Hess Midstream LP has said it is increasing shareholder returns by buying back $100 million of Class B units in its sponsor companies.
A definitive agreement has been entered into for the repurchase of more than 3.35 million shares by Hess Corp.’s subsidiary Hess Midstream Operations LP. and Global Infrastructure Partners, Hess Midstream LP said in a news release Tuesday.
“We continue to execute a unique and differentiated financial strategy, prioritizing the consistent and continued return of capital to shareholders,” Hess Midstream LP Chief Financial Officer Jonathan Stein said in the announcement. “The unit repurchase transaction is expected to provide immediate accretion to our stockholders.”
It had declared a cash distribution of $0.5851 per Class A unit in the first quarter, up 2.7 percent from the previous quarter. Hess Midstream LP has set a target of five percent annual distribution growth through 2025 from this new rate, it said on April 24.
“Following this unit repurchase, we expect to continue to have more than $1 billion of financial flexibility through 2025 that can be used to support potential incremental unit repurchases,” Stein added in Tuesday’s announcement .
The redemption “is expected to result in increased distributable cash flow per Class A share that provides capacity for incremental distribution growth above Hess Midstream’s annual distribution target of at least one 5% through 2025, consistent with Hess Midstream’s capital return framework,” the media release added. .
Expected to close on June 29, the deal would lift public ownership of Hess Midstream LP to about 24 percent. The buyback volume is equivalent to 1.4 percent of Hess Midstream Operations LP, according to the statement.
Hess Midstream LP expects to finance the repurchase through borrowings.
It had already completed the redemption of $100 million of Class B shares in March.
In May, Hess Midstream LP announced a public offering of 11.1 million Class A shares at $27 per unit. The offering is expected to close on May 19 with $300 million in gross proceeds, it said on May 16.
Hess Midstream LP had $142.2 million in free cash flow adjusted for non-recurring costs in the first quarter, when it earned net earnings of $0.47 per Class A share after deductions for non-controlling interests, according to his April 26 performance report.
It projects $600-640 million in net income and $815-855 million in distributable cash flow by 2023. It plans to spend $225 million on capital expenditures for the year.
In the first quarter, its production volumes increased seven percent for gas processing and six percent for gas gathering compared to the corresponding period in 2022. Hess’ water gathering volumes Midstream LPs also rose 10 percent between January and March 2023. But their gathering and crude terminal weakened by eight percent and four percent, respectively, in production volumes.
Hess Midstream LP opened at $30.33 on the New York Stock Exchange on Wednesday, up from the previous close of $30.2, following Tuesday’s share buyback announcement.
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