10-Q: Hess Midstream LP Reports Third Quarter 2024 Results, Announces Increased Distribution

Hess Midstream LP announced its third quarter 2024 results, highlighting increased throughput volumes and a rise in quarterly cash distribution.

Summary

• Hess Midstream LP reported a net income of $164.7 million for the third quarter of 2024.
• Net income attributable to Hess Midstream LP was $58.6 million, or $0.63 per Class A share.
• The company's adjusted EBITDA for the quarter was $286.9 million.
• Revenues and other income totaled $378.5 million, up from $363.1 million in the prior-year quarter.
• The company declared a cash distribution of $0.6846 per Class A share, an increase of $0.0169 from the previous quarter.
• Throughput volumes increased 9% for gas gathering, crude oil gathering, and gas processing compared to the same quarter last year.
• Water gathering volumes increased by 29% year-over-year.
• The company's public ownership increased from approximately 29.8% at December 31, 2023, to approximately 47.3% at September 30, 2024.
• The company has long-term fee-based commercial agreements with Hess, which provide cash flow stability.
• The majority of the company's systems entered the Secondary Term of their commercial agreements, which includes a fixed fee structure based on the average fees paid by Hess during 2021-2023 adjusted annually for inflation up to 3% a year.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong operational performance, increased distributions, and strategic growth initiatives. While there are some risks and challenges, the overall tone is optimistic and suggests a healthy financial position.

Positives

• The company experienced a 9% increase in throughput volumes for gas gathering, crude oil gathering, and gas processing.
• Water gathering volumes increased by 29%, indicating strong performance in this area.
• The company increased its quarterly cash distribution to $0.6846 per Class A share.
• The company's public ownership has increased significantly, indicating a broader investor base.
• The company's long-term commercial agreements with Hess provide a stable revenue stream.
• The company is actively pursuing strategic relationships with third-party producers to maximize utilization rates.

Negatives

• Terminaling throughput volumes decreased by 5% compared to the third quarter of 2023, primarily due to lower third-party volumes.
• Interest expense increased due to the issuance of new senior unsecured notes.
• Income tax expense increased due to ownership changes following secondary equity offerings and Class B unit repurchases.
• The company's fixed fee structure in the Secondary Term of commercial agreements may provide less downside risk protection compared to the initial term.

Risks

• The company's performance is indirectly influenced by commodity price fluctuations, which can affect production rates and investments by Hess and third parties.
• The company's ability to execute its growth strategy depends on crude oil and natural gas production in the Bakken area.
• The company's fixed fee structure in the Secondary Term of commercial agreements may provide less downside risk protection compared to the initial term.
• The company is subject to risks and uncertainties associated with Hess's proposed merger with Chevron Corporation.
• The company is subject to environmental regulations and potential liabilities related to spills and releases.

Future Outlook

The company expects its ongoing sources of liquidity to be sufficient to meet its operating requirements, planned capital expenditures, debt service, and distribution requirements. The company anticipates continued growth in distributions per Class A Share through 2026.

Management Comments

• Management is focused on maximizing profitability by effectively managing operating and maintenance expenses.
• Management uses Adjusted EBITDA to analyze performance and liquidity.
• Management believes that the presentation of Adjusted EBITDA provides useful information to investors in assessing the company's financial condition and results of operations.

Industry Context

Hess Midstream operates in the midstream energy sector, providing essential services for the transportation and processing of oil and gas. The company's performance is closely tied to the production levels in the Bakken region and the overall health of the oil and gas industry. The company is actively pursuing strategic relationships with third-party producers and other midstream companies with operations in the Bakken in order to maximize its utilization rates.

Comparison to Industry Standards

• Hess Midstream's focus on fee-based contracts with minimum volume commitments is a common strategy in the midstream sector to mitigate commodity price risk, similar to companies like Enterprise Products Partners and MPLX.
• The company's adjusted EBITDA margins are comparable to other midstream companies, but specific comparisons would require a detailed analysis of peer group financials.
• The company's growth strategy, which includes expanding compression capacity and gas capture capabilities, is consistent with industry trends focused on increasing efficiency and throughput.
• The company's debt levels and leverage ratios are within industry norms, but the specific terms of its debt agreements should be compared to those of its peers.
• The company's distribution policy is in line with other master limited partnerships (MLPs) in the midstream sector, which typically distribute a significant portion of their cash flow to unitholders.

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.
• The company believes it is remote that the outcome of known matters, including the produced water release, would have a material adverse impact on its financial condition.

Related Party Transactions

• The company has long-term fee-based commercial agreements with Hess.
• The company has an omnibus and employee secondment agreement with Hess.
• The company has a gas processing agreement with Little Missouri 4 (LM4), a 50/50 joint venture with Targa Resources Corp.

Stakeholder Impact

• Shareholders will benefit from the increased quarterly cash distribution.
• Employees are impacted by the omnibus and employee secondment agreements with Hess.
• Customers, including Hess and third-party producers, rely on the company's midstream services.
• Suppliers and creditors are impacted by the company's financial performance and debt obligations.

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 evaluate and manage its debt and capital structure.
• The company will continue to monitor and manage its environmental liabilities and legal proceedings.

Key Dates

Keywords

Midstream, Hess Midstream, Oil and Gas, Gathering, Processing, Terminaling, EBITDA, Distributions, Bakken, Throughput, Water Gathering, Class A Shares, Senior Notes