Hess Midstream Surpasses Production Expectations and Raises Full-Year Guidance

Hess Midstream Reports Strong Q2 2024 Earnings

In its recent earnings call, Hess Midstream LP announced impressive results for the second quarter of 2024, surpassing production estimates and uplifting its full-year outlook. The company achieved notable growth in both gas processing and oil terminaling volumes, increasing by 7% and 8%, respectively, compared to the previous quarter. In the Bakken region, net production averaged 212,000 barrels of oil equivalent per day, which exceeded initial projections. Although the company expects a slight decline in third-quarter production due to contractual obligations and maintenance, Hess Midstream expresses confidence in its ongoing operations in the Bakken.

Hess Midstream shared details of its capital return strategy, highlighting the importance of balancing a solid leverage ratio with shareholder returns. During the call, concerns were raised regarding potential processing capacity constraints and competition in the Bakken. Nonetheless, Hess Midstream remains optimistic about its growth initiatives and planned infrastructure enhancements.

Key Takeaways:

• Hess Midstream surpassed Q2 production expectations with 212,000 barrels of oil equivalent per day in the Bakken.
• The company raised its full-year guidance for gas gathering and processing throughput volumes.
• A slight reduction in Q3 production is anticipated due to contracts and maintenance.
• The 4-rig program in the Bakken will continue through 2024.
• Adjusted free cash flow is expected to reach between $675 million to $725 million for 2024.
• Expansion plans are scheduled for 2027 to accommodate increased gas processing capacity.
• The firm is confident in its long-term growth trajectory and cooperation between upstream and midstream operations.

Company Outlook:

• Bakken net production is projected to be between 200,000 to 205,000 barrels of oil equivalent per day in Q3.
• The commitment to a 4-rig program in the Bakken remains intact for 2024.
• Adjusted free cash flow guidance has been revised to between $675 million and $725 million for the full year.

Bearish Highlights:

• Q3 production is expected to decrease due to percentage of proceeds contracts and planned maintenance activities.
• There is recognition of the need for additional processing capacity in the long-term.

Bullish Highlights:

• Increased throughput volumes were observed across all segments, with notable growth in gas processing and oil terminaling.
• Plans are in place to expand processing capacity and capture third-party volumes.
• Opportunities to broaden its presence in the Bakken amid growing competition are seen as favorable.

Misses:

• One-third of the volume exceedance in Q2 was attributed to percentage of proceeds contracts, which do not contribute to additional throughput or revenue.

Q&A Highlights:

• Hess Midstream is confident in its gas processing capabilities and expansion efforts to support future growth.
• The company aims to maintain a leverage ratio of three times EBITDA, with plans to reduce this below three by the end of 2025.
• Q2 performance was strong, and while high performance is expected to continue, the company is comfortable with its guidance ranges.
• The collaboration between upstream and midstream operations is seen as critical for long-term growth.

In summary, Hess Midstream LP has demonstrated operational strength and strategic foresight in Q2 2024, positioning itself for ongoing performance in the Bakken region. The focus on balancing growth and financial health sets a positive outlook for its future endeavors.