Business context and reporting period
Hess Midstream LP’s unaudited Form 10-Q covers the quarter and six months ended June 30, 2021, compared with the same 2020 periods. The partnership owns and operates fee-based gathering, processing and storage, and terminaling and export assets, primarily in North Dakota’s Bakken. Nearly all revenue is tied to Hess Corporation, its sponsor and customer; Hess represented approximately 100% of revenue and receivables.
Financial and operating performance
Dollar amounts are in millions except per-share data. Consolidated results include substantial noncontrolling interests: Hess Midstream LP’s reported share of second-quarter net income was $11.0 million.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $294.8 | $269.8 | $583.6 | $560.6 |
| Operating income | $185.6 | $131.8 | $368.1 | $284.6 |
| Consolidated net income | $162.0 | $107.8 | $321.6 | $236.8 |
| Net income attributable to Hess Midstream LP | $11.0 | $5.3 | $19.6 | $11.8 |
| Adjusted EBITDA | $230.2 | $172.8 | $456.9 | $368.1 |
| Distributable cash flow | $207.5 | $150.0 | $412.1 | $320.3 |
Second-quarter revenue rose 9% year over year, while operating income increased $53.8 million. Adjusted EBITDA grew 33% and distributable cash flow 38%. For the six months, revenue increased 4%, Adjusted EBITDA 24% and distributable cash flow 29%. Diluted earnings per Class A share were $0.44 for Q2 versus $0.29; six-month diluted EPS was $0.87 versus $0.64. Second-quarter operating margin was approximately 63%, compared with 49% a year earlier.
Second-quarter net cash provided by operating activities was $224.6 million versus $177.4 million; for the first six months it was $390.0 million versus $317.6 million. Six-month capital expenditures were $69.5 million, down from $135.8 million, primarily because the Tioga Gas Plant expansion was completed. Cash was $3.8 million at June 30. Total debt carrying value was $1,832.3 million, including $15.0 million of current maturities; debt fair value was approximately $1,911.7 million. The company reported compliance with debt covenants. Current assets of $110.4 million were below current liabilities of $127.0 million.
Material changes versus prior comparable periods
- Q2 revenue increased $25.0 million, mainly from higher minimum-volume commitment (MVC) levels and tariff rates, partly offset by $27.4 million less pass-through revenue. Operating and maintenance expense fell $31.4 million, largely reflecting lower pass-through costs and reduced turnaround activity.
- Gas gathering volumes rose 6% and gas processing volumes 5% in Q2, driven by higher gas capture. Crude oil gathering and terminaling volumes declined 21% and 19%, respectively, reflecting reduced drilling activity; higher tariffs and MVC shortfall fees offset the revenue impact. Water gathering volumes increased 12%.
- Q2 MVC shortfall fees were $18.7 million versus $3.1 million a year earlier; first-half fees were $32.1 million versus $4.1 million.
- In March 2021, the sponsors sold 6.9 million Class A shares after exchanging the corresponding Partnership units and Class B shares. Hess Midstream LP received no proceeds; its consolidated ownership of the Partnership increased from 6.3% to 8.8%.
Outlook, risks and unusual items
- On July 12, the company began a planned 45-day Tioga Gas Plant turnaround. Management expected approximately $15 million of Q3 operating expense and $15 million of maintenance capital expenditures associated with it, lower Q3 gas volumes than MVC levels, and MVC shortfall fee payments during the turnaround.
- On July 28, the board declared a Q2 distribution of $0.5042 per Class A share, payable August 13. This was approximately 11% above the prior-quarter distribution; management cited a targeted 5% annual distribution growth rate. The Partnership also planned an equal per-unit distribution to sponsors.
- Also on July 28, the Partnership agreed to repurchase approximately 31 million Class B units from sponsors for $750 million, or $24 per unit, with debt financing. Completion was expected in August and would increase public ownership on a consolidated basis to approximately 9.5%.
- Management said fee-based contracts and MVCs limit direct commodity-price exposure and support cash-flow stability. Risks include Hess’s concentration as customer, Hess’s drilling and development plans, oil and gas prices affecting production over time, volume declines, project execution, access to financing, regulatory and environmental obligations, and the ability to fund distributions. The sponsors’ repurchase financing and completion conditions are additional execution considerations.
- Environmental remediation reserves were $3.8 million in total at June 30. The company reported no material accrued legal-contingency liabilities and assessed known matters as unlikely to materially affect financial condition, results or cash flows. Risk factors were reported as not materially changed from the 2020 Form 10-K.
Most important facts for investors to verify
- Whether the $750 million sponsor-unit repurchase closed as expected, its final funding mix, and the resulting leverage and public ownership.
- Actual Tioga turnaround costs, timing, throughput effects and MVC fee collections versus management’s Q3 expectations.
- Hess’s drilling plans, production volumes and ongoing ability to satisfy MVC and payment obligations, given the near-total customer concentration.
- Debt covenant headroom and liquidity after the debt-funded repurchase, including revolver availability and upcoming debt service.
- Whether distributable cash flow supports the increased distribution and the stated distribution-growth target; assess this non-GAAP measure alongside GAAP operating cash flow and capital needs.