SEC Filing - Hess Midstream Partners LP

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hesm-10q_20210630.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, 2021

☐	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 001-39163

Hess Midstream LP

(Exact name of Registrant as specified in its charter)

DELAWARE	84-3211812
(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
Class A shares representing limited partner interests	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 ☒

25,038,417 Class A shares representing limited partner interests (“Class A Shares”) in the registrant were outstanding as of July 31, 2021.

HESS MIDSTREAM 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, 2021 and December 31, 2020	2
	Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020	3
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020	4
	Consolidated Statements of Changes in Partners’ Capital for the six months ended June 30, 2021 and 2020	5
	Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020	6
	Notes to Consolidated Financial Statements	7

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
3.	Quantitative and Qualitative Disclosures about Market Risk	31
4.	Controls and Procedures	31

	PART II—OTHER INFORMATION

1.	Legal Proceedings	32
1A.	Risk Factors	32
6.	Exhibits	33

	Signatures	34
	Certifications

PART I—FINANCIAL INFORMATION

HESS MIDSTREAM LP

Table of Contents

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

Item 1.

Financial Statements

	June 30,		December 31,
	2021		2020
(in millions, except share amounts)
Assets
Cash and cash equivalents	$	3.8	$	2.6
Accounts receivable—affiliate:
From contracts with customers		105.2		93.2
Other current assets		1.4		5.6
Total current assets		110.4		101.4
Equity investments		102.5		108.4
Property, plant and equipment, net		3,100.7		3,111.3
Long-term receivable—affiliate		0.9		0.9
Deferred tax asset		62.8		42.5
Other noncurrent assets		9.1		10.0
Total assets	$	3,386.4	$	3,374.5
Liabilities
Accounts payable—trade	$	21.5	$	30.0
Accounts payable—affiliate		22.3		21.0
Accrued liabilities		62.7		54.1
Current maturities of long-term debt		15.0		10.0
Other current liabilities		5.5		9.9
Total current liabilities		127.0		125.0
Long-term debt		1,817.3		1,900.1
Other noncurrent liabilities		23.5		23.4
Total liabilities		1,967.8		2,048.5
Partners' capital
Class A shares (25,038,417 shares issued and outstanding as of June 30, 2021; 18,028,308 shares issued and outstanding as of December 31, 2020)		184.0		125.0
Class B shares (259,516,928 shares issued and outstanding as of June 30, 2021; 266,416,928 shares issued and outstanding as of December 31, 2020)		-		-
Total partners' capital		184.0		125.0
Noncontrolling interest		1,234.6		1,201.0
Total partners' capital		1,418.6		1,326.0
Total liabilities and partners' capital	$	3,386.4	$	3,374.5

See accompanying notes to unaudited consolidated financial statements.

PART I—FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM LP

Table of Contents

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
(in millions, except per share data)
Revenues
Affiliate services	$	294.8	$	269.8	$	583.6	$	560.4
Other income		-		-		-		0.2
Total revenues		294.8		269.8		583.6		560.6
Costs and expenses
Operating and maintenance expenses (exclusive of depreciation shown separately below)		63.6		95.0		123.4		186.9
Depreciation expense		40.4		38.9		80.6		77.4
General and administrative expenses		5.2		4.1		11.5		11.7
Total costs and expenses		109.2		138.0		215.5		276.0
Income from operations		185.6		131.8		368.1		284.6
Income from equity investments		2.9		0.9		5.6		3.6
Interest expense, net		22.9		23.3		46.0		48.1
Gain on sale of property, plant and equipment		-		0.1		-		0.1
Income before income tax expense		165.6		109.5		327.7		240.2
Income tax expense		3.6		1.7		6.1		3.4
Net income		162.0		107.8		321.6		236.8
Less: Net income attributable to noncontrolling interest		151.0		102.5		302.0		225.0
Net income attributable to Hess Midstream LP	$	11.0	$	5.3	$	19.6	$	11.8

Net income attributable to Hess Midstream LP per Class A share:
Basic:	$	0.44	$	0.29	$	0.89	$	0.66
Diluted:	$	0.44	$	0.29	$	0.87	$	0.64
Weighted average Class A shares outstanding
Basic:		25.0		18.0		22.2		18.0
Diluted:		25.1		18.1		22.3		18.1

See accompanying notes to unaudited consolidated financial statements.

PART I—FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM LP

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended June 30,					Six Months Ended June 30,
	2021		2020			2021		2020
(in millions)
Net income	$	162.0	$	107.8		$	321.6	$	236.8
Other comprehensive income
Effect of hedge (gains) losses reclassified to income		-		(0.2	)		-		(0.4	)
Total other comprehensive income		-		(0.2	)		-		(0.4	)
Comprehensive income		162.0		107.6			321.6		236.4
Less: Comprehensive income (loss) attributable to noncontrolling interest		151.0		102.3			302.0		224.6
Comprehensive income attributable to Hess Midstream LP	$	11.0	$	5.3		$	19.6	$	11.8

See accompanying notes to unaudited consolidated financial statements.

PART I—FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM LP

Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

(UNAUDITED)

	Partners' Capital
	Class A Shares			Class B Shares		Noncontrolling Interest			Accumulated Other Comprehensive Income			Total
(in millions)
Balance at December 31, 2020	$	125.0		$	-	$	1,201.0		$	-		$	1,326.0
Net income		8.6			-		151.0			-			159.6
Equity-based compensation		0.4			-		-			-			0.4
Distributions - $0.4471 per share		(8.2	)		-		(119.1	)		-			(127.3	)
Recognition of deferred tax asset		26.4			-		-			-			26.4
Sales of shares held by Sponsors		31.8			-		(31.8	)		-			-
Balance at March 31, 2021	$	184.0		$	-	$	1,201.1		$	-		$	1,385.1
Net income		11.0			-		151.0			-			162.0
Equity-based compensation		0.3			-		-			-			0.3
Distributions - $0.4526 per share		(11.3	)		-		(117.5	)		-			(128.8	)
Balance at June 30, 2021	$	184.0		$	-	$	1,234.6		$	-		$	1,418.6

Balance at December 31, 2019	$	131.1		$	-	$	1,200.6		$	0.4		$	1,332.1
Net income		6.5			-		122.5			-			129.0
Equity-based compensation		0.5			-		-			-			0.5
Distributions - $0.4258 per share		(7.6	)		-		(113.4	)		-			(121.0	)
Other comprehensive income (loss)		-			-		-			(0.2	)		(0.2	)
Balance at March 31, 2020	$	130.5		$	-	$	1,209.7		$	0.2		$	1,340.4
Net income		5.3			-		102.5			-			107.8
Equity-based compensation		0.3			-		-			-			0.3
Distributions - $0.4310 per share		(7.9	)		-		(114.8	)		-			(122.7	)
Other comprehensive income (loss)		-			-		-			(0.2	)		(0.2	)
Hess Water Services Acquisition Final Settlement		-			-		1.6			-			1.6
Balance at June 30, 2020	$	128.2		$	-	$	1,199.0		$	-		$	1,327.2

See accompanying notes to unaudited consolidated financial statements.

PART I—FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM LP

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2021			2020
(in millions)
Cash flows from operating activities
Net income	$	321.6		$	236.8
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense		80.6			77.4
(Gain) loss on sale of property, plant and equipment		-			(0.1	)
(Gain) loss on interest rate swaps		-			(0.4	)
(Income) loss from equity investments		(5.6	)		(3.6	)
Distributions from equity investments		11.5			3.8
Amortization of deferred financing costs		3.4			3.5
Equity-based compensation expense		0.7			0.8
Deferred income tax expense (benefit)		6.1			3.4
Changes in assets and liabilities:
Accounts receivable – affiliate		(12.0	)		3.1
Other current and noncurrent assets		3.9			4.0
Accounts payable – trade		(8.5	)		5.8
Accounts payable – affiliate		(1.0	)		(3.0	)
Accrued liabilities		(5.9	)		(10.0	)
Other current and noncurrent liabilities		(4.8	)		(3.9	)
Net cash provided by (used in) operating activities		390.0			317.6
Cash flows from investing activities
Additions to property, plant and equipment		(52.7	)		(147.1	)
Proceeds from sale of property, plant and equipment		-			0.1
Net cash provided by (used in) investing activities		(52.7	)		(147.0	)
Cash flows from financing activities
Net proceeds from (repayments of) bank borrowings with maturities of 90 days or less		(75.0	)		72.0
Repayments of bank borrowings with maturities of greater than 90 days		(5.0	)		-
Financing costs		-			(1.3	)
Distributions to shareholders		(19.5	)		(15.5	)
Distributions to noncontrolling interest		(236.6	)		(228.2	)
Hess Water Services Acquisition Final Settlement		-			1.6
Net cash provided by (used in) financing activities		(336.1	)		(171.4	)
Increase (decrease) in cash and cash equivalents		1.2			(0.8	)
Cash and cash equivalents, beginning of period		2.6			3.3
Cash and cash equivalents, end of period	$	3.8		$	2.5
Supplemental disclosure of non-cash investing and financing activities:
(Increase) decrease in accrued capital expenditures and related liabilities	$	(16.8	)	$	11.3
Recognition of deferred tax asset	$	26.4		$	-

See accompanying notes to unaudited consolidated financial statements.

PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Table of Contents

Note 1. Description of Business

Hess Midstream LP (“the Company”) is a fee-based, growth-oriented, Delaware limited partnership that operates, develops and acquires a diverse set of midstream assets and provides fee-based services to Hess Corporation (“Hess”) and third-party customers. We are managed and controlled by Hess Midstream GP LLC, the general partner of our general partner that is owned 50/50 by Hess and GIP II Blue Holding Partnership, L.P. (“GIP” and together with Hess, the “Sponsors”).

Our assets are primarily located in the Bakken and Three Forks shale plays in the Williston Basin area of North Dakota, which we collectively refer to as the Bakken. 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).

Unless the context otherwise requires, references in this report to the “Company,” “we,” “our,” “us” or like terms, refer to Hess Midstream LP and its subsidiaries.

Note 2. Basis of 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, 2021 and December 31, 2020, the consolidated results of operations for the three and six months ended June 30, 2021 and 2020, and the consolidated cash flows for the six months ended June 30, 2021 and 2020. 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 Company’s annual report on Form 10‑K for the year ended December 31, 2020.

We consolidate the activities of Hess Midstream Operations LP (“the Partnership”), as a variable interest entity (“VIE”) under U.S. GAAP. We have concluded that we are the primary beneficiary of the VIE, as defined in the accounting standards, since we have the power, through our ownership, to direct those activities that most significantly impact the economic performance of the Partnership. This conclusion was based on a qualitative analysis that considered the Partnership’s governance structure and the delegation of control provisions, which provide us the ability to control the operations of the Partnership. All financial statement activities associated with the VIE are captured within gathering, processing and storage, and terminaling and export segments (see Note 13, Segments). We currently do not have any independent assets or operations other than our interest in the Partnership. Our noncontrolling interest represents the approximate 91.2% interest in the Partnership retained by Hess and GIP at June 30, 2021 and 93.7% at December 31, 2020. See Note 14, Subsequent Events, for a description of change in noncontrolling interest related to the announced repurchase of Class B units of the Partnership from our Sponsors.

PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Table of Contents

Note 3. Equity Offering

On March 15, 2021, the Sponsors completed an underwritten public equity offering of 6,900,000 of our Class A shares, inclusive of the underwriters’ option to purchase up to 900,000 of additional shares, at a price of $21.00 per Class A share, less underwriting discounts. The Sponsors received net proceeds from the offering of $139.9 million, after deducting underwriting discounts; we did not receive any proceeds in the offering. The offering was conducted pursuant to a registration rights agreement among us and the Sponsors. The Class A Shares sold in the offering were obtained by the Sponsors by exchanging to us 6,900,000 of their Class B Units in the Partnership, together with an equal number of our Class B Shares. As a result of the exchange, Hess Midstream LP’s consolidated ownership in the Partnership increased from 6.3% at December 31, 2020 to 8.8% at June 30, 2021. Hess Midstream LP retained control in the Partnership based on the delegation of control provisions, as described above in Note 2, Basis of Presentation. As a result of the transaction, we recognized an adjustment to the carrying amount of noncontrolling interest and Class A shareholders’ capital balance of $31.8 million to reflect the change in ownership interest. In addition, we recognized an additional deferred tax asset of $26.4 million for the temporary differences related to the change between carrying amount and tax basis of our investment in the Partnership. The effect of recognizing the additional deferred tax asset was included in Class A shareholders’ equity balance in the accompanying consolidated statement of changes in partners’ capital due to the transaction being characterized as a transaction among or with shareholders.

Note 4. Related Party Transactions

Commercial Agreements

Effective January 1, 2014, we entered into long-term fee-based (i) gas gathering, (ii) crude oil gathering, (iii) gas processing and fractionation, (iv) storage services, and (v) terminal and export services agreements with certain subsidiaries of Hess. Effective January 1, 2019, we entered into long-term fee-based water services agreements with a subsidiary of Hess. For the services performed under these commercial agreements, we receive a fee per barrel of crude oil, barrel of water, 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, water, natural gas and NGLs. Minimum volume commitments (“MVCs”) are equal to 80% of Hess’ nominations in each development plan that apply on a three-year rolling basis such that MVCs are set for the three years following the most recent nomination. Without our consent, the MVCs resulting from the nominated volumes for any quarter or year contained in any prior development plan shall not be reduced by any updated development plan unless dedicated production is released by us. The applicable MVCs may, however, be increased as a result of the nominations contained in any such updated development plan.

Except for the water services agreements and except for a certain gathering sub-system as described below, each of our commercial agreements with Hess has an initial 10-year term effective January 1, 2014 (“Initial Term”). For this gathering sub-system, the Initial Term is 15 years effective January 1, 2014 and for the water services agreements the Initial Term is 14 years effective January 1, 2019. Each of our commercial agreements other than our storage services agreement includes an inflation escalator and a fee recalculation mechanism that allows fees to be adjusted annually during the Initial Term for updated estimates of cumulative throughput volumes and our capital and operating expenditures in order to target a return on capital deployed over the Initial Term of the applicable commercial agreement (or, with respect to the crude oil services fee under our terminal and export services agreement, the 20-year period commencing on the effective date of the agreement).

We have the unilateral right, exercisable by the delivery of a written notice on or before the date that is three years prior to the expiration of the Initial Term, to extend each commercial agreement for one additional 10-year term (“Secondary Term”). For a certain gathering sub-system, the Secondary Term is 5-years and for the water services agreements the Secondary Term is 10 years. On December 30, 2020, we exercised our renewal options to extend the terms of certain crude oil gathering, terminaling, storage, gas processing and gas gathering commercial agreements with Hess for the Secondary Term through December 31, 2033. There were no changes to any provisions of the existing commercial agreements as a result of the exercise of the renewal options. For the remaining water gathering and disposal agreements as well as the remaining gas gathering agreement, we have the sole option to renew these agreements for an additional term that is exercisable at a later date.

PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Table of Contents

During the Secondary Term of each of our commercial agreements other than our storage services agreement and terminal and export services agreement (with respect to crude oil terminaling services), the fee recalculation model under each applicable agreement will be replaced by an inflation-based fee structure. The initial fee for the first year of the Secondary Term will be determined based on the average fees paid by Hess under the applicable agreement during the last three years of the Initial Term (with such fees adjusted for inflation through the first year of the Secondary Term). For each year following the first year of the Secondary Term, the applicable fee will be adjusted annually based on the percentage change in the consumer price index, provided that we may not increase any fee by more than 3% in any calendar year solely by reason of an increase in the consumer price index, and no fee will ever be reduced below the amount of the applicable fee payable by Hess in the prior year as a result of a decrease in the consumer price index. During the Secondary Term of our commercial agreements, Hess will continue to have MVCs equal to 80% of Hess’ nominations in each development plan that apply on a three-year rolling basis through the Secondary Term.

For the three and six months ended June 30, 2021 and 2020, 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.

Revenues from contracts with customers on a disaggregated basis are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
(in millions)
Oil and gas gathering services	$	133.4	$	113.1	$	262.1	$	230.5
Processing and storage services		105.3		86.8		208.8		183.6
Terminaling and export services		34.9		46.6		67.5		98.8
Water gathering and disposal services		21.2		23.3		45.2		47.5
Total revenues from contracts with customers	$	294.8	$	269.8	$	583.6	$	560.4
Other income		-		-		-		0.2
Total revenues	$	294.8	$	269.8	$	583.6	$	560.6

The following table presents MVC shortfall fees earned during each period:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
(in millions)
Oil and gas gathering services	$	9.4	$	2.9	$	16.9	$	2.9
Terminaling and export services		7.7		-		12.7		-
Water gathering and disposal services		1.6		0.2		2.5		1.2
Total	$	18.7	$	3.1	$	32.1	$	4.1

The following table presents third-party pass-through costs for which we recognize revenues in an amount equal to the costs. These third-party costs are included in Operating and maintenance expenses in the accompanying unaudited consolidated statements of operations.

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
(in millions)
Electricity fees	$	9.9	$	9.9	$	19.2	$	19.4
Produced water trucking and disposal costs		8.7		15.0		18.1		31.6
Rail transportation costs		-		21.1		0.1		44.3
Total	$	18.6	$	46.0	$	37.4	$	95.3

PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM 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, 2021 and 2020, 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,
	2021		2020		2021		2020
(in millions)
Operating and maintenance expenses	$	15.8	$	15.3	$	31.5	$	30.8
General and administrative expenses		3.6		3.5		7.8		7.3
Total	$	19.4	$	18.8	$	39.3	$	38.1

LM4 Agreements

Separately from our commercial agreements with Hess, we entered into a gas processing agreement with Little Missouri 4 (“LM4”), a 50/50 joint venture with Targa Resources Corp., under which we pay a processing fee per Mcf of natural gas and reimburse LM4 for our proportionate share of electricity costs. These processing fees are included in Operating and maintenance expenses in the accompanying consolidated statements of operations. In addition, we share profits and losses and receive distributions from LM4 under the LM4 amended and restated limited liability company agreement based on our ownership interest. For the three and six months ended June 30, 2021 and 2020, we had the following activity related to our agreements with LM4:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
(in millions)
Processing fee incurred	$	7.1	$	5.0	$	14.0	$	11.4
Earnings from equity investments		2.9		0.9		5.6		3.6
Distributions received from equity investments		4.0		3.8		11.5		3.8

Note 5. Property, Plant and Equipment

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

	Estimated useful lives	June 30, 2021			December 31, 2020
(in millions, except for number of years)
Gathering assets
Pipelines	22 years	$	1,480.9		$	1,470.6
Compressors, pumping stations and terminals	22 to 25 years		797.7			778.6
Gas plant assets
Pipelines, pipes and valves	22 to 25 years		460.0			460.0
Equipment	12 to 30 years		428.3			428.3
Buildings	35 years		182.3			182.3
Processing and fractionation facilities	25 years		189.3			189.0
Logistics facilities and railcars	20 to 25 years		386.5			386.2
Storage facilities	20 to 25 years		19.5			19.5
Other	20 to 25 years		22.0			20.9
Construction-in-progress	N/A		265.9			227.3
Total property, plant and equipment, at cost			4,232.4			4,162.7
Accumulated depreciation			(1,131.7	)		(1,051.4	)
Property, plant and equipment, net		$	3,100.7		$	3,111.3

PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Table of Contents

Note 6. Accrued Liabilities

Accrued liabilities are as follows:

	June 30, 2021		December 31, 2020
(in millions)
Accrued capital expenditures	$	28.1	$	13.6
Accrued interest		18.0		18.0
Other accruals		16.6		22.5
Total	$	62.7	$	54.1

Note 7. Debt and Interest Expense

Fixed‑Rate Senior Notes

As of June 30, 2021, the Partnership had $800.0 million of 5.625% fixed‑rate senior notes due 2026 that were issued to qualified institutional investors. The notes are guaranteed by certain subsidiaries of the Partnership. Interest is payable semi‑annually on February 15 and August 15.

In addition, as of June 30, 2021, the Partnership had $550.0 million of 5.125% fixed‑rate senior notes due 2028 that were issued to qualified institutional investors. The notes are guaranteed by certain subsidiaries of the Partnership. Interest is payable semi‑annually on June 15 and December 15.

Each of the indentures for the 2026 and 2028 senior notes contains customary covenants that restrict our ability and the ability of our restricted subsidiaries to (i) declare or pay any dividend or make any other restricted payments; (ii) transfer or sell assets or subsidiary stock; (iii) incur additional debt; or (iv) make restricted investments, unless, at the time of and immediately after giving pro forma effect to such restricted payments and any related incurrence of indebtedness or other transactions, no default has occurred and is continuing or would occur as a consequence of such restricted payment and if the leverage ratio does not exceed 4.25 to 1.00. As of June 30, 2021, we were in compliance with all debt covenants under the indentures.

In addition, the covenants included in the indentures governing the senior notes contain provisions that allow the Company to satisfy the Partnership’s reporting obligations under the indenture, as long as any such financial information of the Company contains information reasonably sufficient to identify the material differences, if any, between the financial information of the Company, on the one hand, and the Partnership and its subsidiaries on a stand-alone basis, on the other hand and the Company does not directly own capital stock of any person other than the Partnership and its subsidiaries, or material business operations that would not be consolidated with the financial results of the Partnership and its subsidiaries. The Company is a holding company and has no independent assets or operations. Other than the interest in the Partnership and the effect of federal and state income taxes that are recognized at the Company level, there are no material differences between the consolidated financial statements of the Partnership and the consolidated financial statements of the Company.

Credit Facilities

As of June 30, 2021, the Partnership had senior secured credit facilities (the “Credit Facilities”) consisting of a $1,000.0 million 5-year revolving credit facility and a fully drawn $400.0 million 5-year Term Loan A facility. Facility fees accrue on the total capacity of the revolving credit facility. Borrowings under the 5-year Term Loan A facility will generally bear interest at LIBOR plus the applicable margin ranging from 1.55% to 2.50%, while the applicable margin for the 5-year syndicated revolving credit facility ranges from 1.275% to 2.000%. Pricing levels for the facility fee and interest rate margins are based on the Partnership’s ratio of total debt to EBITDA (as defined in the Credit Facilities). If the Partnership obtains an investment grade credit rating, the pricing levels will be based on the Partnership’s credit ratings in effect from time to time. At June 30, 2021, borrowings of $109.0 million were drawn and outstanding under the Partnership’s revolving credit facility, and borrowings of $395.0 million, excluding deferred issuance costs, were drawn and outstanding under the Partnership’s Term Loan A facility.

The Credit Facilities can be used for borrowings and letters of credit for general corporate purposes. The Credit Facilities are guaranteed by each direct and indirect wholly owned material domestic subsidiary of the Partnership, and are secured by first priority perfected liens on substantially all of the presently owned and after-acquired assets of the Partnership and its direct and indirect wholly owned material domestic subsidiaries, including equity interests directly owned by such entities, subject to certain customary exclusions. The Credit Facilities contain representations and warranties, affirmative and negative covenants and events of default that the Partnership considers to be customary for an agreement of this type, including a covenant that requires the Partnership to maintain a ratio of total debt to EBITDA (as defined in the Credit Facilities) for the prior four fiscal quarters of not greater than 5.00 to 1.00 as of the last day of each fiscal quarter (5.50 to 1.00 during the specified period following certain acquisitions) and, prior to the Partnership obtaining an investment grade credit rating, a ratio of secured debt to EBITDA for the prior four fiscal quarters of not greater than 4.00 to 1.00 as of the last day of each fiscal quarter. As of June 30, 2021, the Partnership was in compliance with these financial covenants.

PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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Fair Value Measurement

At June 30, 2021, our total debt had a carrying value of $1,832.3 million and had a fair value of approximately $1,911.7 million, based on Level 2 inputs in the fair value measurement hierarchy. The carrying value of the amounts under the Term Loan A facility and revolving credit facility at June 30, 2021, approximated their fair value. Any changes in interest rates do not impact cash outflows associated with fixed rate interest payments or settlement of debt principal, unless a debt instrument is repurchased prior to maturity.

Note 8. Partners’ Capital and Distributions

Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash, as defined in the partnership agreement, to shareholders 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 Class A share
First Quarter 2020	May 4, 2020	May 14, 2020	$	0.4310
Second Quarter 2020	August 6, 2020	August 14, 2020	$	0.4363
Third Quarter 2020	November 5, 2020	November 13, 2020	$	0.4417
Fourth Quarter 2020	February 4, 2021	February 12, 2021	$	0.4471
First Quarter 2021	May 3, 2021	May 13, 2021	$	0.4526
Second Quarter 2021⁽¹⁾	August 9, 2021	August 13, 2021	$	0.5042

⁽¹⁾ For more information, see Note 14, Subsequent Events.

Note 9. Equity‑Based Compensation

Equity‑based award activity for the six months ended June 30, 2021 is as follows:

				Weighted Average
				Award Date
	Number of Shares			Fair Value
Outstanding and unvested shares at December 31, 2020		228,344		$	13.78
Granted		78,347			22.40
Vested		(110,109	)		14.91
Outstanding and unvested shares at June 30, 2021		196,582		$	16.58

As of June 30, 2021, $2.6 million of compensation cost related to unvested restricted shares awarded under our long-term incentive plan remains to be recognized over an expected weighted‑average period of 2.1 years.

Note 10. Earnings per Share

We calculate earnings per Class A Share as we do not have any other participating securities. Substantially all of income tax expense is attributed to earnings of Class A Shares reflective of our organizational structure. Class B Units of the Partnership together with the equal number of Class B Shares of the Company are convertible to Class A Shares of the Company on a one-for-one basis. In addition, our restricted equity-based awards may have a dilutive effect on our earnings per share. Diluted earnings per Class A Share are calculated using the “treasury stock method” or “if-converted method,” whichever is more dilutive.

PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per share amounts)	2021		2020		2021		2020
Net income	$	162.0	$	107.8	$	321.6	$	236.8
Less: Net income attributable to noncontrolling interest		151.0		102.5		302.0		225.0
Net income attributable to Hess Midstream LP		11.0		5.3		19.6		11.8
Net income attributable to Hess Midstream LP per Class A share:
Basic:	$	0.44	$	0.29	$	0.89	$	0.66
Diluted:	$	0.44	$	0.29	$	0.87	$	0.64
Weighted average Class A shares outstanding:
Basic:		25.0		18.0		22.2		18.0
Diluted:		25.1		18.1		22.3		18.1

For the three and six months ended June 30, 2021 the weighted average number of Class A shares outstanding included 77,748 and 99,985 dilutive restricted shares, respectively, compared with 77,845 and 65,144 dilutive restricted shares for the three and six months ended June 30, 2020, respectively.

Note 11. Concentration of Credit Risk

Hess represented approximately 100% of our total revenues and accounts receivable for the three and six months ended June 30, 2021 and 2020.

Note 12. Commitments and Contingencies

Environmental Contingencies

The Company is subject to federal, state and local laws and regulations relating to the environment. As of June 30, 2021, our reserves for estimated remediation liabilities included in Accrued liabilities and Other noncurrent liabilities were $0.7 million and $3.1 million, respectively, compared with $0.9 million and $3.1 million, respectively, as of December 31, 2020.

Legal Proceedings

In the ordinary course of business, the Company is from time to time party to various judicial and administrative proceedings. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of a known contingency, we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued.

As of June 30, 2021 and December 31, 2020, we did not have material accrued liabilities for legal contingencies. Based on currently available information, we believe it is remote that the outcome of known matters would have a material adverse impact on our financial condition, results of operations or cash flows.

Note 13. Segments

Our operations are located in the United States and are organized into three reportable segments: (1) gathering, (2) processing and storage and (3) terminaling and export. Our reportable segments comprise the structure used by our Chief Operating Decision Maker (“CODM”) to make key operating decisions and assess performance. These segments are strategic business units with differing products and services. Our CODM evaluates the segments’ operating performance based on multiple measures including Adjusted EBITDA, defined as net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization and our proportional share of depreciation of equity affiliates, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance, such as transaction costs, other income and other non-cash, non‑recurring items, if applicable.

PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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The following tables reflect certain financial data for each reportable segment:

	Gathering		Processing and Storage		Terminaling and Export		Interest and Other			Consolidated
(in millions)
For the Three Months Ended June 30, 2021
Revenues and other income	$	154.6	$	105.3	$	34.9	$	-		$	294.8
Net income (loss)		92.4		71.6		26.1		(28.1	)		162.0
Net income (loss) attributable to Hess Midstream LP		8.1		6.3		2.4		(5.8	)		11.0
Depreciation expense		25.2		11.2		4.0		-			40.4
Proportional share of equity affiliates' depreciation		-		1.3		-		-			1.3
Income from equity investments		-		2.9		-		-			2.9
Interest expense, net		-		-		-		22.9			22.9
Income tax expense		-		-		-		3.6			3.6
Adjusted EBITDA		117.6		84.1		30.1		(1.6	)		230.2
Capital expenditures*		38.2		8.1		0.1		-			46.4

	Gathering		Processing and Storage		Terminaling and Export		Interest and Other			Consolidated
(in millions)
For the Three Months Ended June 30, 2020
Revenues and other income	$	136.4	$	86.8	$	46.6	$	-		$	269.8
Net income (loss)		71.7		45.8		15.9		(25.6	)		107.8
Net income (loss) attributable to Hess Midstream LP		4.6		2.8		1.0		(3.1	)		5.3
Depreciation expense		23.7		11.2		4.0		-			38.9
Proportional share of equity affiliates' depreciation		-		1.2		-		-			1.2
Income from equity investments		-		0.9		-		-			0.9
Interest expense, net		-		-		-		23.3			23.3
Income tax expense		-		-		-		1.7			1.7
Gain on sale of plant, property and equipment		0.1		-		-		-			0.1
Adjusted EBITDA		95.3		58.2		19.9		(0.6	)		172.8
Capital expenditures*		25.9		52.7		0.2		-			78.8

PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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	Gathering		Processing and Storage		Terminaling and Export		Interest and Other			Consolidated
(in millions)
For the Six Months Ended June 30, 2021
Revenues and other income	$	307.3	$	208.8	$	67.5	$	-		$	583.6
Net income (loss)		184.8		142.5		50.1		(55.8	)		321.6
Net income (loss) attributable to Hess Midstream LP		14.5		11.1		4.0		(10.0	)		19.6
Depreciation expense		50.1		22.4		8.1		-			80.6
Proportional share of equity affiliates' depreciation		-		2.6		-		-			2.6
Income from equity investments		-		5.6		-		-			5.6
Interest expense, net		-		-		-		46.0			46.0
Income tax expense		-		-		-		6.1			6.1
Adjusted EBITDA		234.9		167.5		58.2		(3.7	)		456.9
Capital expenditures*		57.6		11.8		0.1		-			69.5

	Gathering		Processing and Storage		Terminaling and Export		Interest and Other			Consolidated
(in millions)
For the Six Months Ended June 30, 2020
Revenues and other income	$	278.0	$	183.8	$	98.8	$	-		$	560.6
Net income (loss)		147.6		108.5		36.6		(55.9	)		236.8
Net income (loss) attributable to Hess Midstream LP		9.4		6.8		2.3		(6.7	)		11.8
Depreciation expense		47.0		22.4		8.0		-			77.4
Proportional share of equity affiliates' depreciation		-		2.5		-		-			2.5
Income from equity investments		-		3.6		-		-			3.6
Interest expense, net		-		-		-		48.1			48.1
Income tax expense (benefit)		-		-		-		3.4			3.4
Gain on sale of property, plant and equipment		0.1		-		-		-			0.1
Adjusted EBITDA		194.5		133.4		44.6		(4.4	)		368.1
Capital expenditures*		41.7		93.8		0.3		-			135.8

*Includes acquisition, expansion and maintenance capital expenditures, as applicable.

Total assets for the reportable segments are as follows:


	June 30, 2021		December 31, 2020
(in millions)
Gathering	$	1,869.3	$	1,856.2
Processing and Storage⁽¹⁾		1,153.6		1,170.3
Terminaling and Export		287.9		292.3
Interest and Other		75.6		55.7
Total assets	$	3,386.4	$	3,374.5

(1)	Includes investment in equity investees of $102.5 million as of June 30, 2021 and $108.4 million as of December 31, 2020.

Note 14. Subsequent Events

On July 28, 2021, we announced that the board of directors of our general partner declared a quarterly cash distribution of $0.5042 per Class A share for the quarter ended June 30, 2021. The distribution represents an approximate 11% increase compared to the distribution for the quarter ended March 31, 2021, consisting of a 10% announced increase in addition to a quarterly increase consistent with the Company’s targeted 5% growth in annual distributions per Class A share. The distribution will be payable on August 13, 2021, to shareholders of record as of the close of business on August 9, 2021. Simultaneously, the Partnership will make a distribution of $0.5042 per Class B unit of the Partnership to the Sponsors as holders of an aggregate of 259,516,928 Class B units of the Partnership.

PART I – FINANCIAL INFORMATION (CONT’D)

HESS MIDSTREAM LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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On July 28, 2021, we announced that the Partnership agreed to repurchase approximately 31 million Class B units of the Partnership from our Sponsors for an aggregate purchase price of $750.0 million, resulting in public ownership of the Company, on a consolidated basis, increasing to approximately 9.5%. The purchase price per Class B unit is $24.00, representing an approximate 4% discount to the 30-day volume weighted average trading price of our Class A shares through July 27, 2021. The unit repurchase is expected to be completed in August 2021 and funded through debt financing.

PART I – FINANCIAL INFORMATION (CONT’D)

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Item 2.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited financial statements and accompanying footnotes included under Item 1. Financial Statements and in conjunction with the audited consolidated financial statements and accompanying footnotes in our Annual Report on Form 10‑K for the year ended December 31, 2020 (our “2020 Annual Report”).

Unless otherwise stated or the context otherwise indicates, references in this report to “Hess Midstream LP,” “the Company,” “us,” “our,” “we” or similar terms refer to Hess Midstream LP, including its consolidated subsidiaries.

This discussion contains forward‑looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in our 2020 Annual Report.

Overview

We are a fee-based, growth-oriented, limited partnership that owns, operates, develops and acquires a diverse set of midstream assets and provide fee-based services to Hess Corporation (“Hess”) and third-party customers. We are managed and controlled by Hess Midstream GP LLC, the general partner of our general partner that is owned 50/50 by Hess and GIP II Blue Holding Partnership, L.P. (“GIP” and together with Hess, the “Sponsors”). Our assets are primarily located in the Bakken and Three Forks shale plays in the Williston Basin area of North Dakota, which we collectively refer to as the Bakken.

On July 12, 2021, we commenced a 45-day maintenance turnaround at the Tioga Gas Plant. As a result, in the third quarter of 2021, we expect to incur operating expenses of approximately $15 million and maintenance capital expenditures of approximately $15 million related specifically to the turnaround. We also expect third quarter 2021 gas volumes to be below minimum volume commitment (“MVC”) levels and we expect to receive MVC shortfall fee payments during the turnaround.

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

Second Quarter Results

Significant financial and operating highlights for the second quarter of 2021 included:

•

Consolidated net income of $162.0 million;

•

Net income attributable to Hess Midstream LP after deduction for noncontrolling interest of $11.0 million, or $0.44 per Class A share;

•

Net cash provided by operating activities of $224.6 million;

•

Adjusted EBITDA of $230.2 million;

•

Distributable cash flow of $207.5 million;

•

Cash distribution of $0.5042 per Class A share announced on July 28, 2021, an approximate 11% increase compared to the distribution for the first quarter 2021, consisting of a 10% announced increase in addition to a quarterly increase consistent with the Company’s targeted 5% growth in annual distributions per Class A share.

PART I – FINANCIAL INFORMATION (CONT’D)

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Revenues and other income in the second quarter of 2021 were $294.8 million compared with $269.8 million in the prior-year quarter. Second quarter 2021 revenues and other income were up $25.0 million compared to the prior-year quarter primarily due to higher minimum volume commitment levels and tariff rates of $52.4 million, partially offset by lower pass-through revenues, including rail transportation, electricity, and produced water trucking and disposal, of $27.4 million. Total costs and expenses in the second quarter of 2021 were $109.2 million, down from $138.0 million in the prior-year quarter. The decrease was primarily attributable to lower pass-through costs of $27.4 million, for which we recognize revenues in the same amount, as described above, and lower other costs of $1.4 million. As a result, consolidated net income increased $54.2 million and Adjusted EBITDA increased $57.4 million.

Throughput volumes increased 6% for gas gathering and 5% for gas processing in the second quarter of 2021 compared with the second quarter of 2020 driven by higher gas capture of Hess volumes. Throughput volumes decreased 21% for crude oil gathering and 19% for crude oil terminaling in the second quarter of 2021 compared with the second quarter of 2020 due to reduced drilling activity. The impact of the reduction in crude oil physical volumes in the second quarter of 2021 compared to the second quarter of 2020 was offset by higher tariff rates and shortfall fee payments related to minimum volume commitments. Water gathering volumes increased 12% compared with the year-ago quarter reflecting continued steady organic growth of our water handling business.

For additional information regarding our non‑GAAP financial measures, see “How We Evaluate Our Operations” and “Reconciliation of Non‑GAAP Financial Measures” below.

How We Generate Revenues

We generate substantially all of our revenues by charging fees for gathering, compressing and processing natural gas and fractionating NGLs; gathering, terminaling, loading and transporting crude oil and NGLs; storing and terminaling propane; and gathering and disposing of produced water. We have entered into long‑term, fee‑based commercial agreements with Hess effective January 1, 2014, for oil and gas services agreements, and effective January 1, 2019, for water services agreements.

Except for the water services agreements and except for a certain gathering sub-system, as described below, each of our commercial agreements with Hess has an initial 10-year term and we have the unilateral right to renew each of these agreements for one additional 10-year term. In September 2018, we amended our gas gathering and gas processing and fractionation agreements to enable us to provide certain services to Hess in respect of volumes to be delivered to and processed at the LM4 plant. 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. Initial term for the water services agreements is 14 years and the secondary term is 10 years. On December 30, 2020, we exercised our renewal options to extend the terms of certain crude oil gathering, terminaling, storage, gas processing and gas gathering commercial agreements with Hess for the Secondary Term through December 31, 2033. There were no changes to any provisions of the existing commercial agreements as a result of the exercise of the renewal options. For the remaining water gathering and disposal agreements as well as the remaining gas gathering agreement, we have the sole option to renew these agreements for an additional term that is exercisable at a later date.

These agreements include dedications covering substantially all of Hess’ existing and future owned or controlled production in the Bakken, minimum volume commitments, inflation escalators and fee recalculation mechanisms, all of which are intended to provide us with cash flow stability and growth, as well as downside risk protection. In particular, Hess’ minimum volume commitments under our commercial agreements provide minimum levels of cash flows and the fee recalculation mechanisms under the agreements allow fees to be adjusted annually to provide us with cash flow stability during the initial term of the agreements. During the secondary term of the agreements, the fee recalculation model will be replaced by an inflation-based fee structure. See Note 4, Related Party Transactions for additional description of our commercial agreements.

Our revenues also include revenues from third-party volumes contracted with Hess and delivered to us under these commercial agreements with Hess, as well as pass-through third-party rail transportation costs, third-party produced water trucking and disposal costs, electricity fees and certain other third-party fees, for which we recognize revenues in an amount equal to the costs. 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.

PART I – FINANCIAL INFORMATION (CONT’D)

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How We Evaluate Our Operations

Our management uses a variety of financial and operating metrics to analyze our operating results and profitability. These metrics include (i) volumes, (ii) operating and maintenance expenses, (iii) Adjusted EBITDA, and (iv) distributable cash flow.

Volumes. The amount of revenues we generate primarily depends on the volumes of crude oil, natural gas, NGLs and produced water that we handle at our gathering, processing, terminaling, storage facilities and disposal facilities. These volumes are affected primarily by the supply of and demand for crude oil, natural gas and NGLs in the markets served directly or indirectly by our assets, including changes in crude oil prices, which may further affect volumes delivered by Hess. Although Hess has committed to minimum volumes under our commercial agreements described above, our results of operations will be impacted by our ability to:

•

utilize the remaining uncommitted capacity on, or add additional capacity to, our existing assets, and optimize our existing assets;

•

identify and execute expansion projects, and capture incremental throughput volumes from Hess and third parties for these expanded facilities;

•

increase throughput volumes at our Ramberg Terminal Facility, Tioga Rail Terminal and the Johnson’s Corner Header System by interconnecting with new or existing third‑party gathering pipelines; and

•

increase gas throughput volumes by interconnecting with new or existing third‑party gathering pipelines.

Operating and Maintenance Expenses. Our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses are comprised primarily of costs charged to us under our omnibus agreement and employee secondment agreement, third‑party contractor costs, utility costs, insurance premiums, third‑party service provider costs, related property taxes and other non‑income taxes and maintenance expenses, such as expenditures to repair, refurbish and replace storage facilities and to maintain equipment reliability, integrity and safety. These expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of substantial expenses, such as gas plant turnarounds. We seek to manage our maintenance expenditures by scheduling periodic maintenance on our assets in order to minimize significant variability in these expenditures and minimize their impact on our cash flow.

Adjusted EBITDA and Distributable Cash Flow. We define Adjusted EBITDA as net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization and our proportional share of depreciation of our equity affiliates, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance, such as transaction costs, other income and other non‑cash, non‑recurring items, if applicable. We define distributable cash flow as Adjusted EBITDA less net interest, excluding amortization of deferred financing costs, cash paid for federal and state income taxes and maintenance capital expenditures. Distributable cash flow does not reflect changes in working capital balances. We use Adjusted EBITDA and distributable cash flow to analyze our liquidity and performance.

Adjusted EBITDA and distributable cash flow are non‑GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

•

our operating performance as compared to other publicly traded companies in the midstream energy industry, without regard to historical cost basis or, in the case of Adjusted EBITDA, financing methods;

•

the ability of our assets to generate sufficient cash flow to make distributions to our shareholders;

•

our ability to incur and service debt and fund capital expenditures; and

•

the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

PART I – FINANCIAL INFORMATION (CONT’D)

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We believe that the presentation of Adjusted EBITDA and distributable cash flow provides useful information to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to Adjusted EBITDA and distributable cash flow are net income (loss) and net cash provided by (used in) operating activities. Adjusted EBITDA and distributable cash flow should not be considered as alternatives to GAAP net income (loss), income (loss) from operations, net cash provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA and distributable cash flow have important limitations as analytical tools because they exclude some but not all items that affect net income and net cash provided by operating activities. You should not consider Adjusted EBITDA or distributable cash flow in isolation or as a substitute for analysis of our results as reported under GAAP. Additionally, because Adjusted EBITDA and distributable cash flow may be defined differently by other companies in our industry, our definition of Adjusted EBITDA and distributable cash flow may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

Results of Operations

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Results of operations for the three months ended June 30, 2021 and 2020 are presented below (in millions, unless otherwise noted).

For the Three Months Ended June 30, 2021	Gathering		Processing and Storage		Terminaling and Export		Interest and Other			Consolidated Hess Midstream LP
Revenues
Affiliate services	$	154.6	$	105.3	$	34.9	$	-		$	294.8
Total revenues		154.6		105.3		34.9		-			294.8
Costs and expenses
Operating and maintenance expenses (exclusive of depreciation shown separately below)		34.8		24.2		4.6		-			63.6
Depreciation expense		25.2		11.2		4.0		-			40.4
General and administrative expenses		2.2		1.2		0.2		1.6			5.2
Total costs and expenses		62.2		36.6		8.8		1.6			109.2
Income (loss) from operations		92.4		68.7		26.1		(1.6	)		185.6
Income from equity investments		-		2.9		-		-			2.9
Interest expense, net		-		-		-		22.9			22.9
Income (loss) before income tax expense (benefit)		92.4		71.6		26.1		(24.5	)		165.6
Income tax expense		-		-		-		3.6			3.6
Net income (loss)		92.4		71.6		26.1		(28.1	)		162.0
Less: Net income (loss) attributable to noncontrolling interest		84.3		65.3		23.7		(22.3	)		151.0
Net income (loss) attributable to Hess Midstream LP	$	8.1	$	6.3	$	2.4	$	(5.8	)	$	11.0

Throughput volumes
Gas gathering (MMcf/d)⁽¹⁾		325									325
Crude oil gathering (MBbl/d)⁽²⁾		111									111
Gas processing (MMcf/d)⁽¹⁾				304							304
Crude oil terminaling (MBbl/d)⁽²⁾						116					116
NGL loading (MBbl/d)⁽²⁾						17					17
Water gathering (MBbl/d)⁽²⁾		74									74

⁽¹⁾ Million cubic feet per day

⁽²⁾ Thousand barrels per day

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Table of Contents

For the Three Months Ended June 30, 2020	Gathering		Processing and Storage		Terminaling and Export		Interest and Other			Consolidated Hess Midstream LP

Revenues
Affiliate services	$	136.4	$	86.8	$	46.6	$	-		$	269.8
Total revenues		136.4		86.8		46.6		-			269.8
Costs and expenses
Operating and maintenance expenses (exclusive of depreciation shown separately below)		39.5		29.0		26.5		-			95.0
Depreciation expense		23.7		11.2		4.0		-			38.9
General and administrative expenses		1.6		1.7		0.2		0.6			4.1
Total costs and expenses		64.8		41.9		30.7		0.6			138.0
Income (loss) from operations		71.6		44.9		15.9		(0.6	)		131.8
Income from equity investments		-		0.9		-		-			0.9
Interest expense, net		-		-		-		23.3			23.3
Gain on sale of property, plant and equipment		0.1		-		-		-			0.1
Income (loss) before income tax expense (benefit)		71.7		45.8		15.9		(23.9	)		109.5
Income tax expense		-		-		-		1.7			1.7
Net Income (loss)		71.7		45.8		15.9		(25.6	)		107.8
Less: Net income (loss) attributable to noncontrolling interest		67.1		43.0		14.9		(22.5	)		102.5
Net income (loss) attributable to Hess Midstream Partners LP	$	4.6	$	2.8	$	1.0	$	(3.1	)	$	5.3

Throughput volumes
Gas gathering (MMcf/d)⁽¹⁾		307									307
Crude oil gathering (MBbl/d)⁽²⁾		141									141
Gas processing (MMcf/d)⁽¹⁾				289							289
Crude oil terminaling (MBbl/d)⁽²⁾						144					144
NGL loading (MBbl/d)⁽²⁾						14					14
Water gathering (MBbl/d)⁽²⁾		66									66

⁽¹⁾	Million cubic feet per day

⁽²⁾	Thousand barrels per day

Gathering

Revenues and other income increased $18.2 million in the second quarter of 2021 compared to the second quarter of 2020, of which $14.6 million is attributable to higher tariff rates, $6.6 million is attributable to higher gas gathering and compression volumes and higher MVC shortfall fees, and $4.3 million is attributable to higher water services revenue. This increase is partially offset by $6.3 million attributable to lower third-party produced water trucking and disposal pass-through revenues due to more operated water disposal facilities coming on-line and being utilized, and $1.0 million, net of MVC shortfall fees, attributable to lower crude oil gathering volumes driven by reduced drilling activity. Operating and maintenance expenses decreased $4.7 million, of which $6.3 million is attributable to lower produced water trucking and disposal pass-through costs, partially offset by $1.6 million primarily attributable to higher employee costs allocated to us under our omnibus and employee secondment agreements. Depreciation expense increased $1.5 million due to new compressors, produced water disposal facilities and other new gathering assets being brought into service.

Processing and Storage

Revenues and other income increased $18.5 million in the second quarter of 2021 compared to the second quarter of 2020, of which $15.1 million is attributable to higher tariff rates and $3.4 million is attributable to higher volumes driven by higher gas capture.

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Operating and maintenance expenses decreased $4.8 million, of which $4.7 million is attributable to lower Tioga Gas Plant turnaround activity compared to the same period last year, $1.7 million is attributable to lower employee costs allocated to us under our omnibus and employee secondment agreements and $0.9 million is attributable to other maintenance activity. This decrease is partially offset by $2.5 million attributable to higher third-party processing fees.

Terminaling and Export

Revenues and other income decreased $11.7 million in the second quarter of 2021 compared to the second quarter of 2020, of which $21.1 million is attributable to lower rail transportation pass‑through revenues. This decrease is partially offset by $4.8 million attributable to higher tariff rates and $4.6 million primarily attributable to higher MVC shortfall fees. Operating and maintenance expenses decreased $21.9 million primarily attributable to lower rail transportation pass-through costs due to lower rail usage and certain rail transportation fees being paid directly by end customers.

Interest and Other

General and administrative expenses increased $1.0 million in the second quarter of 2021 compared to the second quarter of 2020 primarily due to higher professional fees.

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Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Results of operations for the six months ended June 30, 2021 and 2020 are presented below (in millions, unless otherwise noted).

For the Six Months Ended June 30, 2021	Gathering		Processing and Storage		Terminaling and Export		Interest and Other			Consolidated Hess Midstream LP
Revenues
Affiliate services	$	307.3	$	208.8	$	67.5	$	-		$	583.6
Total revenues		307.3		208.8		67.5		-			583.6
Costs and expenses
Operating and maintenance expenses (exclusive of depreciation shown separately below)		67.8		46.7		8.9		-			123.4
Depreciation expense		50.1		22.4		8.1		-			80.6
General and administrative expenses		4.6		2.8		0.4		3.7			11.5
Total costs and expenses		122.5		71.9		17.4		3.7			215.5
Income (loss) from operations		184.8		136.9		50.1		(3.7	)		368.1
Income from equity investments		-		5.6		-		-			5.6
Interest expense, net		-		-		-		46.0			46.0
Income (loss) before income tax expense (benefit)		184.8		142.5		50.1		(49.7	)		327.7
Income tax expense (benefit)		-		-		-		6.1			6.1
Net income (loss)		184.8		142.5		50.1		(55.8	)		321.6
Less: Net income (loss) attributable to noncontrolling interest		170.3		131.4		46.1		(45.8	)		302.0
Net income (loss) attributable to Hess Midstream LP	$	14.5	$	11.1	$	4.0	$	(10.0	)	$	19.6

Throughput volumes
Gas gathering (MMcf/d)⁽¹⁾		321									321
Crude oil gathering (MBbl/d)⁽²⁾		114									114
Gas processing (MMcf/d)⁽¹⁾				303							303
Crude oil terminaling (MBbl/d)⁽²⁾						121					121
NGL loading (MBbl/d)⁽²⁾						15					15
Water gathering (MBbl/d)⁽²⁾		72									72

⁽¹⁾	Million cubic feet per day

⁽²⁾	Thousand barrels per day

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Table of Contents

For the Six Months Ended June 30, 2020	Gathering		Processing and Storage		Terminaling and Export		Interest and Other			Consolidated Hess Midstream LP
Revenues
Affiliate services	$	278.0	$	183.6	$	98.8	$	-		$	560.4
Other income		-		0.2		-		-			0.2
Total revenues		278.0		183.8		98.8		-			560.6
Costs and expenses
Operating and maintenance expenses (exclusive of depreciation shown separately below)		79.9		53.2		53.8		-			186.9
Depreciation expense		47.0		22.4		8.0		-			77.4
General and administrative expenses		3.6		3.3		0.4		4.4			11.7
Total costs and expenses		130.5		78.9		62.2		4.4			276.0
Income (loss) from operations		147.5		104.9		36.6		(4.4	)		284.6
Income from equity investments		-		3.6		-		-			3.6
Interest expense, net		-		-		-		48.1			48.1
Gain on sale of property, plant and equipment		0.1		-		-		-			0.1
Income (loss) before income tax expense (benefit)		147.6		108.5		36.6		(52.5	)		240.2
Income tax expense (benefit)		-		-		-		3.4			3.4
Net Income (loss)		147.6		108.5		36.6		(55.9	)		236.8
Less: Net income (loss) attributable to noncontrolling interest		138.2		101.7		34.3		(49.2	)		225.0
Net income (loss) attributable to Hess Midstream LP	$	9.4	$	6.8	$	2.3	$	(6.7	)	$	11.8

Throughput volumes
Gas gathering (MMcf/d)⁽¹⁾		321									321
Crude oil gathering (MBbl/d)⁽²⁾		145									145
Gas processing (MMcf/d)⁽¹⁾				305							305
Crude oil terminaling (MBbl/d)⁽²⁾						153					153
NGL loading (MBbl/d)⁽²⁾						15					15
Water gathering (MBbl/d)⁽²⁾		60									60

⁽¹⁾	Million cubic feet per day

⁽²⁾	Thousand barrels per day

Gathering

Revenues and other income increased $29.3 million in the first six months of 2021 compared to the first six months of 2020, of which $29.2 million is attributable to higher tariff rates, $11.4 million is attributable to higher water services revenue and $7.6 million is attributable to higher gas gathering and compression volumes and higher MVC shortfall fees. This increase is partially offset by $13.5 million attributable to lower third-party produced water trucking and disposal pass-through revenues due to more operated water disposal facilities coming on-line and being utilized and $5.4 million, net of MVC shortfall fees, attributable to lower crude oil gathering volumes driven by reduced drilling activity. Operating and maintenance expenses decreased $12.1 million, of which $13.5 million is attributable to lower produced water trucking and disposal pass-through costs and $3.6 million is attributable to lower project-based maintenance activity. This decrease is partially offset by $3.3 million higher employee costs allocated to us under our omnibus and employee secondment agreements and $1.7 million higher insurance and property tax. Depreciation expense increased $3.1 million due to new compressors, produced water disposal facilities and other new gathering assets being brought into service.

Processing and Storage

Revenues and other income increased $25.0 million in the first six months of 2021 compared to the first six months of 2020, of which $30.3 million is attributable to higher tariff rates, partially offset by $5.1 million attributable to lower volumes primarily due to lower third-party volumes and $0.2 million lower other income.

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Operating and maintenance expenses decreased $6.5 million, of which $6.4 million is attributable to lower Tioga Gas Plant turnaround activity compared to the same period last year, $2.8 million is attributable to lower employee costs allocated to us under our omnibus and employee secondment agreements and $0.8 million is attributable to other maintenance activity. This decrease is partially offset by $3.5 million attributable to higher third-party processing fees.

Terminaling and Export

Revenues and other income decreased $31.3 million in the first six months of 2021 compared to the first six months of 2020, of which $44.2 million is attributable to lower rail transportation pass‑through revenues. This decrease is partially offset by $9.9 million attributable to higher tariff rates and $3.0 million primarily attributable to higher MVC shortfall fees. Operating and maintenance expenses decreased $44.9 million primarily attributable to lower rail transportation pass-through costs due to lower rail usage and certain rail transportation fees being paid directly by end customers.

Interest and Other

Interest expense, net of interest income, decreased $2.1 million in the first six months of 2021 compared to the first six months of 2020 primarily attributable to lower floating rates on our credit facilities. Income tax expense increased $2.7 million in the same periods driven by higher income before income tax expense and increased ownership of Hess Midstream Operations LP by Hess Midstream LP following the equity offering in the first quarter of 2021.

Other Factors Expected to Significantly Affect Our Future Results

We currently generate substantially all of our revenues under fee‑based commercial agreements with Hess, including third parties contracted with affiliates of Hess. These contracts provide cash flow stability and minimize our direct exposure to commodity price fluctuations, since we generally do not own any of the crude oil, natural gas, or NGLs that we handle and do not engage in the trading of crude oil, natural gas, or NGLs. However, commodity price fluctuations indirectly influence our activities and results of operations over the long-term, since they can affect production rates and investments by Hess and third parties in the development of new crude oil and natural gas reserves. The markets for oil and natural gas are volatile and will likely continue to be volatile in the future. In the second quarter of 2020, as a result of the sharp decline in crude oil prices, Hess reduced its rig count from 6 rigs to 1 rig in the Bakken. In addition, third parties in the Bakken have also curtailed production and reduced drilling activity. Our contract structure is expected to largely offset the impact of the reduction in volumes on our financial performance metrics, as our minimum volume commitments provide minimum levels of cash flows and the fee recalculation mechanisms under our agreements support our cash flow stability. To the extent our previous plans included revenues for volumes, including third-party volumes contracted through Hess, above currently established minimum volume commitment levels, such revenues could decline to the minimum volume commitment levels. Subsequently, in the first quarter of 2021, Hess increased its rig count in the Bakken to 2 rigs and, in July 2021 announced its expectation to add a third rig beginning in September 2021.

The throughput volumes at our facilities depend primarily on the volumes of crude oil and natural gas produced by Hess in the Bakken, which, in turn, is ultimately dependent on Hess’ exploration and production margins. Exploration and production margins depend on the price of crude oil, natural gas, and NGLs. These prices are volatile and influenced by numerous factors beyond our or Hess’ control, including the domestic and global supply of and demand for crude oil, natural gas and NGLs. During the first quarter of 2020, worldwide crude oil prices declined significantly due in part to reduced global demand stemming from the COVID-19 global pandemic. Sustained periods of low prices for oil and natural gas could materially and adversely affect the quantities of oil and natural gas that Hess can economically produce. The commodities trading markets, as well as global and regional supply and demand factors, may also influence the selling prices of crude oil, natural gas and NGLs. While the initial term of our commercial agreements provides for an annual fee recalculation mechanism to target a return on capital deployed, the secondary term of our commercial agreements changes to an inflation-based fixed fee structure with minimum volume commitments continuing through the second term, which may provide greater exposure to price volatility. Furthermore, our ability to execute our growth strategy in the Bakken, including attracting third-party volumes, will depend on crude oil and natural gas production in that area, which is also affected by the supply of and demand for crude oil and natural gas.

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Reconciliation of Non‑GAAP Financial Measures

The following table presents a reconciliation of Adjusted EBITDA and distributable cash flow to net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in millions)	2021			2020			2021			2020
Reconciliation of Adjusted EBITDA and Distributable Cash Flow to net income:
Net income	$	162.0		$	107.8		$	321.6		$	236.8
Plus:
Depreciation expense		40.4			38.9			80.6			77.4
Proportional share of equity affiliates' depreciation		1.3			1.2			2.6			2.5
Interest expense, net		22.9			23.3			46.0			48.1
Income tax expense (benefit)		3.6			1.7			6.1			3.4
Loss (gain) on sale of property, plant and equipment					(0.1	)		-			(0.1	)
Adjusted EBITDA	$	230.2		$	172.8		$	456.9		$	368.1
Less:
Interest, net⁽¹⁾		21.2			21.8			42.6		$	45.1
Maintenance capital expenditures		1.5			1.0			2.2			2.7
Distributable cash flow	$	207.5		$	150.0		$	412.1		$	320.3

Reconciliation of Adjusted EBITDA and Distributable Cash Flow to net cash provided by operating activities:
Net cash provided by operating activities	$	224.6		$	177.4		$	390.0		$	317.6
Changes in assets and liabilities		(15.5	)		(24.4	)		28.3			4.0
Amortization of deferred financing costs		(1.7	)		(1.7	)		(3.4	)		(3.5	)
Proportional share of equity affiliates' depreciation		1.3			1.2			2.6			2.5
Interest expense, net		22.9			23.3			46.0			48.1
Distribution from equity investments		(4.0	)		(3.8	)		(11.5	)		(3.8	)
Earnings from equity investments		2.9			0.9			5.6			3.6
Other		(0.3	)		(0.1	)		(0.7	)		(0.4	)
Adjusted EBITDA	$	230.2		$	172.8		$	456.9		$	368.1
Less:
Interest, net⁽¹⁾		21.2			21.8			42.6			45.1
Maintenance capital expenditures		1.5			1.0			2.2			2.7
Distributable cash flow	$	207.5		$	150.0		$	412.1		$	320.3

(1)	Excludes amortization of deferred financing costs.

Capital Resources and Liquidity

We expect our ongoing sources of liquidity to include:

•

cash on hand;

•

cash generated from operations;

•

borrowings under our revolving credit facility;

•

issuances of additional debt securities; and

•

issuances of additional equity securities.

We believe that cash generated from these sources will be sufficient to meet our operating requirements, our planned short‑term capital expenditures, debt service requirements, our quarterly cash distribution requirements, future internal growth projects or potential acquisitions.

PART I – FINANCIAL INFORMATION (CONT’D)

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Our partnership agreement requires that we distribute all of our available cash, as defined in the agreement, to our shareholders. On July 28, 2021, we announced a quarterly cash distribution of $0.5042 per Class A share, to be paid on August 13, 2021 to shareholders of record on August 9, 2021. The distribution represents an approximate 11% increase compared to the distribution for the prior quarter, consisting of a 10% announced increase in addition to a quarterly increase consistent with the Company’s targeted 5% growth in annual distributions per Class A share. Simultaneously, the Partnership will make a distribution of $0.5042 per Class B unit of the Partnership to the Sponsors.

On July 28, 2021, we also announced that the Partnership agreed to repurchase approximately 31 million Class B units of the Partnership from our Sponsors for an aggregate purchase price of $750.0 million that is expected to be completed in August 2021 and funded through debt financing.

Fixed‑Rate Senior Notes

As of June 30, 2021, we had $800.0 million of 5.625% fixed‑rate senior notes due 2026 that were issued to qualified institutional investors. The notes are guaranteed by certain of our subsidiaries. Interest is payable semi‑annually on February 15 and August 15.

In addition, as of June 30, 2021, we had $550.0 million of 5.125% fixed‑rate senior notes due 2028 that were issued to qualified institutional investors. The notes are guaranteed by certain of our subsidiaries. Interest is payable semi‑annually on June 15 and December 15.

Credit Facilities

As of June 30, 2021, we had senior secured syndicated credit facilities (the “Credit Facilities”) consisting of a $1,000.0 million 5-year revolving credit facility and a fully drawn $400.0 million 5-year Term Loan A facility. Facility fees accrue on the total capacity of the revolving credit facility. Borrowings under the 5-year Term Loan A facility will generally bear interest at LIBOR plus an applicable margin ranging from 1.55% to 2.50%, while the applicable margin for the 5-year syndicated revolving credit facility ranges from 1.275% to 2.000%. Pricing levels for the facility fee and interest rate margins are based on the Partnership’s ratio of total debt to EBITDA (as defined in the Credit Facilities). If the Partnership obtains an investment grade credit rating, the pricing levels will be based on the Partnership’s credit ratings in effect from time to time. At June 30, 2021, borrowings of $109.0 million were drawn and outstanding under the Partnership’s revolving credit facility, and borrowings of $395.0 million, excluding deferred issuance costs, were drawn and outstanding under the Partnership’s Term Loan A facility.

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The Credit Facilities can be used for borrowings and letters of credit for general corporate purposes. The Credit Facilities are guaranteed by each direct and indirect wholly owned material domestic subsidiary of the Partnership, and are secured by first priority perfected liens on substantially all of the presently owned and after-acquired assets of the Partnership and its direct and indirect wholly owned material domestic subsidiaries, including equity interests directly owned by such entities, subject to certain customary exclusions. The Credit Facilities contain representations and warranties, affirmative and negative covenants and events of default that the Partnership considers to be customary for an agreement of this type, including a covenant that requires the Partnership to maintain a ratio of total debt to EBITDA (as defined in the Credit Facilities) for the prior four fiscal quarters of not greater than 5.00 to 1.00 as of the last day of each fiscal quarter (5.50 to 1.00 during the specified period following certain acquisitions) and, prior to the Partnership obtaining an investment grade credit rating, a ratio of secured debt to EBITDA for the prior four fiscal quarters of not greater than 4.00 to 1.00 as of the last day of each fiscal quarter. As of June 30, 2021, we were in compliance with these financial covenants.

Cash Flows

Operating Activities. Net cash provided by operating activities increased $72.4 million for the six months ended June 30, 2021 compared to the same period in 2020. The change in operating cash flows resulted primarily from a decrease in cash operating expenses of $66.1 million, an increase in revenues and other income of $23.0 million and an increase in distributions received from equity investments of $7.7 million, partially offset by a use of cash of $24.4 million from changes in working capital.

Investing Activities. Net cash used in investing activities decreased $94.3 million for the six months ended June 30, 2021 compared to the same period in 2020 driven by lower payments for capital expenditures primarily due to completion of the Tioga Gas Plant expansion.

Financing Activities. Net cash used in financing activities increased $164.7 million for the six months ended June 30, 2021 compared to the same period in 2020 as a result of lower net borrowings of $150.7 million, net of any changes in financing costs, and higher distributions to shareholders and noncontrolling interest of $12.4 million. The remaining change of $1.6 million represents a final settlement received from Hess in 2020 related to our previous acquisition of Hess Water Services.

Capital Expenditures

Our operations can be capital intensive, requiring investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational regulations. Our partnership agreement requires that we distinguish between maintenance capital expenditures and expansion capital expenditures. Maintenance capital expenditures are capital expenditures made to maintain, over the long term, our operating capacity, operating income or revenue. Examples of maintenance capital expenditures are expenditures to repair, refurbish or replace existing assets, to maintain equipment reliability, integrity and safety and to address environmental laws and regulations. In contrast, expansion capital expenditures are expenditures incurred for acquisitions or capital improvements that we expect will increase our operating capacity, operating income or revenue over the long term. Examples of expansion capital expenditures include the acquisition of equipment, construction, development or acquisition of additional capacity, or expenditures for connecting additional wells to our gathering systems, to the extent such capital expenditures are expected to expand our long‑term operating capacity, operating income or revenue.

The following table sets forth a summary of maintenance and expansion capital expenditures and reconciles capital expenditures on an accrual basis to additions to property, plant and equipment on a cash basis:

	Six Months Ended June 30,
	2021			2020
(in millions)
Expansion capital expenditures	$	67.3		$	133.1
Maintenance capital expenditures		2.2			2.7
Total capital expenditures		69.5			135.8
(Increase) decrease in accrued capital expenditures		(14.5	)		(11.7	)
(Increase) decrease in capital expenditures included in accounts payable - affiliate		(2.3	)		23.0
Additions to property, plant and equipment	$	52.7		$	147.1

PART I – FINANCIAL INFORMATION (CONT’D)

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Capital expenditures in 2021 are primarily attributable to continued expansion of our gathering and compression capacity. Capital expenditures in the prior year were primarily attributable to construction and fabrication activities for the Tioga Gas Plant expansion.

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Cautionary Note Regarding Forward-looking Information

This Quarterly Report on Form 10‑Q, including information incorporated by reference herein, 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” 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; the expected timing and completion of the Class B unit repurchase from Hess and GIP; 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 direct and indirect effects of the COVID-19 global pandemic and other public health developments on our business and those of our business partners, suppliers and customers, including Hess;

•

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 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, NGLs and produced water we gather, process, terminal or store;

•

fluctuations in the prices and demand for crude oil, natural gas and NGLs, including as a result of the COVID-19 global pandemic;

•

changes in global economic conditions and the effects of a global economic downturn on our business and the business of our suppliers, customers, business partners and lenders;

•

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;

•

our ability to satisfy the closing conditions of the Class B unit repurchase, including obtaining necessary debt financing;

•

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 safety, such as spills, releases, pipeline integrity and measures to limit greenhouse gas emissions;

•

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, as well as 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.

PART I – FINANCIAL INFORMATION (CONT’D)

Table of Contents

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices. We generally do not take ownership of the crude oil, natural gas or NGLs that we currently gather, process, terminal, store or transport for our customers. Because we generate substantially all of our revenues by charging fees under long-term commercial agreements with Hess with minimum volume commitments, Hess bears the risks associated with fluctuating commodity prices and we have minimal direct exposure to commodity prices.

In the normal course of our business, we are exposed to market risks related to changes in interest rates. Our financial risk management activities may include transactions designed to reduce risk by reducing our exposure to interest rate movements. Interest rate swaps may be used to convert interest payments on certain long‑term debt. At June 30, 2021, we did not have in place any derivative instruments to hedge any exposure to changes in interest rates.

At June 30, 2021, our total debt had a carrying value of $1,832.3 million and a fair value of approximately $1,911.7 million, based on Level 2 inputs in the fair value measurement hierarchy. A 15% increase or decrease in interest rates would decrease or increase the fair value of our fixed rate debt by approximately $42.9 million or $22.1 million, respectively. The carrying value of the amounts under our Term Loan A facility and revolving credit facility at the quarter-end approximated their fair value. Any changes in interest rates do not impact cash outflows associated with fixed rate interest payments or settlement of debt principal, unless a debt instrument is repurchased prior to maturity.

Item 4.

Controls and Procedures

Based upon their evaluation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) as of June 30, 2021, John B. Hess, Chief Executive Officer, and Jonathan C. Stein, Chief Financial Officer, concluded that these disclosure controls and procedures were effective as of June 30, 2021.

There was no change in internal control over financial reporting, as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act, in the quarter ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

PART II – OTHER INFORMATION

Table of Contents

Item 1.

Legal Proceedings

Information regarding legal proceedings is contained in Note 12, Commitments and Contingencies in the Notes to Consolidated Financial Statements and is incorporated herein by reference.

Item 1A.

Risk Factors

Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020 includes certain risk factors that could materially affect our business, financial condition, or future results. Those risk factors have not materially changed.

PART II – OTHER INFORMATION (CONT’D)

Table of Contents

Item 6.

Exhibits

a.	Exhibits
	10.1	Unit Repurchase Agreement, dated as of July 27, 2021, by and among Hess Midstream LP, Hess Midstream Operations LP, Hess Investments North Dakota LLC and GIP II Blue Holding Partnership, L.P. (incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 30, 2021)
	31.1	Certification required by Rule 13a‑14(a) (17 CFR 240.13a‑14(a)) or Rule 15d‑14(a) (17 CFR 240.15d‑14(a))
	31.2	Certification required by Rule 13a‑14(a) (17 CFR 240.13a‑14(a)) or Rule 15d‑14(a) (17 CFR 240.15d‑14(a))
	32.1	Certification required by Rule 13a‑14(b) (17 CFR 240.13a‑14(b)) or Rule 15d‑14(b) (17 CFR 240.15d‑14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
	32.2	Certification required by Rule 13a‑14(b) (17 CFR 240.13a‑14(b)) or Rule 15d‑14(b) (17 CFR 240.15d‑14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
	101(INS)	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
	101(SCH)	Inline XBRL Taxonomy Extension Schema Document
	101(CAL)	Inline XBRL Taxonomy Extension Calculation Linkbase Document
	101(LAB)	Inline XBRL Taxonomy Extension Labels Linkbase Document
	101(PRE)	Inline XBRL Taxonomy Extension Presentation Linkbase Document
	101(DEF)	Inline XBRL Taxonomy Extension Definition Linkbase Document
	104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

Table of Contents

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HESS MIDSTREAM LP (Registrant)

By: HESS MIDSTREAM GP LP, its General Partner

By: HESS MIDSTREAM GP LLC, its General Partner

By		/s/ John B. Hess
		John B. Hess
		Chairman of the Board of Directors and Chief Executive Officer

By		/s/ Jonathan C. Stein
		Jonathan C. Stein
		Chief Financial Officer

Date: August 2, 2021

hesm-ex311_9.htm

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, John B. Hess, certify that:

1.	I have reviewed this quarterly report on Form 10‑Q of Hess Midstream LP;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2021

By		/s/ John B. Hess
		John B. Hess
		Chairman of the Board of Directors and
		Chief Executive Officer
		HESS MIDSTREAM GP LP, its General Partner
		HESS MIDSTREAM GP LLC, its General Partner

hesm-ex312_7.htm

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Jonathan C. Stein, certify that:

1.	I have reviewed this quarterly report on Form 10‑Q of Hess Midstream LP;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2021

By		/s/ Jonathan C. Stein
		Jonathan C. Stein
		Chief Financial Officer
		HESS MIDSTREAM GP LP, its General Partner
		HESS MIDSTREAM GP LLC, its General Partner

hesm-ex321_8.htm

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Hess Midstream LP (the “Partnership”) on Form 10‑Q for the period ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John B. Hess, Chairman of the Board of Directors and Chief Executive Officer of Hess Midstream GP LLC, the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: August 2, 2021

By		/s/ John B. Hess
		John B. Hess
		Chairman of the Board of Directors and Chief Executive Officer
		HESS MIDSTREAM GP LP, its General Partner
		HESS MIDSTREAM GP LLC, its General Partner

A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.

hesm-ex322_6.htm

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Hess Midstream LP (the “Partnership”) on Form 10‑Q for the period ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jonathan C. Stein, Chief Financial Officer of Hess Midstream GP LLC, the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: August 2, 2021

By		/s/ Jonathan C. Stein
		Jonathan C. Stein
		Chief Financial Officer
		HESS MIDSTREAM GP LP, its General Partner
		HESS MIDSTREAM GP LLC, its General Partner