Hess Midstream LP Reports Estimated Results for the Third Quarter of 2020

Rhea-AI Summary

Hess Midstream LP (NYSE: HESM) reported third-quarter 2020 net income of $115.8 million, up from $87.4 million in Q3 2019. After accounting for noncontrolling interests, net income attributable to Hess Midstream was $5.6 million or $0.31 per Class A share. Adjusted EBITDA reached $181.6 million, driven by higher Hess production and throughput volumes. The company declared a cash distribution of $0.4417 per Class A share, marking a 1.2% increase compared to the previous quarter. Hess Midstream raised its full-year guidance, expecting net income between $465M and $475M.

Positive

• Net income rose to $115.8 million from $87.4 million YoY.
• Adjusted EBITDA of $181.6 million represents strong operational performance.
• Cash distribution increased by 1.2%, reflecting a positive growth outlook.
• Full-year guidance increased for net income to between $465 million and $475 million.

Negative

• Total costs and expenses increased to $127.6 million from $115.6 million YoY.
• Capital expenditures decreased significantly from $122.3 million to $66.4 million, indicating potential project slowdowns.

HOUSTON--(BUSINESS WIRE)--Hess Midstream LP (NYSE: HESM) (“Hess Midstream”) today reported third quarter 2020 net income of $115.8 million compared with net income of $87.4 million for the third quarter of 2019, as recast for the 2019 acquisition of Hess Infrastructure Partners LP (“HIP”) by Hess Midstream Operations LP (formerly known as Hess Midstream Partners LP) (the “Partnership”), Hess Midstream’s controlled subsidiary. After deduction for noncontrolling interests, net income attributable to Hess Midstream was $5.6 million, or $0.31 per Class A share. Hess Midstream generated Adjusted EBITDA of $181.6 million. DCF for the third quarter of 2020 was $156.2 million and free cash flow was $115.2 million.

_______________________________

1 Adjusted EBITDA, DCF and free cash flow are non‑GAAP measures. Definitions and reconciliations of these non‑GAAP measures to GAAP reporting measures appear in the following pages of this release.

Commenting on the third quarter 2020 results, John Gatling, President and Chief Operating Officer of Hess Midstream said, “We achieved another strong quarter driven by higher Hess production and increased gas capture by Hess Midstream. We are on track to deliver over 30% Adjusted EBITDA growth this year compared to 2019 and expect another year of Adjusted EBITDA growth in 2021 supported by our contracts. The strength and visibility of our business model is clear even in this period of macro uncertainty.”

Hess Midstream’s results contained in this release include the historical results of HIP for all periods prior to the closing of the Partnership’s acquisition of HIP, incentive distribution rights simplification and conversion from a master limited partnership into an “Up-C” structure on December 16, 2019 (collectively, the “Transaction”), which was accounted for as a business combination of entities under common control. We refer to certain results as “attributable to Hess Midstream LP,” which exclude (i) the noncontrolling interests in the Partnership retained by affiliates of Hess Corporation (“Hess”) and Global Infrastructure Partners, (ii) the noncontrolling interests in the historical operating subsidiaries of the Partnership, and (iii) historical activity of HIP prior to its acquisition by the Partnership, which is included in “net parent investment.”

Ongoing Response to COVID-19

The safety of our workforce and the communities where we operate continues to be our top priority. A cross-functional response team remains in place to coordinate our COVID-19 response from a health and safety perspective and to ensure that the detailed prevention protocols in place at all Hess Midstream assets are based on the most current recommendations by government and public health agencies.

Financial Results

Revenues and other income in the third quarter of 2020 were $264.8 million compared with $214.9 million in the prior-year quarter. Third quarter 2020 revenues included $29.3 million of pass-through rail transportation, electricity, produced water trucking and disposal costs and $7.8 million of shortfall fee payments related to minimum volume commitments (“MVC”) compared with $34.8 million and $3.0 million, respectively, in the prior-year quarter. Revenues were up primarily attributable to higher throughput volumes, MVC levels and tariff rates. Total costs and expenses in the third quarter of 2020 were $127.6 million up from $115.6 million in the prior-year quarter, primarily attributable to higher Little Missouri 4 (“LM4”) processing fees, maintenance expenditures on expanded infrastructure and depreciation expense for additional assets placed in service.

Net income for the third quarter of 2020 was $115.8 million and net cash provided by operating activities for the quarter was $149.6 million.

Adjusted EBITDA for the third quarter of 2020 was $181.6 million. Relative to distributions, DCF for the third quarter of 2020 of $156.2 million resulted in an approximately 1.2x distribution coverage ratio. Free cash flow for the third quarter of 2020 was $115.2 million.

Operational Highlights

Throughput volumes were up in all segments in the third quarter of 2020 compared with the third quarter of 2019 driven by higher Hess production and increased gas capture by Hess Midstream. In the gathering segment, throughput volumes increased 17% for gas gathering, 16% for crude oil gathering and 73% for water gathering. In the gas processing segment, throughput volumes increased 14%, and in the crude oil terminaling segment, throughput volumes increased 8%. Third parties comprised approximately 9% of crude oil gathering and 7% of gas gathering volumes for the third quarter of 2020.

Capital Expenditures

Capital expenditures for the third quarter of 2020 totaled $66.4 million, including $62.6 million of expansion capital expenditures and $3.8 million of maintenance capital expenditures. Capital expenditures in the prior-year quarter were $122.3 million, including $110.9 million of expansion capital expenditures, $10.0 million of equity investments associated with the LM4 gas processing plant, and $1.4 million of maintenance capital expenditures. Expansion capital expenditures in the third quarter of 2020 were primarily attributable to field construction activities for the planned expansion of the Tioga Gas Plant.

Quarterly Cash Distributions

On October 26, 2020, our general partner’s board of directors declared a cash distribution of $0.4417 per Class A share for the third quarter of 2020, an increase of 1.2% over the distribution for the prior quarter, which equals a 5% increase on an annualized basis. The distribution is expected to be paid on November 13, 2020 to shareholders of record as of the close of business on November 5, 2020.

2020 Guidance

Following strong year-to-date results, Hess Midstream updates its full year 2020 guidance as follows:

		Year Ending
		December 31, 2020
		(Unaudited)
Financials (in millions)
Net income		$	465 - 475
Adjusted EBITDA		$	725 - 735
Distributable cash flow		$	625 - 635
Expansion capital		$	250
Maintenance capital		$	10
Free cash flow		$	465 - 475

		Year Ending
		December 31, 2020
		(Unaudited)
Throughput volumes (in thousands)
Gas gathering - Mcf of natural gas per day		315 - 320
Crude oil gathering - barrels of oil per day		135 - 140
Gas processing - Mcf of natural gas per day		300 - 305
Crude terminals - barrels of oil per day		140 - 145
Water gathering - barrels of liquids per day		65 - 70

Investor Webcast

Hess Midstream will review third quarter financial and operating results and other matters on a webcast today at 12:00 p.m. Eastern Time. The live audio webcast is accessible on the Investor page of our website www.hessmidstream.com. Conference call numbers for participation are 866-395-9624, or 213-660-0871 for international callers. The passcode number is 6679756. A replay of the conference call will be available at the same location following the event.

About Hess Midstream

Hess Midstream LP is a fee‑based, growth-oriented midstream company that operates, develops and acquires a diverse set of midstream assets to provide services to Hess and third‑party customers. Hess Midstream owns oil, gas and produced water handling assets that are primarily located in the Bakken and Three Forks Shale plays in the Williston Basin area of North Dakota. More information is available at www.hessmidstream.com.

Reconciliation of U.S. GAAP to Non‑GAAP Measures

In addition to our financial information presented in accordance with U.S. generally accepted accounting principles (“GAAP”), management utilizes certain additional non‑GAAP measures to facilitate comparisons of past performance and future periods. “Adjusted EBITDA” presented in this release is 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, non‑recurring items, if applicable. “Distributable Cash Flow” or “DCF” is defined as Adjusted EBITDA less net interest, excluding amortization of deferred financing costs, cash paid for federal and state income taxes and maintenance capital expenditures. DCF does not reflect changes in working capital balances. “Free cash flow” is defined as Adjusted EBITDA less capital expenditures, excluding acquisition capital expenditures. We believe that investors’ understanding of our performance is enhanced by disclosing these measures as they may assist in assessing our operating performance as compared to other publicly traded companies in the midstream energy industry, without regard to historical cost basis or, in the case of Adjusted EBITDA, financing methods, and assessing the ability of our assets to generate sufficient cash flow to make distributions to our shareholders. These measures are not, and should not be viewed as, a substitute for GAAP net income or cash flow from operating activities and should not be considered in isolation. Reconciliations of Adjusted EBITDA, DCF and free cash flow to reported net income (GAAP) and net cash provided by operating activities (GAAP), are provided below.

		Third Quarter
		(unaudited)
		2020				2019(1)
(in millions, except ratio and per-share/limited partner unit data)
Reconciliation of Adjusted EBITDA and Distributable Cash Flow to net income:
Net income		$	115.8			$	87.4
Plus:
Depreciation expense			39.5				36.0
Proportional share of equity affiliates' depreciation			1.3				0.5
Interest expense, net			23.2				12.4
Income tax expense (benefit)			1.8				-
Adjusted EBITDA			181.6				136.3
Less:
Interest, net			21.6
Maintenance capital expenditures			3.8
Distributable cash flow		$	156.2
Less:
Adjusted EBITDA attributable to noncontrolling interest and net parent investment							109.7
Cash interest paid, net							0.6
Maintenance capital expenditures, net							0.3
Distributable cash flow, as previously reported(2)						$	25.7
Reconciliation of Adjusted EBITDA, Distributable Cash Flow and free cash flow to net cash provided by operating activities:
Net cash provided by operating activities		$	149.6			$	83.4
Changes in assets and liabilities			8.9				37.0
Amortization of deferred financing costs			(1.6	)			(1.3	)
Proportional share of equity affiliates' depreciation			1.3				0.5
Interest expense, net			23.2				12.4
Capitalized interest			-				4.1
Earnings from equity investments			3.6				0.5
Distribution from equity investments			(3.0	)			-
Other			(0.4	)			(0.3	)
Adjusted EBITDA		$	181.6			$	136.3
Less:
Interest, net			21.6
Maintenance capital expenditures			3.8
Distributable cash flow		$	156.2
Less:
Adjusted EBITDA attributable to noncontrolling interest and net parent investment							109.7
Cash interest paid, net							0.6
Maintenance capital expenditures, net							0.3
Distributable cash flow, as previously reported(2)						$	25.7
Adjusted EBITDA		$	181.6			$	136.3
Less:
Capital expenditures			66.4				122.3
Free cash flow		$	115.2			$	14.0
Distributed cash flow(2)			125.6				23.8
Distribution coverage ratio			1.2	x			1.1	x
Distribution per Class A share/limited partner unit		$	0.4417			$	0.4112

(1)		Prior period information has been retrospectively adjusted for the acquisition of Hess Infrastructure Partners LP.
(2)		Distributable cash flow prior to the Transaction is calculated net of any amounts attributable to noncontrolling interest. Subsequent to the Transaction, Hess Midstream will generally make cash distributions to holders of Class A Shares and to holders of noncontrolling interest pro rata. Therefore, distributable and distributed cash flow subsequent to the Transaction includes amounts attributable to noncontrolling interest.

	Guidance
	Year Ending
	December 31, 2020
	(Unaudited)
(in millions)
Reconciliation of Adjusted EBITDA, Distributable Cash Flow and free cash flow to net income:
Net income	$	465 - 475
Plus:
Depreciation expense*			155
Interest expense, net			95
Income tax expense			10
Adjusted EBITDA		725 - 735
Less:
Interest, net, and maintenance capital expenditures			100
Distributable cash flow		625 - 635
Adjusted EBITDA		725 - 735
Less:
Capital expenditures			260
Free cash flow		465 - 475
*Includes proportional share of equity affiliates' depreciation

Cautionary Note Regarding Forward-looking Information

This press release 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; and future economic and market conditions in the oil and gas industry.

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: the direct and indirect effects of the COVID-19 global pandemic and other public health developments on our business and those of our business partners, suppliers and customers, including Hess; the ability of Hess and other parties to satisfy their obligations to us, including Hess’ ability to meet its drilling and development plans on a timely basis or at all and the operation of joint ventures that we may not control; our ability to generate sufficient cash flow to pay current and expected levels of distributions; reductions in the volumes of crude oil, natural gas, natural gas liquids (“NGLs”) and produced water we gather, process, terminal or store; fluctuations in the prices and demand for crude oil, natural gas and NGLs, including as a result of the COVID-19 global pandemic; changes in global economic conditions and the effects of a global economic downturn on our business and the business of our suppliers, customers, business partners and lenders; our ability to comply with government regulations or make capital expenditures required to maintain compliance, including our ability to obtain or maintain permits necessary for capital projects in a timely manner, if at all, or the revocation or modification of existing permits; our ability to successfully identify, evaluate and timely execute our capital projects, investment opportunities and growth strategies, whether through organic growth or acquisitions; costs or liabilities associated with federal, state and local laws, regulations and governmental actions applicable to our business, including legislation and regulatory initiatives relating to environmental protection and safety, such as spills, releases, pipeline integrity and measures to limit greenhouse gas emissions; our ability to comply with the terms of our credit facility, indebtedness and other financing arrangements, which, if accelerated, we may not be able to repay; reduced demand for our midstream services, including the impact of weather or the availability of the competing third-party midstream gathering, processing and transportation operations; potential disruption or interruption of our business due to catastrophic events, such as accidents, severe weather events, labor disputes, information technology failures, constraints or disruptions and cyber-attacks; any limitations on our ability to access debt or capital markets on terms that we deem acceptable, including as a result of weakness in the oil and gas industry or negative outcomes within commodity and financial markets; liability resulting from litigation; and other factors described in Item 1A—Risk Factors in our Annual Report on Form 10-K and any additional risks described in our other filings with the Securities and Exchange Commission.

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.

HESS MIDSTREAM LP SUPPLEMENTAL FINANCIAL DATA (UNAUDITED) (IN MILLIONS)
		Third				Third				Second
		Quarter				Quarter				Quarter
		2020				2019(1)				2020
Statement of operations
Revenues
Affiliate services		$	264.7			$	214.9			$	269.8
Other income			0.1				-				-
Total revenues			264.8				214.9				269.8
Costs and expenses
Operating and maintenance expenses (exclusive of depreciation shown separately below)			83.9				71.9				95.0
Depreciation expense			39.5				36.0				38.9
General and administrative expenses			4.2				7.7				4.1
Total costs and expenses			127.6				115.6				138.0
Income from operations			137.2				99.3				131.8
Income from equity investments			3.6				0.5				0.9
Interest expense, net			23.2				12.4				23.3
Gain from sale of property, plant and equipment			-				-				0.1
Income before income tax expense (benefit)			117.6				87.4				109.5
Income tax expense (benefit)			1.8				-				1.7
Net income		$	115.8			$	87.4			$	107.8
Less: Net income (loss) attributable to net parent investment			-				(13.0	)			-
Less: Net income attributable to noncontrolling interest			110.2				81.3				102.5
Net income attributable to Hess Midstream LP			5.6				19.1				5.3
Less: General partner's interest in net income			-				1.3				-
Limited partners' interest in net income		$	5.6			$	17.8			$	5.3
Net income attributable to Hess Midstream LP per Class A share/limited partner unit:
Basic		$	0.31							$	0.29
Diluted		$	0.31							$	0.29
Net income attributable to Hess Midstream LP per limited partner unit (basic and diluted):
Common						$	0.33
Subordinated						$	0.33
Weighted average Class A shares outstanding subsequent to December 16, 2019:
Basic			18.0								18.0
Diluted			18.1								18.1
Weighted average limited partner units outstanding prior to December 16, 2019
Basic:
Common							27.3
Subordinated							27.3
Diluted:
Common							27.5
Subordinated							27.3

(1)

Prior period information has been retrospectively adjusted for the acquisition of Hess Infrastructure Partners LP.

HESS MIDSTREAM LP SUPPLEMENTAL FINANCIAL DATA (UNAUDITED) (IN MILLIONS)
		Nine Months Ended September 30,
		2020				2019 (1)
Statement of operations
Revenues
Affiliate services		$	825.1			$	594.5
Other income			0.3				0.3
Total revenues			825.4				594.8
Costs and expenses
Operating and maintenance expenses (exclusive of depreciation shown separately below)			270.8				184.1
Depreciation expense			116.9				105.0
General and administrative expenses			15.9				19.4
Total costs and expenses			403.6				308.5
Income from operations			421.8				286.3
Income from equity investments			7.2				0.5
Interest expense, net			71.3				44.2
Gain on sale of property, plant and equipment			0.1				-
Income before income tax expense (benefit)			357.8				242.6
Income tax expense (benefit)			5.2				-
Net income		$	352.6			$	242.6
Less: Net income (loss) attributable to net parent investment			-				(44.0	)
Less: Net income attributable to noncontrolling interest			335.2				232.6
Net income attributable to Hess Midstream LP			17.4				54.0
Less: General partner's interest in net income			-				3.1
Limited partners' interest in net income		$	17.4			$	50.9
Net income attributable to Hess Midstream LP per Class A share:
Basic:		$	0.97
Diluted:		$	0.95
Net income attributable to Hess Midstream LP per limited partner unit (basic and diluted):
Common						$	0.93
Subordinated						$	0.93
Weighted average Class A shares outstanding subsequent to December 16, 2019
Basic			18.0
Diluted			18.1
Weighted average limited partner units outstanding prior to December 16, 2019
Basic:
Common							27.3
Subordinated							27.3
Diluted:
Common							27.5
Subordinated							27.3

(1)

Prior period information has been retrospectively adjusted for the acquisition of Hess Infrastructure Partners LP.

HESS MIDSTREAM LP SUPPLEMENTAL FINANCIAL DATA (UNAUDITED) (IN MILLIONS)
		Third Quarter 2020
		Gathering				Processing and Storage				Terminaling and Export				Interest and Other				Total
Statement of operations
Revenues
Affiliate services		$	142.9			$	90.1			$	31.7			$	-			$	264.7
Other income			-				0.1				-				-				0.1
Total revenues			142.9				90.2				31.7				-				264.8
Costs and expenses
Operating and maintenance expenses (exclusive of depreciation shown separately below)			44.1				30.4				9.4				-				83.9
Depreciation expense			24.2				11.2				4.1				-				39.5
General and administrative expenses			2.2				1.5				0.2				0.3				4.2
Total costs and expenses			70.5				43.1				13.7				0.3				127.6
Income (loss) from operations			72.4				47.1				18.0				(0.3	)			137.2
Income from equity investments			-				3.6				-				-				3.6
Interest expense, net			-				-				-				23.2				23.2
Income before income tax expense (benefit)			72.4				50.7				18.0				(23.5	)			117.6
Income tax expense (benefit)			-				-				-				1.8				1.8
Net income (loss)			72.4				50.7				18.0				(25.3	)			115.8
Less: Net income (loss) attributable to noncontrolling interest			67.9				47.5				16.9				(22.1	)			110.2
Net income (loss) attributable to Hess Midstream LP		$	4.5			$	3.2			$	1.1			$	(3.2	)		$	5.6

		Third Quarter 2019(1)
		Gathering				Processing and Storage				Terminaling and Export				Interest and Other				Total
Statement of operations
Revenues
Affiliate		$	105.9			$	74.0			$	35.0			$	-			$	214.9
Total revenues			105.9				74.0				35.0				-				214.9
Costs and expenses
Operating and maintenance expenses (exclusive of depreciation shown separately below)			36.1				19.3				16.5				-				71.9
Depreciation expense			20.8				11.2				4.0				-				36.0
General and administrative expenses			2.5				1.2				0.2				3.8				7.7
Total costs and expenses			59.4				31.7				20.7				3.8				115.6
Income (loss) from operations			46.5				42.3				14.3				(3.8	)			99.3
Income from equity investments			-				0.5				-				-				0.5
Interest expense, net			-				-				-				12.4				12.4
Net income (loss)			46.5				42.8				14.3				(16.2	)			87.4
Less: Net income (loss) attributable to net parent investment			1.6				-				-				(14.6	)			(13.0	)
Less: Net income (loss) attributable to noncontrolling interest			35.8				34.0				11.5				-				81.3
Net income (loss) attributable to Hess Midstream LP		$	9.1			$	8.8			$	2.8			$	(1.6	)		$	19.1

(1)

Prior period information has been retrospectively adjusted for the acquisition of Hess Infrastructure Partners LP.

HESS MIDSTREAM LP SUPPLEMENTAL FINANCIAL DATA (UNAUDITED) (IN MILLIONS)
		Second Quarter 2020
		Gathering				Processing and Storage				Terminaling and Export				Interest and Other				Total
Statement of operations
Revenues
Affiliate services		$	136.4			$	86.8			$	46.6			$	-			$	269.8
Total revenues			136.4				86.8				46.6				-				269.8
Costs and expenses
Operating and maintenance expenses (exclusive of depreciation shown separately below)			39.5				29.0				26.5				-				95.0
Depreciation expense			23.7				11.2				4.0				-				38.9
General and administrative expenses			1.6				1.7				0.2				0.6				4.1
Total costs and expenses			64.8				41.9				30.7				0.6				138.0
Income (loss) from operations			71.6				44.9				15.9				(0.6	)			131.8
Income from equity investments			-				0.9				-				-				0.9
Interest expense, net			-				-				-				23.3				23.3
Gain on sale of property, plant and equipment			0.1				-				-				-				0.1
Income before income tax expense (benefit)			71.7				45.8				15.9				(23.9	)			109.5
Income tax expense (benefit)			-				-				-				1.7				1.7
Net income (loss)			71.7				45.8				15.9				(25.6	)			107.8
Less: Net income (loss) attributable to noncontrolling interest			67.1				43.0				14.9				(22.5	)			102.5
Net income (loss) attributable to Hess Midstream LP		$	4.6			$	2.8			$	1.0			$	(3.1	)		$	5.3

HESS MIDSTREAM LP SUPPLEMENTAL OPERATING DATA (UNAUDITED) (IN THOUSANDS)
		Third				Third				Second
		Quarter				Quarter				Quarter
		2020				2019				2020
Throughput volumes
Gas gathering - Mcf of natural gas per day			316				270				307
Crude oil gathering - bopd			138				119				141
Gas processing - Mcf of natural gas per day			296				259				289
Crude terminals - bopd			141				130				144
NGL loading - blpd			12				16				14
Water gathering - blpd			78				45				66
						Nine Months Ended September 30,
						2020				2019
Throughput volumes
Gas gathering - Mcf of natural gas per day							320				259
Crude oil gathering - bopd							143				113
Gas processing - Mcf of natural gas per day							302				244
Crude terminals - bopd							149				125
NGL loading - blpd							14				15
Water gathering - blpd							66				38