Hess Midstream Partners LP, originally filed for IPO in September 2014, will price next week between $19-$21 with a midpoint yield of 6.00% ($1.20) and expected 2018 Distributable Cash Flow Coverage of 1.15x. Through 2020, less than 20% of the distributions will be subject to federal tax. Units are expected to begin trading on Wednesday (4/5/17), raising $232MM from the 22.5% sale of Sponsor's Global Infrastructure Partners (GIP) and Hess interests, with a market cap of $1.3B. The Sponsor, Hess Infrastructure Partners (HIP), was formed in 2015 when Hess contributed Bakken midstream assets to HIP and GIP purchased a 50% ownership interest for $2.675B, valuing the assets at $5.35B. Since forming HIP, Bakken crude production has fallen nearly 20%, with the expectation that production will increase from higher energy prices and Hess's 2017 plan to spend $700MM in the Bakken, which includes increasing their rig count from 2 to 6, expected to result in 75 new wells by year end.
Monthly Crude Production - EIA
Monthly Natural Gas Production - EIA
The MLP will own interests in several assets which derive the majority of the cash flows from gathering, compressing, and processing natural gas and fractionating natural gas liquids. Remaining cash flows will consist of crude rail transport, terminaling and storage services, which will account for 10% of adjusted EBITDA. The assets have 10 year fee based MVC agreements with Hess, set to expire in 2024, with a 10 year renewal term. The Tioga Gas Plant is expected to have a turnaround in 2019, resulting in a lower Minimum Volume Commitment as indicated below
Fee Based Agreements
Segment EBITDA Contributions
Incentive Distribution Right payments will reach the first tier after Hess Midstream Partner's increases their Minimum Quarterly Distribution (MQD) by 15% from $0.30 to $0.345 and will reach the top tier payout when the distribution rate exceed $0.45, a 50% increase from the MQD. Growth will be achieved by dropping down the remaining HIP interests, which after the IPO, will generate a remaining ~ $250MM of Adjusted EBITDA, with a book value or $2.4B. Hess also expects to organically add new midstream services and expand third party relationships.
Hess Midstream Partners follows the November 2016 IPO of Noble Midstream Partners, which is up 100.43% from their IPO, on expectations of increasing production in the DJ Basin. While Hess's Bakken production is more sensitive to lower energy prices due to limited midstream infrastructure and higher operating expense, a modest move up in crude prices could accelerate production and offer significant upside to unitholders.
Hess Midstream SEC Filing Can Be Accessed Here
1 . High Risk of Distribution Cut
2 . Distribution At Risk
3 . No Risk of Distribution Cut
4 . No Risk of Distribution Cut; Growth at Risk
5 . No Risk of Distribution Cut; Strong Growth