Hess Midstream LP — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2022. Hess Midstream owns and operates fee-based gathering, processing, storage, terminaling and water infrastructure, primarily in North Dakota’s Bakken. Nearly all revenue and accounts receivable were attributable to Hess, including third-party volumes contracted through Hess.
Financial performance
Amounts are in millions except per-share data, volumes and percentages.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $334.8 | $303.9 | $960.6 | $887.5 |
| Operating income | $204.0 | $159.2 | $594.8 | $527.3 |
| Net income | $159.4 | $131.1 | $470.8 | $452.7 |
| Net income attributable to Hess Midstream LP | $23.2 | $9.9 | $62.1 | $29.5 |
| Basic earnings per Class A share | $0.53 | $0.39 | $1.54 | $1.27 |
| Adjusted EBITDA | $253.6 | $205.0 | $737.8 | $661.9 |
| Distributable cash flow | $214.8 | $171.5 | $632.6 | $583.6 |
| Net cash from operating activities | $234.7 | $182.0 | $638.5 | $572.0 |
- Q3 revenue increased 10% year over year, while operating income rose 28% and net income rose 22%. Attributable net income more than doubled, reflecting a larger share of Partnership earnings attributable to Hess Midstream LP after ownership transactions.
- Q3 revenue gains primarily reflected higher gas volumes and gathering fees. Operating and maintenance costs fell year over year, mainly because the prior-year quarter included a Tioga Gas Plant turnaround. Q3 interest expense increased $11.9 million to $39.9 million; nine-month interest expense rose to $108.6 million from $74.0 million.
- Q3 throughput volumes increased 20% for gas gathering and 24% for gas processing, and water gathering increased 12%. Crude oil gathering fell 4% and crude oil terminaling fell 1% year over year.
- For the first nine months, operating cash flow was $638.5 million. Cash additions to property, plant and equipment were $176.6 million; reported capital expenditures on an accrual basis were $169.4 million, including $166.1 million of expansion and $3.3 million of maintenance spending.
Financial position and distributions
- At September 30, 2022, cash was $2.6 million and total debt carrying value was $2,909.0 million, versus $2,543.5 million of long-term debt plus $20.0 million of current maturities at year-end 2021. Debt fair value was approximately $2,641.3 million.
- Debt includes senior unsecured notes due 2026, 2028 and 2030, a $400 million Term Loan A, and $43 million drawn under the $1 billion revolving facility. The amended credit facilities mature in July 2027. The company reported compliance with debt covenants.
- Nine-month financing cash outflows were $461.5 million, including $400 million used for the Class B unit repurchase and distributions to shareholders and noncontrolling interests. The partnership issued $400 million of 5.50% senior notes in April 2022 to refinance borrowings used for that repurchase.
- The board declared a third-quarter distribution of $0.5627 per Class A share, payable November 14, 2022, up approximately 1.2% from the prior quarter. Management described a target of 5% annual growth in per-share distributions.
Outlook, risks and unusual items
- Management expects throughput to be above minimum volume commitment (MVC) levels in 2023 and 2024; the filing provides no numerical earnings or cash-flow guidance. Two new compressor stations entered service in March and September 2022, adding 85 MMcf/d of installed capacity, expandable to 130 MMcf/d.
- Long-term, fee-based Hess agreements and MVCs support cash-flow stability, but Hess concentration is material. Commodity prices affect the business indirectly through production and development activity. The company is pursuing third-party relationships to increase utilization.
- In August 2022, an estimated 34,000 barrels of produced water were released from an underground pipeline near Ray, North Dakota, affecting soil, crops and groundwater. The company recorded $5.9 million of related operating expense in Q3. At September 30, reserves for all estimated remediation liabilities were $1.9 million current and $7.2 million noncurrent. Investigation was in its initial stages; the filing says potential fines or penalties cannot be fully predicted, but management considered a material adverse impact remote based on information then available.
- The company has no interest-rate hedges. Its revolving facility and term loan bear floating-rate interest; fixed-rate notes are exposed to fair-value changes. Management was evaluating the potential cash-flow and financial effects of the Inflation Reduction Act’s corporate alternative minimum tax and stock-repurchase excise tax.
- Management said available liquidity sources should be sufficient for operations, planned near-term capital expenditures, debt service, distributions and growth projects. This is a forward-looking assessment, not a quantified liquidity forecast.
Important facts for investors to verify
- Progress and potential remediation, regulatory or legal costs related to the produced-water release, including whether reserves change as the investigation advances.
- Hess’s drilling plans, nominations and ability to meet MVCs, and the extent of throughput above committed levels in 2023–2024.
- Debt levels, floating-rate borrowing costs, covenant headroom and capacity available under the revolving facility.
- Whether operating cash flow and distributable cash flow continue to cover distributions and planned expansion spending.
- Effects of Hess customer concentration and the company’s success in adding third-party volumes.
- Any updated estimates of tax effects under the Inflation Reduction Act and any changes to distribution-growth plans.