10-Q: Hess Midstream LP Reports Strong First Quarter 2024 Results Driven by Increased Volumes

Hess Midstream LP announced a strong first quarter in 2024, with increased revenues and net income driven by higher throughput volumes across its operations.

Summary

• Hess Midstream LP reported a net income of $161.9 million for the first quarter of 2024.
• Net income attributable to Hess Midstream LP was $44.6 million, or $0.60 per Class A share.
• The company's adjusted EBITDA reached $275.8 million.
• Revenues and other income totaled $355.6 million, up from $305.0 million in the same quarter of the previous year.
• The increase in revenue was primarily due to higher physical volumes, partially offset by lower shortfall fees.
• Operating costs and expenses increased to $133.6 million, mainly due to higher maintenance, pass-through, and depreciation expenses.
• Interest expense rose to $48.5 million due to higher interest rates and increased borrowings.
• Throughput volumes increased significantly, with gas gathering and processing up 16%, crude oil gathering up 14%, and terminaling up 13% compared to the first quarter of 2023.
• Water gathering volumes saw a substantial increase of 47%.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and operational growth. The company's focus on increasing shareholder value through distributions and strategic partnerships contributes to a favorable sentiment. However, some risks and challenges are noted, preventing a perfect score.

Positives

• The company experienced significant growth in throughput volumes across all segments.
• The increase in distribution per Class A share demonstrates a commitment to returning capital to shareholders.
• The company's revenue growth was driven by higher physical volumes, indicating strong operational performance.
• Hess Midstream LP is successfully pursuing strategic relationships with third-party producers to maximize utilization rates.
• The company is in compliance with all debt covenants under its indentures and credit facilities.

Negatives

• Operating costs and expenses increased due to higher maintenance, pass-through, and depreciation expenses.
• Interest expense increased due to higher interest rates and increased borrowings.
• Income tax expense increased due to ownership changes following equity transactions.
• Net cash provided by operating activities decreased by $13.4 million compared to the same period in 2023.

Risks

• The company's revenue is heavily reliant on Hess Corporation, with approximately 98% of revenues coming from Hess and its affiliates.
• Commodity price fluctuations can indirectly influence the company's activities and results of operations.
• The majority of the company's systems have transitioned to a fixed fee structure, which may provide less downside risk protection compared to the previous fee structure.
• The company is subject to environmental regulations and potential liabilities, including ongoing remediation efforts related to a produced water release.
• The company is exposed to market risks related to changes in interest rates.

Future Outlook

The company expects continued growth in throughput volumes and is focused on expanding its compression capacity and gas capture capabilities. The company anticipates that all volumes will be above currently established MVC levels in 2024, 2025 and 2026.

Management Comments

• The company utilized the excess free cash flow beyond our growing distributions to provide increased return of capital to our shareholders through an immediate 1.5% increase in our quarterly distribution level per Class A Share in the first quarter of 2024 in addition to the quarterly 1.2% increase per Class A Share consistent with our target of at least 5% growth in annual distributions per Class A Share.

Industry Context

The results reflect a positive trend in the midstream energy sector, with increased production and demand driving higher throughput volumes. The company's focus on strategic relationships with third-party producers aligns with industry trends to maximize asset utilization.

Comparison to Industry Standards

• Hess Midstream's performance is strong compared to other midstream companies, particularly in terms of throughput volume growth.
• Companies like Enterprise Products Partners (EPD) and Kinder Morgan (KMI) also focus on fee-based midstream services, but Hess Midstream's growth in the Bakken region is notable.
• The 16% increase in gas gathering and processing volumes is a significant achievement compared to industry averages.
• The 47% increase in water gathering volumes highlights Hess Midstream's ability to capitalize on the growing need for water management in oil and gas production.
• While other midstream companies may have more diversified asset portfolios, Hess Midstream's focused approach in the Bakken has yielded strong results.

Legal Proceedings

• The company is engaged in discussions with the North Dakota Department of Environmental Quality regarding a produced water release and a proposed Administrative Consent Agreement.

Related Party Transactions

• The company has long-term fee-based commercial agreements with Hess Corporation.
• The company had related party transactions with Hess for operational and administrative services.
• The company had related party transactions with Little Missouri 4 (LM4), a joint venture with Targa Resources Corp.

Stakeholder Impact

• Shareholders will benefit from increased distributions and potential for future growth.
• Employees may experience increased job security and opportunities due to the company's growth.
• Customers will benefit from reliable midstream services and potential for increased capacity.
• Suppliers may see increased demand for their products and services.
• Creditors will be reassured by the company's compliance with debt covenants and strong financial performance.

Next Steps

• The company will continue to focus on expanding its compression capacity and gas capture capabilities.
• The company will continue to pursue strategic relationships with third-party producers to maximize utilization rates.
• The company will continue to monitor and manage its debt and financial covenants.

Key Dates

Keywords

Midstream, Oil and Gas, Hess Midstream, Gathering, Processing, Terminaling, EBITDA, Distributions, Bakken, Throughput Volumes