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

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

Summary

• Hess Midstream LP reported a net income of $160.3 million for the second quarter of 2024.
• Net income attributable to Hess Midstream LP was $49.5 million, or $0.59 per Class A share.
• The company's adjusted EBITDA reached $276.5 million for the quarter.
• Revenues and other income totaled $365.5 million, up from $324.0 million in the same quarter last year.
• The increase in revenue was primarily due to higher physical volumes.
• Operating costs and expenses were $143.2 million, compared to $125.9 million in the prior year, due to higher maintenance and depreciation expenses.
• Interest expense increased to $49.7 million, primarily due to new debt issuance and higher interest rates.
• Throughput volumes increased significantly, with gas gathering up 19%, gas processing up 17%, crude oil gathering up 23%, and terminaling up 17% compared to the second quarter of 2023.
• Water gathering volumes saw a substantial increase of 43%.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and increased distributions, although there are some concerns about rising costs and reliance on a single customer.

Positives

• The company experienced significant growth in throughput volumes across all segments.
• The company's revenue increased due to higher physical volumes.
• Hess Midstream LP declared an increased cash distribution of $0.6677 per Class A share.
• The company's public ownership increased from approximately 29.8% at December 31, 2023, to approximately 41.0% at June 30, 2024.

Negatives

• Operating costs and expenses increased due to higher maintenance, pass-through, and depreciation expenses.
• Interest expense increased due to new debt issuance and higher interest rates.
• Income tax expense increased due to ownership changes following secondary equity offering and Class B Unit repurchase transactions.
• The second quarter 2024 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 revenue is heavily reliant on Hess Corporation and its affiliates.
• Commodity price fluctuations can indirectly influence the company's activities and results of operations.
• The majority of the company's systems entered the Secondary Term of commercial agreements, which includes a fixed fee structure that may provide less downside risk protection.
• The company's ability to execute its growth strategy depends on crude oil and natural gas production in the Bakken area.
• The company is subject to various environmental regulations and potential liabilities.

Future Outlook

The company expects all volumes to be above currently established minimum volume commitment levels in 2024, 2025 and 2026. The company also plans to continue expanding its compression capacity and gas capture capabilities.

Management Comments

• The company utilized excess free cash flow to provide increased return of capital to shareholders through an immediate increase in the quarterly distribution level per Class A Share.
• The company is pursuing strategic relationships with third-party producers and other midstream companies to maximize utilization rates.

Industry Context

The results reflect the ongoing demand for midstream services in the Bakken region, driven by increased production. The company's focus on fee-based contracts provides stability in a volatile commodity market. The company is also actively pursuing third-party relationships to maximize utilization rates.

Comparison to Industry Standards

• Hess Midstream's performance is strong compared to other midstream companies, particularly in terms of volume growth.
• Companies like Enterprise Products Partners (EPD) and Kinder Morgan (KMI) also operate in the midstream sector, but Hess Midstream's focus on the Bakken region and its relationship with Hess Corporation provide a unique operational profile.
• The company's adjusted EBITDA growth of $29.7 million year-over-year is a positive indicator of operational efficiency and revenue growth.
• The increase in distributions per share is also a positive sign for investors, indicating a commitment to returning capital.

Legal Proceedings

• The company is evaluating a proposed Administrative Consent Agreement (ACA) with the North Dakota Department of Environmental Quality (DEQ) related to a produced water release.

Related Party Transactions

• The company has long-term fee-based commercial agreements with Hess subsidiaries.
• The company has an omnibus and employee secondment agreement with Hess.
• The company has a gas processing agreement with Little Missouri 4 (LM4), a joint venture with Targa Resources Corp.

Stakeholder Impact

• Shareholders will benefit from increased distributions.
• Employees may see increased job security due to the company's growth.
• Customers will benefit from the company's expanded infrastructure and services.
• Suppliers will benefit from increased business opportunities.
• Creditors will benefit from the company's 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.
• The company will continue to evaluate and manage its debt and capital structure.

Key Dates

Keywords

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