8-K: Hess Midstream Announces $200 Million Repurchase Program Targeting Both Sponsor Units and Public Shares

Hess Midstream LP announces a $200 million repurchase program, including Class B units from sponsors and Class A shares from the public market, aiming for immediate shareholder accretion.

Summary

• Hess Midstream LP (HESM) has announced a $200 million repurchase program.
• The program includes the repurchase of approximately $190 million of Class B units from Hess Corporation and Global Infrastructure Partners (GIP), Hess Midstream's sponsors.
• Hess Midstream Operations LP, a subsidiary, will repurchase 5,151,842 Class B units, representing about 2.4% of the consolidated company.
• The purchase price per Class B unit is $36.88, matching the Class A share closing price on May 5, 2025.
• Following the Class B unit repurchase, ownership will be approximately 55.1% public, 7.1% GIP, and 37.8% Hess Corporation.
• The Class B unit repurchase is expected to close on May 9, 2025, funded by borrowings under the existing revolving credit facility.
• Additionally, Hess Midstream has entered an accelerated share repurchase (ASR) agreement with JPMorgan Chase Bank to repurchase $10 million of Class A shares.
• An initial delivery of 189,804 Class A shares, representing 70% of the expected repurchases, will be received based on the May 5, 2025 closing price.
• The final number of Class A shares will be based on the average daily volume-weighted average price during the ASR term.
• Final settlement of the ASR transaction is expected in May 2025, funded by borrowings under the existing revolving credit facility.
• The repurchased securities will be cancelled, increasing distributable cash flow per Class A share and supporting distribution growth of at least 5% through 2027.

Sentiment

Score: 8

Explanation: The announcement is positive due to the accretive repurchase program, commitment to distribution growth, and strong financial flexibility. The involvement of a conflicts committee and the use of established financial strategies further contribute to the positive sentiment.

Positives

• The repurchase program is expected to be accretive to shareholders.
• Increased distributable cash flow per Class A share is anticipated.
• The company expects to maintain significant financial flexibility for future repurchases.
• The company is targeting at least 5% annual distribution growth through 2027.
• The terms of the unit repurchase transaction were unanimously approved by the Board of Directors of Hess Midstream's general partner, based on the unanimous approval and recommendation of its conflicts committee composed solely of independent directors.

Risks

• The company's ability to generate sufficient cash flow to pay current and expected levels of distributions.
• Reductions in the volumes of crude oil, natural gas, natural gas liquids (NGLs) and produced water the company gathers, processes, terminals or stores.
• Fluctuations in the prices and demand for crude oil, natural gas and NGLs.
• Changes in global economic conditions and the effects of a global economic downturn or inflation on the company's business and the business of its suppliers, customers, business partners and lenders.
• The company's ability to comply with the terms of its credit facility, indebtedness and other financing arrangements, which, if accelerated, the company may not be able to repay.
• Potential disruption or interruption of the company's business due to catastrophic events, such as accidents, severe weather events, labor disputes, information technology failures, constraints or disruptions and cyber-attacks.
• Any limitations on the company's ability to access debt or capital markets on terms that the company deems acceptable, including as a result of weakness in the oil and gas industry or negative outcomes within commodity and financial markets.
• Risks and uncertainties associated with Hess' proposed merger with Chevron Corporation.

Future Outlook

Hess Midstream expects to continue to have more than $1.25 billion of financial flexibility through 2027 that can be used to support potential incremental repurchases, which may include repurchases of additional publicly traded Class A shares as determined by the Board of Directors. The repurchased securities will be cancelled following settlement of each repurchase transaction, which is expected to result in 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 2027, consistent with Hess Midstream's return of capital framework.

Management Comments

• Jonathan Stein, Chief Financial Officer of Hess Midstream, stated, '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.'
• Jonathan Stein also noted, 'After significant growth in our public float and trading volume, we have determined to start including publicly traded Class A shares in our repurchase transactions.'

Industry Context

This announcement reflects a trend among midstream companies to return capital to shareholders through repurchases and increased distributions, especially when they have strong balance sheets and expect stable cash flows. The inclusion of both sponsor units and public shares in the repurchase program indicates a desire to optimize the capital structure and potentially increase public float.

Comparison to Industry Standards

• Other midstream companies, such as Enterprise Products Partners (EPD) and MPLX LP (MPLX), have also engaged in unit repurchase programs to enhance shareholder value.
• The targeted distribution growth of at least 5% through 2027 is competitive with industry peers, such as Magellan Midstream Partners (MMP) prior to its merger with ONEOK.
• The use of a revolving credit facility to fund the repurchases is a common practice in the industry, reflecting access to capital and financial flexibility.
• The involvement of a conflicts committee for the Class B unit repurchase ensures fair treatment of all stakeholders, aligning with best practices in corporate governance for master limited partnerships (MLPs).

Related Party Transactions

• The repurchase of Class B units from Hess Corporation and Global Infrastructure Partners (GIP), the company's sponsors, constitutes a related party transaction.

Stakeholder Impact

• Shareholders are expected to benefit from increased distributable cash flow per share and potential distribution growth.
• The company's financial stability and commitment to returning capital may positively impact investor confidence.
• The repurchase program could lead to a higher stock price, benefiting shareholders.

Next Steps

• Close the Class B unit repurchase transaction, anticipated on May 9, 2025.
• Settle the ASR transaction in May 2025.
• Cancel the repurchased Class B units and Class A shares.
• Continue to evaluate potential incremental repurchases through 2027.

Key Dates

Keywords

Unit Repurchase, Share Repurchase, Hess Midstream, Class B Units, Class A Shares, Sponsors, Distribution Growth, Financial Flexibility, Accretive, ASR Agreement