Hess Midstream LP(HESM) - 2023 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements This section presents Hess Midstream LP's unaudited consolidated financial statements, detailing financial position and performance Consolidated Balance Sheets The balance sheet shows total assets increased to $3,659.7 million and total liabilities to $3,224.9 million by June 30, 2023 | (in millions) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $114.1 | $132.3 | | Property, plant and equipment, net | $3,188.3 | $3,172.8 | | Deferred tax asset | $254.0 | $177.2 | | Total assets | $3,659.7 | $3,588.2 | | Total current liabilities | $148.8 | $159.5 | | Long-term debt | $3,061.2 | $2,883.1 | | Total liabilities | $3,224.9 | $3,059.2 | | Total partners' capital | $434.8 | $529.0 | Consolidated Statements of Operations Total revenues increased to $324.0 million for Q2 2023, but net income decreased to $147.9 million due to higher expenses | (in millions, except per share) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $324.0 | $313.4 | $629.0 | $625.8 | | Income from operations | $198.1 | $195.3 | $386.8 | $390.8 | | Interest expense, net | $43.8 | $37.4 | $85.4 | $68.7 | | Net income | $147.9 | $151.8 | $290.1 | $311.4 | | Net income attributable to Hess Midstream LP | $25.1 | $22.0 | $45.8 | $38.9 | | Basic EPS (Class A) | $0.50 | $0.51 | $0.97 | $1.01 | Consolidated Statements of Changes in Partners' Capital Total partners' capital decreased to $434.8 million by June 30, 2023, influenced by net income, distributions, and unit repurchases - Key drivers for the change in partners' capital in the first six months of 2023 include net income, distributions, Class B unit repurchases, and recognition of a deferred tax asset[17] | Activity (Six Months Ended June 30, 2023) | Amount (in millions) | | :--- | :--- | | Balance at Dec 31, 2022 | $529.0 | | Net income | $142.2 (Q1) + $147.9 (Q2) | | Distributions | $(136.7) (Q1) + $(138.3) (Q2) | | Class B unit repurchase | $(100.0) (Q1) + $(100.0) (Q2) | | Recognition of deferred tax asset | $4.3 (Q1) + $87.2 (Q2) | | Balance at June 30, 2023 | $434.8 | Consolidated Statements of Cash Flows Net cash from operating activities was $403.3 million for the six months ended June 30, 2023, funding capital expenditures and distributions | (in millions) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $403.3 | $403.8 | | Net cash used in investing activities | $(107.3) | $(110.7) | | Net cash used in financing activities | $(296.1) | $(292.9) | | Increase (decrease) in cash | $(0.1) | $0.2 | Notes to Consolidated Financial Statements The notes detail accounting policies, equity transactions, related-party dealings, debt structure, segment performance, and subsequent events - On May 19, 2023, the Sponsors sold 12,765,000 Class A Shares in a public offering for net proceeds of approximately $333.4 million, with the company receiving no proceeds[27] - The Partnership repurchased 3,619,254 Class B Units for $100.0 million in March 2023 and 3,350,084 Class B Units for another $100.0 million in June 2023, funded by its revolving credit facility[31][32] - Approximately 100% of revenues for the three and six months ended June 30, 2023 and 2022 were attributable to fee-based commercial agreements with Hess Corporation[42] - On July 24, 2023, the board declared a quarterly cash distribution of $0.6011 per Class A Share for Q2 2023, a 2.7% increase from Q1 2023[80] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, liquidity, and capital expenditures, highlighting revenue growth and increased throughput volumes Overview and Second Quarter Results Q2 2023 revenues increased to $324.0 million, with higher throughput volumes, while net income slightly decreased and Adjusted EBITDA grew - In Q2 2023, the company repurchased $100 million of Class B Units and Sponsors sold 12,765,000 Class A shares in a public offering[87][88] | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Revenues and other income | $324.0M | $313.4M | | Consolidated net income | $147.9M | $151.8M | | Adjusted EBITDA | $248.1M | $242.6M | | Net income per Class A Share (basic) | $0.50 | $0.51 | - Throughput volumes in Q2 2023 increased YoY by 23% for gas processing, 19% for gas gathering, and 34% for water gathering, primarily due to higher production and recovery from severe weather in Q2 2022[94] Results of Operations This section provides detailed segment-level financial comparisons, showing revenue changes driven by tariff rates and MVCs, and increased interest expense - Q2 2023 vs Q2 2022: - Gathering: Revenue increased by $8.3 million, driven by higher tariff rates, partially offset by lower MVC-related revenue[118] - Processing & Storage: Revenue increased by $6.3 million due to higher volumes and tariff rates[121] - Terminaling & Export: Revenue decreased by $4.0 million as higher physical volumes remained below the higher MVC levels of Q2 2022[123] - YTD 2023 vs YTD 2022: - Gathering: Revenue increased by $9.4 million, driven by higher tariffs, but partially offset by lower MVC-related revenue despite higher physical volumes[131] - Terminaling & Export: Revenue decreased by $13.1 million, primarily due to lower MVC levels and reduced rail transportation pass-through revenues[136] - Interest Expense: Increased by $16.7 million due to higher interest rates and new senior notes issued in April 2022[138] Capital Resources and Liquidity The company funds operations and distributions through cash from operations, credit facilities, and debt, with $3.06 billion in long-term debt - Primary sources of liquidity are cash from operations, borrowings under the revolving credit facility, and issuances of debt and equity securities[149][156] | Debt Instrument | Principal Amount (as of June 30, 2023) | | :--- | :--- | | 5.625% Senior Notes due 2026 | $800.0 million | | 5.125% Senior Notes due 2028 | $550.0 million | | 4.250% Senior Notes due 2030 | $750.0 million | | 5.500% Senior Notes due 2030 | $400.0 million | | Credit Facilities (Revolver & Term Loan A) | $598.0 million outstanding | - 2023 capital expenditures are primarily for expanding compression capacity and gas capture capabilities, with two new compressor stations expected to be in service later in 2023[166] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company faces minimal commodity price risk due to fee-based agreements but is exposed to interest rate risk on its debt - The company has minimal direct exposure to commodity prices due to its fee-based commercial agreements with Hess, which include minimum volume commitments[172] - The main market risk is exposure to changes in interest rates on its debt, and the company did not have any interest rate derivatives in place as of June 30, 2023[173] Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[175] - No material changes were made to internal control over financial reporting during the quarter ended June 30, 2023[176] PART II—OTHER INFORMATION Legal Proceedings This section refers to Note 10 for information on legal proceedings, including a non-material produced water release notice - Information on legal proceedings is incorporated by reference from Note 10, Commitments and Contingencies[178] Risk Factors There have been no material changes to the risk factors previously disclosed in the 2022 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the 2022 Annual Report on Form 10-K[179] Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2023 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended June 30, 2023[180] Exhibits This section lists the exhibits filed with the Form 10-Q, including a Unit Repurchase Agreement and required certifications - The exhibits filed include the Unit Repurchase Agreement from June 26, 2023, and required certifications by the CEO and CFO[182]