Company Quick10K Filing
Quick10K
Hess Midstream Partners
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
8-K 2019-10-04 Other Events, Exhibits
8-K 2019-10-03 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2019-07-31 Earnings, Exhibits
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-01-30 Earnings, Exhibits
8-K 2018-12-06 Officers
8-K 2018-10-31 Earnings, Exhibits
8-K 2018-09-17 Enter Agreement, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-02-05 Earnings, Exhibits
8-K 2018-02-02 Officers
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KRP Kimbell Royalty Partners 404
ISRL Isramco 327
SD Sandridge Energy 158
CEI Camber Energy 3
BSM Black Stone Minerals 0
SDR Sandridge Mississippian Trust II 0
HESM 2019-06-30
Part I-Financial Information
Item 1. Financial Statements
Part I-Financial Information (Cont'D)
Part I - Financial Information (Cont'D)
Note 1. Description of Business
Note 2. Basis of Presentation
Part I - Financial Information (Cont'D)
Note 3. Acquisitions
Note 4. Related Party Transactions
Part I - Financial Information (Cont'D)
Note 5. Property, Plant and Equipment
Note 6. Accrued Liabilities
Part I - Financial Information (Cont'D)
Note 7. Debt and Interest Expense
Note 8. Distributions
Note 9. Unit‑Based Compensation
Part I - Financial Information (Cont'D)
Note 10. Net Income per Limited Partner Unit
Note 11. Concentration of Credit Risk
Note 12. Commitments and Contingencies
Part I - Financial Information (Cont'D)
Note 13. Segments
Note 14. Subsequent Events
Part I - Financial Information (Cont'D)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Part II - Other Information (Cont'D)
Item 6. Exhibits
EX-31.1 hesm-ex311_7.htm
EX-31.2 hesm-ex312_6.htm
EX-32.1 hesm-ex321_9.htm
EX-32.2 hesm-ex322_8.htm

Hess Midstream Partners Earnings 2019-06-30

HESM 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 hesm-10q_20190630.htm 10-Q hesm-10q_20190630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10‑Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to       

Commission File Number 001‑38050

Hess Midstream Partners LP

(Exact name of Registrant as specified in its charter)

 

DELAWARE

36-4777695

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

 

 

1501 McKinney Street

77010

Houston, TX
(Address of principal executive offices)

(Zip Code)

 

(Registrant’s telephone number, including area code, is (713) 496-4200)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Units

HESM

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).  Yes      No 

At June 30, 2019, the registrant had 27,345,309 common units and 27,279,654 subordinated units outstanding.

 

 

 

 


 

HESS MIDSTREAM PARTNERS LP

FORM 10-Q

TABLE OF CONTENTS

 

Item

 

 

 

Page

No.

 

 

 

Number

 

 

 

 

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

 

1.

 

Financial Statements (unaudited)

 

 

 

 

Consolidated Balance Sheets at June 30, 2019 and December 31, 2018

 

2

 

 

Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018

 

3

 

 

Consolidated Statements of Changes in Partners’ Capital for the three and six months ended June 30, 2019 and 2018

 

4

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

 

5

 

 

Notes to Consolidated Financial Statements

 

6

 

 

 

 

 

2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

25

4.

 

Controls and Procedures

 

25

 

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

 

1.

 

Legal Proceedings

 

26

1A.

 

Risk Factors

 

26

6.

 

Exhibits

 

27

 

 

 

 

 

 

 

Signatures

 

28

 

 

Certifications

 

 

 

 

 

 

 

 

 

 

 


PART I—FINANCIAL INFORMATION

HESS MIDSTREAM PARTNERS LP

Table of Contents

CONSOLIDATED BALANCE SHEETS

Item 1.

Financial Statements

 

June 30,

 

 

December 31,

 

 

2019

 

 

2018

 

(in millions, except unit amounts)

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

14.9

 

 

$

20.3

 

Accounts receivable—affiliate:

 

 

 

 

 

 

 

From contracts with customers

 

59.8

 

 

 

62.2

 

Other receivables

 

0.3

 

 

 

0.8

 

Other current assets

 

1.1

 

 

 

2.8

 

Total current assets

 

76.1

 

 

 

86.1

 

Equity investments

 

90.3

 

 

 

67.3

 

Property, plant and equipment, net

 

2,757.4

 

 

 

2,664.1

 

Other noncurrent assets

 

2.1

 

 

 

2.2

 

Total assets

$

2,925.9

 

 

$

2,819.7

 

Liabilities

 

 

 

 

 

 

 

Accounts payable—trade

$

26.4

 

 

$

15.3

 

Accounts payable—affiliate

 

21.5

 

 

 

15.8

 

Accrued liabilities

 

41.6

 

 

 

64.5

 

Other current liabilities

 

4.6

 

 

 

6.8

 

Total current liabilities

 

94.1

 

 

 

102.4

 

Other noncurrent liabilities

 

14.5

 

 

 

6.4

 

Total liabilities

 

108.6

 

 

 

108.8

 

Partners' capital

 

 

 

 

 

 

 

Common unitholders—public (17,062,655 and 17,014,377 units issued

   and outstanding as of June 30, 2019 and December 31, 2018)

 

355.1

 

 

 

357.1

 

Common unitholders—affiliate (10,282,654 units issued and outstanding

   as of June 30, 2019 and December 31, 2018)

 

38.1

 

 

 

39.5

 

Subordinated unitholders—affiliate (27,279,654 units issued and outstanding

   as of June 30, 2019 and December 31, 2018)

 

101.2

 

 

 

105.3

 

General partner

 

15.3

 

 

 

14.9

 

Total Hess Midstream Partners LP partners' capital

 

509.7

 

 

 

516.8

 

Noncontrolling interest

 

2,307.6

 

 

 

2,194.1

 

Total partners' capital

 

2,817.3

 

 

 

2,710.9

 

Total liabilities and partners' capital

$

2,925.9

 

 

$

2,819.7

 

See accompanying notes to unaudited consolidated financial statements.

 

 

2

 


PART I—FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM PARTNERS LP

Table of Contents

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

(in millions, except per unit amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate services

 

$

172.7

 

 

$

164.5

 

 

$

346.7

 

 

$

321.3

 

Other income

 

 

0.1

 

 

 

0.2

 

 

 

0.3

 

 

 

0.4

 

Total revenues

 

 

172.8

 

 

 

164.7

 

 

 

347.0

 

 

 

321.7

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating and maintenance expenses (exclusive of depreciation

   shown separately below)

 

 

43.6

 

 

 

37.1

 

 

 

85.5

 

 

 

71.7

 

Depreciation expense

 

 

34.0

 

 

 

30.2

 

 

 

66.6

 

 

 

60.2

 

General and administrative expenses

 

 

3.7

 

 

 

2.4

 

 

 

7.7

 

 

 

5.5

 

Total costs and expenses

 

 

81.3

 

 

 

69.7

 

 

 

159.8

 

 

 

137.4

 

Income from operations

 

 

91.5

 

 

 

95.0

 

 

 

187.2

 

 

 

184.3

 

Interest expense, net

 

 

0.6

 

 

 

0.4

 

 

 

1.0

 

 

 

0.7

 

Net income

 

 

90.9

 

 

 

94.6

 

 

 

186.2

 

 

 

183.6

 

Less: Net income attributable to noncontrolling interest

 

 

74.1

 

 

 

76.8

 

 

 

151.3

 

 

 

148.8

 

Net income attributable to Hess Midstream Partners LP

 

 

16.8

 

 

 

17.8

 

 

 

34.9

 

 

 

34.8

 

Less: General partner's interest in net income attributable

   to Hess Midstream Partners LP

 

 

1.0

 

 

 

0.4

 

 

 

1.8

 

 

 

0.7

 

Limited partners' interest in net income attributable to

   Hess Midstream Partners LP

 

$

15.8

 

 

$

17.4

 

 

$

33.1

 

 

$

34.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Hess Midstream Partners LP per

   limited partner unit (basic and diluted):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

$

0.29

 

 

$

0.32

 

 

$

0.61

 

 

$

0.63

 

Subordinated

 

$

0.29

 

 

$

0.32

 

 

$

0.61

 

 

$

0.63

 

Weighted average limited partner units outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

27.3

 

 

 

27.3

 

 

 

27.3

 

 

 

27.3

 

Subordinated

 

 

27.3

 

 

 

27.3

 

 

 

27.3

 

 

 

27.3

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

27.5

 

 

 

27.4

 

 

 

27.5

 

 

 

27.4

 

Subordinated

 

 

27.3

 

 

 

27.3

 

 

 

27.3

 

 

 

27.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 See accompanying notes to unaudited consolidated financial statements.

 

3

 


PART I—FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM PARTNERS LP

Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

(UNAUDITED)

 

Partners' Capital

 

 

 

 

 

 

 

 

 

 

Limited Partners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

Unitholders

Public

 

 

Common

Unitholders

Affiliate

 

 

Subordinated

Unitholders

Affiliate

 

 

General

Partner

 

 

Noncontrolling

Interest

 

 

Total

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

$

357.1

 

 

$

39.5

 

 

$

105.3

 

 

$

14.9

 

 

$

2,194.1

 

 

$

2,710.9

 

Net income

 

5.3

 

 

 

3.4

 

 

 

8.6

 

 

 

0.8

 

 

 

77.2

 

 

 

95.3

 

Unit-based compensation

 

0.3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0.3

 

Distributions to unitholders -

   $0.3701 per unit

 

(6.3

)

 

 

(3.8

)

 

 

(10.1

)

 

 

-

 

 

 

-

 

 

 

(20.2

)

Distributions to general partner

 

-

 

 

 

-

 

 

 

-

 

 

 

(0.6

)

 

 

-

 

 

 

(0.6

)

Distributions to noncontrolling

   interest

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(57.1

)

 

 

(57.1

)

Contributions from noncontrolling

   interest

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

55.5

 

 

 

55.5

 

Balance at March 31, 2019

$

356.4

 

 

$

39.1

 

 

$

103.8

 

 

$

15.1

 

 

$

2,269.7

 

 

$

2,784.1

 

Net income

 

4.9

 

 

 

3.0

 

 

 

7.9

 

 

 

1.0

 

 

 

74.1

 

 

 

90.9

 

Unit-based compensation

 

0.3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0.3

 

Distributions to unitholders -

   $0.3833 per unit

 

(6.5

)

 

 

(4.0

)

 

 

(10.5

)

 

 

-

 

 

 

-

 

 

 

(21.0

)

Distributions to general partner

 

-

 

 

 

-

 

 

 

-

 

 

 

(0.8

)

 

 

-

 

 

 

(0.8

)

Distributions to noncontrolling

   interest

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(49.0

)

 

 

(49.0

)

Contributions from noncontrolling

   interest

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12.8

 

 

 

12.8

 

Balance at June 30, 2019

$

355.1

 

 

$

38.1

 

 

$

101.2

 

 

$

15.3

 

 

$

2,307.6

 

 

$

2,817.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

$

357.7

 

 

$

40.5

 

 

$

107.8

 

 

$

14.8

 

 

$

2,034.5

 

 

$

2,555.3

 

Net income

 

5.2

 

 

 

3.2

 

 

 

8.3

 

 

 

0.3

 

 

 

72.0

 

 

 

89.0

 

Unit-based compensation

 

0.1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0.1

 

Distributions to unitholders -

   $0.3218 per unit

 

(5.4

)

 

 

(3.3

)

 

 

(8.8

)

 

 

-

 

 

 

-

 

 

 

(17.5

)

Distributions to general partner

 

-

 

 

 

-

 

 

 

-

 

 

 

(0.4

)

 

 

-

 

 

 

(0.4

)

Distributions to noncontrolling

   interest

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(61.7

)

 

 

(61.7

)

Contribution from noncontrolling

   interest

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20.6

 

 

 

20.6

 

Balance at March 31, 2018

$

357.6

 

 

$

40.4

 

 

$

107.3

 

 

$

14.7

 

 

$

2,065.4

 

 

$

2,585.4

 

Net income

 

5.4

 

 

 

3.3

 

 

 

8.7

 

 

 

0.4

 

 

 

76.8

 

 

 

94.6

 

Unit-based compensation

 

0.3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

0.3

 

Distributions to unitholders -

   $0.3333 per unit

 

(5.7

)

 

 

(3.4

)

 

 

(9.1

)

 

 

-

 

 

 

-

 

 

 

(18.2

)

Distributions to general partner

 

-

 

 

 

-

 

 

 

-

 

 

 

(0.4

)

 

 

-

 

 

 

(0.4

)

Distributions to noncontrolling

   interest

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(41.5

)

 

 

(41.5

)

Contribution from noncontrolling

   interest

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

14.6

 

 

 

14.6

 

Balance at June 30, 2018

$

357.6

 

 

$

40.3

 

 

$

106.9

 

 

$

14.7

 

 

$

2,115.3

 

 

$

2,634.8

 

See accompanying notes to unaudited consolidated financial statements.

4

 


PART I—FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM PARTNERS LP

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

(in millions)

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

186.2

 

 

$

183.6

 

Adjustments to reconcile net income to net cash provided by (used in)

   operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

66.6

 

 

 

60.2

 

Amortization of deferred financing costs

 

 

0.6

 

 

 

0.5

 

Unit-based compensation expense

 

 

0.6

 

 

 

0.4

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable – affiliate

 

 

3.0

 

 

 

(2.7

)

Other current and noncurrent assets

 

 

1.7

 

 

 

3.7

 

Accounts payable – trade

 

 

10.9

 

 

 

5.8

 

Accounts payable – affiliate

 

 

5.7

 

 

 

2.0

 

Accrued liabilities

 

 

1.1

 

 

 

1.8

 

Other current and noncurrent liabilities

 

 

(2.0

)

 

 

(3.3

)

Net cash provided by (used in) operating activities

 

 

274.4

 

 

 

252.0

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Acquisitions from third parties, net of cash acquired

 

 

(61.0

)

 

 

-

 

Payments for equity investments

 

 

(23.0

)

 

 

(41.3

)

Additions to property, plant and equipment

 

 

(115.4

)

 

 

(96.9

)

Net cash provided by (used in) investing activities

 

 

(199.4

)

 

 

(138.2

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from (repayments of) bank borrowings - revolver

 

 

-

 

 

 

-

 

Distributions to unitholders

 

 

(41.2

)

 

 

(35.7

)

Distributions to general partner

 

 

(1.4

)

 

 

(0.8

)

Distributions to noncontrolling interest

 

 

(106.1

)

 

 

(103.2

)

Contributions from noncontrolling interest

 

 

68.3

 

 

 

35.2

 

Net cash provided by (used in) financing activities

 

 

(80.4

)

 

 

(104.5

)

Increase (decrease) in cash and cash equivalents

 

 

(5.4

)

 

 

9.3

 

Cash and cash equivalents, beginning of period

 

 

20.3

 

 

 

47.2

 

Cash and cash equivalents, end of period

 

$

14.9

 

 

$

56.5

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 


5

 


PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Table of Contents

Note 1.  Description of Business

Hess Midstream Partners LP (the “Partnership”) is a fee‑based, growth-oriented traditional master limited partnership formed by Hess Infrastructure Partners LP (“Hess Infrastructure Partners”), a midstream joint venture with a 50% ownership interest held by affiliates of Hess Corporation (collectively “Hess”) and a 50% ownership interest held by GIP II Blue Holding Partnership LP (“GIP”), to own, operate, develop and acquire a diverse set of midstream assets to provide services to Hess and third‑party customers.

Our assets include a 20% controlling economic interest in each of (i) Hess North Dakota Pipelines Operations LP (“Gathering Opco”), which owns crude oil and natural gas gathering pipelines and compressor stations in North Dakota, (ii) Hess TGP Operations LP (“HTGP Opco”) which owns the Tioga Gas Plant (“TGP”), a natural gas processing and fractionation plant, including a residue gas pipeline in North Dakota, and (iii) Hess North Dakota Export Logistics Operations LP (“Logistics Opco”), which owns a crude oil and natural gas liquids (“NGL”) rail loading facility, crude oil rail cars and a crude oil pipeline and truck receipt terminal in North Dakota, and a 100% ownership interest in Hess Mentor Storage Holdings LLC (“Mentor Storage Terminal”), which owns a propane storage cavern and related rail and truck loading and unloading and storage terminal in Minnesota (collectively, the “Contributed Businesses”). Hess Infrastructure Partners owns the remaining 80% economic interest in the Contributed Businesses.

On January 25, 2018, we entered into a 50/50 joint venture with Targa Resources Corp. to construct a new 200 million standard cubic feet per day gas processing plant called Little Missouri 4 (“LM4”). Our 50% interest in the joint venture is held through HTGP Opco, in which we own a 20% controlling economic interest and Hess Infrastructure Partners owns the remaining 80% economic interest. Targa Resources Corp. is managing the construction of LM4 and will operate the plant when completed. As of June 30, 2019, the plant was under construction. See Note 14, Subsequent Events.

On March 22, 2019, Hess North Dakota Pipelines LLC, a subsidiary of Gathering Opco, acquired the crude oil and gas gathering assets of Summit Midstream Partners, LP’s Tioga Gathering System. See Note 3, Acquisitions.

The terms “we,” “our” and “us” as used in this report refer to the Partnership, unless the context suggests otherwise. These terms are used for convenience only and are not intended as a precise description of any separate legal entity within the Partnership. The term “parent” refers to Hess Infrastructure Partners.

Our assets and operations are organized into the following three reportable segments: (1) gathering, (2) processing and storage and (3) terminaling and export (see Note 13, Segments).

Note 2.  Basis of Presentation

Presentation.  The consolidated financial statements included in this report reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of our consolidated financial position at June 30, 2019 and December 31, 2018, the consolidated results of operations for the three and six months ended June 30, 2019 and 2018, and consolidated cash flows for the six months ended June 30, 2019 and 2018. The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year.

The consolidated financial statements were prepared in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted from these interim consolidated financial statements. These financial statements, therefore, should be read in conjunction with the financial statements and related notes included in the Partnership’s annual report on Form 10‑K for the year ended December 31, 2018.


6

 


PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Table of Contents

Consolidation.  We consolidate the activities of Gathering Opco, HTGP Opco and Logistics Opco, which qualify as variable interest entities (“VIE”) under U.S. GAAP. We have concluded that we are the primary beneficiary of each VIE, as defined in the accounting standards, since we have the power through our general partner interests to direct those activities that most significantly impact the economic performance of the Contributed Businesses and have a right to receive benefits and an obligation to absorb losses that could potentially be significant. All financial statement activities associated with VIEs are captured within gathering, processing and storage, and terminaling and export segments (see Note 13, Segments). We reflect a noncontrolling interest representing the retained limited partner interest owned by Hess Infrastructure Partners in the Contributed Businesses in the consolidated financial statements of the Partnership. All intercompany transactions and balances within the Partnership have been eliminated.

Equity Investments. We account for our investment in LM4 under the equity method of accounting, as we do not control, but have a significant influence over, its operations. Through June 30, 2019, we have contributed $90.3 million of cash for our gross interest in LM4. We do not have a basis difference between the amount at which the investment is carried and the amount of underlying equity in net assets of the investee.

Income Taxes.  We are not a separate taxable entity for U.S. Federal and state income tax purposes; therefore, we do not provide for income tax benefit or expense. Each partner is subject to income taxes on its share of the Partnership’s earnings.

Comprehensive Income.  We have not reported comprehensive income, since there were no items of other comprehensive income during the periods presented in this report.

Summary of Significant Accounting Policies

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, Leases, as a new Accounting Standards Codification (“ASC”) Topic, ASC 842. We adopted ASC 842 on January 1, 2019 using the modified retrospective method. Accordingly, comparative financial statements for periods prior to the adoption date of ASC 842 were not affected. In addition, we have elected to apply the ‘package’ of practical expedients allowing us to avoid reassessing whether existing contracts are (or contain) leases, whether the lease classification for existing leases would differ under ASC 842, and whether initial direct costs incurred for existing leases are capitalizable under ASC 842. Finally, we have elected to apply the practical expedient allowing us to avoid reassessing land easements that were not previously accounted for as leases under ASC 840. We have not elected the ‘hindsight’ practical expedient when determining lease term. As a result, no cumulative effect adjustment to Partners’ capital was recognized.

Leases.  We determine if an arrangement is a lease at inception. Operating lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease right-of-use asset includes any initial direct costs and excludes lease incentives received. The lease term used in measurement of our lease obligations may include periods covered by an option to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Partnership has elected not to recognize lease assets and lease liabilities for leases with a term of 12 months or less for all classes of underlying assets. Our lease agreements may include lease and non-lease components, which are generally accounted for separately.

As of June 30, 2019, we had $0.4 million of operating lease right-of-use assets included within other noncurrent assets on our consolidated balance sheet. Operating lease liabilities were $0.1 million and $0.3 million included within other current liabilities and other noncurrent liabilities, respectively, on our consolidated balance sheet. As of June 30, 2019, we did not have any finance leases.

Note 3.  Acquisitions

On March 22, 2019, Hess North Dakota Pipelines LLC, a subsidiary of Gathering Opco, acquired 100% of the membership interests of Tioga Hydrocarbon Gathering Company LLC from Summit Midstream Partners, LP (the “Tioga System Acquisition”). This transaction was accounted for as an asset acquisition. The Tioga System, located in Williams County in western North Dakota, is complementary to the Partnership’s infrastructure, and is currently delivering volumes into the Partnership’s gathering system.

7

 


PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Table of Contents

Hess North Dakota Pipelines LLC paid $61.0 million in cash at closing, net of cash acquired, and recognized a contingent liability for additional potential payments of $6.8 million in future periods subject to certain performance metrics. The purchase price was funded pro rata by the Partnership and Hess Infrastructure Partners, as indirect owners of Hess North Dakota Pipelines LLC.

Note 4.  Related Party Transactions

Commercial Agreements

Effective January 1, 2014, we entered into (i) gas gathering, (ii) crude oil gathering, (iii) gas processing and fractionation, (iv) storage services, and (v) terminal and export services fee‑based commercial agreements with certain subsidiaries of Hess. Under these commercial agreements, we provide gathering, compression, processing, fractionation, storage, terminaling, loading and transportation services to Hess, for which we receive a fee per barrel of crude oil, Mcf of natural gas, or Mcf equivalent of NGLs, as applicable, delivered during each month, and Hess is obligated to provide us with minimum volumes of crude oil, natural gas and NGLs. These agreements also include inflation escalators and fee recalculation mechanisms that allow fees to be adjusted annually. We elected the practical expedient to recognize revenue in the amount to which we have a right to invoice as permitted under ASC 606, Revenue from Contracts with Customers. Due to this election and as the transaction price allocated to our unsatisfied performance obligations is entirely variable, we have elected the exemption provided by ASC 606 from the disclosure of revenue recognizable in future periods as our unsatisfied performance obligations are fulfilled.

In September 2018, we amended and restated our gas gathering and gas processing and fractionation agreements with Hess to enable us to provide certain services to Hess in respect of volumes to be delivered to and processed at the LM4 plant. Effective January 1, 2019, Hess pays us a combined processing fee per Mcf of natural gas, or Mcf equivalent of NGLs, as applicable, for aggregate volumes processed (or to be processed) at TGP and LM4. Except with regard to a certain gathering sub-system as described below, each of our commercial agreements with Hess retains its initial 10‑year term (“Initial Term”) and we have the unilateral right to extend each commercial agreement for one additional 10‑year term (“Secondary Term”).  The amended and restated gas gathering agreement also extends the Initial Term of the gathering agreement with respect to a certain gathering sub-system by 5 years to provide for a 15-year Initial Term and decreases the Secondary Term for that gathering sub-system by 5 years to provide for a 5-year Secondary Term. In addition, the fee recalculation mechanism continues to apply to the amended and restated agreements and, effective January 1, 2019, incorporates the revenues received and expected to be received by Hess from sourcing third-party dedicated production in order to further align the interests of us and Hess in promoting the growth of third-party volumes on our Bakken assets.

For the three and six months ended June 30, 2019 and 2018, approximately 100% of our revenues were attributable to our fee‑based commercial agreements with Hess, including revenues from third‑party volumes contracted with Hess and delivered to us under these agreements. We retain control of our assets and the flow of volumes based on available capacity within our integrated gathering, processing and terminaling systems. Together with Hess, we are pursuing strategic relationships with third‑party producers and other midstream companies with operations in the Bakken in order to maximize our utilization rates.

During the three and six months ended June 30, 2019, we earned $0.7 million and $3.5 million, respectively, of minimum volume shortfall fee payments, compared with $12.8 million and $29.4 million for the three and six months ended June 30, 2018, respectively. In addition, during the three and six months ended June 30, 2019, we recognized, as part of affiliate revenues, $4.3 million and $12.1 million, respectively, of reimbursements from Hess related to third‑party rail transportation costs, compared with $3.4 million and $7.6 million for the three and six months ended June 30, 2018, respectively. Finally, during the three and six months ended June 30, 2019, we recognized, as part of affiliate revenues, $8.1 million and $14.9 million, respectively, of reimbursements from Hess related to electricity fees, compared with $6.7 million and $13.4 million for the three and six months ended June 30, 2018, respectively. The related third-party transportation costs and electricity fees were included in Operating and maintenance expenses in the accompanying unaudited consolidated statements of operations.

See Note 13, Segments, for the presentation of our revenues on a disaggregated basis. All Affiliate services revenue, which reflects activity associated with our commercial agreements with Hess, represents revenue from contracts with customers under the scope of ASC 606.


8

 


PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Table of Contents

Omnibus and Employee Secondment Agreements

Under our omnibus and employee secondment agreements, Hess provides substantial operational and administrative services to us in support of our assets and operations. For the three and six months ended June 30, 2019 and 2018, we had the following charges from Hess. The classification of these charges between operating and maintenance expenses and general and administrative expenses is based on the fundamental nature of the services being performed for our operations.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating and maintenance expenses

 

$

11.4

 

 

$

11.5

 

 

$

21.4

 

 

$

22.9

 

General and administrative expenses

 

 

2.5

 

 

 

1.3

 

 

 

5.3

 

 

 

3.2

 

Total

 

$

13.9

 

 

$

12.8

 

 

$

26.7

 

 

$

26.1

 

 

Contribution Agreement

Under our contribution, conveyance and assumption agreement, Hess Infrastructure Partners agreed to bear the cost of certain maintenance capital projects associated with the Contributed Businesses. During the six months ended June 30, 2019, Hess Infrastructure Partners contributed $0.4 million to us related to the reimbursement for those maintenance capital projects (2018: $2.2 million). This provision of the agreement expired in April 2019, the second anniversary of the Partnership’s IPO.

Note 5.  Property, Plant and Equipment

Property, plant and equipment, at cost, is as follows:

 

 

Estimated useful lives

 

June 30, 2019

 

 

December 31, 2018

 

(in millions, except for number of years)

 

 

 

 

 

 

 

 

 

 

Gathering assets

 

 

 

 

 

 

 

 

 

 

Pipelines

 

22 years

 

$

1,128.4

 

 

$

1,003.9

 

Compressors, pumping stations and terminals

 

22 to 25 years

 

 

654.3

 

 

 

557.5

 

Gas plant assets

 

 

 

 

 

 

 

 

 

 

Pipelines, pipes and valves

 

22 to 25 years

 

 

460.0

 

 

 

460.0

 

Equipment

 

12 to 30 years

 

 

428.2

 

 

 

428.2

 

Buildings

 

35 years

 

 

182.3

 

 

 

182.3

 

Processing and fractionation facilities

 

25 years

 

 

187.5

 

 

 

185.5

 

Logistics facilities and railcars

 

20 to 25 years

 

 

385.5

 

 

 

385.8

 

Storage facilities

 

20 to 25 years

 

 

19.5

 

 

 

19.5

 

Other

 

20 to 25 years

 

 

11.4

 

 

 

10.7

 

Construction-in-progress

 

N/A

 

 

93.3

 

 

 

157.3

 

Total property, plant and equipment, at cost

 

 

 

 

3,550.4

 

 

 

3,390.7

 

Accumulated depreciation

 

 

 

 

(793.0

)

 

 

(726.6

)

Property, plant and equipment, net

 

 

 

$

2,757.4

 

 

$

2,664.1

 

 

Note 6.  Accrued Liabilities

Accrued liabilities are as follows:

 

 

June 30, 2019

 

 

December 31, 2018

 

(in millions)

 

 

 

 

 

 

 

 

Accrued capital expenditures

 

$

27.9

 

 

$

51.9

 

Other accruals

 

 

13.7

 

 

 

12.6

 

Total

 

$

41.6

 

 

$

64.5

 

 


9

 


PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Table of Contents

Note 7.  Debt and Interest Expense

Revolving Credit Facility

On March 15, 2017, we entered into a four‑year, $300.0 million senior secured revolving credit facility that became available to us upon the closing of the IPO on April 10, 2017. Borrowings on the credit facility generally bear interest at the London Interbank Offered Rate (“LIBOR”) plus an applicable margin of 1.275%. The interest rate is subject to adjustment based on the Partnership’s leverage ratio, which is calculated as total debt to EBITDA (as defined in the credit agreement). Facility fees accrue at 0.275% per annum and are paid quarterly. If the Partnership obtains credit ratings, pricing levels will be based on our credit ratings in effect from time to time. The Partnership is subject to customary covenants in the credit agreement, including a financial covenant that generally requires a leverage ratio of no more than 4.5 to 1.0 for the prior four fiscal quarters. As of June 30, 2019, we were in compliance with all covenants. The credit facility is secured by first priority perfected liens on substantially all directly owned assets of the Partnership and its wholly‑owned subsidiaries, including equity interests in subsidiaries, subject to certain customary exclusions. At June 30, 2019, the revolving credit facility was undrawn.

Note 8.  Distributions

Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash to unitholders of record on the applicable record date. The following table details the distributions declared and/or paid for the periods presented:

Period

 

Record Date

 

Distribution Date

 

Distribution per Common and Subordinated Unit

 

First Quarter 2018

 

May 4, 2018

 

May 14, 2018

 

$

0.3333

 

Second Quarter 2018

 

August 2, 2018

 

August 13, 2018

 

$

0.3452

 

Third Quarter 2018

 

November 5, 2018

 

November 13, 2018

 

$

0.3575

 

Fourth Quarter 2018

 

February 4, 2019

 

February 13, 2019

 

$

0.3701

 

First Quarter 2019

 

May 3, 2019

 

May 14, 2019

 

$

0.3833

 

Second Quarter 2019