What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-07 · 159 added, 56 removed, 295 unchanged (42% of the section changed)

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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 February 8, 2024, GIP sold an aggregate of 11,500,000 of our Class A Shares representing limited partner interests in the Company (“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.

On February 8, 2024, GIP sold an aggregate of 11,500,000 of our Class A Shares representing limited partner interests in the Company (“Class A Shares”), inclusive of the underwriter’s option to purchase up to 1,500,000 of additional shares, which was fully exercised, in an underwritten public offering at a price to the underwriter of $32.83 per Class A Share.

GIP received net proceeds from the offering of approximately $377.5 million.

On May 31, 2024, GIP sold an aggregate of 10,000,000 of our Class A Shares in an underwritten public offering at a price to the underwriter of $34.025 per Class A Share.

GIP also granted the underwriter an option to purchase up to an additional 1,500,000 Class A shares at the same price per Class A share, which was exercised in full on June 3, 2024.

GIP received net proceeds from the offering of approximately $391.3 million.

The Company did not receive any proceeds from the offering transaction.

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The purchase price per Class B Unit was $35.50, the closing price of the Class A shares on March 11, 2024.

The repurchase transaction was funded using borrowings under the Partnership’s existing revolving credit facility.

As a result of the equity offering and unit repurchase transactions described above, our public ownership increased from approximately 29.8% at December 31, 2023, to approximately 35.3% at March 31, 2024, on a consolidated basis.

We utilized the excess free cash flow beyond our growing distributions to provide increased return of capital to our shareholders through an immediate 1.5% increase in our quarterly distribution level per Class A Share in the first quarter of 2024 in addition to the quarterly 1.2% increase per Class A Share consistent with our target of at least 5% growth in annual distributions per Class A Share.

On June 26, 2024, the Partnership, purchased directly from the Sponsors 2,724,052 Class B Units for an aggregate purchase price of approximately $100.0 million.

The purchase price per Class B Unit was $36.71, the closing price of the Class A Shares on June 24, 2024.

The repurchase transactions were funded using borrowings under the Partnership’s existing revolving credit facility and cash on hand.

As a result of the equity offerings and unit repurchase transactions described above, our public ownership increased from approximately 29.8% at December 31, 2023, to approximately 41.0% at June 30, 2024, on a consolidated basis.

We utilized the excess free cash flow beyond our growing distributions to provide increased return of capital to our shareholders through an immediate increase in our quarterly distribution level per Class A Share in each of the first two quarters of 2024, which, on an annualized basis, is significantly above our target of at least 5% growth in annual distributions per Class A Share through 2026.

Our assets and operations are organized into the following three reportable segments:

(1) gathering (2) processing and storage and (3) terminaling and export.

First Quarter Results

Significant financial and operating highlights for the first quarter of 2024 included:

Second Quarter Results

Significant financial and operating highlights for the second quarter of 2024 included:

• Consolidated net income of $160.3 million;

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• Net cash provided by operating activities of $271.6 million;

• Adjusted EBITDA of $275.8 million;

• Cash distribution of $0.6516 per Class A Share declared on April 22, 2024, 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 increase consists of an approximate 1.5% increase in the Company’s distribution level per Class A Share in addition to the quarterly 1.2% increase per Class A Share consistent with its target of at least 5% growth in annual distributions per Class A Share.

PART I – FINANCIAL INFORMATION (CONT’D)

Revenues and other income in the first quarter of 2024 were $355.6 million compared with $305.0 million in the prior-year quarter.

First quarter 2024 revenues and other income were up $50.6 million compared to the prior-year quarter primarily due to higher physical volumes, partially offset by lower shortfall fees due to the 2023 transition to actual physical volumes that are at or above MVCs.

Total operating costs and expenses in the first quarter of 2024 were $133.6 million, compared with $116.3 million in the prior-year quarter.

• Adjusted EBITDA of $276.5 million;

• Cash distribution of $0.6677 per Class A Share declared on July 29, 2024, an increase of $0.0161 per Class A Share for the second quarter of 2024 as compared with the first quarter of 2024.

Revenues and other income in the second quarter of 2024 were $365.5 million compared with $324.0 million in the prior‑year quarter.

Second quarter 2024 revenues and other income were up $41.5 million compared with the prior-year quarter primarily due to higher physical volumes.

The second quarter 2024 results also included a one-time $8.0 million reduction in revenues related to setting the 2024 tariff rates for certain subsystems.

Total operating costs and expenses in the second quarter of 2024 were $143.2 million, compared with $125.9 million in the prior-year quarter.

The increase was primarily attributable to higher maintenance expenses, pass-through expenses and higher depreciation expense for additional assets placed in service.

Interest expense in the first quarter of 2024 was $48.5 million, up from $41.6 million in the prior-year quarter, primarily attributable to higher interest rates on our credit facilities and higher borrowings on our revolving credit facility.

Income tax expense increased $7.8 million resulting from ownership changes following secondary equity offering transactions and Class B Unit repurchases.

As a result, consolidated net income increased $19.7 million and Adjusted EBITDA increased $36.8 million for the first quarter of 2024 compared with the first quarter of 2023.

Throughput volumes increased 16% for gas gathering and gas processing in the first quarter of 2024 compared with the first quarter of 2023, primarily due to higher production, including third-party volumes, and higher gas capture.

Throughput volumes increased 14% for crude oil gathering and 13% for terminaling in the first quarter of 2024 compared with the first quarter of 2023, primarily due to higher production and higher third-party volumes.

Interest expense in the second quarter of 2024 was $49.7 million, up from $43.8 million in the prior-year quarter, primarily attributable to the new $600.0 million 6.500% fixed-rate senior unsecured notes issued in May 2024, higher interest rates on our credit facilities and higher borrowings on our revolving credit facility.

Income tax expense increased $7.9 million resulting from ownership changes following secondary equity offering and Class B Unit repurchase transactions.

As a result, consolidated net income increased $12.4 million and Adjusted EBITDA increased $29.7 million for the second quarter of 2024 compared with the second quarter of 2023.

Throughput volumes increased 19% for gas gathering and 17% for gas processing in the second quarter of 2024 compared with the second quarter of 2023, primarily due to higher production and higher gas capture.

Throughput volumes increased 23% for crude oil gathering and 17% for terminaling in the second quarter of 2024 compared with the second quarter of 2023, primarily due to higher production.

Water gathering volumes increased 43%, reflecting higher crude oil production and increased utilization of our water gathering infrastructure.

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Adjusted EBITDA.

We define Adjusted EBITDA as net income (loss) before net interest expense, income tax expense (benefit), 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.

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.

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• the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

PART I – FINANCIAL INFORMATION (CONT’D)

We believe that the presentation of Adjusted EBITDA provides useful information to investors in assessing our financial condition and results of operations.

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Results of Operations

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Results of operations for the three months ended March 31, 2024 and 2023 are presented below (in millions, unless otherwise noted).

For the Three Months Ended March 31, 2024

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Results of operations for the three months ended June 30, 2024 and 2023 are presented below (in millions, unless otherwise noted).

For the Three Months Ended June 30, 2024

Processing and Storage

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Costs and expenses

Operating and maintenance expenses

(exclusive of depreciation

shown separately below)

Depreciation expense

General and administrative expenses

Total operating costs and expenses

Income (loss) from operations

Income from equity investments

Interest expense, net

Income (loss) before income tax expense

Income tax expense

Net income (loss)

Net income (loss) attributable to

noncontrolling interest

Net income (loss) attributable to

Hess Midstream LP

Throughput volumes

Gas gathering (MMcf/d) (1)

Crude oil gathering (MBbl/d) (2)

Gas processing (MMcf/d) (1)

Crude oil terminaling (MBbl/d) (2)

NGL loading (MBbl/d) (2)

Water gathering (MBbl/d) (2)

(1) Million cubic feet per day

(2) Thousand barrels per day

PART I – FINANCIAL INFORMATION (CONT’D)

For the Three Months Ended June 30, 2023

Processing and Storage

Terminaling and Export

Interest and Other

Consolidated Hess Midstream LP

Affiliate services

Third-party services

Total revenues

Costs and expenses

Operating and maintenance expenses

(exclusive of depreciation

shown separately below)

Depreciation expense

General and administrative expenses

Total operating costs and expenses

Income (loss) from operations

Income from equity investments

Interest expense, net

Income (loss) before income tax expense

Income tax expense

Net income (loss)

Net income (loss) attributable to

noncontrolling interest

Net income (loss) attributable to

Hess Midstream LP

Throughput volumes

Gas gathering (MMcf/d) (1)

Crude oil gathering (MBbl/d) (2)

Gas processing (MMcf/d) (1)

Crude oil terminaling (MBbl/d) (2)

NGL loading (MBbl/d) (2)

Water gathering (MBbl/d) (2)

(1) Million cubic feet per day

(2) Thousand barrels per day

Revenues and other income increased $21.0 million in the second quarter of 2024 compared to the second quarter of 2023, of which $17.2 million is attributable to higher gas gathering volumes that were above MVCs in the second quarter of 2024 and 2023, $6.1 million is attributable to higher water gathering and disposal revenue, $5.0 million is attributable to higher crude oil gathering volumes that were above MVCs in the second quarter of 2024 and above MVC levels of the second quarter of 2023, and $3.4 million is attributable to higher pass‑through revenue.

Additionally, $1.4 million of the increase is attributable to services provided directly to third parties.

These revenue increases were partially offset by $12.1 million attributable to lower tariff rates, including a $3.6 million one-time reduction related to setting the 2024 tariff rates for certain subsystems.

Operating and maintenance expenses increased $7.0 million, of which $3.4 million is attributable to higher pass-through costs, including produced water trucking and disposal and electricity fees, $2.3 million is attributable to compressor stations overhauls and other maintenance activities, and $1.3 million is attributable to higher employee costs allocated to us under our omnibus and employee secondment agreements.

Depreciation expense increased $3.3 million due to new compressors and other new gathering assets brought into service.

PART I – FINANCIAL INFORMATION (CONT’D)

Processing and Storage

Revenues and other income increased $16.7 million in the second quarter of 2024 compared to the second quarter of 2023, of which $15.1 million is attributable to higher gas processing volumes that were above MVCs in the second quarter of 2024 and 2023, $3.4 million is attributable to higher tariff rates and $3.1 million is attributable to services provided directly to third parties.

These revenue increases were partially offset by a $4.4 million one-time reduction related to setting the 2024 tariff rate and $0.5 million lower pass-through revenue.

Operating and maintenance expenses increased $3.5 million, of which $3.0 million is attributable to higher third-party processing fees and $1.0 million is attributable to higher maintenance activity, slightly offset by $0.5 million attributable to lower pass-through costs.

Income from equity investments increased $2.0 million in the second quarter of 2024 compared to the second quarter of 2023 primarily due to higher volumes processed at the LM4 plant.

Terminaling and Export

Revenues and other income increased $3.8 million in the second quarter of 2024 compared to the second quarter of 2023, of which $3.5 million is attributable to higher crude oil terminaling volumes that were above MVCs in the second quarter of 2024 and above MVC levels of the second quarter of 2023, $1.6 million is attributable to pass-through revenue, and $0.4 million is attributable to other income.

These revenue increases were partially offset by $1.7 million attributable to lower tariff rates.

Operating and maintenance expenses increased $3.9 million in the second quarter of 2024 compared to the second quarter of 2023, of which $2.3 million is primarily attributable to the rail car recertification program and $1.6 million is attributable to rail transportation pass-through costs.

Interest and Other

Interest expense, net of interest income, increased $5.9 million in the second quarter of 2024 compared to the second quarter of 2023, of which $4.9 million is attributable to the new $600.0 million 6.500% fixed-rate senior unsecured notes issued during the second quarter of 2024 and $1.8 million is attributable to higher interest rates on our credit facilities and higher borrowings on our revolving credit facility, partially offset by $0.8 million interest income.

Income tax expense increased $7.9 million in the same period driven by increased ownership of the Partnership by Hess Midstream LP following equity offering and unit repurchase transactions in 2023 and 2024.

PART I – FINANCIAL INFORMATION (CONT’D)

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Results of operations for the six months ended June 30, 2024 and 2023 are presented below (in millions, unless otherwise noted).

For the Six Months Ended June 30, 2024

Processing and Storage

Terminaling and Export

Interest and Other

Consolidated Hess Midstream LP

Affiliate services

Third-party services

Total revenues

Costs and expenses

Operating and maintenance expenses (exclusive

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PART I – FINANCIAL INFORMATION (CONT’D)

For the Three Months Ended March 31, 2023

For the Six Months Ended June 30, 2023

Processing and Storage

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(2) Thousand barrels per day

Revenues and other income increased $23.4 million in the first quarter of 2024 compared to the first quarter of 2023, of which $14.2 million is attributable to higher gas gathering volumes that were above MVCs in the first quarter of 2024 and 2023, $6.0 million is attributable to higher water gathering and disposal revenue, $4.0 million is attributable to higher pass‑through revenue, and $2.5 million is attributable to higher crude oil gathering volumes that were above MVCs in the first quarter of 2024 and above MVC levels of the first quarter of 2023.

Revenues and other income increased $44.4 million in the first six months of 2024 compared to the first six months of 2023, of which $31.6 million is attributable to higher gas gathering volumes that were above MVCs in the first six months of 2024 and 2023, $12.2 million is attributable to higher water gathering and disposal revenue, $7.4 million is attributable to higher crude oil gathering volumes that were above MVCs in the first six months of 2024 and above MVC levels of the first six months of 2023, and another $7.4 million is attributable to higher pass‑through revenue.

Additionally, $2.6 million of the increase is attributable to services provided directly to third parties.

These revenue increases were partially offset by $4.5 million attributable to lower crude oil tariff rates.

Operating and maintenance expenses increased $7.9 million, of which $4.0 million is attributable to higher pass-through costs, including produced water trucking and disposal and electricity fees, $2.9 million is attributable to compressor stations overhauls and other maintenance activities, and $1.0 million is attributable to higher employee costs allocated to us under our omnibus and employee secondment agreements.

These revenue increases were partially offset by $16.8 million primarily attributable to lower crude oil tariff rates.

Operating and maintenance expenses increased $14.9 million in the first six months of 2024 compared to the first six months of 2023, of which $7.4 million is attributable to higher pass-through costs, including produced water trucking and disposal and electricity fees, $5.2 million is attributable to compressor stations overhauls and other maintenance activities, and $2.3 million is attributable to higher employee costs allocated to us under our omnibus and employee secondment agreements.

Depreciation expense increased $5.3 million due to new compressors and other new gathering assets brought into service.

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Processing and Storage

Revenues and other income increased $24.7 million in the first quarter of 2024 compared to the first quarter of 2023, of which $14.3 million is attributable to higher gas processing volumes that were above MVCs in the first quarter of 2024 and 2023, $7.4 million is attributable to higher tariff rates, and $3.0 million is primarily attributable to services provided directly to third parties.

Operating and maintenance expenses increased $5.0 million, of which $2.6 million is attributable to higher maintenance activity, $1.8 million is attributable to higher third-party processing fees, and $0.6 million is attributable to all other costs.

Income from equity investments increased $1.1 million in the first quarter of 2024 compared to the first quarter of 2023 primarily due to higher volumes processed at the LM4 plant.

Revenues and other income increased $41.4 million in the first six months of 2024 compared to the first six months of 2023, of which $29.4 million is attributable to higher gas processing volumes that were above MVCs in the first six months of 2024 and 2023, $6.4 million is attributable to higher tariff rates, and $6.2 million is attributable to services provided directly to third parties, slightly offset by $0.6 million lower pass-through revenue.

Operating and maintenance expenses increased $8.5 million in the first six months of 2024 compared to the first six months of 2023, of which $4.8 million is attributable to higher third-party processing fees and $3.7 million is attributable to higher maintenance activity.

Income from equity investments increased $3.1 million in the first six months of 2024 compared to the first six months of 2023 primarily due to higher volumes processed at the LM4 plant.

Terminaling and Export

Revenues and other income increased $2.5 million in the first quarter of 2024 compared to the first quarter of 2023, of which $2.1 million is attributable to higher crude oil terminaling volumes that were above MVCs in the first quarter of 2024 and above MVC levels of the first quarter of 2023, and $2.1 million is primarily attributable to pass-through revenue.

Revenues and other income increased $6.3 million in the first six months of 2024 compared to the first six months of 2023, of which $5.7 million is attributable to higher crude oil terminaling volumes that were above MVCs in the first six months of 2024 and above MVC levels of the first six months of 2023, $3.4 million is attributable to pass-through revenue, and $0.7 million is attributable to other income and services provided directly to third parties.

These revenue increases were partially offset by $3.5 million attributable to lower tariff rates.

Operating and maintenance expenses increased $2.7 million in the first quarter of 2024 compared to the first quarter of 2023, of which $1.8 million is attributable to rail transportation pass-through costs and $0.9 million is attributable to other maintenance expenses.

Operating and maintenance expenses increased $6.6 million in the first six months of 2024 compared to the first six months of 2023, of which $3.4 million is attributable to rail transportation pass-through costs and $3.2 million is primarily attributable to the rail car recertification program.

Interest and Other

Interest expense, net of interest income, increased $6.9 million in the first quarter of 2024 compared to the first quarter of 2023, primarily attributable to higher interest rates on our credit facilities and higher borrowings on our revolving credit facility.

Interest expense, net of interest income, increased $12.8 million in the first six months of 2024 compared to the first six months of 2023, of which $8.7 million is attributable to higher interest rates on our credit facilities and higher borrowings on our revolving credit facility and $4.9 million is attributable to the new $600.0 million 6.500% fixed-rate senior unsecured notes issued during the second quarter of 2024, partially offset by $0.8 million interest income.

Income tax expense increased $15.7 million in the same period driven by increased ownership of the Partnership by Hess Midstream LP following equity offering and unit repurchase transactions in 2023 and 2024.

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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,

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

Reconciliation of Adjusted EBITDA and to net income:

Reconciliation of Adjusted EBITDA to net income:

Depreciation expense

Proportional share of equity affiliates' depreciation

Interest expense, net

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Amortization of deferred financing costs

Proportional share of equity affiliates' depreciation

Interest expense, net

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Adjusted EBITDA

(1) Excludes amortization of deferred financing costs.

PART I – FINANCIAL INFORMATION (CONT’D)

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Our partnership agreement requires that we distribute all of our available cash, as defined in the agreement, to our shareholders.

On April 22, 2024, we declared a quarterly cash distribution of $0.6516 per Class A Share, to be paid on May 14, 2024 to shareholders of record on May 2, 2024.

On July 29, 2024, we declared a quarterly cash distribution of $0.6677 per Class A Share, to be paid on August 14, 2024 to shareholders of record on August 8, 2024.

Simultaneously, the Partnership will make a distribution of $0.6677 per Class B Unit of the Partnership to the Sponsors.

Fixed‑Rate Senior Notes

As of March 31, 2024, the Partnership had:

On May 16, 2024 the Partnership issued $600.0 million aggregate principal amount of 6.500% fixed‑rate senior unsecured notes due 2029 to qualified institutional investors.

Interest is payable semi‑annually on June 1 and December 1, commencing December 1, 2024.

The Partnership used the proceeds to reduce indebtedness outstanding under the Partnership’s revolving credit facility, with the remaining net proceeds for general corporate purposes.

As of June 30, 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.

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• $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.

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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.

As of June 30, 2024, we were in compliance with all debt covenants under the indentures.

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.

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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.

As of June 30, 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.

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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.

As of June 30, 2024, there were no borrowings outstanding under the Partnership’s revolving credit facility, and borrowings of $392.5 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.

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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, we were in compliance with these financial covenants.

As of June 30, 2024, we were in compliance with these financial covenants.

Operating Activities.

Net cash provided by operating activities decreased $13.4 million for the three months ended March 31, 2024, compared to the same period in 2023.

The change in operating cash flows resulted primarily from an increase in cash used by changes in working capital of $42.9 million, an increase in expenses, other than depreciation and other non-cash gains and losses of $22.0 million, partially offset by an increase in revenue and other income of $50.6 million and an increase in distributions received from equity investments of $0.9 million.

Net cash provided by operating activities increased $53.6 million for the six months ended June 30, 2024, compared to the same period in 2023.

The change in operating cash flows resulted primarily from an increase in revenues and other income of $92.1 million, an increase in distributions received from equity investments of $3.0 million, a decrease in cash used by changes in working capital of $0.4 million, partially offset by an increase in expenses, other than depreciation, amortization, equity-based compensation and other non-cash gains and losses of $41.9 million.

Investing Activities.

Net cash used in investing activities decreased $9.5 million for the three months ended March 31, 2024, compared to the same period in 2023 driven by lower payments for additions to property, plant, and equipment.

Net cash used in investing activities increased $11.4 million for the six months ended June 30, 2024, compared to the same period in 2023 driven by higher payments for additions to property, plant, and equipment primarily related to our compression capacity and related infrastructure expansion program.

Financing Activities.

Net cash used in financing activities decreased $2.2 million for the three months ended March 31, 2024, compared to the same period in 2023.

In the first three months of 2024, we paid higher distributions to shareholders and noncontrolling interests of $6.9 million and paid higher transactions costs of $0.4 million as compared to the same period in 2023.

Our net proceeds from bank borrowings were $9.5 million higher in the first three months of 2024 compared to the same period in 2023.

Net cash used in financing activities decreased $52.1 million for the six months ended June 30, 2024, compared to the same period in 2023.

In the first six months of 2024, we received proceeds of $591.1 million, net of financing costs, from our issuance of $600.0 million aggregate principal amount of 6.500% fixed-rate senior unsecured notes, that we used to reduce indebtedness outstanding under our revolving credit facility and for general corporate purposes.

In the first six months of 2024, we repaid $345.0 million of net borrowings under our Credit Facilities compared to $180.0 million net proceeds from borrowings under our Credit Facilities during the same period in 2023.

In addition, in the first six months of 2024, we paid higher distributions to shareholders and noncontrolling interests of $14.3 million, partially offset by lower transaction costs of $0.3 million.

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.

PART I – FINANCIAL INFORMATION (CONT’D)

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,

Six Months Ended June 30,

(in millions)

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Additions to property, plant and equipment

PART I – FINANCIAL INFORMATION (CONT’D)

Capital expenditures in 2024 are primarily attributable to continued expansion of our compression capacity and gas capture capabilities to meet Hess’ and third parties’ current and future production growth and gas capture targets.

Capital expenditures in 2024 are primarily attributable to continued expansion of our compression capacity and gas capture capabilities and related 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 2023 were also attributable to continued expansion of our compression capacity.

Capital expenditures in 2023 were also attributable to continued expansion of our compression capacity and related infrastructure.

PART I – FINANCIAL INFORMATION (CONT’D)

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o risks that the anticipated tax treatment of the potential transaction is not obtained, or other unforeseen or unknown liabilities;

o customer, shareholder, regulatory and other stakeholder approvals and support, or unexpected future capital expenditures;

o customer, regulatory and other stakeholder approvals and support, or unexpected future capital expenditures;

o potential litigation relating to the potential transaction that could be instituted against Chevron and Hess or their respective directors, and the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

14 unchanged sentences

Interest rate swaps may be used to convert interest payments on certain long‑term debt.

At March 31, 2024, we did not have in place any derivative instruments to hedge any exposure to changes in interest rates.

At March 31, 2024, our total debt had a carrying value of $3,325.4 million and a fair value of approximately $3,249.1 million, based on Level 2 inputs in the fair value measurement hierarchy.

At June 30, 2024, we did not have in place any derivative instruments to hedge any exposure to changes in interest rates.

At June 30, 2024, our total debt had a carrying value of $3,460.3 million and a fair value of approximately $3,397.8 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 $98.1 million or $97.5 million, respectively.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis