8-K: Hess Midstream LP Reports Solid Third Quarter Results, Increases Distribution

Hess Midstream LP announced its third quarter 2024 results, highlighting a net income of $164.7 million and an increased quarterly cash distribution.

Summary

• Hess Midstream LP reported a net income of $164.7 million for the third quarter of 2024.
• Net cash provided by operating activities was $224.9 million.
• Net income attributable to Hess Midstream LP was $58.6 million, or $0.63 basic earnings per Class A share.
• Adjusted EBITDA was $286.9 million and Adjusted Free Cash Flow was $141.4 million.
• The company completed a $100 million repurchase of Class B units in September 2024.
• The quarterly cash distribution was increased to $0.6846 per Class A share, a $0.0169 increase compared to the second quarter of 2024.
• Throughput volumes increased by 9% for gas gathering and gas processing compared to the prior-year quarter.
• The company expects net income of $170 $185 million and Adjusted EBITDA of $295 $310 million for the fourth quarter of 2024.
• Hess Midstream is reaffirming its full year 2024 throughput guidance.
• The company continues to target at least 5% annual distribution growth per Class A share through 2026.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, increased distributions, and growth projections. While there are some minor negatives, the overall tone is optimistic and suggests a healthy business.

Positives

• The company achieved a solid net income of $164.7 million.
• Adjusted EBITDA and Adjusted Free Cash Flow were strong at $286.9 million and $141.4 million, respectively.
• The increase in quarterly cash distribution to $0.6846 per Class A share is positive for shareholders.
• The 9% increase in gas gathering and gas processing throughput volumes indicates strong operational performance.
• The company's guidance for the fourth quarter of 2024 suggests continued growth.
• The reaffirmation of full year 2024 throughput guidance provides stability.
• The company is targeting at least 5% annual distribution growth per Class A share through 2026.
• Hess Midstream expects to generate over $1.25 billion in financial flexibility through 2026 for shareholder returns.

Negatives

• Terminaling throughput volumes decreased by 5% compared to the prior-year quarter due to lower third-party volumes.
• Interest expense increased to $51.8 million, primarily due to new senior unsecured notes issued in May 2024.
• Operating costs and expenses increased to $146.8 million, mainly due to higher depreciation expense.

Risks

• The company's performance is subject to fluctuations in the prices and demand for crude oil, natural gas, and NGLs.
• Changes in global economic conditions could impact the business.
• The company faces risks related to compliance with government regulations and environmental protection.
• There are risks associated with the company's ability to execute capital projects and growth strategies.
• The company's ability to access debt or capital markets on acceptable terms could be limited.
• The company is exposed to potential disruptions from catastrophic events and cyber-attacks.
• The company is subject to risks and uncertainties associated with Hess' proposed merger with Chevron.

Future Outlook

Hess Midstream expects net income of $170 $185 million and Adjusted EBITDA of $295 $310 million for the fourth quarter of 2024. The company is targeting at least 5% annual distribution growth per Class A share through 2026 and expects to generate greater than $1.25 billion of financial flexibility through 2026 for incremental shareholder returns. They also expect 10% annual growth in net income, Adjusted EBITDA and Adjusted Free Cash Flow in 2025 and 2026.

Management Comments

• John Gatling, President and Chief Operating Officer of Hess Midstream, stated that they delivered another strong quarter, thanks to strong operations and project execution.
• He also mentioned that multi-year gas gathering expansion projects are progressing well and will further boost gas capture.
• Management anticipates volume growth through the balance of this year and remains confident in throughput volume growth across all systems in 2025 and 2026.

Industry Context

This announcement reflects the ongoing growth and investment in midstream infrastructure within the oil and gas industry, particularly in the Bakken region. The focus on increasing throughput volumes and expanding gas gathering capabilities aligns with the industry's need to support growing production and improve efficiency. The company's commitment to shareholder returns through increased distributions is also a common theme in the sector.

Comparison to Industry Standards

• Hess Midstream's Adjusted EBITDA margin of 81% is strong compared to other midstream companies, such as MPLX which has reported margins in the 70-80% range.
• The company's focus on gas gathering and processing aligns with industry trends, similar to companies like Kinder Morgan which are also expanding their gas infrastructure.
• The targeted 5% annual distribution growth is competitive with other midstream MLPs, such as Enterprise Products Partners, which also aim for consistent distribution growth.
• The 10% growth in gas throughput volumes is a positive indicator, comparable to the growth rates seen by other companies in the Permian and Bakken basins.
• The company's capital expenditure of $96.3 million in the third quarter is in line with the investments being made by other midstream companies to expand their infrastructure.

Stakeholder Impact

• Shareholders will benefit from the increased quarterly cash distribution and the company's commitment to future distribution growth.
• Employees are likely to be positively impacted by the company's strong performance and growth prospects.
• Customers will benefit from the company's continued investment in infrastructure and increased throughput capacity.
• Suppliers and creditors are likely to view the company's financial strength and growth prospects favorably.

Next Steps

• Hess Midstream will continue to execute its multi-year projects to build two compressor stations and associated pipeline infrastructure.
• The company will focus on growing throughput volumes across all systems in 2025 and 2026.
• Hess Midstream will continue to target at least 5% annual distribution growth per Class A share through 2026.
• The company will continue to prioritize financial strength with a long-term leverage target of 3x Adjusted EBITDA.

Key Dates

Keywords

Hess Midstream, Midstream, Oil and Gas, EBITDA, Free Cash Flow, Distributions, Throughput Volumes, Gas Gathering, Gas Processing, Financial Results