For some background, HESM is an MLP formed by Hess Corp. (HES) to own and operate midstream assets. Its initial assets are primarily located in the Bakken and Three Forks Shale plays in the Williston Basin area of North Dakota. The Bakken is one of the most prolific crude oil producing basins in North America. Hess intends to use HESM as the primary midstream vehicle to support the growth of its Bakken production assets and grow its midstream business.
HESM generates substantially all of its revenue by charging fees for 1) gathering, compressing and processing natural gas and fractionating natural gas liquids (NGLs); 2) gathering, terminaling, loading and transporting crude oil and NGLs; and 3) storing and terminaling propane. HESM has entered into long-term, fee-based commercial agreements with Hess, each of which has an initial 10-year term and is dated effective January 1, 2014. HESM has the unilateral right to renew each of these agreements for one additional 10-year term.
HESM’s midstream infrastructure footprint services Hess's leading acreage position in the Bakken, which includes more than 2,850 future operated drilling locations and represented approximately 33% of Hess's average global production for 2016. Volumes and investment opportunities will continue to expand as Hess drills new wells in the Bakken. In addition to providing midstream services to Hess, HESM believes its extensive asset base in the core of the Bakken positions it well to attract other customers beyond Hess.
On a final note, MLPs are pass-through entities, meaning they don't pay federal taxes on their net income. Instead the vast majority of earnings are paid to investors as distributions. A such, MLPs tend to have attractive dividend yields. HESM plans to pay a minimum quarterly distribution of $0.30 per unit. Based on the $23 pricing, HESM would generate an annual yield of 5.2%.