HESM

Hess Midstream LP - 10-Q Summary (Q2 2025)

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2025, for Hess Midstream LP, a fee-based midstream partnership operating primarily in the Bakken and Three Forks shale plays. The company provides gathering, processing, storage, terminaling, and water handling services. A significant corporate development occurred during the period: on July 18, 2025, Hess Corporation completed its merger with Chevron Corporation, making Chevron the indirect parent of Hess Midstream LP. Additionally, GIP II Blue Holding, L.P. (GIP) exited its ownership interest in May 2025.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 13.3% year-over-year in Q2 2025, driven by higher physical throughput volumes (gas processing +7%, oil terminaling +9%, water gathering +11%) and higher tariff rates.
• Profitability: Net income attributable to Hess Midstream LP more than doubled to $90.3 million from $49.5 million in the prior year quarter. This increase is largely due to ownership changes (GIP exit and unit repurchases) which reduced the noncontrolling interest allocation.
• Expense Increases: Operating expenses rose due to higher pass-through costs (electricity, water trucking) and increased employee costs. Interest expense increased by $5.7 million, primarily due to new senior notes issued in 2024 and 2025.
• Capital Structure: The company executed significant equity transactions, including GIP selling all remaining Class A shares and the company repurchasing Class B units and Class A shares, increasing public ownership from 47.3% to 62.2%.

Outlook, Management Commentary, and Risks

• Credit Rating Upgrade: On July 24, 2025, S&P Global Ratings assigned an investment-grade rating of 'BBB-' to the Partnership. This allows the company to exit certain restrictive covenants in its credit facilities and unsecured notes indentures and reduces borrowing costs.
• Distribution Increase: The board declared a quarterly distribution of $0.7370 per Class A share for Q2 2025, an increase of $0.0272 from the previous quarter.
• Merger Integration: Following the Hess-Chevron merger, Chevron indirectly owns approximately 37.8% of the company. Management notes risks related to the integration of Hess into Chevron and the potential for operational disruptions.
• Capital Expenditures: YTD 2025 capital expenditures were $120.1 million, focused on expanding compression capacity and pipeline infrastructure to meet production growth targets.
• Regulatory Risk: The "One Big Beautiful Bill Act" was enacted in July 2025, changing U.S. federal tax law. The company is currently evaluating the impact on its financial statements.

Key Investor Verification Points

• Ownership Structure: Verify the final ownership percentages post-merger and the impact of the GIP exit on future noncontrolling interest allocations.
• Covenant Relief: Confirm the specific covenants released due to the 'BBB-' credit rating and the resulting reduction in interest rate margins on the credit facilities.
• Tax Impact: Monitor the company's assessment of the "One Big Beautiful Bill Act" for potential changes to deferred tax assets or liabilities.
• Throughput Volumes: Track whether the reported volume increases (gas, oil, water) are sustainable given the shift to inflation-based fee structures in the Secondary Term of commercial agreements.
• Share Repurchases: Review the execution of the August 2025 accelerated share repurchase (ASR) and Class B unit repurchase agreements for their impact on share count and liquidity.