Hess Midstream LP - Q3 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarter ended September 30, 2024. Hess Midstream LP is a fee-based, growth-oriented limited partnership operating midstream assets primarily in the Bakken and Three Forks shale plays in North Dakota. The company provides gathering, processing, storage, terminaling, and water handling services, predominantly to its affiliate, Hess Corporation, under long-term commercial agreements with minimum volume commitments.
Key Financial Metrics
| Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Total Revenues | $378.5 million | $363.1 million | $1,099.6 million | $992.1 million |
| Net Income (Consolidated) | $164.7 million | $164.8 million | $486.9 million | $454.9 million |
| Net Income Attributable to Hess Midstream LP | $58.6 million | $35.3 million | $152.7 million | $81.1 million |
| Diluted EPS (Class A) | $0.63 | $0.57 | $1.82 | $1.54 |
| Adjusted EBITDA | $286.9 million | $269.7 million | $837.9 million | $754.2 million |
| Operating Cash Flow (YTD) | $681.8 million (YTD 2024) vs $618.8 million (YTD 2023) | |||
| Total Debt | $3,489.8 million (Carrying Value as of Sept 30, 2024) | |||
| Cash and Equivalents | $10.3 million (as of Sept 30, 2024) |
Material Changes vs. Prior Period
- Revenue Growth: Q3 2024 revenues increased $15.4 million (4.2%) year-over-year, driven primarily by higher physical volumes in gas gathering, crude oil gathering, and gas processing. Water gathering volumes increased 29%.
- Profitability: Net income attributable to Hess Midstream LP increased significantly ($58.6M vs $35.3M) due to a higher public ownership percentage following equity transactions, despite a slight decrease in consolidated net income.
- Interest Expense: Net interest expense rose to $51.8 million in Q3 2024 from $45.8 million in Q3 2023, primarily due to the issuance of $600 million in 6.500% senior notes in May 2024.
- Capital Expenditures: YTD 2024 capital expenditures were $204.2 million, an increase from $173.9 million in YTD 2023, focused on compression capacity and pipeline infrastructure expansion.
- Ownership Structure: Public ownership increased from approximately 29.8% at year-end 2023 to 47.3% at September 30, 2024, following multiple Class A share offerings by Sponsors and Class B unit repurchases by the Partnership.
Guidance, Outlook, and Risks
- Distribution Increase: The Board declared a quarterly distribution of $0.6846 per Class A share for Q3 2024, an increase of $0.0169 from the previous quarter. Management targets at least 5% growth in annual distributions through 2026.
- Outlook: Management expects volumes to remain above minimum volume commitments (MVCs) through 2026. The company is pursuing third-party relationships to maximize asset utilization.
- Key Risks:
- Chevron Merger: Significant risks associated with the proposed merger between Hess Corporation and Chevron Corporation, including regulatory approval delays, arbitration proceedings, and potential disruption to operations.
- Commodity Prices: While fee-based, production volumes are indirectly influenced by crude oil and natural gas prices.
- Environmental: Ongoing remediation of a produced water release in North Dakota; management believes the impact is not material.
Investor Verification Checklist
- Verify the impact of the Chevron-Hess merger on future contract renewals and operational stability.
- Confirm the sustainability of volume growth above minimum volume commitments (MVCs) in the Bakken region.
- Monitor the interest rate environment and its effect on the company's variable-rate credit facilities and refinancing needs.
- Review the progress of capital projects (compressor stations and pipelines) scheduled for service in 2025.
- Assess the noncontrolling interest deficit resulting from unit repurchases and its implications for future equity transactions.