• Potential disruption or interruption of the business due to catastrophic events is a risk.
• Limitations on the company's ability to access debt or capital markets on acceptable terms is a risk.
• Liability resulting from litigation is a risk.
• Risks and uncertainties associated with Hess' proposed merger with Chevron Corporation could impact the company.

Future Outlook

Hess Midstream expects to continue to have more than $1.25 billion of financial flexibility through 2026 that can be used to support potential incremental unit repurchases and anticipates incremental distribution growth above its annual target of at least 5% through 2026.

Management Comments

• We continue to execute unit repurchase transactions as part of our unique financial strategy, which highlights our differentiated ability to deliver significant shareholder returns while also maintaining balance sheet strength, said Jonathan Stein, Chief Financial Officer of Hess Midstream.

Industry Context

This unit repurchase is part of a broader trend of midstream companies returning capital to shareholders through buybacks and increased distributions. It reflects a focus on financial discipline and shareholder value in the energy sector.

Comparison to Industry Standards

• Many midstream companies are currently focused on returning capital to shareholders through buybacks and dividends, similar to Hess Midstream's approach.
• Enterprise Products Partners (EPD) and Energy Transfer (ET) are examples of large midstream companies that have also engaged in significant unit repurchases.
• The stated goal of 5% distribution growth is in line with the targets of other large midstream companies.
• The use of existing credit facilities to fund the repurchase is a common practice in the industry.

Related Party Transactions

• The unit repurchase is a related party transaction as it involves the company buying units from its sponsors, Hess Corporation and Global Infrastructure Partners.

Stakeholder Impact

• Shareholders are expected to benefit from the accretive nature of the repurchase and potential for increased distributions.
• The company's financial stability is expected to be maintained, benefiting creditors.
• The transaction is not expected to have a significant impact on employees, customers, or suppliers.

Next Steps

• The unit repurchase transaction is expected to close on September 11, 2024.
• The repurchased units will be cancelled.
• The company will continue to evaluate opportunities for further unit repurchases.

Key Dates

Keywords

unit repurchase, Hess Midstream, Class B units, distributable cash flow, shareholder returns, financial flexibility, Hess Corporation, Global Infrastructure Partners, midstream assets, distribution growth