Hess Midstream LP (HESM) Q3 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Third Quarter 2020 Hess Midstream Conference Call. My name is Kevin and I'll be your operator today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [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, Vice President of Investor Relations. Please proceed.

Thank you, Kevin. Good afternoon, everyone, and thank you for participating in our third quarter 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 Factors 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, President and Chief Operating Officer; and Jonathan Stein, Chief Financial Officer. In compliance with social distancing protocols as a result of COVID-19, we are conducting the call remotely. So please bear with us. In case there are audio issues, we will be posting transcripts of each speaker's prepared remarks on www.hessmidstream.com following their presentation. I'll now turn the call over to John Gatling.

Thanks, Jennifer. Good afternoon, everyone, and welcome to Hess Midstream's Third Quarter 2020 Conference Call. Today, I'll review our operating performance and highlights, as we continue to execute our strategy and discuss Hess Corporation's latest results and outlook for the Bakken. Jonathan will then review our financial results. Third quarter results reflect continued strong Bakken performance by Hess Corporation and increased gas capture by Hess Midstream, which drove throughputs above expectations. This along with our continued disciplined approach to managing costs enabled us to exceed our guidance for the third quarter that has allowed us to again raise our full year 2020 guidance. We now expect our 2020 full year adjusted EBITDA to be in the range of $725 million to $735 million, which represents a 33% growth year-over-year at the midpoint. We're also reiterating adjusted EBITDA guidance for 2021, where we anticipate an approximate 20% increase from our expected 2020 outperformance. In addition, our targeted annual distribution per share growth of 5% through 2022 remains unchanged validating the strength, stability and visibility of our financial outlook. Focusing in more closely on our third quarter results, gas processing volumes averaged 296 million cubic foot per day and crude terminaling volumes were 141,000 barrels of oil per day. Both approximately flat compared to the second quarter. Third parties contributed approximately 7% of our gas and 9% of our oil volumes in the third quarter, also flat with the second quarter and slightly ahead of expectations at the midpoint of our adjusted EBITDA guidance range. Water gathering volumes averaged 78,000 barrels of water per day in the third quarter, an 18% increase compared to the second quarter, as we continued to capture incremental trucked water into our expanding gathering system. Now turning to Hess upstream highlights. Earlier today, Hess reported strong third quarter production results with Bakken production averaging 198,000 barrels of oil equivalent per day, an increase of 21% from the year ago quarter and above guidance of approximately 185,000 barrels of oil equivalent per day. During the quarter, Hess continued to leverage Hess Midstream's pipeline and rail terminal system which provides significant export capacity and optionality north and south of the Missouri river to key markets throughout the United States. For full year 2020, Hess forecasts Bakken production to average approximately 190,000 barrels of oil equivalent per day, an increase from previous guidance of 185,000 barrels of oil equivalent per day. Turning to Hess Midstream guidance. As a result of continued strong performance, we have increased our full year throughput guidance for gas gathering and processing. Through the first 9 months of the year, the installation of an additional 40 million cubic foot per day of gas compression capacity has significantly improved our gas capture capability, which helped mitigate the anticipated throughput impact from Hess' rig reduction. Furthermore, we expect to add an approximate 30 million cubic foot per day of additional compression capacity in the fourth quarter with the restart of 2 newly refurbished legacy compressor stations, an innovative solution that created near immediate capacity at a low incremental cost. This highly localized approach is an important component of our strategy to capture more Hess and third-party volumes that enables customers to continue to meet or exceed North Dakota's wellhead gas capture targets, which are increasing to 91% effective November 1, 2020. As a result, we now expect gas gathering volumes to average 315 million cubic foot to 320 million cubic foot per day and gas processing volumes to average 300 million cubic foot to 305 million cubic foot per day for the full year 2020 both increasing 8% at the midpoint compared to previous guidance. Our complete financial and operational guidance is available in our earnings release that was distributed earlier this morning. For the fourth quarter, we expect gas throughputs, which generate approximately 75% of our revenues to be roughly flat compared to the third quarter. Fourth quarter oil and water volumes are expected to decline compared to the third quarter in line with Hess' guidance. The midpoint of our financial guidance also assumes third-party activity remains consistent with the third quarter. Turning to Hess Midstream's Capital program. Our 2020 guidance remains unchanged. Full year 2020 expansion capital is expected to be $250 million comprising of approximately $140 million in gas processing, $25 million in gas compression and $85 million in gathering and well pad interconnects. We continue to make excellent progress on the expansion of the Tioga Gas plant, and as previously announced, expect construction to be complete by the end of 2020. Incremental gas processing capacity is planned to be available in 2021 upon completion of the turnaround during, which time the expanded plant including the residue and natural gas liquids takeaway pipelines will be tied in. Maintenance capital guidance remains unchanged at $10 million. In summary, we continued to demonstrate strong operational and financial performance in a challenging macro environment. We're again increasing volume guidance, enabling us to raise our full year 2020 adjusted EBITDA guidance to be in the range of $725 million to $735 million. In addition, we're reaffirming our 2021 guidance where we expect another year of double-digit adjusted EBITDA growth, a growing distribution per share and with the tie-in of the 150 million cubic foot per day expansion of the Tioga Gas Plant, which creates significant new opportunities for gas capture growth in the basin for years to come. Finally, we want to again emphasize our continued commitment to operating safely and reliably during this unprecedented pandemic. The safety of our workforce and the communities where we operate remains our top priority. I will now turn the call over to Jonathan to review our financial results.

Thanks, John and good afternoon, everyone. As John described, we have continued our track record of delivering strong results within a challenging macro environment again, emphasizing how both our contract structure and financial strength differentiate our business model. Our third quarter results again, beat our quarterly guidance. And as a result of our continued strong volume performance and our expectation that we will maintain our higher third quarter EBITDA level in the fourth quarter, we are again raising our full year 2020 financial guidance. We are increasing our full year 2020 net income guidance to be in the range of $465 million to $475 million. Adjusted EBITDA is expected to be in the range of $725 million to $735 million, representing at the midpoint a 33% growth compared to full year 2019 results. And an increase of 4% compared to the midpoint of our previous guidance. We expect to maintain approximately 75% EBITDA margin for 2020 consistent with our historical margin. Maintenance capital and cash interest are projected to total approximately $100 million for the full year 2020 and distributable cash flow is expected to be in the range of $625 million to $635 million resulting in an expected distribution coverage of approximately 1.3 times. We expect to end the year with leverage at or below our conservative 3 times adjusted EBITDA leverage target. Our contract structure and financial strength enable us to provide visibility and stability to our four trajectory. We are reiterating our 2021 adjusted EBITDA guidance, which is growing 20% from our updated 2020 adjusted EBITDA guidance primarily from our expected annual rate redetermination at the end of this year as well as the contractual inflation escalator and increasing 2021 MVCs. In both 2021 and 2022, we also expect approximately $750 million of free cash flow defined as adjusted EBITDA less CapEx. That includes approximately 95% of our revenues protected by MVCs sufficient for Hess Midstream to be free cash flow positive after funding interest expense and growing distribution, while maintaining distribution coverage of approximately 1.4 times without the need for any incremental debt or equity. Turning to our results. I will compare results from the third quarter to the second quarter. For the third quarter, net income was $116 million compared to $108 million for the second quarter. Adjusted EBITDA for the third quarter was $182 million compared to $173 million for the second quarter. The change in adjusted EBITDA relative to the second quarter was primarily attributable to the following. Total revenues increased by $12 million including an increase in gathering revenues of approximately $8 million driven by higher Hess production, gas capture and increasing MVCs. An increase in processing revenues of approximately $3 million, driven by higher Hess production and gas capture, and an increase in terminaling revenues of approximately $1 million driven by increasing MVCs. Total operating expenses including G&A, but excluding depreciation and amortization and pass-through costs were higher, decreasing adjusted EBITDA by approximately $4 million, including seasonally higher maintenance and operating costs of approximately $4 million, higher overhead of approximately $2 million, higher insurance and property tax of approximately $1 million offset by lower costs associated with the TGP turnaround of approximately $3 million. LM4's proportional share of earnings and depreciation, net of processing fees increased adjusted EBITDA by approximately $1 million, resulting in third quarter adjusted EBITDA of $182 million exceeding the top end of our guidance range by approximately 10% primarily due to higher-than-expected volumes. Third quarter maintenance capital expenditures were approximately $4 million and net interest excluding amortization of deferred finance costs was $22 million. The result was that distributable cash flow was approximately $156 million for the third quarter covering our distribution by approximately 1.2 times. On October 26th, we announced our third quarter distribution that increased 5% on an annualized basis. Expansion capital expenditures in the third quarter were $63 million. At quarter end, debt was approximately $1.9 billion representing leverage of approximately 2.7 times adjusted EBITDA on a trailing 12-month basis and below our conservative 3 times adjusted EBITDA targets. Turning to expectations for the fourth quarter. As implied in our updated full year 2020 guidance, we anticipate fourth quarter net income and adjusted EBITDA to be relatively consistent at the midpoint with our higher-than-expected third quarter results that we reported today. In the fourth quarter with seasonally lower operating costs, we expect distribution coverage to be approximately 1.2 times with revenues that are approximately 95% protected by MVCs. In summary, even in this period of macro uncertainty, the strength of our business model is clear. And we maintain differentiated visibility to our financial metrics including adjusted EBITDA growth of approximately 33% in 2020 and approximately 20% in 2021 with revenues that are 95% protected by MVCs, expected free cash flow of $750 million in 2021 and 2022. Distribution per share targeted to increase 5% annually and fully funded from free cash flow in 2021 and 2022. And conservative leverage expected to be approximately 2 times adjusted EBITDA in 2021 on a full year basis. With our strategic asset base, visible financial metrics and with the contract structure, we have a differentiated value proposition across the midstream sector. This concludes my remarks. We'll be happy to answer any questions. I will now turn the call over to the operator.

[Operator Instructions] Our first question comes from Phil Stuart with Scotiabank.

Good morning, everyone. I appreciate the time today.

Good morning.

Sorry, I guess my question is on M&A. Obviously, you guys have talked about it in the past. Just curious with all the volatility that we've seen in 2020, has anything changed in terms of your views as to where you'd be interested in M&A? I guess what I'm getting at is are you maybe more likely to want to do an acquisition of the Gulf of Mexico assets from Hess as opposed to potential bolt-on in the Bakken, just given that you'll have very strong counterparty strength with a deal with Hess in a similar contract structure relative to maybe what's out there with some third-party Bakken assets?

Yes, Phil. Thanks for the question. I think, I mean you hit it right on. I mean, obviously, the most important thing that we've got obviously is our relationship with Hess. Now Bakken remains our focus. And we're continuing to look to strengthen our strategic footprint. But fortunately for us with the contract structure we have in place we're able to be highly selective on that. So it really comes back to focusing on the right assets that integrate well into our system and have immediate returns that can deliver immediate returns and benefits to Hess and third parties. So I mean I think as we look at acquisition opportunities in the Bakken that's really our focus. It is focused on those kind of highly strategic well-integrated assets that strengthen our position and continue to support, have some third parties. And as you mentioned, yes, we are absolutely interested in the process of evaluating the Gulf of Mexico assets. I mean, it is having a contract structure similar to what we have in the Bakken with Gulf of Mexico assets is extremely attractive. It extends the relationship obviously between the Midstream and Hess. And we see that obviously is a huge enabler and highly valuable from our perspective. So those are our focused areas. I mean we're continuing to look in the Bakken, but again being selective and then continuing to evaluate the Gulf of Mexico assets and are excited about the opportunity there and the ability to expand our relationship and enter a new basin with a bit of diversification as well. Those are all very attractive things to us.

Okay. Great. Appreciate the color there. And then, next questions are on the TGP expansion. I guess, my understanding is that, the majority of the capital has already been spent. But I guess, just curious, on the timing of the turnaround in 2021 to finish that project up.

Yes. And you're exactly right. So, the plan would be is, we're going to wrap up construction at the end of this year. We're well advanced on the actual construction of the activity. In fact, we're in the process of essentially wrapping up construction. Everything will be prepared and ready for the turnaround activity in 2021. We're not really specifically discussing exactly the timing for the turnaround. That really will depend on kind of what the environment is, what COVID-19 situation is. Again, as I mentioned in my opening remarks, really it's -- we're focused on the safety of our personnel and the communities where we operate. And that's our top priority. We do anticipate and expect to do the turnaround in 2021. And as soon as a turnaround has been scheduled, the plan would be is that we would be fully capable to tie in the expansion and be ready to increase the total capacity at the gas plant.

Okay. Great. That’s it from me. Thanks.

Okay. Thank you.

Our next question comes from Shneur Gershuni with UBS.

Hi, good afternoon everyone. Just a couple of quick questions here. Just to kind of start off. When I sort of look at some of your peers in the Bakken sort of talking about flat volume for 2021, Hess seems to be maintaining a rig on its footprint. And when I sort of think about the COS structure, should we kind of expect Hess to keep production roughly flat as you sort of enter this -- getting set up I guess for the second term of your COS contract? And given that it will be a blended average of your 2021 to '23 type of timeframe? Just kind of wondering, how we should sort of think about that and sort of toggling as to, how we think about the setup for the next contract?

Sure. I mean maybe I'll start off with the kind of operational side. And then Jonathan can hit some of the financial aspects of it. But as you heard this morning, Hess talked about kind of two rigs to hold production flat at 180,000 barrels of oil equivalent per day. From our perspective, as Hess kind of runs at the current rates and then moves into the future years, we definitely see the production plateau sustaining that as it continues into 2023 and then into the second term. But I'll kind of hand it over to Jonathan just to address any of the financial components of that.

Yes. I think, as Hess has said, certainly they're looking to add a rig as you get closer back to 50. So, staying at one rig on a long-term basis is not necessarily the plan that we would see. But even in that scenario, I think the contract structure really endured and we really have strong visibility to continue free cash flow. I mean, even at one rig, on a long-term basis, we would still continue to be free cash flow positive after distribution at our expected 2022 level really for the foreseeable future. And how that works is basically -- as you described, it's a combination of the cost of service over the next number of years leading to the long-term second term. And really, the way that works is we look at 20% growth at the end of this year in terms of EBITDA that will take us to a new level in terms of the EBITDA. And then, as John described, Hess will be able to hold production flat at one rig. Certainly, we would expect that they would reach that level by 2023. And during that period, our annual rate reset would adjust the tariff that we'd be able to maintain our EBITDA approximately at 2021 levels. Then, as we get to 2024, we would convert to a fixed-price contract still with MVCs, the fixed price steadily increasing from 2024 through 2033 with the inflation escalator on flat production. So, our revenues therefore would just be steadily increasing over that long-term period. And then of course, in a low rig count, we'd be at sustaining capital which is what we expect to be anyways next year. We said that's $100 million to $150 million. Interest, of course, will be stable because we have no incremental debt. And at 2022 levels of distribution growing 5% that's approximately $550 million. So, when you put all that together, that says that we can be approximately $100 million free cash flow after distribution on a long-term basis even if Hess were to stay at one rig on a long-term basis. And that is really I think a very unique business model that allows us to just continue to deliver that ongoing free cash flow after distribution even in the -- we'll call it kind of stress scenario. And I think it also highlights that even in that case, we still have free cash flow generation and will leverage, which gives us financial flexibility and capacity. Certainly, we have the opportunities to do the things like John said, whether it'd be Gulf of Mexico, whether it'd be bolt-on opportunities in the Bakken. But it also gives us the opportunity to do things like buyback from our sponsors, which could be accretive to all shareholders. So, we really do have a model that is very unique in terms of our contract structure. And also in particular, in terms of our visibility to continue to deliver free cash flow, be free cash flow positive after distributions on a long-term basis.

I appreciate all the color. And there was a lot of details there. If I can sort of paraphrase a little bit and sort of add my own assumption here. So, basically with Hess in flattish production type of environment, have sameto kind of be a $1 billion base run rate business starting in, let's say, 2022. Is that kind of the right way to think about it?

Yeah. And I think the -- what I would say is, look, we're going to increase EBITDA this year, 20% into 2021. And then, with production staying flat, yeah, there's increasing rates because as you go into second term, they'll be fixed and increasing steadily. And then everything else, whether it'd be interest or capital, all stays the same. And now all of that is more than enough to fund our distributions on a long-term basis. Maybe free cash flow positive afterwards.

Cool. Maybe just one last question, just given the discussion around free cash flow. So you're kind of in a free cash flow basis. And at the same time, there isn't a large float on your stock, and everyone's talking about buybacks and so forth. I was just wondering if you can sort of toggle between some of the ideas that you're kicking around as to how to deploy. Your leverage is fairly low. You don't want to reduce your liquidity with buybacks. But is there a way to sort of pro rata buyback, let's say, yours and GIP -- or Hess' and GIP stake as kind of a way to sort of return capital to shareholders and so forth? I'm just wondering if you can sort of, walk through the options that you're thinking about both inside and outside of the box.

Yeah. I mean I think that's actually right. We do have the ability in our structure to be able to buyback shares directly just from Hess and GIP. As you mentioned, our float is too small, so we wouldn't be doing buybacks from the public. But we were able to just buyback shares from Hess and GIP. That would obviously be accretive to everybody. And that would be also a good use of the financial flexibility we have. We do have opportunities though, as John said, again, Gulf of Mexico, potential bolt-ons in a very disciplined way that we're going to continue to be very disciplined ahead. Together -- the good news for us is we don't have to do just one of these things. We can do a Gulf of Mexico transaction and we can also do buybacks from our sponsors. So, we're not -- given the financial flexibility and the position we're in, we really have the ability to do many of these things. Of course, we're going to do them all in a very disciplined way as we've always done in the past.

Maybe one last one actually that just popped into my head here. Yeah, in all the responses so far you've brought up Gulf of Mexico assets acquisition and so forth. What due diligence has Hess done in terms of if there is a buying victory, as to what it does to the Gulf of Mexico with the whole ban on drilling on federal lands and so forth? I was wondering if you had some comments you'd like to share.

Yeah. The only thing I'd say there, I mean there's obviously uncertainty in the upcoming election. But, we do not anticipate there being any significant impact as a result of either continued administration or change in administration?

All right. Perfect. Well, thank you very much everyone. Appreciate the time today.

Okay. Thank you very much.

Our next question comes from Spiro Dounis with Credit Suisse.

Hey, good morning, guys. First one for Jonathan. Just going back to M&A and thinking -- not even M&A but really more around growth, and thinking how you're going to fund that in various ways, whether it'd be Gulf of Mexico or other organic expansions. Is there a blueprint that you guys are thinking about when it comes to the debt equity mix on a go-forward basis? I know you've been focusing on sort of naturally deleveraging over the next year. So -- but as we think about the debt equity mix on future spending, what does that look like? And then, how are you thinking about sourcing the equity component?

Right. So, I mean I think for us the good news is we really can do all the things that we've talked about really through our free cash flow after distributions together with the debt. If you look at, that's what we said, for next year expected leverage to be approximately two times EBITDA, well below our three times target, that's on a full year basis, and that would continue, because there's no incremental debt. So absent any other the things that we've talked about, we have all that flexibility available to us. So that's a whole turn of EBITDA, even relative to our conservative 3 times EBITDA target. And of course in the situation like, for example, if we were able to do the Gulf of Mexico, that of course, would come with its own EBITDA as well. So that even would give us additional flexibility. And then, on top of that, as we've talked about starting next year, we'll be free cash flow positive after distribution. So that also creates even additional balance sheet strength in order to be able to fund it. So we fully anticipate that all the things we're talking about, we'll be able to do just on balance sheet strength and have no plans for any equity needs in order to meet these targets that we've talked about to be able to fund any of the opportunities that we've talked about.

Great. Okay. Good to know. Appreciate that Jonathan. Second question on M&A again, but maybe a little bit differently. Obviously, we're seeing a lot of combination in the upstream space. And so to the extent that your sponsor, were to become involved in M&A at some point, how do you guys think about the potential impact to Hess Midstream? Does anything ever actually really changed for you in that scenario?

Yeah. No. I mean I think from a contract, there obviously we see that as very unlikely. But there will be no change in terms of the contract, but dedication the governance would also stay in place with the Hess' seats being taken by the -- of course, they acquired Hess, but they would have a minority position relative to GIP and the independent directors, so four seats versus the GIP independent directors at six. And then Hess, of course, has its own capital structure. It owns 100% of our own assets. So there'll be no change in terms of our ability to operate independently with the same underlying contract and the same dedication.

Great. Thanks for the color, guys. Do well.

Thank you. Thanks.

Our next question comes from Vinay Chitteti with JPMorgan.

Hi, guys. Good afternoon. Thanks for taking my questions. I wanted to primarily ask on FCF, but I guess Shneur covered it all. Just touching up with gas capture and gas processing volumes for third quarter. I guess, you -- it's still above MVCs right now. And looking at what you guys have talked about adding additional compression capacity about 30 MMcf per day through end of 4Q that looks -- there is some more upside and it could be still better than MVCs next year as well. I mean, of course there is some decline rates with respect to Hess. But just trying to understand what is driving that additional volumes? Is there any shift in what Hess is doing from -- moving from more gassier wells, or is this just increased gas capture rates? If it's gas capture what upside do you still have from what you achieved in 3Q?

Sure. Maybe what I'll do is, I'll address the general gas capture question and kind of more of the operational aspects of it and then I can hand it over to Jonathan to talk a little bit about the MVC levels. Overall, we've seen a significant improvement in overall gas capture in the basin. I think as we've continued to build out our own infrastructure in support of Hess and our third-party customers, we've seen gas continuing to increase. Now it's a positive for us, because the oil is very stable and it's either meeting or exceeding expectations. And we are starting to see a little bit more gas come. And as a result of that we're putting the infrastructure in place to support that. And that's been our strategy for the last several years. I mean, this is a continued execution plan that we've had in place for three-plus years and it will continue into 2021 as well. And really it just -- it follows the development plan from the upstream. We continue to add infrastructure like we've done in the first three quarters of this year. We added 40 million cubic foot of compression capacity. And then in the fourth quarter, we saw an opportunity to actually go leverage some idle equipment, some legacy facilities that we had not planned on bringing back online. We refurbished those facilities. And that was really kind of something that came up in the middle of the year, as we were looking at the development plan and looking at opportunities to improve Hess' gas capture, but also improve the throughputs through our system. We went and spent a bit of time with our operational and project teams to reevaluate those facilities and refurbish them and get them back online. And we expect them to be online in the fourth quarter, which again adds another 30 million cubic foot a day of total compression capacity. So, overall, we see that as continued optimization of our infrastructure. I mean, I think that's one thing that we've been -- we've done a very good job on is not overbuilding infrastructure. We've been very disciplined in our execution plans and our investment opportunities, and we're really leveraging our infrastructure to its maximum. And I think that just shows through the ability to actually bring back on facilities legacy facilities and immediately capture volumes. So we do see that as upside as far as throughput. And I think that's what supported kind of muting some of the impact of the rig reduction by Hess, and it continues to create opportunities for us. As far as the MVCs, I'll kind of hand that over to Jonathan to talk a little bit about the MVCs, and especially how that plays in 2021.

Thanks John. So, yes, I mean, I think for the rest of this year you can see based on our Q4 implied volumes that, in general, we're going to be most of our systems are going to be just about it MVCs or below. So that means from a physical side. So those will be primarily the driver the MVCs of our volume going through into Q4. And that is really one of the drivers that supports our ability to maintain our EBITDA expected at the same level, as our Q3 EBITDA to a combination of that together with some seasonally lower OpEx, but certainly MVCs are providing that floor, so that we have sort of a revenue for on our revenues. And as we look to next year, we do have increasing MVCs with the higher volumes, of course, that we have this year compared to where we were even just three months ago. So, the growth rate is a little bit less, because our higher volumes this year physical volumes are going into next year's MVCs, but we do still see a bit of growth. Oil and gas, it generally flat a little bit maybe growth on the gas side outside of the turnaround period, but then water for example is increasing approximately 25% relative to 2020 levels relative to MVC. So we see some growth there as well, but certainly we will be running expecting at MVC levels. We said really 2021 and 2022, because those MVCs are set under the prior development plan. And so that will really create kind of a level that we would expect kind of our revenues to be at going into 2021 and then continuing into 2022.

Got it. And then just wanted to follow-up on the 2021 guidance here. So you guys did mention about 20% growth. And it's -- usually your guidance has been very conservative on the third-party business with outperformance in both the quarters right now. Just want to understand what is included in your 2021 guidance the 20% growth? What kind of third-party activities included? And do you see any upside there?

Yeah. So maybe I'll just -- I'll hit the third parties for a second here. So we're kind of keeping the third parties flat with what we've seen over the last several quarters into 2021. We're trying to be somewhat conservative there. But I would say that, as we think about the third parties as Jonathan mentioned, they're going to be largely below our MVC levels. And as such, we don't anticipate there to be any revenue impacts to that. Now, I would say on the upside is, we've got volume behind pipe currently. We're in the process of expanding the gas plant. Timing of that is a bit uncertain. It's planned to be in 2021. So we do see some opportunity there. And again, we're very fortunate to have a highly strategic footprint asset base that, I think is a natural system that will attract volumes to it. So we do see opportunity there, but we're trying to be realistic in the forecast, and kind of what we see today is kind of what we're projecting on. But again, I think as Jonathan mentioned, we're going to be largely at MVC levels, and we're not expecting much uncertainty on the revenue side. I don't know Jonathan, anything else you want to add to that?

No, I think that's right. So, from the third party, John gave that overview so that what leaves in terms of the 20% growth is really the big majority of that growth is going to come from the rate reset, which will occur at the end of this year as part of our annual nomination process. That – of the 20% almost like 15% of that growth is really in 15 out of the 20 is really from that rate reset. And that's because, Hess had a lower – have a lower development plan this year than they had last year, last year with six rigs going on the four rigs maintained 200,000 BOE per day. Now, obviously we're starting at one rig. So that lower development plan will – in order to maintain our target return on capital will increase rates. The other 5% is really just a combination of our inflation escalator, which is part of that calculation as well as MVCs, but as we've talked about with the higher volumes that we have now this year going into MVCS we'll be really running with the MVC levels. So not as much a driver, really the big driver will just be the rate reset. And of course as John described that, we have all the capacity. So I guess, there could be potential upside above that, but our expectation is that we would run the 20% growth and then running at MVC levels, mostly driven by the rate reset.

Got it. Thanks, guys. That's it from me.

Okay. Thank you.

Thank you very much. This concludes today's conference call. Thank you for your participation. You may now disconnect. Have a great day.