Hess Midstream LP 2024 Annual Report (10-K) Summary
Business Context and Reporting Period
This filing covers the fiscal year ended December 31, 2024. Hess Midstream LP is a fee-based, growth-oriented limited partnership providing midstream services (gathering, processing, storage, terminaling, and export) primarily to Hess Corporation in the Bakken and Three Forks shale plays of North Dakota. The Company operates under long-term commercial agreements with Hess that include minimum volume commitments (MVCs) and inflation escalators. A significant ongoing event is the proposed merger between Hess and Chevron Corporation, which remains subject to regulatory approvals and an arbitration proceeding regarding a right of first refusal in Guyana.
Key Financial Metrics (Year Ended Dec 31, 2024)
| Metric | 2024 Value | 2023 Value |
|---|---|---|
| Total Revenues | $1,495.5 million | $1,348.6 million |
| Net Income (Consolidated) | $659.0 million | $607.7 million |
| Net Income Attributable to Hess Midstream LP | $223.1 million | $118.6 million |
| Diluted EPS (Class A) | $2.49 | $2.08 |
| Adjusted EBITDA | $1,136.1 million | $1,017.1 million |
| Operating Cash Flow | $940.3 million | $866.4 million |
| Total Debt (Carrying Value) | $3,471.9 million | $3,211.4 million |
| Capital Expenditures | $288.5 million | $245.7 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 11% ($146.9 million) driven primarily by higher physical volumes exceeding MVCs ($143.3 million) and increased third-party revenues ($17.2 million). This was partially offset by lower tariff rates ($28.5 million) as the Company entered the "Secondary Term" of its commercial agreements, which utilizes an inflation-based fee structure rather than the previous return-on-capital recalculation model.
- Throughput Increases: Gas processing volumes rose 14%, crude oil gathering rose 14%, and water gathering volumes surged 32% due to increased Hess drilling activity and improved gas capture.
- Profitability: Net income attributable to Hess Midstream LP increased significantly ($104.5 million) due to higher operating income and a shift in ownership structure (increased Class A ownership relative to noncontrolling interest) following equity transactions.
- Debt Structure: In May 2024, the Company issued $600 million of 6.500% senior notes due 2029 to reduce revolver borrowings. Total debt increased by approximately $260 million.
Guidance, Outlook, and Risks
- Chevron Merger: The Company's future is heavily tied to the pending Chevron-Hess merger. If completed, Chevron will acquire Hess's 37.8% ownership in the Company. The transaction faces uncertainty due to an arbitration hearing scheduled for May 2025 regarding a right of first refusal in the Stabroek Block (Guyana).
- Contract Renewals: Most commercial agreements with Hess entered a 10-year "Secondary Term" effective January 1, 2024. Fees are now adjusted annually based on the Consumer Price Index (capped at 3%), providing less downside protection than the previous fee recalculation mechanism, though MVCs remain in place through 2033.
- Capital Projects: The Company is executing multi-year projects to expand compression capacity. Two new greenfield compressor stations are under construction, expected to add 85 MMcf/d in 2025 (expandable to 140 MMcf/d).
- Regulatory Risks: The Company faces evolving environmental regulations regarding methane emissions and climate change disclosures. A produced water release in 2022 resulted in a $320,000 settlement with the North Dakota DEQ in December 2024.
- Distributions: The Company declared a quarterly distribution of $0.7012 per Class A share for Q4 2024, paid in February 2025. The minimum quarterly distribution policy targets $0.30 per share.
Investor Verification Checklist
- Chevron Merger Status: Monitor the outcome of the Stabroek Block arbitration (decision expected Q3 2025) and regulatory approvals, as failure to close could impact Hess's capital allocation and the Company's growth strategy.
- Volume vs. MVCs: Verify that Hess's drilling activity in the Bakken continues to support volumes above the Minimum Volume Commitments, as the new fee structure relies more heavily on volume growth than rate adjustments.
- Debt Covenants: Confirm continued compliance with debt covenants, specifically the Total Debt to EBITDA ratio (max 5.00:1.00) and Secured Debt to EBITDA ratio (max 4.00:1.00).
- Equity Transactions: Note that Sponsors (Hess and GIP) continue to sell Class A shares and repurchase Class B units, altering the ownership split between public shareholders and noncontrolling interests.
- Environmental Liabilities: Review ongoing remediation costs related to the 2022 produced water release and potential future regulatory penalties related to methane emissions.