Hess Midstream LP - Ordinary Shares (HESM) Q2 Earnings call transcript Jul 31, 2024

Hess Midstream Corporation held its second quarter 2024 earnings call, providing investors and analysts with updates on the company's operational performance and financial outlook. The call, led by executives Jennifer Gordon, John Gatling, and Jonathan Stein, highlighted several key themes and trends that underscore Hess Midstream's strong financial health and growth prospects.

Operational Performance and Outlook

Hess Midstream reported a robust second quarter, with throughput volumes averaging 419 million cubic foot per day for gas processing, 126,000 barrels of oil per day for crude terminalling, and 124,000 barrels of water per day for water gathering. These volumes represent a significant increase across all segments, driven primarily by Hess Corporation's exceptional performance in the Bakken. The company's system availability remained high, with gas capture particularly strong, enabling Hess to exceed its production targets.

Looking ahead, Hess Midstream is raising its gas gathering and processing throughput volume guidance for full year 2024, indicating a strong focus on gas capture and growth in the Bakken. The company's strategic partnership with Hess and its focus on supporting the upstream development in the region is expected to drive sustainable cash flow generation and potential returns to shareholders.

Financial Performance and Guidance

Hess Midstream's financial performance was marked by strong revenue growth, with adjusted EBITDA for the second quarter reaching $276 million, up from $275 million in the previous quarter. The increase was driven by higher throughput volumes and segment revenue changes, reflecting the company's successful execution of its operational priorities. The company's net income was $160 million, slightly lower than the first quarter but still indicative of a solid financial position.

For the third quarter, Hess Midstream expects net income to be approximately $160 million to $170 million, with adjusted EBITDA projected at $280 million to $290 million. This reflects relatively flat volumes due to planned maintenance activities, but also anticipates higher revenues in the fourth quarter as volumes increase and maintenance activity declines.

Investor Relations and Capital Return

Hess Midstream's commitment to returning capital to shareholders was a significant focus during the call. The company has returned $1.75 billion to shareholders since 2021 through accretive repurchases, reducing its total unit count by nearly 25%. The company's targeted annual distribution growth and ongoing repurchases have led to a significant increase in distribution per Class A share, with total shareholder return yield remaining high. Hess Midstream expects to generate greater than $1.25 billion of financial flexibility through 2026 for incremental shareholder returns.

Growth Opportunities and Challenges

During the call, executives discussed the potential impact of several long-haul NGL expansions underway in the Bakken on Hess Midstream's operations. The company anticipates additional processing capacity will be required to support the growth in gas production, and plans to expand processing in 2027 to accommodate the increased volumes. The company also expressed optimism about the potential for new commercial opportunities as export capacity increases, emphasizing the importance of flow assurance and maintaining infrastructure to support these developments.

In conclusion, Hess Midstream's second quarter earnings call painted a picture of a company in a strong financial position, with a clear growth strategy and a focus on delivering sustainable returns to shareholders. The company's strategic partnership with Hess and its commitment to supporting upstream development in the Bakken are key drivers of its operational and financial success. As Hess Midstream moves forward, its ability to navigate the challenges and opportunities presented by the evolving energy landscape will be critical to its continued growth and success.