Item 1. Financial Statements
Item 1. Financial Statements
March 31,
December 31,
2024
2023
(in millions, except share amounts)
Assets
Cash and cash equivalents
$
4.2
$
5.4
Accounts receivable from contracts with customers:
Accounts receivable—trade
2.8
1.9
Accounts receivable—affiliate
127.8
122.5
Other current assets
4.5
7.0
Total current assets
139.3
136.8
Equity investments
89.4
90.2
Property, plant and equipment, net
3,215.0
3,229.2
Long-term receivable—affiliate
0.2
0.3
Deferred tax asset
410.5
324.4
Other noncurrent assets
8.4
8.6
Total assets
$
3,862.8
$
3,789.5
Liabilities
Accounts payable—trade
$
31.2
$
38.5
Accounts payable—affiliate
21.2
41.2
Accrued liabilities
86.1
105.9
Current maturities of long-term debt
15.0
12.5
Other current liabilities
3.7
12.1
Total current liabilities
157.2
210.2
Long-term debt
3,310.4
3,198.9
Deferred tax liability
0.4
0.5
Other noncurrent liabilities
13.1
16.7
Total liabilities
3,481.1
3,426.3
Partners' capital
Class A shares ( 79,921,383 shares issued and outstanding as of
March 31, 2024; 68,367,647 shares issued and outstanding
as of December 31, 2023)
404.3
340.2
Class B shares ( 143,624,540 shares issued and outstanding as of
March 31, 2024; 157,941,441 shares issued and outstanding as of
December 31, 2023)
-
-
Total Class A and Class B partners' capital
404.3
340.2
Noncontrolling interest
( 22.6
)
23.0
Total partners' capital
381.7
363.2
Total liabilities and partners' capital
$
3,862.8
$
3,789.5
See accompanying notes to unaudited consolidated financial statements.
2
PART I—FINANCIAL INFORMATION (CONT'D)
HESS MIDSTREAM LP
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
2024
2023
(in millions, except per share data)
Revenues
Affiliate services
$
349.4
$
303.4
Third-party services
5.3
0.9
Other income
0.9
0.7
Total revenues
355.6
305.0
Costs and expenses
Operating and maintenance expenses (exclusive of
depreciation shown separately below)
78.1
62.5
Depreciation expense
49.8
47.4
General and administrative expenses
5.7
6.4
Total operating costs and expenses
133.6
116.3
Income from operations
222.0
188.7
Income from equity investments
2.7
1.6
Interest expense, net
48.5
41.6
Income before income tax expense
176.2
148.7
Income tax expense
14.3
6.5
Net income
161.9
142.2
Less: Net income attributable to noncontrolling interest
117.3
121.5
Net income attributable to Hess Midstream LP
$
44.6
$
20.7
Net income attributable to Hess Midstream LP
per Class A share:
Basic
$
0.60
$
0.47
Diluted
$
0.59
$
0.47
Weighted average Class A shares outstanding
Basic
75.1
44.0
Diluted
75.2
44.1
See accompanying notes to unaudited consolidated financial statements.
3
PART I—FINANCIAL INFORMATION (CONT'D)
HESS MIDSTREAM LP
Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL (DEFICIT)
(UNAUDITED)
Partners' Capital
Class A
Shares
Class B
Shares
Noncontrolling
Interest
Total
(in millions)
Balance at December 31, 2023
$
340.2
$
-
$
23.0
$
363.2
Net income
44.6
-
117.3
161.9
Equity-based compensation
0.5
-
-
0.5
Distributions - $ 0.6343 per share
( 50.7
)
-
( 92.9
)
( 143.6
)
Recognition of deferred tax asset
100.4
-
-
100.4
Sale of shares held by Sponsors
5.2
-
( 5.2
)
-
Class B unit repurchase
( 35.6
)
-
( 64.4
)
( 100.0
)
Transaction costs
( 0.3
)
-
( 0.4
)
( 0.7
)
Balance at March 31, 2024
$
404.3
$
-
$
( 22.6
)
$
381.7
Balance at December 31, 2022
$
245.1
$
-
$
283.9
$
529.0
Net income
20.7
-
121.5
142.2
Equity-based compensation
0.6
-
-
0.6
Distributions - $ 0.5696 per share
( 25.1
)
-
( 111.6
)
( 136.7
)
Recognition of deferred tax asset
4.3
-
-
4.3
Class B unit repurchase
( 17.5
)
-
( 82.5
)
( 100.0
)
Transaction costs
( 0.2
)
-
( 0.7
)
( 0.9
)
Balance at March 31, 2023
$
227.9
$
-
$
210.6
$
438.5
See accompanying notes to unaudited consolidated financial statements.
4
PART I—FINANCIAL INFORMATION (CONT'D)
HESS MIDSTREAM LP
Table of Contents
CONSOLIDATED S TATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
2024
2023
(in millions)
Cash flows from operating activities
Net income
$
161.9
$
142.2
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense
49.8
47.4
Income from equity investments
( 2.7
)
( 1.6
)
Distributions from equity investments
3.5
2.6
Amortization of deferred financing costs
2.1
2.1
Equity-based compensation expense
0.5
0.6
Deferred income tax expense
14.2
6.5
Changes in assets and liabilities:
Accounts receivable – trade
( 0.9
)
( 0.8
)
Accounts receivable – affiliate
( 5.2
)
14.8
Other current and noncurrent assets
2.1
2.5
Accounts payable – trade
( 7.3
)
4.8
Accounts payable – affiliate
( 15.8
)
( 3.7
)
Accrued liabilities
( 4.7
)
( 10.5
)
Other current and noncurrent liabilities
( 12.2
)
( 8.2
)
Net cash provided by operating activities
185.3
198.7
Cash flows from investing activities
Additions to property, plant and equipment
( 54.8
)
( 64.3
)
Net cash used in investing activities
( 54.8
)
( 64.3
)
Cash flows from financing activities
Net proceeds from (repayments of) bank borrowings with maturities of 90
days or less
115.0
103.0
Bank borrowings with maturities of greater than 90 days
Repayments
( 2.5
)
-
Transaction costs
( 0.6
)
( 0.2
)
Class B unit repurchase
( 100.0
)
( 100.0
)
Distributions to shareholders
( 50.7
)
( 25.1
)
Distributions to noncontrolling interest
( 92.9
)
( 111.6
)
Net cash used in financing activities
( 131.7
)
( 133.9
)
Increase (decrease) in cash and cash equivalents
( 1.2
)
0.5
Cash and cash equivalents, beginning of period
5.4
3.1
Cash and cash equivalents, end of period
$
4.2
$
3.6
Supplemental disclosure of non-cash investing and financing activities:
(Increase) decrease in accrued capital expenditures and related liabilities
$
19.6
$
7.0
Recognition of deferred tax asset
$
100.4
$
4.3
See accompanying notes to unaudited consolidated financial statements.
5
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Table of Contents
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, 2024 and December 31, 2023, the consolidated results of operations for the three months ended March 31, 2024 and 2023, and the consolidated cash flows for the three months ended March 31, 2024 and 2023. 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, 2023.
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 64.2 % interest in the Partnership retained by Hess Corporation (“Hess”) and GIP II Blue Holding, L.P. (“GIP” and together with Hess, the “Sponsors”) at March 31, 2024 ( 69.8 % at December 31, 2023). See Note 2, Equity Transactions for a description of changes in noncontrolling interest related to the equity transactions.
New Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU adds required disclosures of significant expenses for each reportable segment, as well as certain other disclosures to help users of financial statements understand how the chief operating decision maker evaluates segment expenses and operating results. The ASU does not change how an entity identifies its operating segments. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We continue to assess the impact of this ASU on our consolidated financial statements.
In December 2023, the FASB issued 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 is effective for public business entities for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025, with early adoption permitted. We continue to assess the impact of this ASU on our consolidated financial statements.
Note 2. Equity Transactions
Equity Offering Transaction
On February 8, 2024, GIP sold an aggregate of 11,500,000 of our Class A shares representing limited partner interests (the “Class A Shares”), inclusive of the underwriters’ option to purchase up to 1,500,000 of additional shares, which was fully exercised, in an underwritten public offering at a price of $ 33.10 per Class A Share, less underwriting discounts. GIP received net proceeds from the offering of approximately $ 377.5 million, after deducting underwriting discounts.
6
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Table of Contents
The Company did no t receive any proceeds in the equity offering transaction. The above equity offering transaction was conducted pursuant to a registration rights agreement among us and the Sponsors. The Class A Shares sold in the offering were obtained by GIP by exchanging to us the respective number of their Class B units representing limited partner interests in the Partnership (the “Class B Units”), together with an equal number of Class B shares representing limited partner interests in the Company (the “Class B Shares”) held by the Company’s general partner. As a result, the total number of Class A and Class B Shares did not change. The Company retained control in the Partnership based on the delegation of control provisions, as described in Note 1, Basis of Presentation . As a result of the equity offering transaction described above, we recognized adjustments increasing the carrying amount of the Class A shareholders’ capital balance by $ 5.2 million and decreasing the carrying amount of noncontrolling interest by an equal amount to reflect the change in ownership interest.
Class B Unit Repurchases
On March 27, 2023, the Company, the Partnership and our Sponsors entered into a unit repurchase agreement pursuant to which the Partnership agreed to purchase from the Sponsors 3,619,254 Class B Units for an aggregate purchase price of approximately $ 100.0 million. The repurchase transaction was consummated on March 30, 2023. The purchase price per Class B Unit was $ 27.63 , the closing price of the Class A Shares on March 27, 2023.
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 2,816,901 Class B Units for an aggregate purchase price of approximately $ 100.0 million. The repurchase transaction was consummated on March 14, 2024. The purchase price per Class B Unit was $ 35.50 , the closing price of the Class A Shares on March 11, 2024.
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 March 11, 2024 repurchase transaction 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 $ 0.7 million of costs directly attributable to the repurchase transactions that were charged to equity (three months ended March 31, 2023: $ 0.9 million).
As a result of the equity offering and the unit repurchase transactions described above, we also recognized an additional deferred tax asset of $ 100.4 million (three months ended March 31, 2023: $ 4.3 million ) related to the change in the temporary difference between the carrying amount and the tax basis of our investment in the Partnership. The effect of recognizing the additional deferred tax asset was included in Class A shareholders’ equity balance in the accompanying consolidated statement of changes in partners’ capital (deficit) due to the transactions being characterized as transactions among or with shareholders.
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 handing services.
7
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Table of Contents
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. Minimum volume commitments (“MVCs”) are equal to 80 % of Hess’ nominations in each development plan that apply on a three-year rolling basis such that MVCs are set for the three years following the most recent nomination. Without our consent, the MVCs resulting from the nominated volumes for any quarter or year contained in any prior development plan cannot be reduced by any updated development plan unless dedicated production is released by us. The applicable MVCs may, however, be increased as a result of the nominations contained in any such updated development plan. If Hess fails to deliver its applicable MVCs during any quarter, then Hess will pay us a shortfall fee equal to the volume of the deficiency multiplied by the applicable fee.
Except for the water services agreements and except for a certain gathering sub-system as described below, each of our commercial agreements with Hess has an initial 10 -year term effective January 1, 2014 (“Initial Term”). For this gathering sub-system, the Initial Term is 15 years effective January 1, 2014 and for the water services agreements the Initial Term is 14 years effective January 1, 2019. Each of our commercial agreements other than our storage services agreement includes an inflation escalator capped at 3 % in any calendar year and a fee recalculation mechanism that allows fees to be adjusted annually during the Initial Term for updated estimates of cumulative throughput volumes and our capital and operating expenditures in order to target a return on capital deployed over the Initial Term of the applicable commercial agreement (or, with respect to the crude oil services fee under our terminal and export services agreement, the 20 -year period commencing on the effective date of the agreement).
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 agreement 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 the remaining gathering sub-system, the Secondary Term is 5 years, and for the water services agreements the Secondary Term is 10 years, and 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.
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), the fee recalculation model under each applicable agreement is replaced by an inflation-based fee structure. The initial fee for the first year of the Secondary Term is determined based on the average fees paid by Hess under the applicable agreement during the last three years of the Initial Term (with such fees adjusted for inflation through the first year of the Secondary Term). For each year following the first year of the Secondary Term, the applicable fee will be adjusted annually based on the percentage change in the consumer price index, provided that we may not increase any fee by more than 3 % in any calendar year solely by reason of an increase in the consumer price index, and no fee will ever be reduced below the amount of the applicable fee payable by Hess in the prior year as a result of a decrease in the consumer price index. During the Secondary Term, MVCs continue to be set at 80 % of Hess' nominated volumes in each development plan set three years in advance. Except for the crude oil terminaling and water handling services, Hess is entitled to receive a credit, calculated in barrels or Mcf, as applicable, with respect to the amount of any shortfall fee paid by Hess and may apply such credit against any volumes delivered to us under the applicable agreement in excess of Hess’s nominated volumes during any of the following four quarters after such credit is earned, after which time any unused credits will expire. The shortfall amounts received under MVCs during the Secondary Term (except for the crude oil terminaling and water handling services) are recorded as deferred revenue and recognized as revenue as the credits are utilized or expire . At March 31, 2024, deferred revenue included in Accrued liabilities in the accompanying consolidated balance sheet was $ 1.3 million (December 31, 2023: none ).
For the three months ended March 31, 2024 and 2023, approximately 98 % and 100 %, respectively, of our revenues were attributable to our fee‑based commercial agreements with Hess, including revenues from third‑party volumes contracted with Hess and delivered to us under these agreements. In 2023, we began providing our services directly to third-party customers. 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.
8
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Table of Contents
Revenues from contracts with customers, including affiliated services and third-party services, on a disaggregated basis are as follows:
Three Months Ended March 31,
2024
2023
(in millions)
Affiliate services
Oil and gas gathering services
$
159.3
$
144.6
Processing and storage services
135.4
113.8
Terminaling and export services
27.4
25.2
Water gathering and disposal services
27.3
19.8
Total affiliate services
$
349.4
$
303.4
Third-party services
5.3
0.9
Total revenues from contracts with customers
$
354.7
$
304.3
Other income
0.9
0.7
Total revenues
$
355.6
$
305.0
During the three months ended March 31, 2024, we earned $ 0.1 million of MVC shortfall fees (three months ended March 31, 2023: $ 4.3 million).
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.
Three Months Ended March 31,
2024
2023
(in millions)
Electricity and other related fees
$
13.4
$
11.0
Produced water trucking and disposal costs
9.8
8.3
Rail transportation costs
-
( 1.8
)
Total
$
23.2
$
17.5
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. For the three months ended March 31, 2024 and 2023 , we had the following charges from Hess. The classification of these charges between operating and maintenance expenses and general and administrative expenses is based on the fundamental nature of the services being performed for our operations.
Three Months Ended March 31,
2024
2023
(in millions)
Operating and maintenance expenses
$
19.1
$
17.9
General and administrative expenses
3.5
3.9
Total
$
22.6
$
21.8
9
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Table of Contents
LM4 Agreements
Separately from our commercial agreements with Hess, we entered into a gas processing agreement with Little Missouri 4 (“LM4”), a 50 / 50 joint venture with Targa Resources Corp., under which we pay a processing fee per Mcf of natural gas and reimburse LM4 for our proportionate share of electricity costs. These processing fees are included in Operating and maintenance expenses in the accompanying consolidated statements of operations. In addition, we share profits and losses and receive distributions from LM4 under the LM4 amended and restated limited liability company agreement based on our ownership interest. For the three months ended March 31, 2024 and 2023, we had the following activity related to our agreements with LM4:
Three Months Ended March 31,
2024
2023
(in millions)
Processing fee incurred
$
6.8
$
5.0
Earnings from equity investments
2.7
1.6
Distributions received from equity investments
3.5
2.6
Note 4. Property, Plant and Equipment
Property, plant and equipment, at cost, is as follows:
Estimated useful lives
March 31, 2024
December 31, 2023
(in millions, except for number of years)
Gathering assets
Pipelines
22 years
$
1,717.2
$
1,703.7
Compressors, pumping stations and terminals
22 to 25 years
1,085.9
1,026.4
Gas plant assets
Pipelines, pipes and valves
22 to 25 years
460.0
460.0
Equipment
12 to 30 years
428.2
428.2
Processing and fractionation facilities
25 years
425.3
424.7
Buildings
35 years
182.3
182.3
Logistics facilities and railcars
20 to 25 years
409.3
409.2
Storage facilities
20 to 25 years
19.9
19.9
Other
20 to 25 years
28.2
28.0
Construction-in-progress
N/A
97.8
136.3
Total property, plant and equipment, at cost
4,854.1
4,818.7
Accumulated depreciation
( 1,639.1
)
( 1,589.5
)
Property, plant and equipment, net
$
3,215.0
$
3,229.2
Note 5. Accrued Liabilities
Accrued liabilities are as follows:
March 31, 2024
December 31, 2023
(in millions)
Accrued interest
$
29.3
$
35.8
Accrued capital expenditures
27.7
42.9
Other accruals
29.1
27.2
Total
$
86.1
$
105.9
10
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Table of Contents
Note 6. Debt and Interest Expense
Fixed‑Rate Senior Notes
As of March 31, 2024, the Partnership had:
• $ 400.0 million aggregate principal amount of 5.500 % fixed‑rate senior unsecured notes due 2030 that were issued to qualified institutional investors. Interest is payable semi‑annually on April 15 and October 15.
• $ 750.0 million aggregate principal amount of 4.250 % fixed‑rate senior unsecured notes due 2030 that were issued to qualified institutional investors. Interest is payable semi‑annually on February 15 and August 15.
• $ 550.0 million aggregate principal amount of 5.125 % fixed‑rate senior unsecured notes due 2028 that were issued to qualified institutional investors. Interest is payable semi‑annually on June 15 and December 15.
• $ 800.0 million aggregate principal amount of 5.625 % fixed‑rate senior unsecured notes due 2026 that were issued to qualified institutional investors. Interest is payable semi‑annually on February 15 and August 15.
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 does not exceed 4.25 to 1.00. As of March 31, 2024, we were in compliance with all debt covenants under the indentures.
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.
Credit Facilities
As of March 31, 2024 , 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, 2024, borrowings of $ 455.0 million were drawn and outstanding under the Partnership’s revolving credit facility, and borrowings of $ 395.0 million, excluding deferred issuance costs, were drawn and outstanding under the Partnership’s Term Loan A facility.
11
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Table of Contents
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, 2024, the Partnership was in compliance with these financial covenants.
Fair Value Measurement
At March 31, 2024, our total debt had a carrying value of $ 3,325.4 million and had a fair value of approximately $ 3,249.1 million, based on Level 2 inputs in the fair value measurement hierarchy. The carrying value of the amounts under the Term Loan A facility and revolving credit facility at March 31, 2024 , 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.
Note 7. Partners’ Capital and Distributions
Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash, as defined in the partnership agreement, to shareholders of record on the applicable record date. The following table details the distributions declared and/or paid for the periods presented:
z
Period
Record Date
Distribution Date
Distribution per Class A Share
First Quarter 2023
May 4, 2023
May 12, 2023
$
0.5851
Second Quarter 2023
August 3, 2023
August 14, 2023
$
0.6011
Third Quarter 2023
November 2, 2023
November 14, 2023
$
0.6175
Fourth Quarter 2023
February 8, 2024
February 14, 2024
$
0.6343
First Quarter 2024 (1)
May 2, 2024
May 14, 2024
$
0.6516
(1) For more information, see Note 12, Subsequent Events.
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 one -for-one basis. In addition, our restricted equity-based awards may have a dilutive effect on our earnings per share. Diluted earnings per Class A Share are calculated using the “treasury stock method” or “if-converted method,” whichever is more dilutive.
Three Months Ended March 31,
(in millions, except per share amounts)
2024
2023
Net income
$
161.9
$
142.2
Less: Net income attributable to noncontrolling interest
117.3
121.5
Net income attributable to Hess Midstream LP
44.6
20.7
Net income attributable to Hess Midstream LP
per Class A share:
Basic:
$
0.60
$
0.47
Diluted:
$
0.59
$
0.47
Weighted average Class A shares outstanding:
Basic:
75.1
44.0
Diluted:
75.2
44.1
12
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Table of Contents
For the three months ended March 31, 2024 and 2023 the weighted average number of Class A Shares outstanding included 40,427 and 60,566 d ilutive restricted shares, respectively.
Note 9. Concentration of Credit Risk
As of March 31, 2024 and 2023, Hess and its affiliates represented approximately 98 % and 100 %, respectively, of accounts receivable from contracts with customers. Total revenues attributable to Hess for the three months ended March 31, 2024 and 2023 were approximately 98 % and 100 %, respectively.
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 34,000 barrels of produced water were released, causing impacts to soils, crops, and groundwater. Remediation infrastructure was put in place and remediation and monitoring is ongoing.
As of March 31, 2024 our reserves for all estimated remediation liabilities, inclusive of the produced water release above, in Accrued liabilities and Other noncurrent liabilities were $ 2.2 million and $ 3.8 million, respectively, compared with $ 1.7 million and $ 5.3 million, respectively, as of December 31, 2023.
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.
On or about March 14, 2023, the Company received a Notice of Violation (the “Notice”) from the North Dakota Department of Environmental Quality (“DEQ”) in connection with the produced water release described under Environmental Contingencies above. The Notice alerts the Company that it may have violated the State’s water pollution control laws, but neither imposes nor waives any enforcement action. On January 11, 2024, the DEQ proposed an Administrative Consent Agreement (“ACA”) that included an administrative penalty of $ 0.4 million and further line monitoring practices with respect to certain water gathering pipelines. The Company is evaluating the proposed ACA and is engaging in further discussions with the DEQ.
Based on currently available information, we believe it is remote that the outcome of known matters, including the produced water release described above, would have a material adverse impact on our financial condition, results of operations or cash flows. Accordingly, as of March 31, 2024 and December 31, 2023 , we did no t have material accrued liabilities for legal contingencies.
13
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Table of Contents
Note 11. Segments
Our operations are located in the United States and are organized into three reportable segments: (1) gathering, (2) processing and storage and (3) terminaling and export. Our reportable segments comprise the structure used by our Chief Operating Decision Maker (“CODM”) to make key operating decisions and assess performance. These segments are strategic business units with differing products and services. Our CODM evaluates the segments’ operating performance based on multiple measures including Adjusted EBITDA, defined as net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization and our proportional share of depreciation of 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, non‑recurring items, if applicable. The following tables reflect certain financial data for each reportable segment:
Gathering
Processing and Storage
Terminaling and Export
Interest and Other
Consolidated
(in millions)
For the Three Months Ended March 31, 2024
Revenues and other income
$
188.1
$
139.1
$
28.4
$
-
$
355.6
Net income (loss)
108.9
100.7
17.3
( 65.0
)
161.9
Net income (loss) attributable to
Hess Midstream LP
36.4
33.4
5.9
( 31.1
)
44.6
Depreciation expense
30.8
14.7
4.3
-
49.8
Proportional share of equity affiliates'
depreciation
-
1.3
-
-
1.3
Income from equity investments
-
2.7
-
-
2.7
Interest expense, net
-
-
-
48.5
48.5
Income tax expense
-
-
-
14.3
14.3
Adjusted EBITDA
139.7
116.7
21.6
( 2.2
)
275.8
Capital expenditures
31.7
3.4
0.1
-
35.2
Gathering
Processing and Storage
Terminaling and Export
Interest and Other
Consolidated
(in millions)
For the Three Months Ended March 31, 2023
Revenues and other income
$
164.7
$
114.4
$
25.9
$
-
$
305.0
Net income (loss)
95.1
80.1
17.6
( 50.6
)
142.2
Net income (loss) attributable to
Hess Midstream LP
17.4
14.5
3.3
( 14.5
)
20.7
Depreciation expense
28.8
14.5
4.1
-
47.4
Proportional share of equity affiliates'
depreciation
-
1.3
-
-
1.3
Income from equity investments
-
1.6
-
-
1.6
Interest expense, net
-
-
-
41.6
41.6
Income tax expense
-
-
-
6.5
6.5
Adjusted EBITDA
123.9
95.9
21.7
( 2.5
)
239.0
Capital expenditures
49.4
0.9
7.0
-
57.3
14
PART I – FINANCIAL INFORMATION (CONT’D)
HESS MIDSTREAM LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Table of Contents
Total assets for the reportable segments are as follows:
March 31, 2024
December 31, 2023
(in millions)
Gathering
$
2,139.0
$
2,138.6
Processing and Storage (1)
1,041.7
1,048.4
Terminaling and Export
259.9
264.4
Interest and Other
422.2
338.1
Total assets
$
3,862.8
$
3,789.5
(1) Includes investment in equity investees of $ 89.4 million as of March 31, 2024 an d $ 90.2 million as of December 31, 2023 .
Note 12. Subsequent Events
On April 22, 2024 , the board of directors of our general partner declared a quarterly cash distribution of $ 0.6516 per Class A Share for the quarter ended March 31, 2024. The distribution represents an approximate 2.7 % increase in the quarterly distribution per Class A Share for the first quarter of 2024 as compared with the fourth quarter of 2023. The distribution will be payable on May 14, 2024 , to shareholders of record as of the close of business on May 2, 2024 . Simultaneously, the Partnership will make a distribution of $ 0.6516 per Class B Unit of the Partnership to the Sponsors.
15
PART I – FINANCIAL INFORMATION (CONT’D)
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.