HESM 10-Q
Hess Midstream LP (HESM)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarter ended
or
For the transition period from to
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(Exact name of Registrant as specified in its charter)
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(Registrant’s telephone number, including area code, is (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No
HESS MIDSTREAM LP
FORM 10-Q
TABLE OF CONTENTS
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PART I—FINANCIAL INFORMATION |
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1. |
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Financial Statements (unaudited) |
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Consolidated Balance Sheets at March 31, 2025 and December 31, 2024 |
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2 |
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Consolidated Statements of Operations for the three months ended March 31, 2025 and 2024 |
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3 |
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4 |
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Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024 |
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5 |
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6 |
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2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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16 |
3. |
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30 |
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4. |
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31 |
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PART II—OTHER INFORMATION |
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1. |
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32 |
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1A. |
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32 |
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5. |
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32 |
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6. |
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33 |
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34 |
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Certifications |
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1
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Item 1. Financial Statements
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March 31, |
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December 31, |
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2025 |
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2024 |
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(in millions, except share amounts) |
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Assets |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable from contracts with customers: |
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Accounts receivable—trade |
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Other current assets |
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Total current assets |
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Equity investments |
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Property, plant and equipment, net |
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Long-term receivable—affiliate |
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- |
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Deferred tax asset |
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Other noncurrent assets |
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Total assets |
$ |
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$ |
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Liabilities |
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Accounts payable—trade |
$ |
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$ |
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Accrued liabilities |
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Current maturities of long-term debt |
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Other current liabilities |
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Total current liabilities |
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Long-term debt |
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Deferred tax liability |
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Other noncurrent liabilities |
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Total liabilities |
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Partners’ capital |
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Class A shares ( |
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Class B shares ( |
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Total Class A and Class B partners’ capital |
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Noncontrolling interest |
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( |
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Total partners’ capital |
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Total liabilities and partners’ capital |
$ |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended March 31, |
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2025 |
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2024 |
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(in millions, except per share data) |
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Revenues |
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$ |
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$ |
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Third-party services |
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Other income |
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Total revenues |
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Costs and expenses |
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Operating and maintenance expenses (exclusive of |
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Depreciation expense |
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General and administrative expenses |
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Total operating costs and expenses |
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Income from operations |
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Income from equity investments |
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Interest expense, net |
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Income before income tax expense |
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Income tax expense |
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Net income |
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Less: Net income attributable to noncontrolling interest |
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Net income attributable to Hess Midstream LP |
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$ |
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$ |
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Net income attributable to Hess Midstream LP |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average Class A shares outstanding |
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Basic |
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Diluted |
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See accompanying notes to unaudited consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL (DEFICIT)
(UNAUDITED)
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Partners’ Capital |
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Class A |
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Class B |
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Noncontrolling |
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Total |
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(in millions) |
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Balance at December 31, 2024 |
$ |
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$ |
- |
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$ |
( |
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$ |
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Net income |
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- |
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Equity-based compensation |
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- |
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- |
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Distributions - $ |
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( |
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- |
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( |
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( |
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Recognition of deferred tax asset |
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- |
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- |
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Sale of shares held by Sponsors |
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( |
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- |
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- |
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Class B unit repurchase |
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( |
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- |
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( |
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( |
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Transaction costs |
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( |
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- |
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( |
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( |
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Balance at March 31, 2025 |
$ |
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$ |
- |
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$ |
( |
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$ |
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Balance at December 31, 2023 |
$ |
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$ |
- |
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$ |
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$ |
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Net income |
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- |
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Equity-based compensation |
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- |
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- |
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Distributions - $ |
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( |
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- |
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( |
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( |
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Recognition of deferred tax asset |
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- |
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- |
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Sale of shares held by Sponsors |
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- |
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( |
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- |
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Class B unit repurchase |
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( |
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- |
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( |
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( |
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Transaction costs |
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( |
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- |
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( |
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( |
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Balance at March 31, 2024 |
$ |
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$ |
- |
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$ |
( |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Three Months Ended March 31, |
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2025 |
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2024 |
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(in millions) |
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Cash flows from operating activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by |
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Depreciation expense |
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Income from equity investments |
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( |
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( |
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Distributions from equity investments |
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Amortization of deferred financing costs |
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Equity-based compensation expense |
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Deferred income tax expense |
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Changes in assets and liabilities: |
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Accounts receivable – trade |
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( |
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( |
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Accounts receivable – affiliate |
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( |
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( |
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Other current and noncurrent assets |
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Accounts payable – trade |
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( |
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( |
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Accounts payable – affiliate |
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( |
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( |
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Accrued liabilities |
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( |
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Other current and noncurrent liabilities |
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( |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Additions to property, plant and equipment |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities |
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Net proceeds from (repayments of) borrowings with maturities of 90 |
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Borrowings with maturities of greater than 90 days: |
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Proceeds |
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Repayments |
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( |
) |
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( |
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Deferred financing costs |
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( |
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Transaction costs |
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( |
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( |
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Class B unit repurchase |
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( |
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( |
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Distributions to shareholders |
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( |
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( |
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Distributions to noncontrolling interest |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Increase (decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental disclosure of non-cash investing and financing activities: |
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(Increase) decrease in accrued capital expenditures and related liabilities |
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$ |
( |
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$ |
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Recognition of deferred tax asset |
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$ |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
5
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation
Unless the context otherwise requires, references in this report to the “Company,” “we,” “our,” “us” or like terms, refer to Hess Midstream LP and its subsidiaries.
The consolidated financial statements included in this report reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of our consolidated financial position at March 31, 2025 and December 31, 2024, the consolidated results of operations for the three months ended March 31, 2025 and 2024, and the consolidated cash flows for the three months ended March 31, 2025 and 2024. The Company has no items of other comprehensive income (loss); therefore, net income (loss) is equal to comprehensive income (loss). The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year.
The consolidated financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted from these interim consolidated financial statements. These financial statements, therefore, should be read in conjunction with the financial statements and related notes included in the Company’s annual report on Form 10‑K for the year ended December 31, 2024.
We consolidate the activities of Hess Midstream Operations LP (“the Partnership”), as a variable interest entity (“VIE”) under U.S. GAAP. We have concluded that we are the primary beneficiary of the VIE, as defined in the accounting standards, since we have the power, through our ownership, to direct those activities that most significantly impact the economic performance of the Partnership. This conclusion was based on a qualitative analysis that considered the Partnership’s governance structure and the delegation of control provisions, which provide us the ability to control the operations of the Partnership. All financial statement activities associated with the VIE are captured within gathering, processing and storage, and terminaling and export segments (see Note 11, Segments). We currently do not have any independent assets or operations other than our interest in the Partnership. Our noncontrolling interest represents the approximate
New Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires, among other disclosures, greater disaggregation of information, the use of certain categories in the rate reconciliation, and the disaggregation of income taxes paid by jurisdiction. The ASU will be effective for the Company for the year ending December 31, 2025. We do not expect this ASU to have a material impact on our consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of income statement expenses. This ASU requires disclosure, in the notes to financial statements, of specified information about certain costs and expenses. The ASU is effective for public business entities for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. We are currently assessing the impact of this new ASU on our consolidated financial statements.
Note 2. Equity Transactions
Equity Offering Transactions
On February 8, 2024, GIP sold an aggregate of
On February 12, 2025, GIP sold an aggregate of
6
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company did
Class B Unit Repurchases
On March 11, 2024, the Company, the Partnership and our Sponsors entered into a unit repurchase agreement pursuant to which the Partnership agreed to purchase from the Sponsors
On January 13, 2025, the Company, the Partnership and our Sponsors entered into a unit repurchase agreement pursuant to which the Partnership agreed to purchase from the Sponsors
The repurchase transactions described above were funded using borrowings under the Partnership’s existing revolving credit facility (see Note 6, Debt and Interest Expense). Pursuant to the terms of the repurchase agreements described above, immediately following each purchase of the Class B Units from the Sponsors, the Partnership cancelled the repurchased units, and the Company cancelled, for no consideration, an equal number of its Class B Shares.
The repurchase transactions were accounted for in accordance with ASC 810 whereby changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary are accounted for as equity transactions. The carrying amounts of the noncontrolling interest were adjusted to reflect the changes in the ownership interest with the difference between the amounts of consideration paid and the amounts by which the noncontrolling interest were adjusted recognized as a reduction in equity attributable to Class A shareholders. Distributions to noncontrolling interest holders related to the 2024 repurchase transactions exceeded the noncontrolling interest’s carrying value resulting in a deficit balance as shown in the accompanying consolidated statement of changes in partners’ capital (deficit).
We incurred approximately $
As a result of the equity offering and the unit repurchase transactions described above, we also recognized an additional deferred tax asset of $
See Note 12, Subsequent Events for description of the May 2025 Class A Share and Class B Unit repurchase transactions.
Note 3. Related Party Transactions
In addition to the Class B Unit repurchase transactions and distributions to the Sponsors disclosed elsewhere in the Notes to consolidated financial statements, we had the following related party transactions:
Commercial Agreements
We have long-term fee-based commercial agreements with certain subsidiaries of Hess to provide i) gas gathering, ii) crude oil gathering, iii) gas processing and fractionation, iv) storage services, v) terminaling and export services, and (vi) water handling services.
7
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the services performed under these commercial agreements, we receive a fee per barrel of crude oil, barrel of water, Mcf of natural gas, or Mcf equivalent of NGLs, as applicable, delivered during each month, and Hess is obligated to provide us with minimum volumes of crude oil, water, natural gas and NGLs.
Except for the water services agreements and except for a certain gathering sub-system as described below,
For certain crude oil gathering, terminaling, storage, gas processing and gas gathering commercial agreements with Hess, we exercised our renewal options to extend each of these commercial agreements for
Consistent with the existing terms of the commercial agreements, during the Secondary Term of each of our commercial agreements other than our storage services agreement and terminal and export services agreement (with respect to crude oil terminaling services),
8
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Revenues from contracts with customers, including affiliate services and third-party services, on a disaggregated basis are as follows:
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Three Months Ended March 31, |
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2025 |
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2024 |
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(in millions) |
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Affiliate services |
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Oil and gas gathering services |
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$ |
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$ |
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Processing and storage services |
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Terminaling and export services |
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Water gathering and disposal services |
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Total affiliate services |
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$ |
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$ |
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Third-party services |
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Total revenues from contracts with customers |
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$ |
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$ |
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Other income |
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Total revenues |
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$ |
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$ |
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The following table presents third-party pass-through costs for which we recognize revenues in an amount equal to the costs. These pass-through revenues are included in Affiliate services and the related pass-through costs are included in Operating and maintenance expenses in the accompanying unaudited consolidated statements of operations.
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Three Months Ended March 31, |
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2025 |
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2024 |
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(in millions) |
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Electricity and other related fees |
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$ |
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$ |
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Produced water trucking and disposal costs |
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Total |
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$ |
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$ |
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Omnibus and Employee Secondment Agreements
Under our omnibus and employee secondment agreements, Hess provides substantial operational and administrative services to us in support of our assets and operations.
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Three Months Ended March 31, |
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2025 |
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2024 |
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(in millions) |
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$ |
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$ |
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Total |
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$ |
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$ |
|
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9
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
LM4 Agreements
Separately from our commercial agreements with Hess, we entered into a gas processing agreement with Little Missouri 4 (“LM4”), a
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Three Months Ended March 31, |
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2025 |
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2024 |
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(in millions) |
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$ |
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$ |
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Earnings from equity investments |
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Distributions received from equity investments |
|
|
|
|
|
|
||
Note 4. Property, Plant and Equipment
Property, plant and equipment, at cost, is as follows:
|
|
Estimated useful lives |
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
(in millions, except for number of years) |
|
|
|
|
|
|
|
|
||
Gathering assets |
|
|
|
|
|
|
|
|
||
Pipelines |
|
|
$ |
|
|
$ |
|
|||
Compressors, pumping stations and terminals |
|
|
|
|
|
|
|
|||
Gas plant assets |
|
|
|
|
|
|
|
|
||
Pipelines, pipes and valves |
|
|
|
|
|
|
|
|||
Equipment |
|
|
|
|
|
|
|
|||
Processing and fractionation facilities |
|
|
|
|
|
|
|
|||
Buildings |
|
|
|
|
|
|
|
|||
Logistics facilities and railcars |
|
|
|
|
|
|
|
|||
Storage facilities |
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
|
|||
Construction-in-progress |
|
N/A |
|
|
|
|
|
|
||
Total property, plant and equipment, at cost |
|
|
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
|
|
( |
) |
|
|
( |
) |
Property, plant and equipment, net |
|
|
|
$ |
|
|
$ |
|
||
Note 5. Accrued Liabilities
Accrued liabilities are as follows:
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
(in millions) |
|
|
|
|
|
|
||
Accrued interest |
|
$ |
|
|
$ |
|
||
Accrued capital expenditures |
|
|
|
|
|
|
||
Other accruals |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
10
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 6. Debt and Interest Expense
Fixed‑Rate Senior Notes
On February 12, 2025, the Partnership issued $
As of March 31, 2025, the Partnership had:
The notes described above are guaranteed by certain subsidiaries of the Partnership. Each of the indentures for the senior unsecured notes described above contains customary covenants that restrict our ability and the ability of our restricted subsidiaries to (i) declare or pay any dividend or make any other restricted payments; (ii) transfer or sell assets or subsidiary stock; (iii) incur additional debt; or (iv) make restricted investments, unless, at the time of and immediately after giving pro forma effect to such restricted payments and any related incurrence of indebtedness or other transactions, no default has occurred and is continuing or would occur as a consequence of such restricted payment and if the leverage ratio (as defined in the indentures) does not exceed
In addition, the covenants included in the indentures governing the senior unsecured notes contain provisions that allow the Company to satisfy the Partnership’s reporting obligations under the indenture, as long as any such financial information of the Company contains information reasonably sufficient to identify the material differences, if any, between the financial information of the Company, on the one hand, and the Partnership and its subsidiaries on a stand-alone basis, on the other hand and the Company does not directly own capital stock of any person other than the Partnership and its subsidiaries, or material business operations that would not be consolidated with the financial results of the Partnership and its subsidiaries. The Company is a holding company and has no independent assets or operations. Other than the interest in the Partnership and the effect of federal and state income taxes that are recognized at the Company level, there are no material differences between the consolidated financial statements of the Partnership and the consolidated financial statements of the Company.
11
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Credit Facilities
As of March 31, 2025, the Partnership had $
The Credit Facilities can be used for borrowings and letters of credit for general corporate purposes. The Credit Facilities are guaranteed by each direct and indirect wholly owned material domestic subsidiary of the Partnership, and are secured by first priority perfected liens on substantially all of the presently owned and after-acquired assets of the Partnership and its direct and indirect wholly owned material domestic subsidiaries, including equity interests directly owned by such entities, subject to certain customary exclusions.
Fair Value Measurement
At March 31, 2025, our total debt had a carrying value of $
Note 7. Partners’ Capital and Distributions
Our partnership agreement requires that, within
z
Period |
|
Record Date |
|
Distribution Date |
|
Distribution per Class A Share |
|
|
First Quarter 2024 |
|
|
|
$ |
|
|||
Second Quarter 2024 |
|
|
|
$ |
|
|||
Third Quarter 2024 |
|
|
|
$ |
|
|||
Fourth Quarter 2024 |
|
|
|
$ |
|
|||
First Quarter 2025(1) |
|
|
|
$ |
|
|||
(1)
12
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 8. Earnings per Share
We calculate earnings per Class A Share as we do not have any other participating securities. Substantially all of income tax expense is attributed to earnings of Class A Shares reflective of our organizational structure. Class B Units of the Partnership together with the equal number of Class B Shares of the Company are convertible to Class A Shares of the Company on a
|
|
Three Months Ended March 31, |
|
|||||
(in millions, except per share amounts) |
|
2025 |
|
|
2024 |
|
||
Net income |
|
$ |
|
|
$ |
|
||
Less: Net income attributable to noncontrolling interest |
|
|
|
|
|
|
||
Net income attributable to Hess Midstream LP |
|
|
|
|
|
|
||
Net income attributable to Hess Midstream LP |
|
|
|
|
|
|
||
Basic: |
|
$ |
|
|
$ |
|
||
Diluted: |
|
$ |
|
|
$ |
|
||
Weighted average Class A shares outstanding: |
|
|
|
|
|
|
||
Basic: |
|
|
|
|
|
|
||
Diluted: |
|
|
|
|
|
|
||
For the three months ended March 31, 2025 and 2024 the weighted average number of Class A Shares outstanding included
Note 9. Concentration of Credit Risk
As of both March 31, 2025 and December 31, 2024, Hess and its affiliates represented
Note 10. Commitments and Contingencies
Environmental Contingencies
The Company is subject to federal, state and local laws and regulations relating to the environment. On August, 12, 2022, the Company became aware of a produced water release from an underground pipeline located approximately 8 miles north of Ray, North Dakota. It is estimated that approximately
As of March 31, 2025 our reserves for all estimated remediation liabilities, inclusive of the produced water release above, in and were $
Legal Proceedings
In the ordinary course of business, the Company is from time to time party to various judicial and administrative proceedings. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of a known contingency, we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued.
Based on currently available information, we believe it is remote that the outcome of known matters would have a material adverse impact on our financial condition, results of operations or cash flows. Accordingly, as of March 31, 2025 and December 31, 2024, we did
13
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 11. Segments
Our operations are located in the United States and are organized into
The following tables reflect certain financial data for each reportable segment:
|
|
Gathering |
|
|
Processing and Storage |
|
|
Terminaling and Export |
|
|
Total Reportable Segments |
|
|
Interest and Other |
|
|
Consolidated |
|
||||||
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
For the Three Months Ended March 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revenues and other income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||||
Operating and maintenance expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||||
Depreciation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income from equity investments |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Interest expense, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Income tax expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital expenditures |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Gathering |
|
|
Processing and Storage |
|
|
Terminaling and Export |
|
|
Total Reportable Segments |
|
|
Interest and Other |
|
|
Consolidated |
|
||||||
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
For the Three Months Ended March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revenues and other income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||||
Operating and maintenance expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||||
Depreciation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income from equity investments |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Interest expense, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Income tax expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
14
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents a reconciliation of reportable segment Adjusted EBITDA to income before income tax expense:
|
|
Three Months Ended March 31, |
|
|||||
(in millions) |
|
2025 |
|
|
2024 |
|
||
Reconciliation of reportable segment Adjusted |
|
|
|
|
|
|
||
Total reportable segment Adjusted EBITDA |
|
$ |
|
|
$ |
|
||
Less: |
|
|
|
|
|
|
||
Depreciation expense |
|
|
|
|
|
|
||
Unallocated general and administrative expenses |
|
|
|
|
|
|
||
Interest expense, net |
|
|
|
|
|
|
||
Income before income tax expense |
|
$ |
|
|
$ |
|
||
Total assets for the reportable segments are as follows:
|
|
|
|
|||||
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
(in millions) |
|
|
|
|
|
|
||
Gathering |
|
$ |
|
|
$ |
|
||
Processing and Storage(1) |
|
|
|
|
|
|
||
Terminaling and Export |
|
|
|
|
|
|
||
Total reportable segments assets |
|
|
|
|
|
|
||
Interest and Other |
|
|
|
|
|
|
||
Total consolidated assets |
|
$ |
|
|
$ |
|
||
(1)
Note 12. Subsequent Events
On
On May 5, 2025, the Company, the Partnership and our Sponsors entered into a unit repurchase agreement pursuant to which the Partnership agreed to purchase from the Sponsors
On May 5, 2025, we entered into an accelerated share repurchase (“ASR”) agreement with a financial institution to repurchase $
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited financial statements and accompanying footnotes included under Item 1. Financial Statements and in conjunction with the audited consolidated financial statements and accompanying footnotes in our Annual Report on Form 10‑K for the year ended December 31, 2024 (our “2024 Annual Report”).
Unless otherwise stated or the context otherwise indicates, references in this report to “Hess Midstream LP,” “the Company,” “us,” “our,” “we” or similar terms refer to Hess Midstream LP, including its consolidated subsidiaries. References to “Partnership” refer to Hess Midstream Operations LP.
This discussion contains forward‑looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in our 2024 Annual Report.
Overview
We are a fee-based, growth-oriented, limited partnership that owns, operates, develops and acquires a diverse set of midstream assets and provides fee-based services to Hess Corporation (“Hess”) and third-party customers. We are managed and controlled by Hess Midstream GP LLC, the general partner of our general partner that is owned 50/50 by Hess and GIP II Blue Holding, L.P. (“GIP” and together with Hess, the “Sponsors”). Our assets are primarily located in the Bakken and Three Forks shale plays in the Williston Basin area of North Dakota, which we collectively refer to as the Bakken.
On January 15, 2025, the Partnership purchased directly from the Sponsors 2,572,677 Class B units representing limited partner interests in the Partnership (“Class B Units”) for an aggregate purchase price of approximately $100.0 million. The purchase price per Class B Unit was $38.87, the closing price of the Class A Shares on January 13, 2025. The repurchase transactions were funded using borrowings under the Partnership’s existing revolving credit facility.
On February 12, 2025, GIP sold an aggregate of 11,000,000 of our Class A Shares representing limited partner interests (the “Class A Shares”) in an underwritten public offering at a price of $39.45 per Class A Share, less underwriting discounts. GIP also granted the underwriter an option to purchase up to an additional 1,650,000 Class A Shares at the same price per Class A Share, which was exercised in full on February 19, 2025. GIP received net proceeds from the offering of approximately $494.7 million, after deducting underwriting discounts. The Company did not receive any proceeds from the offering transaction. The offering transaction was conducted pursuant to a registration rights agreement among us and the Sponsors.
As a result of the equity offering and unit repurchase transactions described above, our public ownership increased from approximately 47.3% at December 31, 2024, to approximately 53.8% at March 31, 2025, on a consolidated basis.
On May 5, 2025, the Partnership entered into an agreement to purchase 5,151,842 Class B Units directly from the Sponsors at a purchase price of $36.88 per Class B Unit, for an aggregate purchase price of approximately $190.0 million. In addition, on May 5, 2025, we entered into an accelerated share repurchase (“ASR”) agreement with a financial institution to repurchase $10.0 million of our publicly traded Class A Shares. Under the terms of the ASR, we agreed to make an upfront payment of $10.0 million in cash to the financial institution and will receive an initial share delivery of 189,804 Class A Shares. Final share delivery is expected in May 2025 and will be based generally on the average of the daily volume-weighted average prices of Class A Shares during the term of the transaction, subject to adjustments pursuant to the terms and conditions of the ASR agreement. See Note 12, Subsequent Events.
Our assets and operations are organized into the following three reportable segments: (1) gathering (2) processing and storage and (3) terminaling and export.
16
First Quarter Results
Significant financial and operating highlights for the first quarter of 2025 included:
Revenues and other income in the first quarter of 2025 were $382.0 million, up from $355.6 million in the prior‑year quarter, primarily due to higher physical volumes. Total operating costs and expenses in the first quarter of 2025 were $144.6 million, up from $133.6 million in the prior-year quarter, primarily due to higher employee costs charged to us under our omnibus and employee secondment agreements, pass-through electricity and produced water trucking and disposal costs, and higher depreciation expense for additional assets placed in service. Interest expense, net of interest income, in the first quarter of 2025 was $56.4 million, up from $48.5 million in the prior-year quarter, primarily due to $600.0 million 6.500% fixed-rate senior unsecured notes issued in May 2024, $800.0 million 5.875% fixed-rate senior unsecured notes issued in February 2025, and charges associated with early redemption of $800.0 million 5.625% fixed-rate senior unsecured notes, partially offset by lower interest on lower borrowings under the company's credit facilities and lower interest on the redeemed $800.0 million 5.625% fixed-rate senior unsecured notes. Income tax expense was $23.0 million, up from $14.3 million in the prior-year quarter, resulting from ownership changes following secondary equity offering and Class B Unit repurchase transactions. As a result, consolidated net income remained approximately flat and Adjusted EBITDA increased $17.8 million for the first quarter of 2025 compared with the first quarter of 2024.
Throughput volumes increased 8% for gas processing, 7% for oil terminaling and 9% for water gathering in the first quarter of 2025 compared with the first quarter of 2024, primarily due to higher Hess and third-party production.
For additional discussion of the results of operations at the segment level, see “Results of Operations” below. For additional information regarding Adjusted EBITDA, our non‑GAAP financial measure, see “How We Evaluate Our Operations” and “Reconciliation of Non‑GAAP Financial Measure” below.
17
How We Generate Revenues
We generate substantially all of our revenues by charging fees for gathering, compressing and processing natural gas and fractionating NGLs; gathering, terminaling, loading and transporting crude oil and NGLs; storing and terminaling propane; and gathering and disposing of produced water. We have entered into long‑term, fee‑based commercial agreements with Hess effective January 1, 2014, for oil and gas services agreements, and effective January 1, 2019, for water services agreements.
Except for the water services agreements and except for a certain gathering sub-system, as described below, each of our commercial agreements with Hess had an initial 10-year term. We exercised our renewal options to extend each of these commercial agreements for one additional 10-year term (“Secondary Term”) effective January 1, 2024, through December 31, 2033. There were no changes to any provisions of the existing commercial agreements as a result of the exercise of the renewal options. For this gathering sub-system, the initial term is 15 years effective January 1, 2014, and the Secondary Term is 5 years. For the water services agreements the initial term is 14 years effective January 1, 2019, and the Secondary Term is 10 years. We have the sole option to renew these remaining agreements for their Secondary Term that is exercisable at a later date. Upon the expiration of the Secondary Term, if any, the agreements will automatically renew for subsequent one-year periods unless terminated by either party no later than 180 days prior to the end of the applicable Secondary Term.
These agreements include dedications covering substantially all of Hess’ existing and future owned or controlled production in the Bakken, minimum volume commitments, inflation escalators and fee recalculation mechanisms, all of which are intended to provide us with cash flow stability and growth, as well as downside risk protection. In particular, Hess’ minimum volume commitments under our commercial agreements provide minimum levels of cash flows and the fee recalculation mechanisms under the agreements allow fees to be adjusted annually to provide us with cash flow stability during the initial term of the agreements. During the Secondary Term of the agreements, the fee recalculation model is replaced by an inflation-based fee structure. See Note 3, Related Party Transactions for additional description of our commercial agreements.
Our revenues also include revenues from (i) third-party volumes contracted directly with us, (ii) third-party volumes contracted with Hess and delivered to us under the commercial agreements with Hess described above, and (iii) pass-through third-party rail transportation costs, third-party produced water trucking and disposal costs, electricity fees and certain other third-party fees, for which we recognize revenues in an amount equal to the costs. Together with Hess, we are pursuing strategic relationships with third-party producers and other midstream companies with operations in the Bakken in order to maximize our utilization rates.
18
How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics to analyze our operating results and profitability. These metrics include (i) volumes, (ii) operating and maintenance expenses, and (iii) Adjusted EBITDA.
Volumes. The amount of revenues we generate primarily depends on the volumes of crude oil, natural gas, NGLs and produced water that we handle at our gathering, processing, terminaling, storage facilities and disposal facilities. These volumes are affected primarily by the supply of and demand for crude oil, natural gas and NGLs in the markets served directly or indirectly by our assets, including changes in crude oil prices, which may further affect volumes delivered by Hess. Although Hess has committed to minimum volumes under our commercial agreements described above, our results of operations will be impacted by our ability to:
Operating and Maintenance Expenses. Our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses are comprised primarily of costs charged to us under our omnibus agreement and employee secondment agreement, third‑party contractor costs, utility costs, insurance premiums, third‑party service provider costs, related property taxes and other non‑income taxes and maintenance expenses, such as expenditures to repair, refurbish and replace storage facilities and to maintain equipment reliability, integrity and safety. These expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of substantial expenses, such as gas plant turnarounds. We seek to manage our maintenance expenditures by scheduling periodic maintenance on our assets in order to minimize significant variability in these expenditures and minimize their impact on our cash flow.
Adjusted EBITDA. We previously reported the non-GAAP measure of “Adjusted EBITDA,” which we defined as reported net income (loss) before net interest expense, income tax expense, depreciation and amortization and our proportional share of depreciation of our equity affiliates, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance, such as transaction costs, other income and other non-cash and non-recurring items, if applicable. As this definition varied from other definitions of Adjusted EBITDA, we determined it was appropriate to discontinue reporting Adjusted EBITDA as previously defined. Beginning with the second quarter of 2024, and as presented in this report, “Adjusted EBITDA” is defined as reported net income (loss) before net interest expense, income tax expense (benefit), and depreciation and amortization, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance, such as transaction costs, other income and other non‑cash and non‑recurring items, if applicable. Prior period calculations of Adjusted EBITDA have been recast to conform to the new presentation, as applicable. We use Adjusted EBITDA to analyze our performance and liquidity.
Adjusted EBITDA is a non‑GAAP supplemental financial measure that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:
19
We believe that the presentation of Adjusted EBITDA provides useful information to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to Adjusted EBITDA are net income (loss) and net cash provided by (used in) operating activities. Adjusted EBITDA should not be considered as an alternative to GAAP net income (loss), income (loss) from operations, net cash provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA has important limitations as an analytical tool because it excludes some but not all items that affect net income and net cash provided by operating activities. You should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Additionally, because Adjusted EBITDA may be defined differently by other companies in our industry, our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
20
Results of Operations
Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024
Results of operations for the three months ended March 31, 2025 and 2024 are presented below (in millions, unless otherwise noted).
For the Three Months Ended March 31, 2025 |
|
Gathering |
|
|
Processing and Storage |
|
|
Terminaling and Export |
|
|
Interest and Other |
|
|
Consolidated Hess Midstream LP |
|
|||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Affiliate services |
|
$ |
201.2 |
|
|
$ |
143.6 |
|
|
$ |
29.5 |
|
|
$ |
- |
|
|
$ |
374.3 |
|
Third-party services |
|
|
2.4 |
|
|
|
4.2 |
|
|
|
0.1 |
|
|
|
- |
|
|
|
6.7 |
|
Other income |
|
|
- |
|
|
|
- |
|
|
|
1.0 |
|
|
|
- |
|
|
|
1.0 |
|
Total revenues |
|
|
203.6 |
|
|
|
147.8 |
|
|
|
30.6 |
|
|
|
- |
|
|
|
382.0 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating and maintenance expenses |
|
|
50.4 |
|
|
|
27.7 |
|
|
|
7.5 |
|
|
|
- |
|
|
|
85.6 |
|
Depreciation expense |
|
|
32.4 |
|
|
|
14.7 |
|
|
|
4.4 |
|
|
|
- |
|
|
|
51.5 |
|
General and administrative expenses |
|
|
3.0 |
|
|
|
1.7 |
|
|
|
0.3 |
|
|
|
2.5 |
|
|
|
7.5 |
|
Total operating costs and expenses |
|
|
85.8 |
|
|
|
44.1 |
|
|
|
12.2 |
|
|
|
2.5 |
|
|
|
144.6 |
|
Income (loss) from operations |
|
|
117.8 |
|
|
|
103.7 |
|
|
|
18.4 |
|
|
|
(2.5 |
) |
|
|
237.4 |
|
Income from equity investments |
|
|
- |
|
|
|
3.4 |
|
|
|
- |
|
|
|
- |
|
|
|
3.4 |
|
Interest expense, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
56.4 |
|
|
|
56.4 |
|
Income (loss) before income tax expense |
|
|
117.8 |
|
|
|
107.1 |
|
|
|
18.4 |
|
|
|
(58.9 |
) |
|
|
184.4 |
|
Income tax expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
23.0 |
|
|
|
23.0 |
|
Net income (loss) |
|
|
117.8 |
|
|
|
107.1 |
|
|
|
18.4 |
|
|
|
(81.9 |
) |
|
|
161.4 |
|
Less: Net income (loss) attributable to |
|
|
57.3 |
|
|
|
52.0 |
|
|
|
9.0 |
|
|
|
(28.5 |
) |
|
|
89.8 |
|
Net income (loss) attributable to |
|
$ |
60.5 |
|
|
$ |
55.1 |
|
|
$ |
9.4 |
|
|
$ |
(53.4 |
) |
|
$ |
71.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Throughput volumes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gas gathering (MMcf/d)(1) |
|
|
431 |
|
|
|
|
|
|
|
|
|
|
|
|
431 |
|
|||
Crude oil gathering (MBbl/d)(2) |
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
117 |
|
|||
Gas processing (MMcf/d)(1) |
|
|
|
|
|
424 |
|
|
|
|
|
|
|
|
|
424 |
|
|||
Crude oil terminaling (MBbl/d)(2) |
|
|
|
|
|
|
|
|
125 |
|
|
|
|
|
|
125 |
|
|||
NGL loading (MBbl/d)(2) |
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
14 |
|
|||
Water gathering (MBbl/d)(2) |
|
|
126 |
|
|
|
|
|
|
|
|
|
|
|
|
126 |
|
|||
(1) Million cubic feet per day
(2) Thousand barrels per day
21
For the Three Months Ended March 31, 2024 |
|
Gathering |
|
|
Processing and Storage |
|
|
Terminaling and Export |
|
|
Interest and Other |
|
|
Consolidated Hess Midstream LP |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Affiliate services |
|
$ |
186.6 |
|
|
$ |
135.4 |
|
|
$ |
27.4 |
|
|
$ |
- |
|
|
$ |
349.4 |
|
Third-party services |
|
|
1.5 |
|
|
|
3.7 |
|
|
|
0.1 |
|
|
|
- |
|
|
|
5.3 |
|
Other income |
|
|
- |
|
|
|
- |
|
|
|
0.9 |
|
|
|
- |
|
|
|
0.9 |
|
Total revenues |
|
|
188.1 |
|
|
|
139.1 |
|
|
|
28.4 |
|
|
|
- |
|
|
|
355.6 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating and maintenance expenses |
|
|
46.3 |
|
|
|
25.2 |
|
|
|
6.6 |
|
|
|
- |
|
|
|
78.1 |
|
Depreciation expense |
|
|
30.8 |
|
|
|
14.7 |
|
|
|
4.3 |
|
|
|
- |
|
|
|
49.8 |
|
General and administrative expenses |
|
|
2.1 |
|
|
|
1.2 |
|
|
|
0.2 |
|
|
|
2.2 |
|
|
|
5.7 |
|
Total operating costs and expenses |
|
|
79.2 |
|
|
|
41.1 |
|
|
|
11.1 |
|
|
|
2.2 |
|
|
|
133.6 |
|
Income (loss) from operations |
|
|
108.9 |
|
|
|
98.0 |
|
|
|
17.3 |
|
|
|
(2.2 |
) |
|
|
222.0 |
|
Income from equity investments |
|
|
- |
|
|
|
2.7 |
|
|
|
- |
|
|
|
- |
|
|
|
2.7 |
|
Interest expense, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
48.5 |
|
|
|
48.5 |
|
Income (loss) before income tax expense |
|
|
108.9 |
|
|
|
100.7 |
|
|
|
17.3 |
|
|
|
(50.7 |
) |
|
|
176.2 |
|
Income tax expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14.3 |
|
|
|
14.3 |
|
Net income (loss) |
|
|
108.9 |
|
|
|
100.7 |
|
|
|
17.3 |
|
|
|
(65.0 |
) |
|
|
161.9 |
|
Less: Net income (loss) attributable to |
|
|
72.5 |
|
|
|
67.3 |
|
|
|
11.4 |
|
|
|
(33.9 |
) |
|
|
117.3 |
|
Net income (loss) attributable to |
|
$ |
36.4 |
|
|
$ |
33.4 |
|
|
$ |
5.9 |
|
|
$ |
(31.1 |
) |
|
$ |
44.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Throughput volumes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gas gathering (MMcf/d)(1) |
|
|
404 |
|
|
|
|
|
|
|
|
|
|
|
|
404 |
|
|||
Crude oil gathering (MBbl/d)(2) |
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
106 |
|
|||
Gas processing (MMcf/d)(1) |
|
|
|
|
|
393 |
|
|
|
|
|
|
|
|
|
393 |
|
|||
Crude oil terminaling (MBbl/d)(2) |
|
|
|
|
|
|
|
|
117 |
|
|
|
|
|
|
117 |
|
|||
NGL loading (MBbl/d)(2) |
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
14 |
|
|||
Water gathering (MBbl/d)(2) |
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
116 |
|
|||
(1) Million cubic feet per day
(2) Thousand barrels per day
Gathering
Revenues and other income increased $15.5 million in the first quarter of 2025 compared to the first quarter of 2024, of which $6.6 million is attributable to higher gas gathering physical volumes, $2.7 million is attributable to higher water gathering and disposal revenue, $2.4 million is attributable to higher crude oil gathering physical volumes, and $1.3 million is attributable to crude oil MVCs recognized in revenue upon expiration of shortfall fee credits. Additionally, $1.1 million of the increase is attributable to higher tariff rates, $0.9 million is attributable to higher pass‑through revenue, and $0.5 million is attributable to services provided directly to third parties.
Operating and maintenance expenses increased $4.1 million, primarily due to higher employee costs charged to us under our omnibus and employee secondment agreements. Depreciation expense increased $1.6 million due to new compressors and other new gathering assets brought into service.
22
Processing and Storage
Revenues and other income increased $8.7 million in the first quarter of 2025 compared to the first quarter of 2024, of which $8.7 million is attributable to higher gas processing physical volumes and $1.4 million is attributable to higher pass‑through revenue. These revenue increases were partially offset by $1.4 million attributable to lower tariff rates as the first quarter 2024 rates were prior to a one-time reduction related to setting the final 2024 tariff rate.
Operating and maintenance expenses increased $2.5 million, of which $1.4 million is attributable to higher third-party processing fees and $1.4 million is attributable to higher pass-through costs, slightly offset by $0.3 million attributable to lower other costs.
Terminaling and Export
Revenues and other income increased $2.2 million in the first quarter of 2025 compared to the first quarter of 2024, of which $1.2 million is attributable to higher physical volumes and $1.0 million is attributable to higher tariff rates.
Operating and maintenance expenses remained relatively flat in the first quarter of 2025 compared to the first quarter of 2024.
Interest and Other
Interest expense, net of interest income, increased $7.9 million in the first quarter of 2025 compared to the first quarter of 2024, of which $9.8 million is attributable to interest on $600.0 million 6.500% fixed-rate senior unsecured notes issued in May 2024, $6.4 million is attributable to interest on $800 million 5.875% fixed-rate senior unsecured notes issued in February 2025, $2.0 million is attributable to extinguishment loss related to early redemption of $800.0 million 5.625% fixed-rate senior unsecured notes, and $0.9 million is attributable to higher amortization of deferred finance costs. These increases were partially offset by $6.7 million attributable to lower interest on lower borrowings under our Credit Facilities, $3.2 million attributable to lower interest on $800.0 million 5.625% fixed-rate senior unsecured notes that were redeemed in March 2025, and $1.3 million higher interest income.
Income tax expense increased $8.7 million in the same period driven by increased ownership of the Partnership by Hess Midstream LP following equity offering and unit repurchase transactions in 2024 and 2025.
23
Other Factors Expected to Significantly Affect Our Future Results
We currently generate substantially all of our revenues under fee‑based commercial agreements with Hess, including third parties contracted with affiliates of Hess. These contracts provide cash flow stability and minimize our direct exposure to commodity price fluctuations, since we generally do not own any of the crude oil, natural gas, or NGLs that we handle and do not engage in the trading of crude oil, natural gas, or NGLs. However, commodity price fluctuations indirectly influence our activities and results of operations over the long-term, since they can affect production rates and investments by Hess and third parties in the development of new crude oil and natural gas reserves. The markets for oil and natural gas are volatile and will likely continue to be volatile in the future.
The throughput volumes at our facilities depend primarily on the volumes of crude oil and natural gas produced by Hess and third parties in the Bakken, which, in turn, are ultimately dependent on Hess’ and third parties’ exploration and production margins. Exploration and production margins depend on the price of crude oil, natural gas, and NGLs. These prices are volatile and influenced by numerous factors beyond our or our customers’ control, including the domestic and global supply of and demand for crude oil, natural gas and NGLs. Sustained periods of low prices for oil and natural gas could materially and adversely affect the quantities of oil and natural gas that Hess and third parties can economically produce. The commodities trading markets, as well as global and regional supply and demand factors, may also influence the selling prices of crude oil, natural gas and NGLs. To the extent our plans include revenues for volumes above currently established MVC levels, such revenues could decline to the MVC levels as a result of market volatility. Furthermore, our ability to execute our growth strategy in the Bakken, including attracting third-party volumes, will depend on crude oil and natural gas production in that area, which is also affected by the supply of and demand for crude oil and natural gas.
The majority of our systems entered the Secondary Term of our commercial agreements, which includes a fixed fee structure based on the average fees paid by Hess during 2021-2023 adjusted annually for inflation up to 3% a year. Such a fee structure may provide less downside risk protection in the future compared to the fee structure we had during the initial term of the commercial agreements. For our terminaling and water gathering systems, the rates will continue to be reset through our annual rate redetermination process through 2033. For all of our systems, MVCs will continue to provide downside risk protection through 2033. Generally, all of our volumes are expected to be above currently established MVC levels in 2025, 2026 and 2027.
24
Reconciliation of Non‑GAAP Financial Measure
The following table presents a reconciliation of Adjusted EBITDA to net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
|
|
Three Months Ended March 31, |
|
|||||
(in millions) |
|
2025 |
|
|
2024 |
|
||
Reconciliation of Adjusted EBITDA to net income: |
|
|
|
|
|
|
||
Net income |
|
$ |
161.4 |
|
|
$ |
161.9 |
|
Plus: |
|
|
|
|
|
|
||
Depreciation expense |
|
|
51.5 |
|
|
|
49.8 |
|
Interest expense, net |
|
|
56.4 |
|
|
|
48.5 |
|
Income tax expense |
|
|
23.0 |
|
|
|
14.3 |
|
Adjusted EBITDA |
|
$ |
292.3 |
|
|
$ |
274.5 |
|
|
|
|
|
|
|
|
||
Reconciliation of Adjusted EBITDA to net cash |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
$ |
202.4 |
|
|
$ |
185.3 |
|
Changes in assets and liabilities |
|
|
40.1 |
|
|
|
44.0 |
|
Amortization of deferred financing costs |
|
|
(4.9 |
) |
|
|
(2.1 |
) |
Interest expense, net |
|
|
56.4 |
|
|
|
48.5 |
|
Distribution from equity investments |
|
|
(4.9 |
) |
|
|
(3.5 |
) |
Income from equity investments |
|
|
3.4 |
|
|
|
2.7 |
|
Other |
|
|
(0.2 |
) |
|
|
(0.4 |
) |
Adjusted EBITDA |
|
$ |
292.3 |
|
|
$ |
274.5 |
|
25
Capital Resources and Liquidity
We expect our ongoing sources of liquidity to include:
We believe that cash generated from these sources will be sufficient to meet our operating requirements, our planned short‑term capital expenditures, debt service requirements, our quarterly cash distribution requirements, future internal growth projects or potential acquisitions.
Our partnership agreement requires that we distribute all of our available cash, as defined in the agreement, to our shareholders. On April 28, 2025, we declared a quarterly cash distribution of $0.7098 per Class A Share, to be paid on May 14, 2025 to shareholders of record on May 8, 2025. Simultaneously, the Partnership will make a distribution of $0.7098 per Class B Unit of the Partnership to the Sponsors.
Fixed‑Rate Senior Notes
On February 12, 2025, the Partnership issued $800.0 million aggregate principal amount of 5.875% fixed‑rate senior unsecured notes due 2028 to qualified institutional investors. Interest is payable semi‑annually on March 1 and September 1, commencing September 1, 2025. The Partnership used the net proceeds from the issuance of the new notes, along with borrowings under its revolving credit facility, to redeem its outstanding $800.0 million aggregate principal amount of 5.625% fixed‑rate senior unsecured notes due 2026 (the “2026 Notes”). The Partnership redeemed the 2026 Notes on March 5, 2025, and recognized an extinguishment loss of approximately $2.0 million included in Interest expense, net in the accompanying unaudited consolidated statements of operations.
As of March 31, 2025, the Partnership had:
The notes described above are guaranteed by certain subsidiaries of the Partnership. Each of the indentures for the senior notes described above contains customary covenants that restrict our ability and the ability of our restricted subsidiaries to (i) declare or pay any dividend or make any other restricted payments; (ii) transfer or sell assets or subsidiary stock; (iii) incur additional debt; or (iv) make restricted investments, unless, at the time of and immediately after giving pro forma effect to such restricted payments and any related incurrence of indebtedness or other transactions, no default has occurred and is continuing or would occur as a consequence of such restricted payment and if the leverage ratio (as defined in the indentures) does not exceed 4.25 to 1.00. As of March 31, 2025, we were in compliance with all debt covenants under the indentures.
26
In addition, the covenants included in the indentures governing the senior notes contain provisions that allow the Company to satisfy the Partnership’s reporting obligations under the indenture, as long as any such financial information of the Company contains information reasonably sufficient to identify the material differences, if any, between the financial information of the Company, on the one hand, and the Partnership and its subsidiaries on a stand-alone basis, on the other hand and the Company does not directly own capital stock of any person other than the Partnership and its subsidiaries, or material business operations that would not be consolidated with the financial results of the Partnership and its subsidiaries. The Company is a holding company and has no independent assets or operations. Other than the interest in the Partnership and the effect of federal and state income taxes that are recognized at the Company level, there are no material differences between the consolidated financial statements of the Partnership and the consolidated financial statements of the Company.
Credit Facilities
As of March 31, 2025, the Partnership had $1.4 billion senior secured credit facilities (the “Credit Facilities”) consisting of a $1.0 billion 5-year revolving credit facility and a $400.0 million 5‑year Term Loan A facility. The Credit Facilities mature in July 2027. Facility fees accrue on the total capacity of the revolving credit facility. Borrowings under the 5-year Term Loan A facility generally bear interest at Secured Overnight Financing Rate (“SOFR”) plus the applicable margin ranging from 1.65% to 2.55%, while the applicable margin for the 5‑year syndicated revolving credit facility ranges from 1.375% to 2.050%. Pricing levels for the facility fee and interest rate margins are based on the Partnership’s ratio of total debt to EBITDA (as defined in the Credit Facilities). If the Partnership obtains an investment grade credit rating, the pricing levels will be based on the Partnership’s credit ratings in effect from time to time. As of March 31, 2025, borrowings of $128.0 million were drawn and outstanding under the Partnership’s revolving credit facility, and borrowings of $380.0 million, excluding deferred issuance costs, were drawn and outstanding under the Partnership’s Term Loan A facility.
The Credit Facilities can be used for borrowings and letters of credit for general corporate purposes. The Credit Facilities are guaranteed by each direct and indirect wholly owned material domestic subsidiary of the Partnership, and are secured by first priority perfected liens on substantially all of the presently owned and after-acquired assets of the Partnership and its direct and indirect wholly owned material domestic subsidiaries, including equity interests directly owned by such entities, subject to certain customary exclusions. The Credit Facilities contain representations and warranties, affirmative and negative covenants and events of default that the Partnership considers to be customary for an agreement of this type, including a covenant that requires the Partnership to maintain a ratio of total debt to EBITDA (as defined in the Credit Facilities) for the prior four fiscal quarters of not greater than 5.00 to 1.00 as of the last day of each fiscal quarter (5.50 to 1.00 during the specified period following certain acquisitions) and, prior to the Partnership obtaining an investment grade credit rating, a ratio of secured debt to EBITDA for the prior four fiscal quarters of not greater than 4.00 to 1.00 as of the last day of each fiscal quarter. As of March 31, 2025, we were in compliance with these financial covenants.
Cash Flows
Operating Activities. Net cash provided by operating activities increased $17.1 million for the three months ended March 31, 2025, compared to the same period in 2024. The change in operating cash flows resulted primarily from an increase in revenues and other income of $26.4 million, a decrease in cash used by changes in working capital of $3.9 million, an increase in distributions received from equity investments of $1.4 million, partially offset by an increase in expenses, other than depreciation, equity-based compensation and other non-cash gains and losses of $14.6 million.
Investing Activities. Net cash used in investing activities decreased $9.3 million for the three months ended March 31, 2025, compared to the same period in 2024 driven by the timing of payments for additions to property, plant, and equipment primarily related to our compression capacity and associated pipeline infrastructure expansion program.
Financing Activities. Net cash used in financing activities increased $23.4 million for the three months ended March 31, 2025, compared to the same period in 2024. In the first three months of 2025, we received proceeds of $788.6 million, net of financing costs, from our issuance of the new 5.875% fixed-rate senior unsecured notes due 2028. We used the net proceeds from the issuance of the new notes, along with borrowings under our revolving credit facility, to redeem the $800.0 million notes due 2026. Our repayments of the term loan facility were $2.5 million higher and our net borrowings under our revolving credit facility were $2.0 million lower in the first three months of 2025 compared to the same period in 2024. In addition, in the first three months of 2025, we paid higher distributions to shareholders and noncontrolling interests of $7.5 million compared to the same period in 2024.
Capital Expenditures
Our operations can be capital intensive, requiring investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational regulations.
27
The following table sets forth a summary of capital expenditures and reconciles capital expenditures on an accrual basis to additions to property, plant and equipment on a cash basis:
|
Three Months Ended March 31, |
|
|||||
|
2025 |
|
|
2024 |
|
||
(in millions) |
|
|
|
|
|
||
Total capital expenditures |
$ |
50.1 |
|
|
$ |
35.2 |
|
(Increase) decrease in accrued capital expenditures |
|
5.9 |
|
|
|
15.2 |
|
(Increase) decrease in capital expenditures included |
|
(10.5 |
) |
|
|
4.4 |
|
Additions to property, plant and equipment |
$ |
45.5 |
|
|
$ |
54.8 |
|
Capital expenditures in 2025 are primarily attributable to continued expansion of our compression capacity and gas capture capabilities and related pipeline infrastructure to meet Hess’ and third parties’ current and future production growth and gas capture targets. The activities focus on the construction of two new compressor stations and associated pipeline infrastructure, which are expected to be placed in service in 2025. Capital expenditures in 2024 were also attributable to continued expansion of our compression capacity and related pipeline infrastructure.
28
Cautionary Note Regarding Forward-looking Information
This Quarterly Report on Form 10‑Q, including information incorporated by reference herein, contains “forward-looking statements” within the meaning of U.S. federal securities laws. Words such as “anticipate,” “estimate,” “expect,” “forecast,” “guidance,” “could,” “may,” “should,” “would,” “believe,” “intend,” “project,” “plan,” “predict,” “will,” “target” and similar expressions identify forward-looking statements, which are not historical in nature. Our forward-looking statements may include, without limitation: our future financial and operational results; our business strategy; our industry; our expected revenues; our future profitability; our maintenance or expansion projects; our projected budget and capital expenditures and the impact of such expenditures on our performance; future economic and market conditions in the oil and gas industry; expected timing and completion of Hess’ proposed merger with Chevron Corporation (“Chevron”); and information about sustainability goals and targets and planned social, safety environmental policies, programs and initiatives.
Forward-looking statements are based on our current understanding, assessments, estimates and projections of relevant factors and reasonable assumptions about the future. Forward-looking statements are subject to certain known and unknown risks and uncertainties that could cause actual results to differ materially from our historical experience and our current projections or expectations of future results expressed or implied by these forward-looking statements. The following important factors could cause actual results to differ materially from those in our forward-looking statements:
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As and when made, we believe that our forward-looking statements are reasonable. However, given these risks and uncertainties, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made and there can be no assurance that such forward-looking statements will occur and actual results may differ materially from those contained in any forward-looking statement we make. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices. We generally do not take ownership of the crude oil, natural gas or NGLs that we currently gather, process, terminal, store or transport for our customers. Because we generate substantially all of our revenues by charging fees under long-term commercial agreements with Hess with minimum volume commitments, Hess bears the risks associated with fluctuating commodity prices and we have minimal direct exposure to commodity prices.
In the normal course of our business, we are exposed to market risks related to changes in interest rates. Our financial risk management activities may include transactions designed to reduce risk by reducing our exposure to interest rate movements. Interest rate swaps may be used to convert interest payments on certain long‑term debt. At March 31, 2025, we did not have in place any derivative instruments to hedge any exposure to changes in interest rates.
At March 31, 2025, our total debt had a carrying value of $3,571.8 million and a fair value of approximately $3,565.5 million, based on Level 2 inputs in the fair value measurement hierarchy. A 15% increase or decrease in interest rates would decrease or increase the fair value of our fixed rate debt by approximately $91.3 million or $95.0 million, respectively. The carrying value of the amounts under our Term Loan A facility and revolving credit facility at the quarter-end approximated their fair value. Any changes in interest rates do not impact cash outflows associated with fixed rate interest payments or settlement of debt principal, unless a debt instrument is repurchased prior to maturity. Our exposure to market risk related to changes in interest rates has not materially changed from what we previously disclosed in our 2024 Annual Report.
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Item 4. Controls and Procedures
Based upon their evaluation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) as of March 31, 2025, John B. Hess, Chief Executive Officer, and Jonathan C. Stein, Chief Financial Officer, concluded that these disclosure controls and procedures were effective as of March 31, 2025.
There was no change in internal control over financial reporting, as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act, in the quarter ended March 31, 2025 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
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Item 1. Legal Proceedings
Information regarding legal proceedings is contained in Note 10, Commitments and Contingencies in the Notes to Consolidated Financial Statements and is incorporated herein by reference. Pursuant to Item 103(c)(3)(iii) of Regulation S-K under the Exchange Act, we are required to disclose certain information about environmental proceedings to which a governmental authority is a party if we reasonably believe such proceedings may result in monetary sanctions, exclusive of interest and costs, above a stated threshold. We have elected to apply a threshold of $1 million for purposes of determining whether disclosure of any such proceedings is required.
Item 1A. Risk Factors
Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024 includes certain risk factors that could materially affect our business, financial condition, or future results. Those risk factors have not materially changed.
Item 5. Other Information
During the three months ended March 31, 2025, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act)
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PART II – OTHER INFORMATION (CONT’D)
Item 6. Exhibits
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Exhibits |
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4.1 |
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10.1 |
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10.2 |
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31.1 |
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31.2 |
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32.1* |
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32.2* |
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101(INS) |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101(SCH) |
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Inline XBRL Taxonomy Extension Schema Document With Embedded Linkbase Documents |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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* Furnished herewith
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HESS MIDSTREAM LP (Registrant) |
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By: HESS MIDSTREAM GP LP, its General Partner |
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By: HESS MIDSTREAM GP LLC, its General Partner |
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By |
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/s/ John B. Hess |
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John B. Hess |
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Chairman of the Board of Directors and Chief Executive Officer |
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By |
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/s/ Jonathan C. Stein |
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Jonathan C. Stein |
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Chief Financial Officer |
Date: May 8, 2025
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