Hess Midstream Reports Strong Q3 Performance and Steady Outlook
On October 24, 2024, Hess Midstream (HESM) reported a strong third-quarter performance and a stable growth outlook during its earnings call. The company highlighted significant volume increases across its operations, with President and COO John Gatling stating that Hess Corporation's Bakken production exceeded expectations. CFO Jonathan Stein emphasized a robust financial strategy that prioritizes shareholder returns, providing significant capital returns since the beginning of 2021. Looking ahead, Hess Midstream reaffirmed its 2024 volume guidance and anticipates continued growth in volume and EBITDA through 2026.
Key Points: Hess Midstream achieved a strong third-quarter performance with high volumes in gas processing, crude oil terminal, and water gathering. Hess Corporation's Bakken production guidance exceeded expectations, contributing to the company's strong performance. The company has returned $1.85 billion to shareholders since 2021, demonstrating its commitment to shareholder returns. For the fourth quarter of 2024, Hess Midstream expects net income between $170 million and $185 million, and adjusted EBITDA between $295 million and $310 million. Capital expenditures for 2024 are projected to be approximately $270 million, with plans for a new gas processing facility. The long-term outlook indicates stable third-party volume growth in Bakken while focusing on capturing additional volumes to support Hess's production growth. The company is strategically evaluating potential merger and acquisition opportunities to strengthen its position in the basin.
Company Outlook: Hess Midstream expects to maintain Bakken production levels in the fourth quarter of 2024 within the third-quarter range. For 2024, volume guidance is projected at daily gas processing of 405 million to 415 million cubic feet, daily crude oil terminal throughput of 120,000 to 130,000 barrels, and daily water gathering of 115,000 to 125,000 barrels. The company anticipates approximately 10% volume growth compared to 2023 and aims to sustain this growth trend through 2026.
Negatives: Wildfires in North Dakota impacted volumes due to power outages, causing a week-long disruption in operations.
Positives: Hess Midstream's financial strategy resulted in strong shareholder returns and a commitment to maintaining a robust balance sheet. The company's capital program supports growth, with an expected 5% increase in EBITDA in the fourth quarter and approximately 12% full-year growth from 2023 to 2024. Gas processing volumes are expected to grow faster than oil volumes, with a new facility projected to come online by 2027.
Shortcomings: Specific shortcomings were not discussed during the earnings call.
Q&A Highlights: The impact of wildfires was primarily on volumes rather than costs, and recovery is expected in the fourth quarter. Stock buybacks continue as part of a broader capital return initiative. The company maintains a high bar for merger and acquisition decisions to prioritize capital returns. In summary, Hess Midstream demonstrated a strong third-quarter performance and remains focused on sustaining a stable growth outlook. With strategic investments and a commitment to shareholder returns, the company is well-positioned to navigate challenges in the energy sector and capitalize on opportunities.
InvestingPro Insights: Hess Midstream's (HESM) strong third-quarter performance and stable growth outlook are supported by InvestingPro data. The company's financial strategy prioritizing shareholder returns is reflected in its impressive dividend history, having raised dividends for eight consecutive years and providing substantial returns to shareholders, consistent with its commitment of returning $1.85 billion since 2021. The company's solid financial performance is evident in a 12.7% revenue growth over the past twelve months, supporting management's projections for ongoing volume and EBITDA growth through 2026. Additionally, HESM's robust operating income margin of 60.69% highlights its operational efficiency, which is crucial for sustaining projected growth.
InvestingPro also indicates that HESM shares generally trade with low price volatility, which may be appealing to investors seeking stability in the energy sector. However, it is worth noting that the stock trades with a high Price/Book ratio of 16.52, which suggests that investors are pricing in significant future growth expectations. For investors interested in deeper analysis, InvestingPro provides 8 additional insights on HESM, offering a more comprehensive view of the company's financial health and market positioning.