Acquisitions

12 Months Ended

Dec. 31, 2019

Note 3. Acquisitions

Hess Water Services Acquisition

On March 1, 2019, HIP acquired 100% of the membership interest in Hess Water Services that owns Hess’ existing Bakken water services business for $225.0 million in cash. HIP funded the purchase price through a combination of cash on hand and borrowings under its revolving credit facility. In connection with the Hess Water Services acquisition, HIP acquired the following:

(in millions)
Property, plant and equipment, net	$	70.8
Working capital		(1.2	)
Asset retirement obligations		(0.7	)
Net assets acquired	$	68.9

The transaction was accounted for as an acquisition of a business between entities under common control, and therefore, the related acquired assets and liabilities were transferred at Hess’ historical carrying value. We recognized $156.1 million of consideration in excess of the book value of net assets acquired as a capital distribution to Hess, which is reflected within Net parent investment in the accompanying consolidated statements of changes in partners’ capital.

Hess Water Services is included in our gathering segment (see Note 13, Segments).

Tioga System Acquisition

On March 22, 2019, we acquired 100% of the membership interest in Tioga Midstream Partners LLC from Summit Midstream Partners, LP that owns oil, gas, and water gathering assets (the “Tioga System Acquisition”). The transaction was accounted for as an asset acquisition. The Tioga System, located in Williams County in western North Dakota, is complementary to our infrastructure, and is currently delivering volumes into our gathering system.

We paid $89.2 million in cash at closing, net of cash acquired, and recognized a contingent liability for additional potential payments of $10 million in future periods subject to certain performance metrics. We funded the purchase price through a combination of cash on hand and borrowings under our revolving credit facility.

The acquired Tioga System is included in our gathering segment (see Note 13, Segments).

Hess Infrastructure Partners LP Acquisition

On December 16, 2019, the Company and the Partnership completed the Restructuring, pursuant to which the Partnership acquired all of the partnership interests in HIP from Hess and GIP, including HIP’s retained 80% economic interest in the Joint Interest Assets, 100% interest in Hess Water Services and the outstanding economic general partner and incentive distribution rights in the Partnership. The Partnership’s organizational structure converted from a master limited partnership into an “Up-C” structure in which the Partnership’s public unitholders received newly issued Class A Shares in Hess Midstream LP in a one-for-one exchange. The Partnership changed its name to “Hess Midstream Operations LP” and became a consolidated subsidiary of the Company. As a result of the Restructuring, the Sponsors held 898,000 Class A Shares in the Company, 266,416,928 Class B Units representing noncontrolling limited partner interests in the Partnership and received cash consideration of $601.8 million. Class B Units of the Partnership together with the same number of Class B Shares of the Company are convertible to Class A Shares of the Company on a one-for-one basis (see Note 8, Partners’ Capital and Distributions).

Our consolidated financial statements include $26.2 million of costs associated with the Restructuring. These costs were expensed as general and administrative expenses.

The acquisition of HIP was accounted for as an acquisition of a business under common control. Accordingly, consolidated financial statements prior to the acquisition date of December 16, 2019 were retrospectively recast to include the financial results of HIP. The Partnership previously consolidated 100% of the Joint Interest Assets and reflected a noncontrolling interest of 80% in such assets representing HIP’s historical ownership of the Joint Interest Assets; therefore, the recast of the previously reported financial information did not result in any changes in segment information, other than inclusion of Hess Water Services in the gathering segment.

Retrospective Adjusted Information Tables

The following tables present our financial position as of December 31, 2018 and the results of operations and cash flows for the years ended December 31, 2018 and 2017, giving effect to the acquisition of HIP. The results of HIP prior to the effective date of the acquisition are included in “Acquisition of HIP” and the consolidated results are included in “Consolidated Results” within the tables below. The Partnership, as previously reported, did not have any items of other comprehensive income during the periods presented.

Consolidated Balance Sheet

	December 31, 2018
	Partnership as Previously Reported		Acquisition of HIP			Consolidated Results
(in millions)
Assets
Cash and cash equivalents	$	20.3	$	89.0		$	109.3
Accounts receivable—affiliate:
From contracts with customers		62.2		5.1			67.3
Other receivables		0.8		(0.3	)		0.5
Other current assets		2.8		0.5			3.3
Total current assets		86.1		94.3			180.4
Equity Investments		67.3		-			67.3
Property, plant and equipment, net		2,664.1		71.2			2,735.3
Long-term receivable—affiliate		-		1.3			1.3
Other noncurrent assets		2.2		4.7			6.9
Total assets	$	2,819.7	$	171.5		$	2,991.2
Liabilities
Accounts payable—trade	$	15.3	$	3.3		$	18.6
Accounts payable—affiliate		15.8		-			15.8
Accrued liabilities		64.5		21.1			85.6
Current maturities of long-term debt		-		11.3			11.3
Other current liabilities		6.8		-			6.8
Total current liabilities		102.4		35.7			138.1
Long-term debt		-		969.8			969.8
Other noncurrent liabilities		6.4		0.8			7.2
Total liabilities		108.8		1,006.3			1,115.1
Common unitholders—public (17,014,377 units issued and outstanding)		357.1		-			357.1
Common unitholders—affiliate (10,282,654 units issued and outstanding)		39.5		-			39.5
Subordinated unitholders—affiliate (27,279,654 units issued and outstanding)		105.3		-			105.3
General partner		14.9		-			14.9
Total Hess Midstream Partners LP partners' capital		516.8		-			516.8
Noncontrolling interest		2,194.1		-			2,194.1
Accumulated other comprehensive income		-		1.2			1.2
Net parent investment		-		(836.0	)		(836.0	)
Total partners' capital		2,710.9		(834.8	)		1,876.1
Total liabilities and partners' capital	$	2,819.7	$	171.5		$	2,991.2

Consolidated Statements of Operations

	Year Ended December 31, 2018
	Partnership as Previously Reported		Acquisition of HIP			Consolidated Results
(in millions)
Revenues and other income
Affiliate services	$	661.7	$	50.3		$	712.0
Other income		0.7		-			0.7
Total revenues and other income		662.4		50.3			712.7
Costs and expenses
Operating and maintenance expenses (exclusive of depreciation shown separately below)		154.3		39.2			193.5
Depreciation expense		123.0		3.9			126.9
General and administrative expenses		11.5		2.6			14.1
Total costs and expenses		288.8		45.7			334.5
Income from operations		373.6		4.6			378.2
Interest expense, net		1.3		52.0			53.3
Gain on sale of property, plant and equipment		-		0.6			0.6
Net income		372.3		(46.8	)		325.5
Less: Net income (loss) attributable to net parent investment		-		(46.8	)		(46.8	)
Less: Net income attributable to noncontrolling interest		301.5		-			301.5
Net income attributable to Hess Midstream Partners LP		70.8		-			70.8
Less: General partner's interest in net income attributable to Hess Midstream Partners LP		1.7		-			1.7
Limited partners' interest in net income attributable to Hess Midstream Partners LP	$	69.1		-		$	69.1
Net income attributable to Hess Midstream Partners LP per limited partner unit (basic and diluted):
Common	$	1.27				$	1.27
Subordinated	$	1.27				$	1.27
Weighted average limited partner units outstanding:
Basic:
Common		27.3					27.3
Subordinated		27.3					27.3
Diluted:
Common		27.4					27.4
Subordinated		27.3					27.3

	Year Ended December 31, 2017
	Partnership as Previously Reported		Acquisition of HIP			Consolidated Results
(in millions)
Revenues and other income
Affiliate services	$	565.6	$	13.9		$	579.5
Other income		0.2		(0.2	)		-
Total revenues and other income		565.8		13.7			579.5
Costs and expenses
Operating and maintenance expenses (exclusive of depreciation shown separately below)		158.4		27.6			186.0
Depreciation expense		113.1		3.4			116.5
General and administrative expenses		8.1		5.8			13.9
Total costs and expenses		279.6		36.8			316.4
Income from operations		286.2		(23.1	)		263.1
Interest expense, net		1.4		24.4			25.8
Gain on sale of property, plant and equipment		-		4.7			4.7
Net income		284.8		(42.8	)		242.0
Less: Net income (loss) attributable to net parent investment		68.2		(42.8	)		25.4
Less: Net income attributable to noncontrolling interest		175.4		-			175.4
Net income attributable to Hess Midstream Partners LP		41.2		-			41.2
Less: General partner's interest in net income attributable to Hess Midstream Partners LP		0.8		-			0.8
Limited partners' interest in net income attributable to Hess Midstream Partners LP	$	40.4	$	-		$	40.4
Net income attributable to Hess Midstream Partners LP per limited partner unit (basic and diluted):
Common	$	0.75				$	0.75
Subordinated	$	0.75				$	0.75
Weighted average limited partner units outstanding (basic and diluted):
Common		26.9					26.9
Subordinated		26.9					26.9

Consolidated Statements of Cash Flows

	Year Ended December 31, 2018
	Partnership as Previously Reported			Acquisition of HIP			Consolidated Results
(in millions)
Cash flows from operating activities
Net income	$	372.3		$	(46.8	)	$	325.5
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense		123.0			3.9			126.9
(Gain) loss on sale of property, plant and equipment		-			(0.6	)		(0.6	)
(Gain) loss on interest rate swaps		-			(0.4	)		(0.4	)
Amortization of deferred financing costs		1.0			4.0			5.0
Unit-based compensation		0.9			-			0.9
Changes in assets and liabilities:
Accounts receivable—affiliate		(3.2	)		(3.1	)		(6.3	)
Other current and noncurrent assets		1.6			0.3			1.9
Accounts payable—trade		3.1			0.9			4.0
Accounts payable—affiliate		(6.7	)		0.3			(6.4	)
Accrued liabilities		2.7			14.6			17.3
Other current and noncurrent liabilities		(1.1	)		0.2			(0.9	)
Net cash provided by (used in) operating activities		493.6			(26.7	)		466.9
Cash flows from investing activities
Payments for equity investments		(67.3	)		-			(67.3	)
Proceeds from sale of property, plant and equipment		-			1.6			1.6
Additions to property, plant and equipment		(235.6	)		(6.3	)		(241.9	)
Net cash provided by (used in) investing activities		(302.9	)		(4.7	)		(307.6	)
Cash flows from financing activities
Repayments of bank borrowings - term loan		-			(2.5	)		(2.5	)
Financing costs		-			(1.0	)		(1.0	)
Distributions to Hess and GIP		-			(322.0	)		(322.0	)
Distributions to noncontrolling interest		(199.2	)		199.2			-
Contributions from noncontrolling interests		57.3			(57.3	)		-
Distributions to HESM limited partners		(74.1	)		-			(74.1	)
Distributions to HESM general partner		(1.6	)		1.6			-
Other contributions (distributions)		-			(6.1	)		(6.1	)
Net cash provided by (used in) financing activities		(217.6	)		(188.1	)		(405.7	)
Net increase (decrease) in cash and cash equivalents		(26.9	)		(219.5	)		(246.4	)
Cash and cash equivalents at beginning of period		47.2			308.5			355.7
Cash and cash equivalents at end of period	$	20.3		$	89.0		$	109.3

	Year Ended December 31, 2017
	Partnership as Previously Reported			Acquisition of HIP			Consolidated Results
(in millions)
Cash flows from operating activities
Net income	$	284.8		$	(42.8	)	$	242.0
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense		113.1			3.4			116.5
(Gain) loss on sale of property, plant and equipment		-			(4.7	)		(4.7	)
(Gain) loss on interest rate swaps		-			(1.7	)		(1.7	)
Amortization of deferred financing costs		0.6			3.2			3.8
Unit-based compensation		0.2			-			0.2
Changes in assets and liabilities:
Accounts receivable—affiliate		(15.2	)		(1.7	)		(16.9	)
Other current and noncurrent assets		(1.7	)		2.9			1.2
Accounts payable—trade		(16.6	)		(0.1	)		(16.7	)
Accounts payable—affiliate		34.4			(26.9	)		7.5
Accrued liabilities		(1.9	)		5.1			3.2
Other current and noncurrent liabilities		2.2			(0.1	)		2.1
Net cash provided by (used in) operating activities		399.9			(63.4	)		336.5
Cash flows from investing activities
Proceeds from sale of property, plant and equipment		-			12.8			12.8
Additions to property, plant and equipment		(136.4	)		(7.8	)		(144.2	)
Net cash provided by (used in) investing activities		(136.4	)		5.0			(131.4	)
Cash flows from financing activities
Cash distributions to parent prior to the IPO on April 10, 2017		(95.3	)		95.3			-
Cash contributions from parent prior to the IPO on April 10, 2017		67.1			(67.1	)		-
Proceeds from (repayments of) bank borrowings - revolver		-			(153.0	)		(153.0	)
Repayments of bank borrowings - term loan		-			(385.0	)		(385.0	)
Proceeds from issuance of fixed-rate senior notes		-			800.0			800.0
Financing costs		(3.9	)		(19.0	)		(22.9	)
IPO proceeds, net of underwriters' discounts		365.5			-			365.5
Distribution of IPO proceeds to Hess and GIP		(349.5	)		-			(349.5	)
Cash offering costs		(2.1	)		-			(2.1	)
Distributions to Hess and GIP		-			(100.0	)		(100.0	)
Distributions to HESM limited partners		(31.7	)		-			(31.7	)
Distributions to HESM general partner		(0.6	)		0.6			-
Distributions to noncontrolling interest		(244.6	)		244.6			-
Contributions from noncontrolling interest		78.5			(78.5	)		-
Other contributions (distributions)		-			27.6			27.6
Net cash provided by (used in) financing activities		(216.6	)		365.5			148.9
Net increase (decrease) in cash and cash equivalents		46.9			307.1			354.0
Cash and cash equivalents at beginning of period		0.3			1.4			1.7
Cash and cash equivalents at end of period	$	47.2		$	308.5		$	355.7