Hess Midstream LP (HESM): BCG Matrix [11-2024 Updated]

In 2024, Hess Midstream LP (HESM) presents a dynamic landscape through the lens of the Boston Consulting Group (BCG) Matrix, revealing key insights into its operational segments. With strong revenue growth from gathering services and established operations in the Bakken region, HESM showcases its Stars and Cash Cows. However, challenges persist in the form of declining revenues in terminaling services and uncertain returns on new capital projects. Dive deeper to explore how these factors shape the company's strategic positioning and future prospects.

Background of Hess Midstream LP (HESM)

Hess Midstream LP is a growth-oriented, fee-based limited partnership that specializes in midstream services. The company owns, operates, develops, and acquires a diverse portfolio of midstream assets, primarily located in the Bakken and Three Forks shale plays in the Williston Basin area of North Dakota. Hess Midstream provides essential services such as gathering, processing, terminaling, and storage for crude oil, natural gas, and natural gas liquids (NGLs), as well as produced water disposal.

Founded in 2014, Hess Midstream is managed by Hess Midstream GP LLC, which is jointly owned by Hess Corporation and Global Infrastructure Partners (GIP). As of September 30, 2024, Hess Midstream had undergone significant equity offerings, raising approximately $1.2 billion over the course of the year, contributing to an increased public ownership from approximately 29.8% at December 31, 2023, to about 47.3% .

The company operates with a strong focus on long-term contracts, primarily with Hess Corporation. Approximately 98% of its revenues are derived from fee-based commercial agreements with Hess, which include minimum volume commitments and inflation escalators to ensure cash flow stability . These agreements were renewed in 2024 for an additional ten-year term, extending through December 31, 2033 .

Financially, Hess Midstream reported consolidated net income of $164.7 million in the third quarter of 2024, reflecting a slight decrease from the prior year. The net income attributable to Hess Midstream LP was $58.6 million, equating to $0.63 per Class A share . The company continues to invest in expanding its capacity and infrastructure, with capital expenditures primarily directed towards enhancing compression capacity and gas capture capabilities .

As of September 30, 2024, Hess Midstream's throughput volumes showed an upward trend, with a 9% increase in gas gathering, crude oil gathering, and gas processing compared to the previous year. This growth is attributed to higher production levels and enhanced gas capture strategies .

Hess Midstream LP (HESM) - BCG Matrix: Stars

Strong revenue growth from gathering and processing services

In the nine months ended September 30, 2024, Hess Midstream LP reported total revenues of $1,099.6 million, reflecting a significant increase from $992.1 million in the same period in 2023. This growth was driven primarily by enhanced performance in gathering and processing services.

Increased throughput volumes in both gas and crude oil gathering

The throughput volumes for gas gathering reached 429 MMcf/d and for crude oil gathering reached 112 MBbl/d during the same period. This marks an increase from 404 MMcf/d and 106 MBbl/d respectively, indicating robust operational performance and capacity utilization.

High demand for water gathering and disposal services

Water gathering and disposal services showed a marked increase in demand, with throughput volumes rising to 123 MBbl/d in 2024 compared to 99 MBbl/d in 2023. This growth highlights the strategic importance of water services in Hess Midstream’s operational mix.

Fee-based contracts providing stable cash flow

Approximately 98% of Hess Midstream's revenues are generated from fee-based commercial agreements with Hess Corporation and third-party customers. This structure minimizes direct exposure to commodity price fluctuations, providing a stable cash flow foundation for the business.

Significant capital investments in compression capacity and pipeline infrastructure

In 2024, Hess Midstream allocated $211.0 million for capital expenditures, primarily aimed at expanding compression capacity and enhancing pipeline infrastructure. These investments are crucial for supporting future production growth and meeting gas capture targets.

Hess Midstream LP (HESM) - BCG Matrix: Cash Cows

Established operations in the Bakken region with consistent profitability.

Hess Midstream LP has solidified its operations in the Bakken region, which has allowed the company to achieve consistent profitability. As of September 30, 2024, the company reported total revenues of $1,099.6 million for the nine-month period, up from $992.1 million in the same period of 2023.

Solid adjusted EBITDA margins, reflecting operational efficiency.

The adjusted EBITDA for Hess Midstream LP in the third quarter of 2024 was $286.9 million, compared to $269.7 million in the third quarter of 2023. The adjusted EBITDA margin for the nine months ended September 30, 2024, was approximately 76.5%, indicating strong operational efficiency.

Reliable revenue from long-term contracts with Hess and third parties.

In the first nine months of 2024, revenues from affiliate services accounted for approximately 98% of total revenues, demonstrating the stability of long-term contracts with Hess. The breakdown of revenues for the nine months ended September 30, 2024, is as follows:

Low exposure to commodity price fluctuations due to fee-based agreements.

Hess Midstream’s fee-based commercial agreements significantly reduce its exposure to commodity price fluctuations. The company does not own the crude oil, natural gas, or NGLs it handles, which stabilizes cash flows despite market volatility.

Regular distribution payments to shareholders, indicating strong cash flow management.

Hess Midstream LP has demonstrated strong cash flow management through regular distribution payments to shareholders. The distribution declared for the third quarter of 2024 was $0.6846 per Class A share, reflecting an increase from previous quarters. The following table outlines the distribution payments over recent quarters:

Hess Midstream LP (HESM) - BCG Matrix: Dogs

Terminaling and Export Segment Showing Declining Revenues

In the third quarter of 2024, the terminaling and export segment reported revenues of $28.9 million, down from $31.8 million in the same quarter of 2023, reflecting a decrease of $2.9 million. For the nine months ending September 30, 2024, revenues were $85.9 million, slightly increasing from $83.2 million in the corresponding period of 2023. This segment's performance is characterized by lower tariff rates, which accounted for a revenue drop of $2.0 million in the third quarter of 2024.

Increased Competition Impacting Market Share in Certain Service Areas

The competitive landscape in the terminaling and export services has intensified, with Hess Midstream's market share being pressured by new entrants and existing competitors enhancing their service offerings. This increased competition has led to a decline in Hess Midstream's market share within certain service areas, particularly in crude oil terminaling, where volumes have not kept pace with market growth.

Higher Operating Costs, Reducing Overall Profitability for Specific Segments

Operating and maintenance expenses in the terminaling and export segment increased by $2.8 million in the third quarter of 2024 compared to the previous year, reaching $7.4 million. This rise is primarily due to higher third-party processing fees and maintenance activities. The overall increase in costs is contributing to a decrease in the profitability of this segment.

Underperformance in Third-Party Services Compared to Affiliate Services

During the three months ended September 30, 2024, third-party services generated $6.2 million, a significant increase from $1.2 million in the same quarter of 2023. However, this growth remains overshadowed by the affiliate services, which accounted for $371.4 million in total revenues during the same period. The disparity highlights the underperformance of third-party services, which are not scaling as rapidly as expected compared to their affiliate counterparts.

Limited Growth Opportunities in Saturated Markets

The terminaling and export market is increasingly saturated, limiting growth opportunities for Hess Midstream. The company reported that the volumes for crude oil terminaling were 129 MBbl/d in the third quarter of 2024, unchanged from the previous year, indicating stagnation in growth potential. The saturation of the market poses challenges for Hess Midstream to expand its operations or increase market share.

Hess Midstream LP (HESM) - BCG Matrix: Question Marks

New capital projects in early stages with uncertain returns

As of September 30, 2024, Hess Midstream LP has reported significant capital expenditures totaling $204.2 million for the first nine months of 2024, up from $173.9 million in the same period of 2023. These investments are aimed at expanding compression capacity and related pipeline infrastructure, crucial for supporting Hess’ production growth.

Expansion into third-party service offerings facing operational challenges

In the third quarter of 2024, revenues from third-party services significantly increased to $6.2 million compared to $1.2 million in the previous year. However, operational challenges remain, notably with higher third-party processing fees contributing to an increase in operating expenses, which rose by $3.6 million during the same period.

Dependence on Hess for a majority of revenues, creating risk if production declines

Hess Midstream LP continues to rely heavily on Hess for its revenues, with approximately 98% of total revenues for the third quarter of 2024 coming from Hess and its affiliates. This dependency creates significant risk, particularly if Hess experiences production declines.

Potential regulatory changes that could impact operational costs

Ongoing regulatory scrutiny and potential changes in environmental regulations may impact Hess Midstream’s operational costs. The company has set aside reserves for remediation liabilities totaling $2.2 million as of September 30, 2024, reflecting its need to comply with environmental standards.

Market volatility affecting investment decisions and future cash flows

Market volatility continues to pose challenges for Hess Midstream. The company’s revenues are influenced by fluctuating commodity prices, which can affect production rates and investment decisions. For instance, net income for the third quarter of 2024 was reported at $164.7 million, a slight decrease from $164.8 million in the prior year, indicating sensitivity to market conditions.

In summary, Hess Midstream LP (HESM) presents a mixed bag of opportunities and challenges as illustrated by the BCG Matrix. The Stars category highlights strong growth in gathering and processing services, while the Cash Cows segment benefits from established operations and stable cash flows. However, the Dogs reveal declining revenues in terminaling and export services, and the Question Marks underscore uncertainties surrounding new projects and regulatory changes. As HESM navigates these dynamics, strategic focus on its strengths while addressing weaknesses will be key to sustaining growth and profitability.

Updated on 16 Nov 2024

Resources:

1. 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.
2. 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.