8-K: Hess Midstream LP Reports Strong Volume Growth and Increased Distributions in Q4 2023

Hess Midstream LP saw significant throughput volume increases across its operations and raised its quarterly cash distribution in the fourth quarter of 2023.

Summary

• Hess Midstream LP reported a net income of $152.8 million for the fourth quarter of 2023, compared to $149.8 million in the same period of 2022.
• Net income attributable to Hess Midstream LP was $37.5 million, or $0.55 per Class A share, up from $0.49 per share in the prior year quarter.
• The company's adjusted EBITDA reached $264.1 million, and adjusted free cash flow was $146.6 million for the quarter.
• Throughput volumes saw substantial increases, with gas processing up 24%, oil terminaling up 19%, and water gathering up 47% compared to the fourth quarter of 2022.
• The company increased its quarterly cash distribution to $0.6343 per Class A share, a 2.7% increase from the previous quarter.
• Hess Midstream completed a $100 million repurchase of Class B units in November 2023, marking the fourth such transaction in the year.
• Full year 2023 net income was $607.7 million, and full year Adjusted EBITDA was $1,022.2 million.
• Debt at the end of 2023 was approximately $3.2 billion, representing a leverage of approximately 3.2x Adjusted EBITDA.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong operational performance, increased distributions, and significant volume growth. However, there are some concerns about increased costs and delays in third-party volumes, which temper the overall sentiment slightly.

Positives

• Significant increases in throughput volumes across all key areas of operation.
• The company achieved a higher net income compared to the same quarter last year.
• Adjusted EBITDA and Adjusted Free Cash Flow showed strong performance.
• The quarterly cash distribution was increased, demonstrating a commitment to shareholder returns.
• The company successfully completed a $100 million unit repurchase.
• Full year 2023 results show strong performance with net income of $607.7 million and Adjusted EBITDA of $1,022.2 million.

Negatives

• Third-party gas volumes were lower than expected due to delays in bringing new volumes online.
• Total operating costs and expenses increased to $146.4 million, up from $118.2 million in the prior-year quarter.
• Interest expense increased to $47.8 million, up from $40.7 million in the prior-year quarter.

Risks

• The company is exposed to fluctuations in the prices and demand for crude oil, natural gas, and NGLs.
• There are risks associated with the ability of Hess and other parties to meet their obligations to Hess Midstream.
• The company's ability to generate sufficient cash flow to pay distributions is a risk.
• Delays in bringing new third-party volumes online can impact throughput.
• The company is subject to risks related to government regulations and environmental compliance.
• The company is exposed to potential disruptions from catastrophic events and cyber-attacks.
• The proposed merger of Hess with Chevron introduces additional risks and uncertainties.

Future Outlook

Hess Midstream plans to issue 2024 guidance in a separate release on January 31, 2024. The company is focused on reliable operating performance and is positioned well to deliver visible and sustained throughput growth underpinned by minimum volume commitments.

Management Comments

• 2023 was a year of continued strong performance and execution for Hess Midstream, as we achieved significant volume growth and further expanded our gas gathering system capacity supporting basin gas capture goals, said John Gatling, President and Chief Operating Officer of Hess Midstream.
• We are focused on reliable operating performance and are positioned well to deliver visible and sustained throughput growth underpinned by our minimum volume commitments.

Industry Context

The results reflect the ongoing demand for midstream services in the Bakken and Three Forks Shale plays, where Hess Midstream operates. The increased throughput volumes indicate a strong operational performance in a competitive market. The company's focus on expanding gas gathering capacity aligns with industry trends towards increased gas capture and processing.

Comparison to Industry Standards

• Hess Midstream's 24% increase in gas processing throughput is a strong result compared to peers in the midstream sector, many of whom are seeing single-digit growth.
• The 47% increase in water gathering volumes is particularly notable, indicating a successful expansion in this area, which is a key service for shale production.
• The company's leverage of 3.2x Adjusted EBITDA is within the range of many midstream companies, but it is important to monitor this metric in the context of future growth plans.
• The increase in quarterly distribution by 2.7% is competitive with other midstream companies that are focused on returning capital to shareholders.
• Companies like Enterprise Products Partners (EPD) and Kinder Morgan (KMI) are often used as benchmarks in the midstream sector, and Hess Midstream's performance is comparable in terms of operational growth and distribution increases.

Stakeholder Impact

• Shareholders will benefit from the increased quarterly cash distribution.
• Employees are likely to be impacted by the company's continued growth and expansion.
• Customers will benefit from the increased throughput capacity and reliable services.
• Suppliers may see increased demand for their products and services.
• Creditors will be interested in the company's strong financial performance and ability to service its debt.

Next Steps

• Hess Midstream plans to issue 2024 guidance in a separate release on January 31, 2024.
• The company will continue to focus on reliable operating performance and delivering sustained throughput growth.
• The company will pay the quarterly cash distribution on February 14, 2024.

Key Dates

Keywords

Midstream, Hess Midstream, Throughput Volumes, Gas Processing, Oil Terminaling, Water Gathering, Adjusted EBITDA, Cash Distribution, Unit Repurchase, Net Income