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 2,724,052 Class B units will be repurchased at a price of $36.71 per unit, which was the closing price of Class A shares on June 24, 2024.
• The transaction is expected to close on June 26, 2024, and will be funded with cash on hand.
• 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.
• Since the beginning of 2021, Hess Midstream will have returned $1.75 billion to shareholders through unit repurchases, reducing the total unit count by nearly 25%.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the accretive unit repurchase, increased distributable cash flow, and strong financial flexibility. The company's commitment to shareholder returns is also a positive factor.

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 over $1.25 billion in financial flexibility through 2026 for further repurchases.
• The transaction supports the company's return of capital framework and distribution growth target of at least 5% through 2026.
• The company has a history of returning capital to shareholders through unit repurchases.

Risks

• The document mentions risks associated with Hess Corporation's ability to meet its obligations, including drilling and development plans.
• There are risks related to fluctuations in commodity prices and demand.
• The company faces risks related to compliance with government regulations and potential disruptions to business operations.
• The company's ability to access debt or capital markets on acceptable terms is also a risk.
• The document mentions risks and uncertainties associated with Hess's proposed merger with Chevron Corporation.

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 expects increased distributable cash flow per Class A share providing capacity for incremental distribution growth above Hess Midstream's annual distribution 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, reflecting a focus on financial discipline and shareholder value.

Comparison to Industry Standards

• Many midstream companies are currently focused on returning capital to shareholders through buybacks and increased distributions, similar to Hess Midstream's actions.
• The repurchase of units at a price equal to the closing price of the Class A shares is a common practice in the industry.
• The stated financial flexibility of $1.25 billion through 2026 is a significant amount, indicating a strong financial position compared to some peers.
• The target of at least 5% annual distribution growth is competitive within the midstream sector.

Related Party Transactions

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

Stakeholder Impact

• Shareholders are expected to benefit from increased distributable cash flow and potential distribution growth.
• The transaction is expected to be accretive to shareholders.
• The company's financial flexibility is expected to support future growth and shareholder returns.

Next Steps

• The unit repurchase transaction is expected to close on June 26, 2024.
• The repurchased units will be cancelled.
• The company will continue to evaluate potential incremental unit repurchases.

Key Dates

Keywords

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