8-K: Hess Midstream LP Undergoes Significant Ownership and Governance Shift as GIP Exits

Hess Midstream LP announced a secondary public offering of 15 million Class A shares by Global Infrastructure Partners, leading to GIP's full divestment and Hess Corporation's affiliate gaining 100% control of the general partner, alongside significant corporate governance changes.

Summary

• Hess Midstream LP (HESM) announced a registered underwritten public offering of 15,022,517 Class A shares by GIP II Blue Holding, L.P., an affiliate of Global Infrastructure Partners (GIP).
• HESM will not receive any proceeds from the sale of these Class A shares.
• Upon the closing of the offering, GIP will no longer hold any direct or indirect ownership interest in HESM, Hess Midstream Operations LP, or its general partners.
• Hess Investments North Dakota LLC, an affiliate of Hess Corporation (Hess), will acquire a 100% interest in Hess Infrastructure Partners GP LLC (HIP), the sole member of the general partner's general partner.
• GIP's designated directors, William J. Brilliant, James K. Lee, and Scott E. Telesz, will resign from the Board of GP LLC upon the offering's effective date.
• The Board will then comprise a maximum of eight directors appointed by HIP, with no more than four affiliated with Hess (Hess Directors) and the remainder being independent directors.
• While Hess Directors will control day-to-day management, certain key actions will require approval from at least one Hess Director and one Independent Director, including incurring debt exceeding a 4:1 debt-to-EBITDA ratio, determining cash distributions, material agreements with Hess affiliates, significant M&A or capital expenditures, equity issuances, and dissolution.
• Current Hess Directors (John B. Hess, John P. Rielly, Gregory P. Hill, Gerbert Schoonman) and Independent Directors (David W. Niemiec, John P. Reddy, Stephen J.J. Letwin) are expected to continue serving.
• The Company anticipates appointing an additional Independent Director to the Board.
• No changes are expected to HESM's existing commercial agreements with Hess or its partnership agreement as a result of the offering.

Sentiment

Score: 7

Explanation: The sentiment is generally positive as it clarifies ownership and governance, consolidating control under Hess Corporation, which can lead to more aligned strategic decisions. The new governance structure with dual director approval for key actions adds a layer of checks and balances. The only negative is that HESM itself receives no proceeds from the offering.

Positives

• Hess Corporation's affiliate, Hess Investments North Dakota LLC, will gain 100% ownership of Hess Infrastructure Partners GP LLC, consolidating control over Hess Midstream's general partner.
• The new governance structure introduces a requirement for approval from both a Hess Director and an Independent Director for critical actions, potentially enhancing oversight and balancing interests.
• The full exit of Global Infrastructure Partners (GIP) simplifies the ownership structure and eliminates potential conflicts arising from a joint venture partner.

Negatives

• Hess Midstream LP will not receive any proceeds from this secondary public offering, as the shares are being sold by an existing shareholder (GIP).

Risks

• The consummation of the offering is subject to market conditions and other factors, and there is a risk that the offering may not be completed.
• Forward-looking statements involve risks and uncertainties that could cause actual results to vary materially from anticipated outcomes.

Future Outlook

The Company anticipates that Hess Investments North Dakota LLC will appoint an additional Independent Director to the Board, subject to identifying a suitable candidate. The current Hess and Independent Directors are expected to continue serving on the Board.

Management Comments

• Hess Midstream LP announced the commencement of a registered underwritten public offering of Class A shares by an affiliate of Global Infrastructure Partners.
• The Company anticipates that Hess Infrastructure Partners GP LLC (HIP) will appoint an additional Independent Director to the Board, subject to identifying a potential candidate that satisfies independence standards and possesses necessary qualifications.

Industry Context

This announcement primarily concerns a significant change in the ownership and governance structure of Hess Midstream LP, solidifying Hess Corporation's control over its midstream assets. While not directly related to broader industry trends, it reflects a strategic move by Hess to integrate and control its value chain, which is a common theme in the energy sector for optimizing operations and capital allocation.

Management Changes

Corporate Governance

Related Party Transactions

• The new corporate governance structure mandates that amending, terminating, or waiving any material right under existing commercial agreements with Hess and its affiliates, or entering into any material contract with Hess or its affiliates, will require the approval of at least one Hess Director and one Independent Director.
• The Company's partnership agreement requires any determination by the General Partner regarding a transaction between the Company and an affiliate of the General Partner or a conflict of interest to be made in good faith, and permits the establishment of a conflicts committee of Independent Directors.

Stakeholder Impact

• **Shareholders:** GIP, a significant shareholder, is fully divesting its interest. Public shareholders will see a change in the controlling entity of the general partner and enhanced governance mechanisms for key decisions.
• **Hess Corporation:** Gains 100% control over the general partner of Hess Midstream, allowing for greater strategic alignment and operational integration.
• **Employees:** No direct impact on employees is mentioned in the filing.
• **Customers/Suppliers:** No direct impact on customers or suppliers is mentioned, though strategic alignment with Hess Corporation could indirectly affect future business relationships.
• **Creditors:** The new governance structure includes a specific approval requirement for incurring debt that would cause the debt-to-EBITDA ratio to exceed 4:1, which could be viewed positively by creditors as a safeguard against excessive leverage.

Next Steps

• Closing of the registered underwritten public offering of Class A shares.
• Resignation of GIP-designated directors from the Board upon the effective date of the offering.
• Appointment of an additional Independent Director to the Board by Hess Infrastructure Partners GP LLC (HIP).

Key Dates

Recommendation

Keywords

Hess Midstream LP, HESM, Global Infrastructure Partners, GIP, BlackRock, Secondary Public Offering, Class A Shares, Corporate Governance, Board of Directors, Ownership Change, Midstream, Bakken, Williston Basin, Hess Corporation