8-K: Hess Midstream LP Announces $100 Million Sponsor Unit Repurchase

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

Summary

• Hess Midstream LP (HESM) announced 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 HESM.
• The purchase involves 967,541 Class B units from Hess Investments North Dakota LLC (HINDL) and 1,605,136 Class B units from GIP II Blue Holding, L.P. (GIP).
• The price per unit is $38.87, matching the closing price of Class A shares on January 13, 2025.
• The transaction was approved by the Board of Directors of Hess Midstream's general partner, based on the recommendation of its conflicts committee.
• Following the repurchase, the units will be cancelled, increasing distributable cash flow per Class A share.
• Hess Midstream expects to fund the repurchase using borrowings under its existing revolving credit facility.
• The repurchase is expected to close on January 15, 2025.
• After the transaction, ownership will be approximately 47.9% public, 14.3% Global Infrastructure Partners, and 37.8% Hess Corporation.
• Since the beginning of 2021 through this current transaction, Hess Midstream will have returned $1.95 billion to shareholders through ongoing unit repurchases from its Sponsors.
• 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.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the accretive unit repurchase, increased distributable cash flow, and financial flexibility for future repurchases. The management's comments and the approval by the conflicts committee further reinforce this positive outlook.

Positives

• The unit repurchase is expected to be accretive to shareholders.
• The repurchase is expected to increase distributable cash flow per Class A share.
• Hess Midstream has significant financial flexibility for future unit repurchases.
• The company has a history of returning capital to shareholders through unit repurchases.
• The company expects to have more than $1.25 billion of financial flexibility through 2026 that can be used to support potential incremental unit repurchases.
• The unit repurchase is expected to result in increased distributable cash flow per Class A share providing capacity for incremental distribution growth above Hess Midstreams annual distribution target of at least 5% through 2026.

Risks

• The ability of Hess Corporation and other parties to satisfy their obligations to Hess Midstream is a risk.
• Reductions in the volumes of crude oil, natural gas, natural gas liquids (NGLs) and produced water gathered, processed, terminal or stored could negatively impact results.
• Fluctuations in the prices and demand for crude oil, natural gas and NGLs could negatively impact results.
• Changes in global economic conditions and the effects of a global economic downturn or inflation on our business and the business of our suppliers, customers, business partners and lenders could negatively impact results.
• The company's ability to comply with government regulations or make required capital expenditures is a risk.
• The company's ability to successfully identify, evaluate and timely execute capital projects, investment opportunities and growth strategies is a risk.
• The company's ability to satisfy the closing conditions of the Class B unit repurchase is a risk.
• Costs or liabilities associated with federal, state and local laws, regulations and governmental actions applicable to our business could negatively impact results.
• The company's ability to comply with the terms of its credit facility, indebtedness and other financing arrangements is a risk.
• Reduced demand for the company's midstream services could negatively impact results.
• Potential disruption or interruption of the company's business due to catastrophic events is a risk.
• Any 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 is a risk.

Future Outlook

Hess Midstream expects to have more than $1.25 billion of financial flexibility through 2026 for potential incremental unit repurchases and anticipates increased distributable cash flow per Class A share, providing capacity for incremental distribution growth above its annual distribution target of at least 5% through 2026.

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.'

Industry Context

Unit repurchases are a common method for companies, especially in the midstream sector, to return capital to shareholders and signal confidence in their financial position and future prospects. This move aligns with industry trends of optimizing capital allocation and enhancing shareholder value.

Comparison to Industry Standards

• Other midstream companies, such as Enterprise Products Partners (EPD) and Magellan Midstream Partners (MMP), have also utilized unit repurchase programs to enhance shareholder value.
• The size of the repurchase, $100 million, is significant but not uncommon in the midstream sector, where companies often have substantial cash flow.
• The stated goal of increasing distributable cash flow and distribution growth aligns with the priorities of many income-focused investors in the midstream space.
• The financial flexibility of $1.25 billion through 2026 is a strong indicator of Hess Midstream's ability to continue returning capital to shareholders.

Related Party Transactions

• The unit repurchase is a related party transaction as it involves the purchase of units from affiliates of Hess Corporation and Global Infrastructure Partners.

Stakeholder Impact

• Shareholders are expected to benefit from the accretive nature of the repurchase and the potential for increased distribution growth.
• The company's financial strength is maintained, benefiting creditors and other stakeholders.
• The transaction signals confidence in the company's future prospects, which can positively impact employee morale.

Next Steps

• The Repurchase Transaction was consummated on January 15, 2025.
• Cancellation of the repurchased units and Class B shares.

Key Dates