Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2021 Hess Midstream Conference Call. My name is Michelle, and I will be your operator for 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, Michelle. Good afternoon, everyone, and thank you for participating in our fourth 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 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 fourth quarter 2021 conference call. Today I'll review our operating performance and highlights as we continue to execute our strategy. Provide details regarding our 2022 plans and discuss Hess Corporations latest results and outlook for the Bakken. Jonathan will then review our financial results. 2021 was a year of strong performance and strategic execution for Hess Midstream. We're proud of our continued safe and reliable operating performance and project delivery highlighted by the successful execution of the plan maintenance turnaround and tie-in of the gas process and expansion at the Tioga gas plant. Following the turnaround, stable and reliable operating performance in the fourth quarter enabled us to finish strong here with record gas gathering and processing volumes driving full year adjusted EBITDA above guidance to $909 million, an increase of 21% compared to 2020 and 4% above the midpoint of our original 2021 adjusted EBITA guidance. Looking forward, the continued investment in low risk system expansion gives us the needed capacity to capture volume growth through mid-decade. We remain focused on operational infrastructure and commercial execution to capture increasing gas volume growth, which by 2024 is expected to increase by more than 30% relative to Hess's 2021 nomination. We expect gas gathering and processing volumes to continue to comprise approximately 75% of our revenues. And with a visible growth trajectory, we expect volumes to rise above MVCs in 2023 and continue to grow into 2024. Now focusing on Hess Midstream’s fourth quarter 2021 throughput performance, gas processing volumes average 330 million cubic foot per day, as our post turnaround ramp up drove results above expectations. Fourth quarter crude terminaling and water gathering volumes averaged 113,000 barrels of oil per day and 72,000 barrels of water per day respectively. Now…

Thanks, John. And good afternoon, everyone. Today I will summarize our financial highlights from 2021. Discuss our recently completed nomination process with Hess, provide details on our 2022 guidance and long-term outlook, as well as our framework for continued return of capital to shareholders. We delivered strong results in 2021 growing full year adjusted EBITDA to $909 million and approximate 21% increase compared to the prior year. As we look forward to 2022 and beyond, we have clear visibility to expected revenue and adjusted EBITDA growth supported by increasing MVCs in 2022, followed by continued organic growth in 2023 and 2024 as John described. Returning capital to shareholders is a key priority of our financial strategy. In 2021, we optimize our capital structure and utilize our excess free cash flow beyond our growing distribution to provide increased return of capital to our shareholders through both a 10% increase in our quarterly distribution levels and a $750 million repurchase of units from our sponsors. Together, these actions delivered immediate, a creative and meaningful return of capital to our Hess Midstream shareholders. Looking forward, we will continue our financial strategy that includes consistent and ongoing return of capital as a primary objective. Our return of capital framework includes the following key elements. First, distributions that are targeted to grow 5% annually on a per share basis through at least 2024. Second, continued incremental return of capital beyond these annual distribution increases through share repurchases and/or additional distribution increases funded by leverage capacity below our conservative three times adjusted EBITDA target and adjusted free cash flow after distribution. For 2022, we expect to have significant financial flexibility for potential incremental return on capital beyond our distributions that are targeted to grow 5% annually on a per share basis. Turning to our results, we…

[Operator Instructions] Our first question comes from the line of Doug Irwin with Credit Suisse. Your line is open. Please go ahead.

Maybe just to start with 2022 guidance. Given the volumes are expected to be below MVCs were at MVCs this year, just curious if you could elaborate a bit on some of the other factors that kind of drive the high versus the low end of the range primarily cost variability and timing of these compression projects are there or other factors involved?

Yes. So in terms of our EBITDA guidance for the year, and it's kind of the cadence of that, if you walk through the year, I gave guidance for Q1, as we said they are in Q1 OpEx is going to be broadly flat relative to Q4 that's consistent with lower seasonal effects that we usually see during these quarters. And then, in terms of revenue which will be the driver, therefore, in Q1, really driven there by oil and water combination of lower volumes based on weather, as John mentioned and then slightly low MVCs there on oil, year-on-year. But for the rest of the year, what we'll see is that OpEx will fall seasonality with Q2 and Q3, those are typically higher for us, when we have more activity going on. And then revenue will steadily increase through the years, or MVCs, while we give annual averages are actually quarterly and they're increasing throughout the year. So we'll see increasing revenue from that. And then physical volumes, as well, to extent that we have some systems like water that are above MVCs will be consistent with the Hess production ramp that Hess has discussed. So in terms of EBITDA for the rest of the year, we see kind of Q1 as a starting point, and then see higher EBITDA quarter, the rest of the year relative to Q1, and that will get us to that $985 million midpoint of our EBITDA.

Okay, that's helpful. Thank you. Then maybe just a follow up on the CapEx guidance you gave. I know you pointed to 135 million on the compression projects. Does that include any of the spend through the expected third project that you talked about here, as there's going to be some more spend on that next year. And then I guess, on the 90 million, well connect CapEx? Should we look at that as a decent run rate beyond 2022? Or is that still a bit elevated this year with rigs coming back in the Bakken?

Sure. So I'll start off with the $135 million question, the bulk of that spent is the completion of the two stations that will be coming on this year, there is some spend -- some pre-construction spend engineering that is focused on that third station, but the bulk of that spent will be towards the end of this year and really into 2023. So that's where the bulk of the spend is from a compression perspective. On the $90 million, or the $90 million question related to well connects, as the third rig comes on, and wells start to ramp up in 2022. We see that as a more representative spin profile associated with the well count, as Hess brings that third rig on and we actually start to see wells coming off that rig line. But also then as Hess looks at potentially adding a fourth rig next year as well.

Thank you. And our next question comes from the line of Jeremy Tonet with JPMorgan. Your line is open. Please go ahead.

Hi, everyone. This is Dan Walk on for Jeremy. Just a couple of quick ones from us. The first, I guess, in light of yesterday's updates from Hess and from HESM just extending the financial framework through 24. And given the significant flexibility, it sounds like you'll have even as early as by year end, I think you mentioned 2.6x. Just curious if you could give an update on the opportunity set, particularly potentially the Gulf of Mexico. There's a good deal of discussion on the Hess call earlier today about their plans this year. So just curious if we could get a quick update on that.

Yes, sure. And I'll hand it over to Jonathan for the financial flexibility piece of this. But from a Gulf of Mexico perspective, the transaction isn't an immediate priority for the midstream or Hess Corporation. It will continue to be focused on executing our strategy and supporting Hess's development and capturing third parties in the Bakken. So that's primarily our focus at this point. So I'll hand it over to Jonathan for the financial flexibility part of the question.

Sure. Thanks, John. Yes, I mean, I think with that background on Gulf of Mexico, and we've already talked about our capital program that includes delivers the growth that we expect, that you can see in the MVC walkthrough. So that really means, again, our focus will be -- our financial strategy, the two elements I described the increase 5% annual distribution per share growth, that will go through 2024. And then incremental return of capital beyond that distribution growth, either through share repurchases and dividend increases, as we did last year. And as I was saying that was really a part of our ongoing financial strategy and our return on capital framework. So for this year, as you highlighted, we have 2.6x expected EBITDA on a full year basis. So that's declining relative to where we are now and certainly below our 3x target. So you can do the math, relative to the midpoint of our EBITDA, that's $400 million in capacity, that could be utilized to fund a potential incremental return of capital, really, with the Gulf of Mexico not being a priority. That really is the focus priority of our return of our financial strategy. In terms of actual sizing and timing, obviously, we'll evaluate that with the Board during the year and that just gives us the full capacity. But certainly, as I said, incremental return of capital is a key part of our financial strategy this year.

Okay, great. Thanks for that. And then just I guess, a bit more granular. Just, if following the Tioga plant expansion and the North Bakken expansion, could you just give us a little bit more detail? I guess from your perspective, how I assume all those volumes are flowing down to Northern Border and BTU content is relatively high. I think there's an 1100 BTU cap. Where do you see that going in terms of, I guess potential ethane extraction, or just guess the dynamics from your perspective?

Sure. I mean, I think we're uniquely positioned with the Tioga gas plant. We've expanded the plant now by 150 million cubic foot a day. That's got us up to 400 million there. And then we have 100 million down at our LM4 partnership with Targa as well. From the BTU content perspective and Northern Border, we've got a number of export options, we've got a connection with alliance for both for our wet gas. We also have our ethane connection, our long-term contract, as well to deliver ethane, up to Canada. And then, we have our as you mentioned, we have our export with Northern Border. From our perspective, the plant is very efficient and has high recovery efficiency. So we have no trouble meeting BTU specs if Northern Border decides to get more aggressive with their BTU specs, the plan is designed for significant BTU recovery. So we don't really see that being an issue for us. And then we've also got the NGL takeaway capability tied into to One Oak as well. So again, the plant is -- both plants are very well strategically placed with a number of export options. And we really don't see any constraints from our perspective as far as getting our tailgate products to market.

Thank you. And our next question comes from the line of Michael Lipsitz with Goldman Sachs. Your line is open. Please go ahead.

Congrats on the MVCs for 2024, really healthy numbers obviously, implies pretty big pickup and production by Hess and therefore flowing through HESM. Just curious as you think about capital spends for 23 and 24. And I know you won't give guidance on that for another year. But should we assume that there is a pretty material pickup in capital spends in 23 and 24 to help kind of facilitate the increase in volume levels that has expects in 2024. Would you think by the end of this year, early part of next year, your system will be built out enough to handle the 24 volumes.

Sure, Michael, thanks for the question. From our perspective, our compression is really phased with the development. So when we made the decision back in '19, to go and expand the Tioga gas plant is performing cubic foot per day, that brought our total processing capacity up to 500 million cubic foot per day, between Tioga and the Little Missouri for gas plant partnership with Targa. So from our perspective, the processing is well set. And then, we've been phasing in compression, as Hess has made its decision to accelerate its development activity. And so the continued phasing, I mentioned that we're going to be bringing on two stations this year, we're going to be bringing on a third station potentially next year. From our perspective, the infrastructure is in our plan, it's set that supports the 2024 volume projections that we've got set out there based on the MVCs. So I would say it's materially there. We're going to continue to see some investment in compression over the next several years to get up to our processing capacity. And then, obviously, the well connects will be something that will be a bit more fluid as Hess decides its pace of development. But from an infrastructure perspective, we are not expecting to see any significant increases in our capital spend. I don't know, Jonathan, if there was anything else you wanted to add to that?

No, no, I think that you hit it well. I mean, I think we're in a unique position where, the capital needs that John described, really now just focused on well connects and compression, really, at or below the levels that we have now we'll achieve the growth that's in our plan. So that really leaves us with financial -- significant financial flexibility going forward, as we've talked about. We're not considering as we've been clear about any large scale M&A. So obviously, we'll look at investment opportunities as we've done in the past in a disciplined way. But really, as we've hopefully been very clear about our priority for us that our financial strategy is using that financial flexibility, certainly for continued return of capital to shareholders.

Got it. Thank you for that. And then just kind of one quick follow on. Can you remind me and I listened to part of the Hess call, what's the timing Hess been thinking about for the fourth rig?

Sure. So the timing that Greg mentioned in the call was really looking at 2023. So the plan would be is that, if prices hold, and as Greg and Jon mentioned, there's over 2100 well locations that are that are available for future development at $60 WTI per barrel. So from an overall inventory perspective, economic inventory perspective, the Hess has a very, very strong portfolio. So the plan would be is to continue with the third rig this year and then potentially bring on the fourth rig in 2023.

Thank you. This concludes today's question-and-answer session as well as today's conference. Thank you very much. This concludes today's conference call. Thank you for your participation and you may now disconnect. Everyone have a great day.