Hess Midstream LP — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are to December 31, 2020. Hess Midstream owns and operates Bakken-area gathering, processing and storage, and terminaling and export assets. It provides predominantly fee-based services to Hess Corporation.
Financial and operating results
- Revenue: $288.8 million, down $2.0 million (0.7%) from $290.8 million. Lower pass-through revenue was largely offset by higher tariff rates.
- Profit: Operating income was $182.5 million versus $152.8 million; consolidated net income was $159.6 million versus $129.0 million. Net income attributable to Hess Midstream LP was $8.6 million, or $0.45 per basic Class A share, compared with $6.5 million, or $0.37 per share. Diluted EPS was $0.43 versus $0.35.
- Cash flow: Operating cash flow was $165.4 million versus $140.2 million. Capital expenditures were $23.1 million versus $57.0 million. Management-reported Adjusted EBITDA was $226.7 million versus $195.3 million, and distributable cash flow was $204.6 million versus $170.3 million. Both are non-GAAP measures.
- Margins: Operating margin was approximately 63.2% versus 52.5%, calculated as operating income divided by revenue. The improvement reflects lower expenses, including reduced pass-through costs.
- Debt and liquidity: Debt carrying value was $1,898.7 million; cash was $1.5 million. Current assets of $113.8 million exceeded current liabilities of $94.3 million. The company had a $1.0 billion revolving facility, with $174.0 million drawn, and a $400 million Term Loan A facility, with $397.5 million drawn before deferred issuance costs. Management said expected liquidity sources should meet operating, capital, debt-service and distribution needs. Debt covenant compliance was reported.
- Distribution: The board declared $0.4526 per Class A share for Q1, payable May 13, 2021—1.2% above the prior-quarter distribution and a 5% annualized increase.
- Volumes: Year over year, crude oil gathering fell 22%, crude oil terminaling fell 23%, and gas gathering and processing fell 6%. Water gathering rose 30%.
Material changes and notable items
- Net income rose $30.6 million and Adjusted EBITDA rose $31.4 million year over year, despite nearly flat revenue. Reduced pass-through costs lowered both reported revenue and operating costs by corresponding amounts; lower operating costs also reflected less rail usage and other cost reductions.
- Volume weakness reflected reduced drilling and severe winter weather, and lower third-party gas volumes. Higher tariffs and $13.4 million of minimum-volume-commitment shortfall fees (versus $1.0 million) helped offset volume declines.
- Capital spending fell to $23.1 million from $57.0 million, principally because prior-year spending included Tioga Gas Plant expansion work. Q1 2021 spending primarily supported gathering and compression capacity.
- On March 15, Sponsors sold 6.9 million Class A shares at $21.00 per share and received $139.9 million net. Hess Midstream received no proceeds. The related exchange increased the company’s Partnership ownership from 6.3% to 8.8% and generated a $26.4 million deferred tax asset.
Outlook, risks and contingencies
- The filing provides no specific quantified full-year earnings or capital-spending guidance. Management expects cash from operations and other identified liquidity sources to support planned needs and distributions.
- Substantially all revenue and receivables—approximately 100% in the quarter—were attributable to Hess, including third-party volumes contracted through Hess. This concentration creates counterparty and operating-plan exposure.
- Long-term fee-based contracts and minimum volume commitments mitigate direct commodity-price exposure, but oil and gas prices can affect Hess’s drilling, production and future volumes. Management reported Hess increased its Bakken rig count from one to two in Q1 2021.
- Risks cited include COVID-19 and broader economic conditions, lower throughput, severe weather or operational disruptions, regulation and permitting, environmental and safety obligations, access to capital, and the ability to execute growth projects and attract third-party volumes. The filing warns that secondary-term fee structures shift to inflation-based adjustments, potentially increasing exposure to volume and market changes.
- Environmental remediation reserves were $0.8 million current and $3.1 million noncurrent at March 31, 2021. The company reported no material accrued legal-contingency liabilities and considered material adverse outcomes from known matters remote based on information then available.
- Management reported compliance with debt covenants and effective disclosure controls; it reported no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- How Hess’s drilling and production plans, commodity prices and weather affect throughput and minimum-volume-commitment protections.
- The extent of customer concentration and Hess’s ability to meet contractual and payment obligations.
- Debt balances, covenant headroom, actual revolver availability after any letters of credit, and the effect of floating interest rates.
- Whether distributable cash flow supports the declared distribution and planned investment, noting that the measure is non-GAAP and excludes working-capital changes.
- Execution, cost and utilization of expansion projects, and progress in attracting third-party volumes.