8-K: Hess Midstream to Repurchase $100 Million of Class B Units from Sponsors

Hess Midstream LP will repurchase approximately $100 million of Class B units from its sponsors, Hess Corporation and Global Infrastructure Partners.

Summary

• Hess Midstream LP has entered into an agreement to repurchase approximately $100 million of Class B units from its sponsors, Hess Corporation and Global Infrastructure Partners.
• The repurchase will be executed by Hess Midstream Operations LP, a subsidiary of Hess Midstream LP.
• A total of 2,816,901 Class B units will be repurchased at a price of $35.50 per unit, which was the closing price of Class A shares on March 11, 2024.
• The transaction is expected to close on March 14, 2024, and will be funded through borrowings under Hess Midstream's existing revolving credit facility.
• Following the repurchase, the units will be cancelled, which is expected to increase distributable cash flow per Class A share.
• This is expected to support incremental distribution growth above Hess Midstream's annual distribution target of at least 5% through 2026.
• After the transaction, public ownership will be approximately 35.4%, Global Infrastructure Partners will own 26.8%, and Hess Corporation will own 37.8% of Hess Midstream on a consolidated basis.
• Since the beginning of 2021, Hess Midstream will have returned $1.65 billion to shareholders through unit repurchases, reducing the total unit count by over 20%.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the accretive unit repurchase, increased distributable cash flow, and commitment to shareholder returns. The company's financial flexibility and track record of buybacks further support this positive outlook.

Positives

• The unit repurchase is expected to be immediately accretive to shareholders.
• The cancellation of repurchased units will increase distributable cash flow per Class A share.
• The transaction supports incremental distribution growth above the annual target of at least 5% through 2026.
• Hess Midstream has significant financial flexibility for future repurchases.
• The company has a track record of returning capital to shareholders through unit repurchases.

Risks

• The company's ability to generate sufficient cash flow to pay current and expected levels of distributions is a risk.
• Reductions in the volumes of crude oil, natural gas, NGLs and produced water they gather, process, terminal or store could impact results.
• Fluctuations in the prices and demand for crude oil, natural gas and NGLs could affect the business.
• Changes in global economic conditions and the effects of a global economic downturn or inflation could impact the business.
• The company's ability to comply with government regulations or make capital expenditures required to maintain compliance is a risk.
• The company's ability to successfully identify, evaluate and timely execute capital projects, investment opportunities and growth strategies is a risk.
• The company's ability to satisfy the closing conditions of the Class B unit repurchase is a risk.
• The company's ability to comply with the terms of its credit facility, indebtedness and other financing arrangements is a risk.
• Reduced demand for the company's midstream services is a risk.
• Potential disruption or interruption of the company's business due to catastrophic events is a risk.
• Any limitations on the company's ability to access debt or capital markets on terms that they deem acceptable is a risk.
• Liability resulting from litigation is a risk.
• Risks and uncertainties associated with Hess proposed merger with Chevron Corporation is a risk.

Future Outlook

Hess Midstream expects to continue to have more than $1.25 billion of financial flexibility through 2026 that can be used to support potential incremental unit repurchases and expects increased distributable cash flow per Class A share providing capacity for incremental distribution growth above Hess Midstream's annual distribution target of at least 5% through 2026.

Management Comments

• We continue to execute unit repurchase transactions as part of our unique and differentiated financial strategy, which prioritizes shareholder returns and a strong balance sheet, said Jonathan Stein, Chief Financial Officer of Hess Midstream.
• Following this unit repurchase, which is expected to provide immediate accretion to our shareholders, we expect to continue to have more than $1.25 billion of financial flexibility through 2026 that can be used to support potential incremental unit repurchases.

Industry Context

This unit repurchase is part of a broader trend of midstream companies returning capital to shareholders through buybacks and increased distributions. It reflects a focus on financial discipline and shareholder value in the energy sector.

Comparison to Industry Standards

• Many midstream companies are currently focused on returning capital to shareholders through buybacks and dividends, similar to Hess Midstream's approach.
• Enterprise Products Partners (EPD) and Energy Transfer (ET) are examples of large midstream companies that have also been active in unit repurchases and distribution increases.
• The 5% distribution growth target is in line with or slightly above the average for the midstream sector, indicating a commitment to shareholder returns.
• The $1.65 billion returned to shareholders since 2021 is a significant amount, demonstrating a strong focus on capital allocation.

Related Party Transactions

• The unit repurchase is a related party transaction as it involves the company's sponsors, Hess Corporation and Global Infrastructure Partners.

Stakeholder Impact

• Shareholders are expected to benefit from the accretive nature of the repurchase and increased distributable cash flow.
• The transaction is expected to support incremental distribution growth, benefiting income-seeking investors.
• The reduction in unit count may lead to increased earnings per unit, potentially benefiting all shareholders.

Next Steps

• The unit repurchase transaction is expected to close on March 14, 2024.
• Hess Midstream will continue to evaluate opportunities for incremental unit repurchases.

Key Dates

Keywords

unit repurchase, Hess Midstream, Class B units, shareholder returns, distributable cash flow, midstream, Hess Corporation, Global Infrastructure Partners, financial flexibility, distribution growth