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Related Party Transactions
9 Months Ended
Sep. 30, 2022
Related Party Transactions [Abstract]  
Related Party Transactions

Note 4. Related Party Transactions

In addition to the Class B unit repurchase transactions and distributions to the Sponsors disclosed elsewhere in the Notes to consolidated financial statements, we had the following 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.

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 nine months ended September 30, 2022 and 2021, 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 September 30,

 

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and gas gathering services

 

$

160.5

 

 

$

135.3

 

 

 

$

454.2

 

 

$

397.4

 

Processing and storage services

 

 

121.7

 

 

 

111.1

 

 

 

 

352.0

 

 

 

319.9

 

Terminaling and export services

 

 

30.5

 

 

 

35.5

 

 

 

 

95.5

 

 

 

103.0

 

Water gathering and disposal services

 

 

21.5

 

 

 

22.0

 

 

 

 

57.6

 

 

 

67.2

 

Total revenues from contracts with customers

 

$

334.2

 

 

$

303.9

 

 

 

$

959.3

 

 

$

887.5

 

Other income

 

 

0.6

 

 

 

-

 

 

 

 

1.3

 

 

 

-

 

Total revenues

 

$

334.8

 

 

$

303.9

 

 

 

$

960.6

 

 

$

887.5

 

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

 

 

Three Months Ended September 30,

 

 

 

Nine Months Ended September 30,

 

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and gas gathering services

 

$

20.1

 

 

$

13.3

 

 

 

$

71.9

 

 

$

30.2

 

 

Processing and storage services

 

 

-

 

 

 

4.4

 

 

 

 

22.8

 

 

 

4.4

 

 

Terminaling and export services

 

 

6.9

 

 

 

11.9

 

 

 

 

23.5

 

 

 

24.6

 

 

Water gathering and disposal services

 

 

-

 

 

 

2.0

 

 

 

 

0.4

 

 

 

4.5

 

 

Total

 

$

27.0

 

 

$

31.6

 

 

 

$

118.6

 

 

$

63.7

 

 

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 September 30,

 

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Electricity and other related fees

 

$

12.7

 

 

$

19.7

 

 

 

$

35.2

 

 

$

38.9

 

Produced water trucking and disposal costs

 

 

9.4

 

 

 

9.0

 

 

 

 

25.2

 

 

 

27.1

 

Rail transportation costs

 

 

-

 

 

 

-

 

 

 

 

4.3

 

 

 

0.1

 

Total

 

$

22.1

 

 

$

28.7

 

 

 

$

64.7

 

 

$

66.1

 

 

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 nine months ended September 30, 2022 and 2021, 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 September 30,

 

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating and maintenance expenses

 

$

17.8

 

 

$

16.7

 

 

 

$

51.4

 

 

$

48.2

 

General and administrative expenses

 

 

4.0

 

 

 

3.7

 

 

 

 

11.5

 

 

 

11.5

 

Total

 

$

21.8

 

 

$

20.4

 

 

 

$

62.9

 

 

$

59.7

 

 

 

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 nine months ended September 30, 2022 and 2021, we had the following activity related to our agreements with LM4:

 

 

Three Months Ended September 30,

 

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing fee incurred

 

$

6.7

 

 

$

8.0

 

 

 

$

15.9

 

 

$

22.0

 

Earnings from equity investments

 

 

2.8

 

 

 

3.0

 

 

 

 

4.2

 

 

 

8.6

 

Distributions received from equity investments

 

 

1.4

 

 

 

3.1

 

 

 

 

7.5

 

 

 

14.6