8-K: Hess Midstream LP Reports Strong First Quarter 2024 Results Driven by Increased Throughput Volumes

Hess Midstream LP announced a robust first quarter of 2024, marked by significant increases in throughput volumes and a rise in net income.

Summary

• Hess Midstream LP reported a net income of $161.9 million for the first quarter of 2024, compared to $142.2 million in the same period last year.
• Net income attributable to Hess Midstream LP was $44.6 million, or $0.60 per Class A share, up from $0.47 per share in the first quarter of 2023.
• The company's throughput volumes saw substantial growth, with gas processing up 16%, oil terminaling up 13%, and water gathering up 47% year-over-year.
• Adjusted EBITDA reached $275.8 million, and Adjusted Free Cash Flow was $194.2 million for the quarter.
• A quarterly cash distribution of $0.6516 per Class A share was declared, representing a 2.7% increase compared to the previous quarter.
• Hess Midstream completed a $100 million repurchase of Class B units in March 2024.
• The company reaffirmed its full-year 2024 guidance, projecting net income between $670 and $720 million and Adjusted EBITDA between $1,125 and $1,175 million.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, increased throughput volumes, and a commitment to shareholder returns. The company's reaffirmation of its full-year guidance and focus on growth contribute to a high sentiment score.

Positives

• The company experienced significant growth in throughput volumes across all key areas.
• Net income and earnings per share showed a notable increase compared to the same quarter last year.
• Adjusted EBITDA and Adjusted Free Cash Flow were strong, indicating solid operational performance.
• The increase in quarterly cash distribution demonstrates a commitment to returning value to shareholders.
• The completion of the Class B unit repurchase is accretive and beneficial for the company.
• Hess Midstream reaffirmed its full-year 2024 guidance, showing confidence in future performance.

Negatives

• Total operating costs and expenses increased to $133.6 million, up from $116.3 million in the prior-year quarter, primarily due to higher maintenance and depreciation expenses.
• Interest expense rose to $48.5 million, up from $41.6 million in the prior-year quarter, due to higher interest rates and borrowings.

Risks

• The company's performance is subject to fluctuations in the prices and demand for crude oil, natural gas, and NGLs.
• Changes in global economic conditions could impact the business and its suppliers, customers, and lenders.
• The company faces risks related to compliance with government regulations and the ability to obtain necessary permits.
• There are risks associated with the company's ability to execute capital projects and growth strategies.
• The company's ability to generate sufficient cash flow to pay distributions is a risk factor.
• The company is exposed to potential disruptions from catastrophic events, labor disputes, and cyber-attacks.
• The proposed merger of Hess with Chevron introduces additional risks and uncertainties.

Future Outlook

Hess Midstream continues to target at least 5% annual distribution growth per Class A share through 2026 and expects organic throughput volume growth across all systems in 2025 and 2026 relative to 2024 guidance. The company also aims to maintain a long-term leverage target of 3x Adjusted EBITDA.

Management Comments

• We delivered a solid first quarter, underpinned by strong operational performance and continued focus on gas capture, said John Gatling, President and Chief Operating Officer of Hess Midstream.
• We remain focused on safely executing our operational priorities and delivering on our growth strategy, which continues to drive sustainable cash flow generation and the potential for additional return of capital to our shareholders.

Industry Context

This announcement reflects the ongoing growth in the midstream energy sector, particularly in regions like the Bakken and Three Forks Shale plays. The increased throughput volumes and focus on gas capture align with industry trends towards maximizing production and efficiency. The company's performance is also indicative of the broader demand for midstream services in the oil and gas industry.

Comparison to Industry Standards

• Hess Midstream's 16% increase in gas processing throughput is a strong result compared to peers in the midstream sector, such as MPLX and Energy Transfer, which have also reported growth but not at this level in the same period.
• The 47% increase in water gathering volumes is particularly notable, indicating a strong position in this area compared to companies like Plains All American Pipeline, which have a more diversified portfolio.
• The company's Adjusted EBITDA of $275.8 million is competitive with other mid-sized midstream companies, but it is important to note that larger players like Enterprise Products Partners have significantly higher EBITDA due to their scale.
• The 2.7% increase in quarterly cash distribution is in line with the industry trend of returning value to shareholders, but some companies offer higher yields, such as Kinder Morgan.
• The company's leverage target of 3x Adjusted EBITDA is a common benchmark in the midstream sector, indicating a focus on financial stability.

Stakeholder Impact

• Shareholders will benefit from the increased cash distribution and the potential for future growth.
• Employees are likely to be positively impacted by the company's strong performance and growth prospects.
• Customers will benefit from the company's increased capacity and efficiency.
• Suppliers may see increased business opportunities due to the company's growth.
• Creditors will be reassured by the company's strong financial performance and commitment to financial stability.

Next Steps

• The company will continue to focus on executing its operational priorities and growth strategy.
• Hess Midstream will continue to target at least 5% annual distribution growth per Class A share through 2026.
• The company will maintain a long-term leverage target of 3x Adjusted EBITDA.
• Hess Midstream will review first quarter financial and operating results on a webcast.

Key Dates

Keywords

Hess Midstream, Midstream, Throughput Volumes, Adjusted EBITDA, Free Cash Flow, Cash Distribution, Oil and Gas, Gas Processing, Oil Terminaling, Water Gathering, Financial Results