10-K: Hess Midstream LP Reports 2023 Financial Results Amidst Chevron Merger

Hess Midstream LP's 2023 annual report reveals a year of increased throughput volumes and solid financial performance, while also addressing the pending merger with Chevron.

Summary

• Hess Midstream LP's 2023 financial results show a net income of $607.7 million, with $118.6 million attributable to Hess Midstream LP after deducting for noncontrolling interests.
• The company's adjusted EBITDA reached $1,022.2 million, reflecting a year of strong operational performance.
• Throughput volumes increased significantly in 2023, with gas processing up 15%, terminaling up 12%, and water gathering up 28% compared to 2022.
• The company paid cash distributions of $1.8037 per Class A share for the first three quarters of 2023 and declared a cash distribution of $0.6343 per Class A share for the fourth quarter of 2023.
• The company completed the repurchase of 13,641,165 Class B Units of the Partnership from the Sponsors for approximately $400 million.
• The report also discusses the pending merger with Chevron, noting that Chevron will acquire Hess's 37.8% ownership in the company.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and growth in throughput volumes. However, the pending merger and reliance on Hess introduce some uncertainty, preventing a perfect score.

Positives

• The company experienced significant growth in throughput volumes across its operations.
• The company's financial performance was strong, with a high net income and adjusted EBITDA.
• The company is returning capital to shareholders through consistent cash distributions.
• The company is actively managing its capital structure through unit repurchases.

Negatives

• The company's interest expense increased by $29.7 million due to higher interest rates and borrowings.
• Income tax expense increased to $37.9 million in 2023, up from $26.6 million in 2022.

Risks

• The company is substantially dependent on Hess, and any issues affecting Hess could impact the company's revenues.
• The pending merger with Chevron introduces business uncertainties and potential conflicts of interest.
• The company's operations are subject to various risks and operational hazards, including commodity price risks.
• The company's assets and operations are subject to environmental regulations and may become subject to FERC regulation.
• Climate change and sustainability initiatives could adversely affect the company's business.

Future Outlook

The company intends to expand its business by capitalizing on organic growth from Hess and third parties in the Bakken, utilizing existing capacity, and pursuing opportunities to add additional throughput volumes.

Management Comments

• The company intends to expand its business and have multiple potential alternatives to pursue, including capitalizing on organic growth from Hess and third parties in the Bakken and utilizing our existing capacity, as well as pursuing opportunities to add additional Hess and thirdparty throughput volumes in the future.
• We believe these commercial agreements provide us with stable and predictable cash flows, an element of downside risk protection and minimal direct exposure to commodity price fluctuations.

Industry Context

The company operates in the midstream energy sector, providing services for gathering, processing, and transporting crude oil, natural gas, and NGLs. The results are influenced by the level of production in the Bakken region and the demand for midstream services.

Comparison to Industry Standards

• Hess Midstream's reliance on long-term, fee-based contracts with Hess is a common strategy in the midstream sector, providing stable cash flows, similar to companies like MPLX and Enterprise Products Partners.
• The company's focus on the Bakken region is comparable to other midstream companies with regional concentration, such as Oasis Midstream Partners, which operates primarily in the Williston Basin.
• The company's throughput volumes and financial metrics are generally in line with industry standards for midstream companies of similar size and scope.
• The company's expansion plans and capital projects are consistent with the growth strategies of other midstream companies, such as Kinder Morgan and Energy Transfer.

Legal Proceedings

• The Company received a Notice of Violation from the North Dakota Department of Environmental Quality (DEQ) in connection with a produced water release. The DEQ proposed an Administrative Consent Agreement (ACA) that included an administrative penalty of $445,000 and further line monitoring practices with respect to certain water gathering pipelines.

Related Party Transactions

• Substantially all of the company's revenues are attributable to fee-based commercial agreements with Hess.
• The company has an employee secondment agreement with Hess, where Hess provides employees in exchange for a fee.
• The company repurchased Class B Units from the Sponsors for approximately $400 million.

Stakeholder Impact

• Shareholders will benefit from the company's strong financial performance and consistent cash distributions.
• Employees may experience uncertainty due to the pending merger with Chevron.
• Customers will benefit from the company's continued expansion and improved services.
• Suppliers and creditors will benefit from the company's strong financial position.

Next Steps

• The company plans to continue expanding its business by capitalizing on organic growth from Hess and third parties in the Bakken.
• The company will pursue opportunities to add additional Hess and third-party throughput volumes.
• The company will continue to evaluate potential acquisitions of complementary midstream assets from its Sponsors as well as from third parties.

Key Dates

Keywords

Hess Midstream, Financial Results, Throughput Volumes, EBITDA, Chevron Merger, Midstream Assets, Minimum Volume Commitments, Bakken, Oil and Gas, Distributions