- Completed annual tariff rate redetermination process and
established minimum volume commitments (“MVCs”) for 2025 that imply
approximately 10% annualized growth in throughput volumes across
gas, oil and water systems from 2023 to 2025.
- Hess Midstream LP expects $600 - $640 million of Net Income
and $990 - $1,030 million of Adjusted EBITDA1 in 2023 followed by
at least 10% per year expected growth in Net Income and Adjusted
EBITDA in each of 2024 and 2025, supported by growth in gas
processing and gathering throughput volumes that represent
approximately 75% of total affiliate revenues, excluding
passthrough revenues.
- Hess Midstream LP expects capital expenditures of
approximately $225 million in 2023 and expects capital expenditures
in 2024 and 2025 to be stable with 2023 levels.
- Adjusted Free Cash Flow1 is expected to grow by greater than
10% on an annualized basis in both 2024 and 2025, more than
sufficient to fully fund targeted growing distributions.
- Hess Midstream LP is extending its annual distribution per
share growth target of 5% through 2025 with expected annual
distribution coverage of at least 1.4x.
- Hess Midstream LP continues to prioritize financial strength
with a long-term leverage target of 3x Adjusted EBITDA.
- Hess Midstream LP expects to generate greater than $1
billion of financial flexibility through 2025 for capital
allocation, including potential for incremental shareholder returns
beyond targeted distribution growth, funded by excess Adjusted Free
Cash Flow beyond targeted distribution growth and leverage capacity
with leverage of below 2.5x Adjusted EBITDA expected by the end of
2025.
Hess Midstream LP (NYSE: HESM) (“Hess Midstream”) today provided
2023 financial and operational guidance and expectations for 2024
and 2025.
“Hess Midstream is well-positioned, generating growing Adjusted
EBITDA, Adjusted Free Cash Flow and distributions, underpinned by
expected production growth in the Bakken,” said John Gatling,
President and Chief Operating Officer of Hess Midstream. "With our
robust balance sheet, unique contract structure, and strong cash
flow generation, we have flexibility to deliver ongoing and
significant return of capital to our shareholders.”
Full Year 2023 Guidance Hess Midstream's financial
guidance incorporates the outcomes of the year-end tariff rate
recalculation and nomination process conducted with Hess
Corporation (“Hess”) under Hess Midstream’s commercial agreements
with Hess.
Hess Midstream expects full year 2023 net income of between $600
million and $640 million and Adjusted EBITDA of between $990
million and $1,030 million. Gross Adjusted EBITDA Margin2 is
targeted to be approximately 75% in 2023. Hess Midstream expects
full year 2023 Distributable Cash Flow2 to range between $815
million and $855 million, resulting in a distribution coverage
ratio of approximately 1.5x.
In 2023, Hess Midstream expects to generate Adjusted Free Cash
Flow of between $605 million and $645 million and approximately $60
million after funding distributions that are targeted to grow 5%
per annum on a distribution per share basis.
In 2023, full year gas gathering volumes are anticipated to
average 365 to 375 million cubic feet ("MMcf") of natural gas per
day and gas processing volumes are expected to average 350 to 360
MMcf of natural gas per day, reflecting Hess’ announced four-rig
program in the Bakken.
Crude oil gathering volumes are anticipated to average 95 to 105
thousand barrels ("MBbl") per day of crude oil in 2023, and crude
oil terminaling volumes are expected to average 105 to 115 MBbl of
crude oil per day.
Water gathering volumes are expected to average 85 to 95 MBbl of
water per day for full year 2023.
Full Year 2023 Capital Guidance Hess Midstream expects
2023 capital expenditures of approximately $225 million, focused on
expansion of gas compression capacity and gathering system well
connects. Approximately $210 million is allocated to expansion
capital expenditures, with an estimated $15 million allocated to
maintenance capital expenditures.
Approximately $100 million of the 2023 capital budget is
allocated to gas compression, with activities focused on the
completion of two new greenfield compressor stations and associated
pipeline infrastructure, which are expected to provide, in
aggregate, an additional 100 MMcf per day of gas compression
capacity when brought online, further enhancing gas capture
capability and supporting Hess’ development in the basin.
Approximately $110 million is allocated to gathering system well
connects to service Hess and third‑party customers and focused
optimizations of our existing system.
_________________________________ (1) Adjusted EBITDA and
Adjusted 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. (2) Gross
Adjusted EBITDA Margin and Distributable Cash Flow are non‑GAAP
measures. Definitions and reconciliations, as applicable, of these
non‑GAAP measures to GAAP reporting measures appear in the
following pages of this release.
Full year 2023 guidance is summarized below:
Year Ending
December 31, 2023
(Unaudited)
Financials (in millions)
Net income
$
600 – 640
Adjusted EBITDA
$
990 – 1,030
Distributable cash flow
$
815 – 855
Expansion capital expenditures
$
210
Maintenance capital expenditures
$
15
Adjusted free cash flow
$
605 – 645
Year Ending
December 31, 2023
(Unaudited)
Throughput volumes
Gas gathering - MMcf of natural gas per
day
365 – 375
Crude oil gathering - MBbl of crude oil
per day
95 – 105
Gas processing - MMcf of natural gas per
day
350 – 360
Crude terminals - MBbl of crude oil per
day
105 – 115
Water gathering - MBbl of water per
day
85 – 95
Minimum Volume Commitments As part of the annual
nomination process set forth in our long-term commercial contracts,
Hess’ MVCs were reviewed and updated based on Hess' volume
nominations, which are based on Hess’ expectations of its own
volumes and third-party throughput volumes contracted through Hess.
MVCs are set annually at 80% of Hess’ nomination for the three
years following each nomination. Once set, MVCs for each year can
only be increased and not reduced.
As part of the process, MVCs for 2025 were set at 80% of
nominated volumes, reflecting expected organic throughput volume
growth across all systems relative to 2023 volume guidance and
providing visibility of expected revenue growth relative to 2023.
Hess' 2025 nomination for gas processing set at year-end 2022 was
429 MMcf of natural gas per day, resulting in the MVC of 343 MMcf
of natural gas per day at 80% of the nomination. Throughput volume
growth is driven primarily by increasing gas capture resulting from
planned investments in regional gas compression projects that are
expected to commence service over the next several years.
Hess Minimum Volume
Commitments
2023
2024
2025
Gas Gathering Agreement- MMcf of natural
gas per day
320
364
357
Crude Oil Gathering Agreement- MBbl of
crude oil per day
100
101
94
Gas Processing and Fractionation
Agreement- MMcf of natural gas per day
302
340
343
Terminaling and Export Services Agreement
- MBbl of crude oil per day
113
114
108
Water Services Agreement - MBbl of water
per day
75
89
99
Long-Term Financial Metrics Supported by approximately
10% expected annualized growth in physical volumes across gas, oil
and water systems from 2023 through 2025 implied by the updated
MVCs, Hess Midstream expects at least 10% per year Adjusted EBITDA
growth in each of 2024 and 2025. Gas processing and gathering is
expected to represent approximately 75% of total affiliate revenues
in 2024 and 2025, excluding passthrough revenues. Gross Adjusted
EBITDA Margin is targeted to be approximately 75% during this
period. Hess Midstream does not expect to pay material cash taxes
through 2025.
Adjusted Free Cash Flow is expected to grow by greater than 10%
on an annualized basis in both 2024 and 2025, more than sufficient
to fully fund targeted distribution growth. Hess Midstream expects
capital expenditures for 2024 and 2025 to remain stable with 2023
levels and to be primarily focused on planned investments in
regional gas compression projects, gathering well connects and
system optimizations to support Hess’ continued development in the
basin.
Return of Capital Framework Hess Midstream continues to
prioritize shareholder returns and a strong balance sheet. Hess
Midstream expects to generate excess Adjusted Free Cash Flow beyond
targeted distributions through at least 2025. Long-term targeted
leverage continues to be 3x Adjusted EBITDA and leverage is
expected to decrease to below 2.5x Adjusted EBITDA by the end of
2025. This is expected to provide greater than $1 billion of
financial flexibility through 2025 for capital allocation,
including potential for incremental shareholder returns beyond
targeted distribution growth.
Consistent with its stated Return of Capital to Shareholders
framework:
- Hess Midstream expects to continue to grow its base
distribution by extending its annual distribution per share growth
target of 5% through 2025 with expected annual distribution
coverage of at least 1.4x.
- Hess Midstream expects to generate significant flexibility for
incremental shareholder returns, including the potential for
ongoing unit repurchases through 2025, from excess Adjusted Free
Cash Flow beyond targeted distribution growth and leverage capacity
relative to long-term targeted leverage.
About Hess Midstream Hess Midstream LP is a fee‑based,
growth-oriented midstream company that owns, 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 and
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. We define
“Adjusted Free Cash Flow” as DCF less expansion capital
expenditures and ongoing contributions to equity investments. We
define “Gross Adjusted EBITDA Margin” as the ratio of Adjusted
EBITDA to total revenues, less passthrough revenues. 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 Adjusted Free Cash Flow to reported net income
(GAAP) are provided below. Hess Midstream is unable to project net
cash provided by operating activities with a reasonable degree of
accuracy because this metric includes the impact of changes in
operating assets and liabilities related to the timing of cash
receipts and disbursements that may not relate to the period in
which the operating activities occur. Therefore, Hess Midstream is
unable to provide projected net cash provided by operating
activities, or the related reconciliation of projected Adjusted
Free Cash Flow to projected net cash provided by operating
activities without unreasonable effort. Hess Midstream is unable to
project passthrough revenues with a reasonable degree of accuracy.
Therefore, Hess Midstream is unable to provide a reconciliation of
Gross Adjusted EBITDA Margin without unreasonable effort.
Guidance
Year Ending
December 31, 2023
(Unaudited)
(in millions)
Reconciliation of Adjusted EBITDA,
Distributable Cash Flow and Adjusted Free Cash Flow to net
income:
Net income
$
600 - 640
Plus:
Depreciation expense*
195
Interest expense, net
165
Income tax expense
30
Adjusted EBITDA
$
990 - 1,030
Less:
Interest, net, and maintenance capital
expenditures
175
Distributable cash flow
$
815 - 855
Less:
Expansion capital expenditures
210
Adjusted free cash flow
$
605 - 645
*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,” “imply” 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; our ability to deliver ongoing
return of capital to our shareholders 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 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, its ability to deliver its nominated volumes to us, 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; the actual volumes we gather, process, terminal
or store for Hess in excess of our MVCs and relative to Hess'
nominations; fluctuations in the prices and demand for crude oil,
natural gas and NGLs; changes in global economic conditions and the
effects of a global economic downturn or inflation on our business
and the business of our suppliers, customers, business partners and
lenders; the direct and indirect effects of an epidemic or outbreak
of an infectious disease, such as COVID-19 and its variants, on our
business and those of our business partners, suppliers and
customers, including Hess; 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 health and safety, such as spills, releases,
pipeline integrity and measures to limit greenhouse gas emissions
and climate change; 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.
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For Hess Midstream LP
Investors:
Jennifer Gordon (212) 536-8244
Media:
Robert Young (713) 496-6076
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