Market Overview

Hess Midstream Partners LP Reports Estimated Results for the Third Quarter of 2019

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Highlights:

  • Announced proposed transaction including acquisition of Hess Infrastructure Partners LP, incentive distribution rights simplification and conversion to an Up-C corporate structure.
  • Net income was $100.4 million. Net cash provided by operating activities was $126.5 million.
  • Adjusted EBITDA1 was $136.0 million, of which $26.6 million was attributable to Hess Midstream Partners LP. DCF1 of Hess Midstream Partners LP was $25.7 million.
  • Increased quarterly cash distribution to $0.4112 per unit, an increase of 15% compared to the prior-year quarter.
  • Compared with the prior‑year quarter, throughput volumes increased 34% for crude oil gathering, 31% for crude oil terminaling, 8% for gas gathering, and 7% for gas processing driven by Hess Corporation's growing production and ramp-up of the Little Missouri 4 gas processing plant.
  • Hess Midstream reaffirms its previously announced guidance for full year 2019.

Hess Midstream Partners LP (NYSE:HESM) ("Hess Midstream") today reported third quarter 2019 net income of $100.4 million compared with net income of $96.8 million for the third quarter of 2018. After deduction for noncontrolling interests, net income attributable to Hess Midstream was $19.1 million, or $0.33 per common unit. Hess Midstream generated Adjusted EBITDA of $26.6 million and DCF of $25.7 million for the third quarter of 2019.

Commenting on the third quarter 2019 results, John Gatling, Chief Operating Officer of Hess Midstream said, "Third quarter results continued our track record of execution and delivery. LM4 is ramping toward full capacity in line with our guidance and we are successfully backfilling the Tioga Gas Plant with additional third-party volumes. We remain focused on organic growth, driving increased Hess and third-party volumes across our system and building the foundation for growth in 2020 and beyond."

Financial Results

Hess Midstream's results included in this release are consolidated to include the noncontrolling interests in Hess Midstream's assets retained by Hess Infrastructure Partners LP ("Hess Infrastructure Partners"). We refer to certain results as "attributable to Hess Midstream Partners LP," which excludes the noncontrolling interests in Hess Midstream's assets retained by Hess Infrastructure Partners.

Revenues and other income in the third quarter of 2019 were $195.4 million, including $3.0 million of shortfall fee payments related to minimum volume commitments ("MVC"). Revenues were up from $169.5 million in the prior‑year quarter, primarily attributable to higher throughput volumes and tariff rates. Total costs and expenses in the third quarter of 2019 were $94.9 million up from $72.4 million in the prior-year quarter, primarily attributable to higher maintenance, pass-through rail transportation costs and depreciation driven by new gathering assets placed in service. Net income for the third quarter of 2019 was $100.4 million and net cash provided by operating activities was $126.5 million.

Adjusted EBITDA was $136.0 million, of which $26.6 million is attributable to Hess Midstream. DCF of $25.7 million resulted in a 1.08x DCF coverage ratio relative to distributions.

Operational Highlights

Throughput volumes were up in all segments in the third quarter of 2019 compared to the third quarter of 2018. In the gathering segment, throughput volumes increased 34% for crude oil gathering and 8% for gas gathering compared to the prior-year quarter, driven by growing Hess production. In the crude oil terminaling segment, throughput volumes increased 31% compared to the prior-year quarter, also driven by growing Hess production. In the gas processing segment, throughput volumes increased 7% compared to the prior-year quarter, driven by the ramp-up of the Little Missouri 4 ("LM4") gas processing plant.

Capital Expenditures

Gross capital expenditures for the third quarter of 2019 totaled $111.3 million, including $99.9 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. Capital expenditures in the prior-year quarter were $107.0 million, including $79.3 million of expansion capital expenditures, $26.0 million of equity investments associated with the LM4 gas processing plant, and $1.7 million of maintenance capital expenditures. The increase in expansion capital expenditures, excluding equity investments, was primarily attributable to expansion of our gathering system and compression capacity, and civil construction and fabrication activities for the planned expansion of the Tioga Gas Plant. Net capital expenditures attributable to Hess Midstream Partners LP in the third quarter of 2019 totaled $22.3 million, including $20.0 million of expansion capital expenditures, $2.0 million of equity investments associated with the LM4 gas processing plant, and $0.3 million of maintenance capital expenditures.

Quarterly Cash Distributions

On October 24, 2019, our general partner's board of directors declared a cash distribution of $0.4112 per unit for the third quarter of 2019, an increase of 3.6% over the distribution for the prior quarter and 15% compared to the third quarter of 2018. The distribution is expected to be paid on November 13, 2019 to unitholders of record as of the close of business on November 4, 2019.

Proposed Transaction

On October 4, 2019, Hess Midstream announced a proposed transaction, including acquisition of Hess Infrastructure Partners LP, incentive distribution rights simplification and conversion to an Up-C corporate structure. As part of the proposed transaction, Hess Midstream commenced an offer to exchange $800.0 million of outstanding senior notes of Hess Infrastructure Partners LP and Hess Infrastructure Partners Finance Corporation for new senior notes to be issued by Hess Midstream. On October 21, 2019, Hess Midstream announced that 99.32% of the aggregate principal amount of the existing outstanding senior notes had been validly tendered and not validly withdrawn pursuant to the exchange offer as of the early tender date. The proposed transaction is expected to close in the fourth quarter of 2019, subject to customary closing conditions and receipt of regulatory approvals.

Guidance

Hess Midstream is targeting long‑term 15% annual distribution growth per unit with at least a 1.1x distribution coverage ratio. Hess Midstream expects a 1.2x distribution coverage ratio in the fourth quarter of 2019, in line with the expected volume ramp-up of the LM4 gas processing plant.

Hess Midstream is reaffirming its guidance for full year 2019 as follows:

 

 

Year Ending

 

 

December 31, 2019

 

 

(Unaudited)

Financials (in millions)

 

 

 

Consolidated Adjusted EBITDA

 

$

550 - 575

Adjusted EBITDA attributable to Hess Midstream Partners LP

 

$

108 - 113

DCF of Hess Midstream Partners LP

 

$

103 - 108

Expansion capital attributable to Hess Midstream Partners LP

 

$

60 - 65

Maintenance capital attributable to Hess Midstream Partners LP

 

$

2 - 3

 

 

Year Ending

 

 

December 31, 2019

 

 

(Unaudited)

Throughput volumes (in thousands)

 

 

Gas gathering - Mcf of natural gas per day

 

280 - 290

Crude oil gathering - bopd

 

105 - 115

Gas processing - Mcf of natural gas per day

 

265 - 275

Crude terminals - bopd

 

120 - 130

 

 

 

 

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 4039408. A replay of the conference call will be available at the same location following the event.

About Hess Midstream

Hess Midstream Partners LP is a fee‑based, growth oriented traditional master limited partnership that was formed to own, operate, develop and acquire a diverse set of midstream assets to provide services to Hess Corporation and third‑party customers. Hess Midstream's assets 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 additional non‑GAAP measures to facilitate comparisons of past performance and future periods. We use two non‑GAAP financial measures in this earnings release. "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 other income and other non‑cash, non‑recurring items, if applicable. We define Adjusted EBITDA attributable to Hess Midstream Partners LP as Adjusted EBITDA less Adjusted EBITDA attributable to Hess Infrastructure Partners' retained interests in our joint interest assets. "Distributable Cash Flow" ("DCF") is defined as Adjusted EBITDA attributable to Hess Midstream Partners LP less cash paid for interest and maintenance capital expenditures. DCF does not reflect changes in working capital balances. 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 partnerships 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 unitholders. 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 both reported net income attributable to Hess Midstream Partners LP (GAAP) to Adjusted EBITDA and net cash provided by operating activities (GAAP) to DCF, are provided below.

 

 

Third Quarter

 

 

 

(unaudited)

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

(in millions, except ratio and per-unit data)

 

 

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