8-K: Hess Midstream LP Recasts Segment Disclosures Following Early Adoption of New Accounting Standard

Hess Midstream LP has filed a current report to recast its segment disclosures for prior periods due to the early adoption of Accounting Standards Update No. 2023-07.

Summary

• Hess Midstream LP is recasting its previously reported segment disclosures due to the early adoption of Accounting Standards Update No. 2023-07, which requires additional disclosures of significant expenses for each reportable segment.
• The company is recasting disclosures in its 2023 Annual Report on Form 10-K and its Quarterly Report on Form 10-Q for the period ended March 31, 2024.
• Recast segment disclosures are also provided for the threeand six-month periods ended June 30, 2023, and the threeand nine-month periods ended September 30, 2023.
• The new accounting standard does not change how the company identifies its operating segments, which are gathering, processing and storage, and terminaling and export.
• The company's Chief Operating Decision Maker (CODM) evaluates segment performance based on Adjusted EBITDA, which is net income before interest, taxes, depreciation, and amortization, adjusted for non-cash and non-recurring items.
• The CODM uses segment Adjusted EBITDA for annual budgeting and monthly forecasting, and considers variances for performance evaluation and capital allocation.
• The financial statements in the 2023 Form 10-K are updated only to reflect the recast of segment disclosures, with all other information remaining unchanged.
• This report should be read in conjunction with the 2023 Form 10-K and the First Quarter 2024 10-Q, and any subsequent filings for significant developments.

Sentiment

Score: 7

Explanation: The document is neutral in tone, focusing on a required accounting change. There are no indications of positive or negative performance, but the proactive adoption of the new standard is a positive sign.

Positives

• The company is proactively adopting the new accounting standard, which demonstrates transparency.
• The company is providing recast segment disclosures for prior periods, which allows for better comparability.
• The company's CODM uses Adjusted EBITDA, a common metric, for evaluating segment performance.

Negatives

• The need to recast prior period financials may indicate a change in how the company presents its financial information.
• The document does not contain any negative information.

Risks

• The company is subject to the risk of changes in accounting standards, which may require further adjustments to financial reporting.
• The company is subject to the risk of changes in the energy industry, which may impact its financial performance.
• The company is subject to the risk of the Chevron merger, which may impact its ownership structure and operations.

Future Outlook

The company will include the recast segment disclosures in its upcoming Quarterly Reports on Form 10-Q for the period ended June 30, 2024 and the period ending September 30, 2024.

Management Comments

• The company's Chief Executive Officer and Chief Financial Officer, collectively determined to be the company's CODM, evaluate the operating performance of the company's operating segments based on Adjusted EBITDA.

Industry Context

The early adoption of ASU 2023-07 is part of a broader trend in the industry towards increased transparency and comparability in financial reporting. This change will likely affect other midstream companies as they adopt the new standard.

Comparison to Industry Standards

• The adoption of ASU 2023-07 is a standard accounting change that will affect all companies that report segment information.
• Many companies in the midstream sector use Adjusted EBITDA as a key performance metric, making Hess Midstream's approach consistent with industry practice.
• Companies like Enterprise Products Partners (EPD) and Kinder Morgan (KMI) also focus on segment performance and use similar metrics, although the specific details of their segment reporting may differ.

Stakeholder Impact

• Shareholders will benefit from the increased transparency in segment reporting.
• Analysts will have more detailed information to evaluate the company's performance.
• The company's stakeholders will have a better understanding of how the company's segments are performing.

Next Steps

• The company will include the recast segment disclosures in its upcoming Quarterly Reports on Form 10-Q for the period ended June 30, 2024 and the period ending September 30, 2024.
• The company will continue to monitor and comply with all relevant accounting standards.

Key Dates

Keywords

segment reporting, financial disclosures, Adjusted EBITDA, accounting standards, Hess Midstream LP, ASU 2023-07, recast, midstream assets