8-K: Hess Midstream LP Reports Strong Q2 2024 Results, Increases Full-Year Guidance

Hess Midstream LP announced a 17% increase in gas processing and oil terminaling throughput volumes, alongside a 43% increase in water gathering volumes, driving strong financial results for the second quarter of 2024.

Summary

• Hess Midstream LP reported a net income of $160.3 million for the second quarter of 2024, compared to $147.9 million in the same quarter of the previous year.
• Net income attributable to Hess Midstream LP was $49.5 million, or $0.59 per Class A share, up from $0.50 per share in the second quarter of 2023.
• The company's adjusted EBITDA reached $276.5 million, and adjusted free cash flow was $156.4 million.
• Throughput volumes saw significant increases, with gas processing and oil terminaling up by 17% and water gathering up by 43% compared to the prior-year quarter.
• Hess Midstream completed a $100 million repurchase of Class B units in June 2024.
• The quarterly cash distribution was increased to $0.6677 per Class A share, a $0.0161 increase from the previous quarter.
• Full-year 2024 net income guidance has been updated to $650-$700 million, while adjusted EBITDA guidance is reiterated at $1,125-$1,175 million.
• The company is targeting at least 5% annual distribution growth per Class A share through 2026 and a long-term leverage target of 3x adjusted EBITDA.
• Hess Midstream expects organic throughput volume growth across all systems for 2025 and 2026 relative to 2024 volume guidance.

Sentiment

Score: 8

Explanation: The document presents a very positive outlook with strong financial results, increased throughput volumes, and raised guidance. The company's commitment to shareholder returns and financial strength further enhances the positive sentiment.

Positives

• The company experienced significant growth in throughput volumes across all segments.
• Net income, adjusted EBITDA, and adjusted free cash flow all showed strong performance.
• The increase in quarterly cash distribution is a positive sign for shareholders.
• The company is increasing its full-year guidance for gas throughput volumes.
• Hess Midstream is prioritizing financial strength with a long-term leverage target of 3x Adjusted EBITDA.
• The company expects continued organic throughput volume growth through 2026.

Negatives

• Interest expense increased to $49.7 million due to new debt issuance and higher interest rates.
• Total operating costs and expenses increased to $143.2 million, primarily due to higher maintenance and depreciation expenses.
• The second quarter results included a one-time $8.0 million reduction in revenues related to setting the 2024 tariff rates for certain subsystems.

Risks

• The company's performance is dependent on Hess Corporation's drilling and development plans.
• Fluctuations in the prices and demand for crude oil, natural gas, and NGLs could impact results.
• Changes in global economic conditions could affect the company's business.
• The company faces risks related to compliance with government regulations and environmental protection.
• There are risks associated with the proposed merger between Hess and Chevron.

Future Outlook

Hess Midstream is increasing its full year 2024 guidance for gas gathering and gas processing throughput volumes and updating its full year 2024 net income guidance to $650 $700 million, while reiterating its full year Adjusted EBITDA guidance of $1,125 $1,175 million. The company continues to target at least 5% annual distribution growth per Class A share through 2026 and expects organic throughput volume growth across all systems for 2025 and 2026 relative to 2024 volume guidance.

Management Comments

• We delivered strong operational and financial results in the second quarter, driven by Hess Corporations Bakken performance, our continued focus on gas capture and solid project execution, said John Gatling, President and Chief Operating Officer of Hess Midstream.
• We are increasing our 2024 gas throughput guidance and reiterating our expectation for substantial volume growth across our oil and gas systems through 2026, which is expected to result in sustained excess free cash flow generation and continued 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 shale. The increased throughput volumes and financial performance align with the broader trend of increased production and infrastructure utilization in the oil and gas industry. The company's focus on gas capture also reflects the industry's increasing emphasis on reducing emissions and maximizing resource utilization.

Comparison to Industry Standards

• Hess Midstream's 17% increase in gas processing throughput is strong compared to peers like MPLX and Energy Transfer, which have reported more modest growth in their recent results.
• The 43% increase in water gathering volumes is particularly notable, indicating a strong position in this growing segment of the midstream market, outperforming companies like Plains All American Pipeline which have seen more moderate growth in water infrastructure.
• The company's adjusted EBITDA of $276.5 million is competitive with other mid-sized midstream companies, such as Western Midstream, but lags behind larger players like Enterprise Products Partners.
• The targeted 5% annual distribution growth is in line with many midstream companies, but the company's ability to increase the distribution by more than 2% this quarter is a positive sign for investors.
• The long-term 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 quarterly cash distribution and the company's commitment to future distribution growth.
• Employees will benefit from the company's strong performance and growth prospects.
• Customers will benefit from the company's increased throughput capacity and operational efficiency.
• Suppliers will benefit from the company's continued capital expenditures and expansion plans.
• Creditors will benefit from the company's strong financial position and commitment to maintaining a healthy leverage ratio.

Next Steps

• The company will continue to focus on organic throughput volume growth across all systems for 2025 and 2026.
• Hess Midstream will continue to prioritize financial strength with a long-term leverage target of 3x Adjusted EBITDA.
• The company will continue to target at least 5% annual distribution growth per Class A share through 2026.
• The company will host an investor webcast to review the second quarter results.

Key Dates

Keywords

Midstream, Hess Midstream, Throughput Volumes, Adjusted EBITDA, Free Cash Flow, Cash Distribution, Gas Processing, Oil Terminaling, Water Gathering, Net Income, Guidance