Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Hess Midstream Partners Conference Call. My name is Kristi, and I will be your operator for today. [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Jennifer Gordon, Director of Investor Relations. Please proceed.

Thank you, Kristi. Good afternoon, everyone, and thank you for participating in our second quarter of Earnings Conference Call. Our earnings release was issued this morning and appears on our website, www.hessmidstream.com. Today's conference call contains projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include those set forth in the Risk Factor section of Hess Midstream's filings with the SEC. Also on today's conference call, we may discuss certain non-GAAP financial measures. A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the earnings release. With me today are John Gatling, Chief Operating Officer; and Jonathan Stein, Chief Financial Officer. I'll now turn the call over to John Gatling.

Thanks, Jennifer. Good afternoon, everyone, and welcome to Hess Midstream's Second Quarter Conference Call. We're halfway through 2018, and we're excited to share our results demonstrating that we're executing our strategy on all fronts. We're advancing our growth plans, executing our capital budget and confidently growing our distributions at a visible and durable 15% rate. Our sponsor in the broader basin is accelerating growth, and so are we. Earlier today, Hess Corporation announced that their fifth operated Bakken rig has commenced operations and the sixth rig is planned to be in the field early in the fourth quarter. This underpins Hess' planned production growth in the Bakken towards an expected 175,000 barrels of oil equivalent per day by 2021. This trajectory is a key driver to sustained volume growth through our advantaged infrastructure system. In the near-term, we've raised our 2018 throughput guidance to account for the forecasted growth across our systems, supported by Hess in capturing additional third-party volumes reflecting the positive momentum in the Bakken. Our advantaged contract structure supports predictable and reliable distribution growth, which has been demonstrated as we've executed our business strategy. We've consistently delivered new contracted volume growth and increased distributions with no leverage and a strong coverage ratio. We're poised to continue to deliver for the balance of 2018 and in the longer term. Now turning to Hess upstream highlights. Today Hess reported second quarter net production from the Bakken of 114,000 barrels oil equivalent per day, despite challenging weather in June. In line with previous guidance, Hess added a fifth rig in the Bakken and plans to add a sixth rig early in the fourth quarter. Hess also plans to add a third frac crew later this year. Hess continues to see encouraging initial results from the piloting of the limited entry…

Thanks, John, and good afternoon, everyone. As you heard from John, we are continuing to execute our plan and are delivering or exceeding our operational and financial targets. In the second quarter, we again delivered our targeted distribution per unit growth of 15% on an annualized basis, including a 1.24x coverage ratio. Our ability to deliver this consistent distribution growth is based on three key drivers. First, strategically located and integrated infrastructure that allows us to capture highly visible organic growth for both Hess and third parties. Second, an Advantaged contract structure that supports stable growth with downside protection and an annual rate reset mechanism based on a targeted return on capital that generates incremental revenue for every dollar invested. And third, a disciplined financial strategy that includes, primarily self-funding our growth without the need for the equity markets for the foreseeable future. Our financial results to date in 2018 demonstrate the success of this unique platform, and as a result, we are raising financial and capital guidance for the full year. In terms of EBITDA and DCF, we have increased our guidance as a result of higher organic growth for both Hess and third parties as well as lower operating costs. In terms of expansion capital, the LM4 gas plant remains on target, and we have accelerated some expenditures on compression projects to meet Hess' latest development plans. We're also seeing opportunities to invest additional capital and third-party interconnect storage system. These investments are early indicators of future organic growth. And our unique contract structure means that every dollar we invest delivers an attractive incremental return for our unitholders. We also continued to maintain a disciplined and flexible financial strategy. Self-funding are increased 2018 capital program and maintaining a strong balance sheet ending the second quarter with no debt…

[Operator Instructions]. Our first question is from Jeremy Tonet of JPMorgan.

Just wanted to check in on -- hoping to get a little bit more color on the volume breakdown there. I was just wondering if you could elaborate between Hess and third parties kind of how that's tracking right now? And how that's tracking versus your expectations? Just trying to get a feel for the delta versus the MVCs at this point?

Yes, I mean, I think, I'd say that both are actually tracking really well to expectations. I mean, Hess is performing very well. Third parties are also performing very well. And we saw a strong second quarter, obviously, a recovery from the first quarter due to some weather issues that we had in the first quarter. But overall, I think we're feeling very good about the volume forecast throughout our system from both Hess and third parties.

Got you. I mean, is third-party volumes kind of tracking notably ahead of expectations at this point? Or any feel for that?

Well, I mean, we had a really good second quarter. We were well above -- integrated gas system we were well above our 30% long-term rate. We were above 35%, actually close to 38%, going to the system in the second quarter. We still feel like 30% -- as Hess grows and third parties grow, we still feel like the 30% range is about the right mix between Hess and third parties, but we did have a very strong quarter for third parties. We're also -- on the oil side, we're also still continuing to see the kind of 10% to 15% range on oil as well.

That's helpful. And then, just want to swing over to LM4, and is there any potential to kind of a pull forward the time line? Or how is that progressing against your expectations at this point? It seems like Bakken production overall has grown quite nicely and could be, really strong demand for that plant overall. So wondering if there is any possibility there? And then just also any update on timing of the Tioga debottlenecking kind of further in the future given the strong activity in the basin?

Sure, sure. So LM4, I would say that we're still on track to have the plant mechanically complete by the end of the year. That is the intent. I mean, we're going to, obviously, get the work done as quickly as possibly can. But for forecasting purposes, I would plan on the plant being mechanically complete at the end of the year, with a volume ramp up in 2019. Again, we're going to try and get the facility on as quickly as possible and get connected to that system as quickly as possible. But again, we're just -- we're in the heat of construction season right now and there is a lot of work to be done between now and the system being mechanically complete. So I would say that we're well on track, and we're feeling pretty good about delivery, but that I wouldn't plan on any significant acceleration in bringing that online earlier. And then Jeremy, sorry, your second question? Yes, TGP bottlenecking. Yes, excuse me. So just a reminder on TGP debottlenecking. So as a result of the JV with LM4, we elected to take the TGP debottlenecking out of the plan. However, we've continued the engineering and planning for that activity that we can basically pull that opportunity off-the-shelf and execute it whenever we need to. So from the standpoint of continuing and progressing the work from a technical perspective, we are absolutely continuing to progress the opportunity. And we're encouraged by what we're seeing in the basin, both from -- obviously, oil prices driving a lot of activity, but from well performance has been outstanding in the basin. I mean, you heard today, Greg mentioned both the Keene area and Stony Creek area. Stony creek is primarily in north of the river, which will be the upcoming -- going and feeding the Tioga Gas Plant, that we're seeing performance that kind of above 40% expectation. And that's still -- generally speaking, that's still performance from the high-intensity sliding sleeves and not the limited entry plug-and-perf. So there still is even -- we believe, there is still even some upside there. So, again, we haven't slowed down any activity. However, in our plan, it's not built into our plan. And again, just to remind everybody, we don't have to have that to meet our distribution growth targets that we've got the 15% distribution growth targets. However, just like I mentioned in the -- in my opening remarks, it's definitely an opportunity for further growth in the business.

It's all very helpful. And granted the water business is still upstairs, but just wondering if you could provide any more color there on how that's tracking? And if that could -- thoughts on that eventually making its way downstairs?

Sure, sure. I mean, it absolutely is planned. The water business, as we mentioned in the prior quarter, it's continued to progress. It's on track. We feel really good about it. We're looking at, having the acquisition brought into Hess Infrastructure Partners by the end of the year, but we feel good about it. It's progressing and it's on track.

Our next question is from Richard Roberts of Scotia Howard Weil.

Congrats on the nice quarter. Just a couple from me. May be to follow-up back on LM4. Can you give us an idea of how full you expect that plant to come on when it's completed? And maybe there's any more details around how the ramp's going to look through 2019?

Yes, I mean -- so just a reminder, the plant is 200 million a day gross, 100 million of that is Hess' and 100 million of that is Targa's. It is a economic JV, so we have the ability -- both midstream companies have the ability to utilize any spare capacity in the system. So if -- as an example, if Targa was underdelivering and we had excess volumes, we could actually use some of that capacity to bring additional volumes into the plant. So overall, we're feeling really good about the plant and the timing of the plant. As far as ramp, I mean, again, as I mentioned to Jeremy earlier, it's still very early days. We are in the middle of construction season. We're driving -- very hard to get that plant mechanically complete by the end of the year and available for 2019. The ramp is really going to be a planned ramp up as we integrate our systems as we connect the volumes in and bring it in. We're going to start it up the right way. We're going to be cautious when bringing the volumes in. But, again, as I mentioned to Jeremy, we're going to ramp it up as quickly as possible. But at this point, we really don't have any additional guidance to give with regard to the ramp plan in 2019. As we get closer and as we get into 2019 and get the plant started up, we'll be able to provide more guidance on the plan there.

Got you. And then maybe one for Jonathan or you John. You mentioned as part of the bump, the full year guidance came to a lower operating costs. Just curious if you can elaborate a little bit more on what's been driving cost lower there?

Yes, sure. This is Jonathan. So in the first half, we saw savings from early results of Hess' cost savings program, which was announced last year. So in particular that would include like costs that are allocated to the midstream, such as things like shared services is an overhead, as well as we also did see some deferral of some maintenance activity from the first half into the second half. Now looking to the second half , we are continuing to expect some cost savings, but I would say that there is some seasonality even to those allocations. So, for example, in Q4 of last year, we had slightly higher allocations relative to the seasonality of those. So we may not see the full cost savings that we saw in the first half. In the second half, we certainly anticipate some of that. And then, relative to our original guidance, we do expect deficiencies in our direct OpEx cost. Although, as we pointed out, we do expect to see Q3 higher relative to Q2 on seasonal maintenance and the deferred activity that I mentioned.

Our next question is from Jerren Holder of Goldman Sachs.

Maybe start off with higher level the GIP investment in EnLink. Are there any implications for Hess Midstream or HIP from that?

Yes, I mean, I think it's still very early days from GIP's perspective and integrating in with EnLink. I think they've made their plans pretty clear. As far as any plans to do anything with Hess Midstream, there really isn't anything on the radar screen at this point. So there's really not much to say on that.

Okay. And then, maybe looking at the 2019, obviously, we're seeing pretty good growth in the Bakken and there was decent amount of processing plants coming online. What are your thoughts on gas takeaway? And do we have enough of it for all the scores coming and kind of Hess Midstream get involved in some way as far as an expansion project or for the HIP?

Sure. No, that's a great question. So, again, just from our perspective -- from Hess Midstream's perspective and supporting our customers, Hess and third parties that we gather for, we're well positioned as far as our gathering, processing, terminaling takeaway capacities between now and the foreseeable future. We've got everything lined up. As far as the basin more broadly getting tighter, I would say that, that -- I think that is definitely something that we're keeping an eye on. And I -- there's potential for that to happen. You're hearing -- I mean, obviously, Hess is ramping. It's growing its business in the Bakken. We fully expect and have already seen announcements from other producers in the basin making the exact same plans forward as far as growth goes. And so as that happens, it's obviously going to put more strain on the takeaway capacity. And so we're absolutely looking at additional opportunities. We're always looking for additional investment opportunities. But again it has to fit with our strategic plan. It has to fit with our midstream strategy. And potentially, takeaway could fit into that, but again, we've got so many opportunities ahead of us, just kind of under our feet now, we're working through those and -- but continuing to look at other opportunities and evaluate those as they present themselves.

And just one quick follow-up. Just in terms of uncommitted volumes that maybe you can commit to a potential project. Any sort of color you can provide in that regard?

Jerren, I'm not sure I understand your question. Could you...

Yes. In terms of like firm commitments on a pipeline and being able to leverage that into getting an equity investment, for example, I guess, the question is more of what gas volumes Hess or Hess Midstream may have that's not already committed to an existing pipeline?

So you're talking more takeaway out of the...

Takeaway, yes, that's right.

Yes. So, again, I mean, I think that we've got good coverage for Hess and our third parties that we gather for. But, I mean, as other midstream companies and downstream companies look at takeaway options, we're always looking at improving economics. We're always looking at trying to improve Hess' -- ultimately Hess Midstream and Hess', more broadly, lower their well costs ultimately or improve their netbacks back to the well so that they can, obviously, drill more wells and continue to develop the basin. So again, we're always looking at economic opportunities for export strategy. And as you mentioned, I mean, with the Hess Midstream in place, as we evaluate those opportunities, we're also evaluating whether it makes sense for us to take an equity stake and even those opportunities as well. So again, just like any other acquisition opportunity, we're evaluating those as part of our business development strategy. But again, these are all -- this is all upside, right? I mean, our distribution growth -- 15% distribution growth is really set. And this all -- all of this represents upside for us as we continue to build out the basin -- build-out in the basin.

Our next question is from Tom Abrams of Morgan Stanley.

I wanted to ask a couple of small questions about Tioga. One is, utilizations up there both in the processing side and the frac side? And then, if -- as LM4 comes up, will it be taking volumes from Tioga during it's ramp? And then thirdly, do you own your own railcars at Tioga for your NGLs? Or is that all piped?

Okay. Let me start with the last question first because it's easiest one to answer. So as far as NGL takeaway, we have pipe and we have rail. And we have the rail terminal, which we own. The NGL cars are all leased. So we don't actually own any of the NGL cars. They are all leased. But we have both pipe and rail loading capability at the Tioga rail terminal to handle NGL volumes. So that's pretty straight forward.

Okay. Tough one?

Okay. And then, back to the gas plant. So on the ramp at LM4 and taking volumes from TGP, where we see a lot of potential growth both with Hess and third parties over the long term is in the Tioga area. And so we're building an integrated system between LM4 and the Tioga Gas Plant. So essentially, the system is going to be all connected. And what the plan will be is as we bring on additional volumes in the North to the Tioga Gas Plant, we'll be feeding volumes from -- generally speaking from the south to LM4. So there's plenty of source gas available to begin to start to flow some of that gas down to LM4 and then ramp that as we're -- as we continue to hopefully be successful in capturing additional third-party volumes in the North as well. So the plan would be is to balance both this -- both systems, both the Tioga system and the Little Missouri system, and essentially flow gas to where it makes the most sense. From a takeaway perspective, again, both TGP and LM4, we have plans in place. We have executed agreements in place or plans in place to manage all of our export capacity that we need both in Tioga and at LM4. As far as the processing capacity that you're kind of alluding to, we are getting close to our nameplate capacity. I mean, in the second quarter, we hit 237 million cubic foot per day. Our nameplate is 250 million cubic foot per day. So we're kind of getting close to nameplate capacity. We're, obviously, going gather as much as volumes as we possibly can, and we're going to direct as much of that gas to the plant as we possibly can, and we're continually looking at opportunities to optimize the plant, and hopefully, bump it above nameplate. We believe there are some opportunity to actually be able to do that. However, if we're not able to do that, or we're actually more successful on gathering additional volumes beyond the capacity of the Tioga Gas Plant, it is a large integrated system, and we have other opportunities to offload gas if we need to, to other processors as we have to. But again, our priority will be to direct those volumes through our gathering system, and ultimately, into the Tioga Gas Plant and into LM4 once it comes online in 2019.

And then, the frac utilization up there. Is that something that's also in your nameplate?

I mean, yes. I mean, the plant was designed for 250 million cubic foot per day. So the frac itself is essentially...

Oh, it's precise to gathering. Okay, okay.

Yes, exactly. So the inlet and the frac is about the same. But again -- and as you know about kind of gas plants, I mean, there are different subsystems within a gas plant and that's what I mean about the optimizations. There's ways for us to optimize the throughput through the plant to hopefully squeeze out a little bit more volume come into that plant. So that -- those are the things that we're working on currently.

Okay. And then the last question, a little bit of a follow-up, is on railcars, some of those are leased. Are you getting any inbounds on -- can we sublease? Is there any, like, demand growing for railcars at all in NGLs, in particular?

Yes. So let me just clarify. And I know it's not -- Tom, I know it's not directly your question. But -- so as far as railcars go, we do have a fleet of five train sets of the DOT-117s fully meeting all regulatory requirements for crude. So we have over 500 unit cars, trains for crude export. As far as the NGLs -- NGL trains go and the cars go, we are continuing to lease those cars. It's actually -- from an economic perspective, it's actually very cost-effective to go ahead and lease those cars. We continue to evaluate and look for opportunities whether we should acquire some of those cars. But at the end of the day, we're continuing to lease some at this time. As far as subleasing goes, I mean, there really isn't anything on the NGL side that we do. And again, just to remind everybody, the NGL cars themselves are actually subleased by Hess -- by Hess Trading Corporation as part of the marketing business. It's actually not directly part of the midstream. So the actual terminal itself and the loading and all of that is midstream, but the actual cars -- the NGL cars are leased through Hess Trading Corporation, through Hess.

I'm just trying to get at whether there's -- in the basin that there's kind of percolating demand for more rail for NGLs, in particular, like bottleneck developing that, is really starting to stress the rail systems as well as the pipes, obviously?

Yes. So again, I think, it really kind of depends -- I mean, we're very fortunate in that -- and I think that's why you're -- we're seeing a lot of demand -- rail demand for our NGLs is because our -- the Tioga Gas Plant is essentially connected directly to our Tioga rail terminal. I'm not really aware of any other midstream company in the basin where there are gas plant and their fractionation and even has full fractionation capability, that's connected to a rail terminal. Ours is. So we are seeing a lot of demand for our railcars because we can essentially move NGL products pretty much anywhere that our customer wants ultimately. But again -- I mean, I think as -- I mean, Oneok announced that they're planning to expand their NGL takeaway out of the basin, that is definitely becoming tighter. That's an advantage for us because, obviously, we have the rail terminal and can actually move NGLs with the other rail terminals. So we're not constrained by pipe the way other producers and midstream companies are. Does that help?

Our next question is from Praneeth Satish of Wells Fargo.

Just one quick question for me. On the water business, I know it's pretty small right now, but just any sense of how fast this business is growing? Is it growing fast than the rest of the Hess Midstream right now?

Yes, that's a great question. And so it is -- I mean, just to reiterate, and I think, we said this last quarter, it is -- it starts small, but there is a substantial growth profile do it. So again, it's going to be a nice new segment to the midstream for us once we acquire those assets. And we would expect the growth trajectory of that water business to -- and again, I mean, just to mention, the oil and gas systems are growing rapidly as well, but that the water could outpace the oil and gas growth as we see it kind of from a service being offered in the Bakken. It's definitely an underserved business segment in the Bakken.

Our next question is from Barrett Blaschke of MUFG Securities.

Just kind of quickly thinking about I know dropdowns are sort of pushed off into the future, but as you sort of look at demand for the stock and you look at liquidity, is there a thought about moving some of that forward in time a little bit just to say, "Hey, look, we can grow the business, we can build some scale and also solve some liquidity concerns at the same time on the equity side?

Yes. So in terms of dropdowns, as you know -- as we mentioned, we have significant organic growth that's highly visible through at least 2020. And then, our plan requires -- dropdowns will complement our organic growth beyond 2020. So in terms of liquidity, we've always said we're going to maintain our disciplined approach. We certainly don't want to be chasing liquidity for liquidity sake. If there are accretive opportunities that would allow us to -- and the equity markets are constructive, certainly we will be open to funding those lucrative opportunities with equity. But in terms of our plan, we certainly don't need dropdowns and we wouldn't unnecessarily just pursue, I think, liquidity for liquidity's sake. So they have to be accretive opportunities that would compete with other opportunities in the portfolio that makes sense to build to fund. Therefore, in the equity market assuming it's constructive at the time.

And then, I guess, one follow-up and that is, as you look at capacity constraint in the Bakken on -- from kind of a couple of different angles, how comfortable are you building at Hess? And -- or would you want to do it more upstairs and then drop it into HIP, sort of what's the path there?

Yes. So are you referring to kind of our existing services that we offer, so gathering, processing, terminaling?

Yes, I guess, gathering, processing and terminaling. And then, would you step out at all? I guess, also on the organic front, would you go a little further downstream?

Yes, I mean -- as I mentioned earlier, I mean, we're always looking at in investment opportunities. I mean, I think, we've -- and we've said this previously, that depending on the opportunity, if it's in our kind of core business and in our existing service offering, we would clearly do that as part of the existing structure. If it was something a little different and, let's say, it was more downstream and it didn't fit into one of the existing segments, then we would evaluate what the best opportunities to fund that investment would be. In all likelihood, we would believe it would probably go to Hess Infrastructure Partners first, but there is always the opportunity to leverage all of our liquidity across both Hess Infrastructure Partners and Hess M as we assess those investment opportunities.

Yes. In fact, just to add, I would say that one of the unique things about our structure is that we just have a lot of optionality in terms of capital structure and the ways to fund different investments. And so, like John said, we will look at each opportunity where it is in its own development cycle where it makes sense to be able to bring in that in the most accretive way, and then we'll be able to bring that down in some cases like we do with the JV. They can be funded like at the operating company in which case is a split in terms of the funding between HIP and at Hess Midstream Partners. In some cases, it may make sense to bring them in HIP and then Hess develop a little bit, drop them down into Hess Midstream Partners. So we have a lot of optionality there. And certainly we'll look at these opportunity relative to where it is in this life cycle and then optimize it in the most accretive way.

This does conclude today's conference. Thank you for your participation. And you may now disconnect. Everyone, have a great day.