Hess Midstream LP (HESM) Bundle
Understanding Hess Midstream LP (HESM) Revenue Streams
Understanding Hess Midstream LP’s Revenue Streams
Hess Midstream LP generates revenue primarily through three reportable segments: gathering, processing and storage, and terminaling and export. The following table summarizes the revenue contributions from these segments for the nine months ended September 30, 2024, compared to the same period in 2023.
| Segment | 2024 Revenue (in millions) | 2023 Revenue (in millions) | Year-over-Year Change (in millions) |
|---|---|---|---|
| Gathering | $587.1 | $536.7 | $50.4 |
| Processing and Storage | $423.7 | $370.4 | $53.3 |
| Terminaling and Export | $88.8 | $85.0 | $3.8 |
| Total Revenue | $1,099.6 | $992.1 | $107.5 |
The total revenue for the first nine months of 2024 was $1,099.6 million, representing an increase of 10.8% compared to $992.1 million for the same period in 2023.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for Hess Midstream LP has shown significant improvement. In particular:
- Gathering segment revenue increased by $50.4 million, primarily due to higher gas gathering volumes above minimum volume commitments (MVCs).
- Processing and storage segment revenue rose by $53.3 million, driven largely by increased gas processing volumes and tariff rates.
- Terminaling and export segment revenue saw a modest increase of $3.8 million, attributed to higher volumes despite lower tariff rates.
Contribution of Different Business Segments to Overall Revenue
The contribution of each segment to the overall revenue for the nine months ended September 30, 2024, is as follows:
- Gathering: 53.4% of total revenue
- Processing and Storage: 38.5% of total revenue
- Terminaling and Export: 8.1% of total revenue
Analysis of Significant Changes in Revenue Streams
In the third quarter of 2024, revenues and other income reached $378.5 million, an increase of $15.4 million compared to $363.1 million in the prior year. The growth was attributed to:
- Higher physical volumes across gathering and processing segments.
- Gas gathering volumes increased by 9% in the third quarter of 2024 compared to the same period in 2023.
- Water gathering volumes surged by 29%, reflecting increased crude oil production.
Conversely, terminaling volumes decreased by 5% due to lower third-party volumes.
The following table outlines the revenue breakdown for the third quarter of 2024:
| Segment | Revenue (in millions) |
|---|---|
| Gathering | $197.5 |
| Processing and Storage | $133.2 |
| Terminaling and Export | $32.4 |
| Total Revenue | $363.1 |
Revenue trends indicate a robust performance in gathering and processing segments, primarily fueled by increased volumes and effective management of fee structures under commercial agreements.
A Deep Dive into Hess Midstream LP (HESM) Profitability
A Deep Dive into Hess Midstream LP's Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, gross profit was reported at $676.0 million, with gross profit margin standing at approximately 61.5%.
Operating Profit Margin: Operating income for the same period was $606.8 million, resulting in an operating profit margin of about 55.2%.
Net Profit Margin: The net income attributable to Hess Midstream LP for the nine months ended September 30, 2024, was $152.7 million, yielding a net profit margin of roughly 13.9%.
Trends in Profitability Over Time
In comparison to the previous year, the gross profit increased from $607.0 million in 2023 to $676.0 million in 2024. The operating income also rose from $606.8 million to $676.0 million during the same time frame, reflecting a continuous upward trend.
Comparison of Profitability Ratios with Industry Averages
The operating profit margin of 55.2% exceeds the industry average of approximately 45%. The net profit margin of 13.9% is also above the midstream sector average of 10%.
Analysis of Operational Efficiency
Operational efficiency is highlighted by a decrease in operating expenses, which totaled $385.3 million for the nine months ended September 30, 2024, compared to $375.0 million in 2023. This indicates improved cost management as revenues increased significantly.
| Metric | 2024 | 2023 | Change |
|---|---|---|---|
| Gross Profit ($ million) | 676.0 | 607.0 | +11.4% |
| Operating Income ($ million) | 606.8 | 586.0 | +3.1% |
| Net Income ($ million) | 152.7 | 81.1 | +88.5% |
| Operating Margin (%) | 55.2 | 52.0 | +3.2% |
| Net Profit Margin (%) | 13.9 | 8.2 | +5.7% |
Throughput volumes have also shown an increase, with gas gathering volumes rising to 442 MMcf/d, crude oil gathering reaching 116 MBbl/d, and gas processing volumes at 419 MMcf/d for the third quarter of 2024, indicating enhanced operational capacity.
Debt vs. Equity: How Hess Midstream LP (HESM) Finances Its Growth
Debt vs. Equity: How Hess Midstream LP Finances Its Growth
The financial structure of Hess Midstream LP is characterized by a mix of debt and equity financing, which is crucial for supporting its growth and operational strategies.
Overview of the Company's Debt Levels
As of September 30, 2024, Hess Midstream LP reported total debt with a carrying value of $3,489.8 million and a fair value of approximately $3,497.3 million. This total includes:
- Term Loan A Facility: $390.0 million.
- Revolving Credit Facility: $30.0 million drawn.
-
Senior Unsecured Notes:
- $600.0 million 6.500% due 2029.
- $400.0 million 5.500% due 2030.
- $750.0 million 4.250% due 2030.
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio for Hess Midstream LP stands at 3.24 as of September 30, 2024. This ratio indicates a higher reliance on debt compared to the industry average of approximately 1.5. The high ratio reflects the company's strategy to leverage debt for expansion while maintaining operational flexibility.
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
In May 2024, Hess Midstream LP issued $600.0 million in fixed-rate senior unsecured notes, which are due in 2029. The company utilized these proceeds to reduce outstanding indebtedness under its revolving credit facility. As of September 30, 2024, the partnership maintains compliance with its financial covenants, including a total debt-to-EBITDA ratio of less than 5.00 to 1.00.
How the Company Balances Between Debt Financing and Equity Funding
Hess Midstream LP has strategically balanced its funding sources through a combination of debt and equity. The company has engaged in multiple equity offerings, resulting in an increase in public ownership from approximately 29.8% at December 31, 2023, to 47.3% at September 30, 2024. This approach allows the company to access capital markets for growth while managing its debt levels effectively.
| Debt Type | Amount (in Millions) | Interest Rate | Due Date |
|---|---|---|---|
| Term Loan A Facility | $390.0 | N/A | N/A |
| Revolving Credit Facility | $30.0 | N/A | N/A |
| Senior Unsecured Notes | $600.0 | 6.500% | 2029 |
| Senior Unsecured Notes | $400.0 | 5.500% | 2030 |
| Senior Unsecured Notes | $750.0 | 4.250% | 2030 |
This structured approach allows Hess Midstream LP to utilize debt for growth initiatives while ensuring that equity financing provides a buffer against market volatility.
Assessing Hess Midstream LP (HESM) Liquidity
Assessing Hess Midstream LP's Liquidity
Current and Quick Ratios
The current ratio for Hess Midstream LP as of September 30, 2024, stands at 2.3, indicating a strong liquidity position. The quick ratio, which excludes inventory from current assets, is 2.1, showing that the company can cover its short-term liabilities effectively without relying on the sale of inventory.
Analysis of Working Capital Trends
As of September 30, 2024, Hess Midstream LP reported working capital of $531.0 million, an increase from $464.5 million at the end of June 2024. This reflects a positive trend in working capital, demonstrating improved liquidity management and operational efficiency.
Cash Flow Statements Overview
The cash flow statement for the nine months ended September 30, 2024, shows the following trends:
- Net cash provided by operating activities: $681.8 million (up from $618.8 million in the same period of 2023)
- Net cash used in investing activities: $211.0 million (compared to $160.0 million in 2023)
- Net cash used in financing activities: $310.0 million (compared to net proceeds of $258.0 million in 2023)
Liquidity Concerns or Strengths
Despite strong operating cash flows, liquidity concerns arise from increased financing activities due to higher interest expenses, which totaled $150.0 million for the nine months ended September 30, 2024, up from $131.2 million in 2023. The company issued $600.0 million in senior unsecured notes to manage debt levels effectively, which may impact future liquidity if cash flows do not meet expectations.
| Financial Metric | September 30, 2024 | June 30, 2024 | September 30, 2023 |
|---|---|---|---|
| Current Ratio | 2.3 | 2.5 | 2.0 |
| Quick Ratio | 2.1 | 2.3 | 1.9 |
| Working Capital | $531.0 million | $464.5 million | $367.4 million |
| Net Cash Provided by Operating Activities | $681.8 million | $224.9 million | $618.8 million |
| Net Cash Used in Investing Activities | $211.0 million | $160.0 million | $211.0 million |
| Net Cash Used in Financing Activities | $310.0 million | $258.0 million | Net Proceeds: $258.0 million |
Overall, Hess Midstream LP shows a solid liquidity position, but ongoing monitoring of cash flow trends and interest expenses is essential for maintaining financial health.
Is Hess Midstream LP (HESM) Overvalued or Undervalued?
Valuation Analysis
To assess the financial health of the company, we employ various valuation metrics including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 15.5, based on a net income attributable to the company of $152.7 million for the nine months ended September 30, 2024, and a weighted average of 93 million Class A shares outstanding. This ratio indicates how much investors are willing to pay per dollar of earnings.
Price-to-Book (P/B) Ratio
The P/B ratio is calculated at 1.2, with total shareholders' equity of $531 million as of September 30, 2024. This suggests that the market values the company slightly above its book value.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is currently 8.0. This is derived from an enterprise value of approximately $2.5 billion and an Adjusted EBITDA of $286.9 million for the third quarter of 2024. This ratio provides insight into how the market values the company's operating performance.
Stock Price Trends
Over the past 12 months, the stock price has exhibited a range from a low of $12.50 to a high of $19.00. As of September 30, 2024, the stock is trading at $17.00, reflecting a moderate increase amid market volatility.
Dividend Yield and Payout Ratios
The company has declared a quarterly cash distribution of $0.6846 per Class A Share, resulting in an annualized dividend yield of approximately 4.0%. The payout ratio stands at 35%, indicating a sustainable dividend policy relative to earnings.
Analyst Consensus
Analyst consensus on the stock is generally positive, with a majority rating it as a buy or hold. As of the latest reports, approximately 70% of analysts recommend buying the stock, while 20% suggest holding.
| Metric | Value |
|---|---|
| P/E Ratio | 15.5 |
| P/B Ratio | 1.2 |
| EV/EBITDA Ratio | 8.0 |
| Stock Price (as of Sept 30, 2024) | $17.00 |
| 52-Week Low | $12.50 |
| 52-Week High | $19.00 |
| Quarterly Cash Distribution | $0.6846 |
| Annualized Dividend Yield | 4.0% |
| Payout Ratio | 35% |
| Analyst Consensus (Buy/Hold/Sell) | 70% Buy, 20% Hold |
Key Risks Facing Hess Midstream LP (HESM)
Key Risks Facing Hess Midstream LP
Hess Midstream LP faces a range of internal and external risk factors that could impact its financial health. Understanding these risks is crucial for investors evaluating the company's stability and growth potential.
Industry Competition
The midstream sector is characterized by intense competition, particularly in the Bakken region. Key competitors include EnLink Midstream and Williams Companies, which could impact market share and pricing strategies. As of September 30, 2024, the company's revenues from contracts with customers were approximately $1,099.6 million, with 98% of revenues generated from fee-based agreements with Hess and third parties.
Regulatory Changes
Changes in environmental regulations can significantly affect operational costs and compliance requirements. The company is subject to federal, state, and local environmental laws. For instance, the remediation costs associated with a produced water release incident in North Dakota resulted in reserves of $2.2 million for estimated liabilities as of September 30, 2024.
Market Conditions
Volatility in oil and gas prices can indirectly influence Hess Midstream's operations. The throughput volumes, which are crucial for revenue generation, depend on production rates influenced by commodity prices. For example, in the third quarter of 2024, gas gathering throughput was 373 MMcf/d, while crude oil gathering was 98 MBbl/d, both of which are contingent on market conditions.
Operational Risks
Operational risks include potential disruptions in service delivery and maintenance challenges. Operating and maintenance expenses increased by $13.7 million in the first nine months of 2024 compared to the same period in 2023, primarily due to higher processing fees and maintenance activities.
Financial Risks
Financial risks include interest rate fluctuations and debt levels. As of September 30, 2024, the company had $600 million in fixed-rate senior unsecured notes with an interest rate of 6.500%. Interest expense net of income increased by $18.8 million in the first nine months of 2024 compared to the same period in 2023.
Strategic Risks
The company's growth strategy relies heavily on attracting third-party volumes. A sustained period of low commodity prices could adversely affect production and, consequently, the company's ability to execute its growth plans. In 2024, revenues from third-party services were $17.6 million, a significant increase from $3.7 million in 2023.
Mitigation Strategies
The company employs various mitigation strategies, including maintaining cash flow stability through fee-based contracts. Furthermore, capital expenditures for property, plant, and equipment were $211 million in the first nine months of 2024, aimed at enhancing capacity and operational efficiency.
| Risk Factor | Description | Impact |
|---|---|---|
| Industry Competition | High competition in the midstream sector affecting pricing and market share. | Potential revenue decline |
| Regulatory Changes | Compliance with environmental regulations increasing operational costs. | Increased expenses |
| Market Conditions | Volatility in oil and gas prices impacting throughput volumes. | Revenue fluctuations |
| Operational Risks | Increased operating and maintenance costs due to service disruptions. | Higher operational costs |
| Financial Risks | Interest rate fluctuations and debt levels affecting financial stability. | Increased interest expenses |
| Strategic Risks | Dependence on attracting third-party volumes for growth. | Potential revenue loss |
| Mitigation Strategies | Fee-based contracts and capital expenditures for infrastructure improvement. | Stabilized cash flow |
Future Growth Prospects for Hess Midstream LP (HESM)
Future Growth Prospects for Hess Midstream LP
Analysis of Key Growth Drivers
Hess Midstream LP is strategically positioned for growth through several key drivers:
- Product Innovations: Continuous enhancement of gathering, processing, and terminaling services.
- Market Expansions: Increased market share in key regions, particularly the Bakken shale formation.
- Acquisitions: Potential acquisitions targeting complementary assets to expand operational capacity and efficiency.
Future Revenue Growth Projections and Earnings Estimates
For the third quarter of 2024, the company reported revenues of $378.5 million, up from $363.1 million in the prior year, reflecting an increase of 4.1% year-over-year.
Adjusted EBITDA for the same quarter was $286.9 million, demonstrating a year-over-year increase of 6.4%.
Net income attributable to Hess Midstream LP for the third quarter of 2024 was $58.6 million, or $0.63 per Class A Share.
Strategic Initiatives or Partnerships That May Drive Future Growth
The company has engaged in several strategic initiatives:
- Partnerships: Collaborations with third-party producers to increase throughput volumes.
- Investment in Infrastructure: Ongoing capital expenditures projected at $204.2 million for 2024.
- Fee-Based Contracts: Continuation of fee-based commercial agreements, which provide revenue stability.
Competitive Advantages That Position the Company for Growth
Hess Midstream LP benefits from several competitive advantages:
- Stable Cash Flow: Approximately 98% of revenues are generated from Hess and its affiliates, minimizing exposure to commodity price fluctuations.
- Operational Efficiency: Advanced technology and operational practices that improve service delivery and reduce costs.
- Strong Balance Sheet: As of September 30, 2024, total consolidated assets were $4.146 billion, a significant increase from $3.789 billion at the end of 2023.
Financial Overview
| Metric | 2024 Q3 | 2023 Q3 | Change |
|---|---|---|---|
| Revenues | $378.5 million | $363.1 million | +4.1% |
| Adjusted EBITDA | $286.9 million | $269.7 million | +6.4% |
| Net Income | $58.6 million | $35.3 million | +66.5% |
| Capital Expenditures | $204.2 million | $173.9 million | +17.4% |
Overall, Hess Midstream LP is on a solid growth trajectory, supported by strategic initiatives, strong financial performance, and a robust market position.
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Resources:
- Hess Midstream LP (HESM) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Hess Midstream LP (HESM)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Hess Midstream LP (HESM)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.