Third Quarter 2022 Highlights:
• Hess Midstream Operations LP extended the maturity of its $1.4 billion credit facilities through July 2027.
• Net income was $159.4 million. Net cash provided by operating activities was $234.7 million.
• Net income attributable to Hess Midstream LP was $23.2 million, or $0.53 basic earnings per Class A share, after deduction for noncontrolling interests.
• Adjusted EBITDA1 was $253.6 million, Distributable Cash Flow1 was $214.8 million and Adjusted Free Cash Flow1 was $155.6 million.
• Throughput volumes increased 24% for gas processing, 20% for gas gathering, and 12% for water gathering compared with the prior-year quarter primarily due to increased Hess drilling activity, higher gas capture and higher gas processing volumes in the third quarter of 2022 following the planned turnaround at the Tioga Gas Plant in the third quarter of 2021.
Guidance:
• Following a strong volume recovery in the third quarter of 2022, Hess Midstream LP is raising its full year 2022 guidance for net income and Adjusted EBITDA, compared with the midpoint of the prior guidance range; the updated net income guidance is approximately $630 million and the updated Adjusted EBITDA guidance is approximately $990 million.
• Hess Midstream LP is reiterating its annual distribution per share growth target of 5% through at least 2024 with expected annual distribution coverage greater than 1.4x, including distribution coverage greater than 1.5x in 2022.
• Hess Midstream LP is reaffirming its previously announced expectation of continued growth in Adjusted EBITDA through 2024 and continued Adjusted Free Cash Flow generation sufficient to fully fund growing distributions and provide capital allocation flexibility.
Hess Midstream LP reported third quarter 2022 net income of $159.4 million compared with net income of $131.1 million for the third quarter of 2021. After deduction for noncontrolling interests, net income attributable to Hess Midstream was $23.2 million, or $0.53 basic earnings per Class A share compared with $0.39 basic earnings per Class A share in the year-ago quarter. Hess Midstream generated Adjusted EBITDA of $253.6 million. Distributable Cash Flow (“DCF”) for the third quarter of 2022 was $214.8 million and Adjusted Free Cash Flow was $155.6 million.
“We delivered a solid quarter driven by a substantial recovery in Hess production and increased gas capture,” said John Gatling, President and Chief Operating Officer of Hess Midstream. “We are raising our 2022 operational and financial guidance, reflecting our expectation for continued strong performance through the end of the year. We remain focused on increasing gas capture, generating free cash flow and returning capital to our shareholders.”
Hess Midstream’s results contained in this release are consolidated to include the noncontrolling interests in Hess Midstream Operations LP owned by affiliates of Hess Corporation (“Hess”) and Global Infrastructure Partners (“GIP” and together with Hess, the “Sponsors”). We refer to certain results as “attributable to Hess Midstream LP,” which exclude the noncontrolling interests in Hess Midstream Operations LP owned by the Sponsors.
Financial Results
Revenues and other income in the third quarter of 2022 were $334.8 million compared with $303.9 million in the prior-year quarter. Third quarter 2022 revenues included $22.1 million of pass-through electricity, produced water trucking and disposal costs and certain other fees and $27.0 million of shortfall fee payments related to minimum volume commitments (“MVC”) compared with $28.7 million and $31.6 million, respectively, in the prior-year quarter. Third quarter 2022 revenues and other income were up $30.9 million compared to the prior-year quarter primarily due to higher gas and water throughput volumes and slightly higher tariff rates. Total costs and expenses in the third quarter of 2022 were $130.8 million, down from $144.7 million in the prior-year quarter. The decrease was primarily attributable to the Tioga Gas Plant maintenance turnaround expenses in the prior year quarter, and lower pass-through expenses, partially offset by $5.9 million in actual and estimated remediation costs associated with a produced water release in August 2022. Interest expense in the third quarter of 2022 was $39.9 million, up from $28.0 million in the prior-year quarter primarily attributable to the $750.0 million 4.25% fixed-rate senior notes issued in August 2021 and $400.0 million 5.50% fixed-rate senior notes issued in April 2022.
Net income for the third quarter of 2022 was $159.4 million, or $0.53 basic earnings per Class A share, after deduction for noncontrolling interests, compared with $0.39 basic earnings per Class A share in the year-ago quarter reflecting reduced noncontrolling interests after the unit repurchase transactions completed over the period. Substantially all of income tax expense was attributed to earnings of Class A shares reflective of our organizational structure. Net cash provided by operating activities for the third quarter of 2022 was $234.7 million.
Adjusted EBITDA for the third quarter of 2022 was $253.6 million. Relative to distributions, DCF for the third quarter of 2022 of $214.8 million resulted in an approximately 1.6x distribution coverage ratio. Adjusted Free Cash Flow for the third quarter of 2022 was $155.6 million.
In July 2022, Hess Midstream Operations LP extended the maturity of its $1.4 billion credit facilities, consisting of a $1.0 billion senior secured revolving credit facility and a fully drawn $400.0 million senior secured term loan, through July 2027. Borrowings under the revolving credit facility and the term loan bear interest based on the Secured Overnight Financing Rate plus an applicable margin.
Operational Highlights
In September 2022, Hess Midstream brought online the second of two new greenfield compressor stations planned for 2022. In aggregate, the new stations provide an additional 85 MMcf/d of installed capacity and can be expanded up to 130 MMcf/d in the future.
Throughput volumes increased 24% for gas processing and 20% for gas gathering in the third quarter of 2022 compared with the third quarter of 2021 primarily due to higher gas capture in the current year quarter and the Tioga Gas Plant turnaround in the prior year quarter. Water gathering volumes increased 12% reflecting continued steady organic growth of our water handling business. Throughput volumes in the third quarter of 2022 compared with the third quarter of 2021 decreased 4% for crude oil gathering and 1% for terminaling due to lower third party volumes.
Capital Expenditures
Capital expenditures for the third quarter of 2022 totaled $60.6 million, including $59.2 million of expansion capital expenditures and $1.4 million of maintenance capital expenditures, and were primarily attributable to continued expansion of our gas compression capacity. Capital expenditures in the prior-year quarter were $59.1 million, including $51.7 million of expansion capital expenditures and $7.4 million of maintenance capital expenditures, and were primarily attributable to expansion of our compression capacity and the Tioga Gas Plant turnaround.
Quarterly Cash Distributions
On October 24, 2022, our general partner’s board of directors declared a quarterly cash distribution of $0.5627 per Class A share for the third quarter of 2022, an approximate increase of 1.2% over the distribution for the prior quarter consistent with Hess Midstream's targeted 5% growth in annual distributions per Class A share. The distribution is expected to be paid on November 14, 2022 to shareholders of record as of the close of business on November 3, 2022.
Guidance
Hess Midstream continues to target 5% annual distribution growth per Class A share through at least 2024 with expected annual distribution coverage greater than 1.4x, including distribution coverage greater than 1.5x in 2022. In 2022, Hess Midstream expects revenues that are 95% protected by MVCs, as Hess Midstream’s physical volumes are generally expected to be at or below MVC levels. For 2023 and 2024, Hess Midstream continues to expect organic growth in physical volumes above MVC levels.