Hess Midstream LP (HESM): SWOT Analysis [11-2024 Updated]

In 2024, Hess Midstream LP (HESM) showcases a compelling blend of strengths and opportunities that position it favorably in the evolving oil and gas landscape. With revenues surging to approximately $1.1 billion, the company's robust infrastructure and strategic partnerships provide a solid foundation. However, significant weaknesses, including a heavy reliance on Hess Corporation for nearly all revenue, and external threats from fluctuating commodity prices and regulatory risks, present challenges that demand careful navigation. Dive deeper into this SWOT analysis to uncover how HESM can leverage its strengths while addressing its vulnerabilities in the competitive midstream sector.

Hess Midstream LP (HESM) - SWOT Analysis: Strengths

Strong revenue growth with total revenues of approximately $1.1 billion in 2024, up from $992 million in 2023.

Hess Midstream LP reported total revenues of approximately $1.1 billion for the year 2024, reflecting a significant increase from $992 million in 2023. This growth underscores the company’s robust operational performance and market demand for its services.

Major reliance on fee-based commercial agreements, providing cash flow stability and minimizing commodity price exposure.

Approximately 98% of Hess Midstream's revenues are derived from fee-based commercial agreements with Hess Corporation and its affiliates. This structure provides significant cash flow stability and minimizes direct exposure to commodity price fluctuations, ensuring consistent revenue generation even amid market volatility.

Significant throughput volumes, including gas gathering at 429 MMcf/d and crude oil gathering at 112 MBbl/d.

In 2024, Hess Midstream's throughput volumes included 429 million cubic feet per day (MMcf/d) for gas gathering and 112 thousand barrels per day (MBbl/d) for crude oil gathering. These figures highlight the company's capacity and efficiency in handling substantial volumes of hydrocarbons.

Established infrastructure with ongoing capital investments aimed at expanding capacity and improving operational efficiency.

The company has made ongoing capital investments totaling $211 million in 2024, focusing on expanding its infrastructure and enhancing operational efficiency. This investment strategy is critical for maintaining competitive advantages and responding to growing market demands.

A strong parent company relationship with Hess Corporation, which accounts for nearly all revenues and provides a reliable customer base.

Hess Midstream maintains a robust relationship with Hess Corporation, which accounts for nearly 98% of its revenues. This relationship not only provides a stable revenue base but also facilitates strategic collaboration in the Bakken region, enhancing operational synergies.

Hess Midstream LP (HESM) - SWOT Analysis: Weaknesses

High dependency on Hess for revenue

Hess Midstream LP derives approximately 98% of its total revenues from contracts related to Hess and its affiliates. This concentration creates a significant risk as any adverse changes in Hess's operations or market conditions could directly impact Hess Midstream's financial performance. For the nine months ended September 30, 2024, revenues attributable to Hess were $1,079.3 million, compared to $986.6 million for the same period in 2023.

Elevated interest expenses

The company has faced elevated interest expenses due to significant debt levels. For the first nine months of 2024, Hess Midstream reported $150 million in net interest expense, which is an increase from $131.2 million for the same period in 2023. This increase is attributed to the issuance of $600 million in 6.500% fixed-rate senior unsecured notes in May 2024, which has raised the overall cost of debt.

Increased operating and maintenance expenses

Operating and maintenance expenses have significantly increased, reflecting higher pass-through costs and maintenance activities. For the nine months ended September 30, 2024, these expenses rose to $254.6 million compared to $225.0 million in 2023, indicating a year-over-year increase of $29.6 million. The breakdown of these costs includes:

Vulnerability to regulatory changes and environmental liabilities

Hess Midstream is vulnerable to regulatory changes and potential environmental liabilities. The company is currently engaged in ongoing remediation from a produced water release incident that occurred in August 2022, which involved approximately 34,000 barrels of produced water. As of September 30, 2024, the reserves for estimated remediation liabilities stood at $2.2 million. Additionally, the company received a Notice of Violation from the North Dakota Department of Environmental Quality related to this incident, indicating ongoing regulatory scrutiny.

Hess Midstream LP (HESM) - SWOT Analysis: Opportunities

Potential for further growth through increased demand for midstream services as oil and gas production expands in the Bakken region.

The Bakken formation continues to experience growth in oil and gas production, which translates into increased demand for midstream services. Hess Midstream LP reported a throughput volume of 404 MMcf/d for gas gathering and 106 MBbl/d for crude oil gathering as of September 30, 2024. The increased production from Hess and other operators in the region is expected to boost demand for gathering, processing, and terminaling services.

Strategic capital expenditures aimed at expanding compression capacity and gas capture capabilities to meet future production targets.

Hess Midstream plans to invest significantly in capital expenditures to enhance its operational capabilities. For the nine months ended September 30, 2024, the company reported total capital expenditures of $204.2 million, with $194.5 million allocated to gathering. These investments are designed to expand compression capacity and improve gas capture capabilities, aligning with anticipated production growth in the Bakken region.

Opportunities to attract third-party volumes, diversifying revenue streams beyond the reliance on Hess.

In 2024, revenues from third-party services increased significantly, reaching $17.6 million for the nine months ended September 30. This growth indicates Hess Midstream's efforts to diversify its revenue streams beyond its primary contract with Hess. Attracting additional third-party volumes will enhance financial stability and reduce reliance on a single customer, which currently represents 98% of revenues.

The ongoing shift towards more sustainable energy solutions could enhance demand for Hess Midstream's services related to natural gas and NGL processing.

The global energy landscape is increasingly leaning towards sustainable solutions, which bodes well for Hess Midstream's natural gas and NGL processing services. The company has reported gas processing volumes of 419 MMcf/d as of September 30, 2024. As energy companies pivot towards cleaner energy sources, Hess Midstream's capabilities in processing natural gas and NGLs position it to capitalize on this shift, potentially increasing service demand as sustainability becomes a priority in the energy sector.

Hess Midstream LP (HESM) - SWOT Analysis: Threats

Fluctuations in commodity prices may indirectly affect Hess' production levels, impacting Hess Midstream's throughput volumes.

Hess Midstream LP operates under fee-based commercial agreements that provide stability against direct commodity price fluctuations. However, fluctuations in the prices of crude oil and natural gas can still impact Hess' production levels. For instance, sustained low prices can adversely affect Hess' ability to economically produce oil and gas, thereby reducing throughput volumes for Hess Midstream. The average price of West Texas Intermediate (WTI) crude oil fluctuated significantly, averaging approximately $77 per barrel in 2023 and dropping to around $65 per barrel by mid-2024, which may influence Hess' production decisions.

Regulatory risks associated with environmental laws and potential litigation could lead to financial liabilities and operational disruptions.

Hess Midstream is subject to numerous federal, state, and local environmental regulations. In 2022, the company faced a produced water release incident in North Dakota, which resulted in remediation costs that could reach up to $2.2 million as of September 30, 2024 . Additionally, regulatory changes could impose stricter environmental standards, leading to increased operational costs and potential litigation risks, which could further strain financial resources.

Increased competition from other midstream operators may pressure pricing and market share.

The midstream sector is witnessing heightened competition, with new entrants and existing players expanding their operations. This competition can lead to pricing pressures and may affect Hess Midstream's market share. For example, Hess Midstream's revenues from terminaling and export services decreased by $2.5 million in Q3 2024 compared to Q3 2023, which may reflect the impact of competitive pricing strategies. The presence of alternative midstream operators can dilute Hess Midstream's pricing power and profitability.

Economic downturns or global supply chain disruptions could negatively impact the oil and gas industry, affecting service demand.

Economic slowdowns can lead to reduced demand for oil and gas, adversely affecting Hess Midstream's throughput volumes. For instance, in the first nine months of 2024, the total revenues from terminaling and export services were $88.8 million, reflecting a potential decline in service demand. Furthermore, global supply chain disruptions, such as those experienced during the COVID-19 pandemic, can hinder operational efficiency and lead to increased costs, further impacting profitability

In summary, Hess Midstream LP (HESM) stands at a pivotal point in its journey, bolstered by strong revenue growth and a solid operational foundation, yet challenged by a high dependency on its parent company, Hess Corporation. The opportunities for expansion in the midstream sector, particularly in the Bakken region, present promising avenues for diversification and growth. However, the company must navigate potential threats from market fluctuations and regulatory pressures to sustain its competitive edge and capitalize on its strategic initiatives.

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.