Hess Midstream LP Announces 2023 Guidance and Return of Capital Framework Through 2025
Hess Midstream LP (NYSE: HESM) ("Hess Midstream") today provided 2023 financial and operational guidance and expectations for 2024 and 2025.
"Hess Midstream is well-positioned, generating growing Adjusted EBITDA, Adjusted Free Cash Flow and distributions, underpinned by expected production growth in the Bakken," said John Gatling, President and Chief Operating Officer of Hess Midstream. "With our robust balance sheet, unique contract structure, and strong cash flow generation, we have flexibility to deliver ongoing and significant return of capital to our shareholders."
Full Year 2023 Guidance
Hess Midstream expects full year 2023 net income of between $600 million and $640 million and Adjusted EBITDA of between $990 million and $1,030 million. Gross Adjusted EBITDA Margin2 is targeted to be approximately 75% in 2023. Hess Midstream expects full year 2023 Distributable Cash Flow2 to range between $815 million and $855 million, resulting in a distribution coverage ratio of approximately 1.5x.
In 2023, Hess Midstream expects to generate Adjusted Free Cash Flow of between $605 million and $645 million and approximately $60 million after funding distributions that are targeted to grow 5% per annum on a distribution per share basis.
In 2023, full year gas gathering volumes are anticipated to average 365 to 375 million cubic feet ("MMcf") of natural gas per day and gas processing volumes are expected to average 350 to 360 MMcf of natural gas per day, reflecting Hess' announced four-rig program in the Bakken.
Crude oil gathering volumes are anticipated to average 95 to 105 thousand barrels ("MBbl") per day of crude oil in 2023, and crude oil terminaling volumes are expected to average 105 to 115 MBbl of crude oil per day.
Water gathering volumes are expected to average 85 to 95 MBbl of water per day for full year 2023.
Full Year 2023 Capital Guidance
Approximately $100 million of the 2023 capital budget is allocated to gas compression, with activities focused on the completion of two new greenfield compressor stations and associated pipeline infrastructure, which are expected to provide, in aggregate, an additional 100 MMcf per day of gas compression capacity when brought online, further enhancing gas capture capability and supporting Hess' development in the basin. Approximately $110 million is allocated to gathering system well connects to service Hess and third-party customers and focused optimizations of our existing system.
Full year 2023 guidance is summarized below:
Minimum Volume Commitments
As part of the process, MVCs for 2025 were set at 80% of nominated volumes, reflecting expected organic throughput volume growth across all systems relative to 2023 volume guidance and providing visibility of expected revenue growth relative to 2023. Hess' 2025 nomination for gas processing set at year-end 2022 was 429 MMcf of natural gas per day, resulting in the MVC of 343 MMcf of natural gas per day at 80% of the nomination. Throughput volume growth is driven primarily by increasing gas capture resulting from planned investments in regional gas compression projects that are expected to commence service over the next several years.
Long-Term Financial Metrics
Adjusted Free Cash Flow is expected to grow by greater than 10% on an annualized basis in both 2024 and 2025, more than sufficient to fully fund targeted distribution growth. Hess Midstream expects capital expenditures for 2024 and 2025 to remain stable with 2023 levels and to be primarily focused on planned investments in regional gas compression projects, gathering well connects and system optimizations to support Hess' continued development in the basin.
Return of Capital Framework
Consistent with its stated Return of Capital to Shareholders framework:
About Hess Midstream
Reconciliation of U.S. GAAP to Non-GAAP Measures
Cautionary Note Regarding Forward-looking Information
This press release contains "forward-looking statements" within the meaning of U.S. federal securities laws. Words such as "anticipate," "estimate," "expect," "forecast," "guidance," "could," "may," "should," "would," "believe," "intend," "project," "plan," "predict," "will," "target," "imply" and similar expressions identify forward-looking statements, which are not historical in nature. Our forward-looking statements may include, without limitation: our future financial and operational results; our business strategy; our industry; our expected revenues; our future profitability; our maintenance or expansion projects; our projected budget and capital expenditures and the impact of such expenditures on our performance; our ability to deliver ongoing return of capital to our shareholders and future economic and market conditions in the oil and gas industry.
Forward-looking statements are based on our current understanding, assessments, estimates and projections of relevant factors and reasonable assumptions about the future. Forward-looking statements are subject to certain known and unknown risks and uncertainties that could cause actual results to differ materially from our historical experience and our current projections or expectations of future results expressed or implied by these forward-looking statements. The following important factors could cause actual results to differ materially from those in our forward-looking statements: the ability of Hess and other parties to satisfy their obligations to us, including Hess' ability to meet its drilling and development plans on a timely basis or at all, its ability to deliver its nominated volumes to us, and the operation of joint ventures that we may not control; our ability to generate sufficient cash flow to pay current and expected levels of distributions; reductions in the volumes of crude oil, natural gas, natural gas liquids ("NGLs") and produced water we gather, process, terminal or store; the actual volumes we gather, process, terminal or store for Hess in excess of our MVCs and relative to Hess' nominations; fluctuations in the prices and demand for crude oil, natural gas and NGLs; changes in global economic conditions and the effects of a global economic downturn or inflation on our business and the business of our suppliers, customers, business partners and lenders; the direct and indirect effects of an epidemic or outbreak of an infectious disease, such as COVID-19 and its variants, on our business and those of our business partners, suppliers and customers, including Hess; our ability to comply with government regulations or make capital expenditures required to maintain compliance, including our ability to obtain or maintain permits necessary for capital projects in a timely manner, if at all, or the revocation or modification of existing permits; our ability to successfully identify, evaluate and timely execute our capital projects, investment opportunities and growth strategies, whether through organic growth or acquisitions; costs or liabilities associated with federal, state and local laws, regulations and governmental actions applicable to our business, including legislation and regulatory initiatives relating to environmental protection and health and safety, such as spills, releases, pipeline integrity and measures to limit greenhouse gas emissions and climate change; our ability to comply with the terms of our credit facility, indebtedness and other financing arrangements, which, if accelerated, we may not be able to repay; reduced demand for our midstream services, including the impact of weather or the availability of the competing third-party midstream gathering, processing and transportation operations; potential disruption or interruption of our business due to catastrophic events, such as accidents, severe weather events, labor disputes, information technology failures, constraints or disruptions and cyber-attacks; any limitations on our ability to access debt or capital markets on terms that we deem acceptable, including as a result of weakness in the oil and gas industry or negative outcomes within commodity and financial markets; liability resulting from litigation; and other factors described in Item 1A-Risk Factors in our Annual Report on Form 10-K and any additional risks described in our other filings with the Securities and Exchange Commission.
As and when made, we believe that our forward-looking statements are reasonable. However, given these risks and uncertainties, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made and there can be no assurance that such forward-looking statements will occur and actual results may differ materially from those contained in any forward-looking statement we make. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise.
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