Good day, ladies and gentlemen, and welcome to the First Quarter 2022 Hess Midstream Conference Call. My name is Livya 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. Good afternoon everyone and thank you for participating in our first 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 first quarter 2022 conference call. Today, Jonathan and I will review the highlights from our recent transactions, as we continue to execute our financial strategy to return additional capital to shareholders. I will also discuss our operating performance, progress of our capital program, and review Hess Corporation's results and outlook for the Bakken. Jonathan will then review our financial results and guidance. We recently delivered several positive announcements for Hess Midstream. In early April, we completed a $400 million unit repurchase from our sponsors. The repurchase provided significant and immediate accretion to our shareholders, while optimizing our capital structure to a conservative 3x adjusted EBITDA leverage target on a full-year 2022 basis. In addition, earlier this week we announced a 5% increase in our distribution per share level relative to the previous target, using our financial flexibility to return free cash flow to shareholders on an ongoing basis while maintaining a conservative distribution coverage ratio of at least 1.5x in 2022. With the announcements, we again demonstrate our financial strength and commitment to consistent and ongoing return of capital to our shareholders. Now, turning to Hess Midstream operations. In the first quarter throughput volumes averaged 316 million standard cubic feet per day for gas processing, 108,000 barrels of oil per day for crude terminaling, and 72,000 barrels of water per day for water gathering, reflecting impacts from severe winter weather. As physical volumes were expected to be at or below MVC levels, there was no material impact to our first quarter financial results. Now turning to Hess Upstream highlights. Earlier today, Hess reported first quarter results with Bakken net production averaging 152,000 barrels of oil equivalent per day, reflecting impacts of severe winter weather. Poor weather conditions, which continued into…

Thanks, John, and good afternoon everyone. As John described, we have continued to execute our financial strategy that includes delivering consistent and ongoing return of capital to our shareholders as a priority. First, we completed an accretive $400 million repurchase of units of our sponsors utilizing our financial flexibility that brings our leverage to 3x adjusted EBITDA on a full-year 2022 basis. The purchase price per Class B unit of $29.50 was the same per Class A share paid by the public in a simultaneous approximately $300 million underwritten secondary public offering by the sponsors that supports continued increasing liquidity in our shares. Highlighting the opportunity for increased indexation from this higher liquidity, Hess Midstream was recently included in the Alerian AMLP Index. The repurchase transaction reduced the consolidated number of outstanding shares and is approximately 4% accretive on a distributable cash flow per Class A share basis. The terms of the repurchase transaction were unanimously approved by the Board, based on the approval and recommendation of its conflicts committee composed solely of independent directors. The unit repurchase closed on April 4th and, together with the secondary offering, public ownership of Hess Midstream on a consolidated basis has now increased to approximately 18%. In addition, supported by the repurchase, we recently announced a further return of capital to our shareholders through an immediate 5% increase in our quarterly distribution levels, utilizing our excess adjusted free cash flow beyond our growing distributions. Hess Midstream continues to target 5% annual distribution growth per Class A share through at least 2024 from this new higher level with expected annual distribution coverage greater than 1.4x, including distribution coverage greater than 1.5x in 2022. Our recently announced distribution increase of 6.3% includes the new 5% increase in the distribution level as well as the targeted…

Thank you. [Operator Instructions]. And our first question coming from the line of Doug Irwin with Credit Suisse. Your line is now open.

Hey guys, thanks for the question. Great to hear that Hess has potentially adding a fourth rig later this year a little earlier than expected. I'm just curious if you've had similar conversations with third-party producers in this space, then given similar commentary around potentially ramping up activity later this year. And then just as we look at volume guidance is 10% to 15% still kind of the right third-party mix to think about this year?

Yes, Doug, thanks for the question. So, again, we're focused on Hess as our priority. And we're well positioned to support Hess if it decides to accelerate rig four, which based on the earnings call sounds pretty -- it sounds like a good outcome for us. As far as third-party goes, we are seeing rigs increasing in the basin. And so we're -- again we're focused on Hess, but we're also working towards supporting third-party producers as well. So as we've been, we're connected to third-parties. We have the capability and capacity to support them as their production grows, and we will continue to do that. So that's kind of -- that's kind of our focus from a rig development perspective. And then sorry, what was your second question?

Just around third-party volume mix, I think you've pointed to 10% to 15% in the past, is that still kind of the right way to think about it this year and moving forward?

Yes and from a third-party perspective, yes, 10% is kind of what we've built into our plan. And it's kind of our long-term view for both oil and gas. But again, we see that as upside potential for us. Again, we're connected to those third-parties. And so as Hess and other producers ramp production in the basin, we're well positioned to support them.

Okay, that's helpful. And if I could sneak in one more on CapEx, you mentioned that the compressor station that just came online was a bit under budget. Just curious if you see the potential for some savings and on the second compressor expected coming under budget. And then if you could just talk a little bit about the cadence of the remaining CapEx for the year and kind of how much of that is driven by well connects versus compression projects?

Sure. So yes the first station did, it came in under budget and ahead of schedule, and we're continuing to focus on that and try and continue to deliver on that, we do see some inflationary pressure out there. So we have made the decision to pre-buy some equipment to make sure that we minimize any risk associated with that. So I think from an execution perspective, we would continue to see an opportunity to drive cost down from an execution cycle time perspective. But there is some offset to that related to inflation that that we'll continue to monitor and manage. We don't see it being significant, but it is something that we're going to continue to monitor and focus on. And then as you asked about the cadence of compression, we've got the basically the three stations lined up that I mentioned in my opening remarks. We've got the station that just came on, and we've got another one that will come on in third quarter, and then we're starting a third station later this year that will come on in 2023. So that represents a large portion of the 200 -- of the total of the $235 million that we're spending this year. When you think about the well connects and kind of the base spend we're somewhere in that $75 million to $125 million range, depending on the activity. And again, it really kind of depends on the rig activity and how many wells are coming on a given basis. We are going to continue to see some infrastructure spend on that. But overall we would definitely see spend kind of going down as we continue to focus more on the well connects into the longer-term for capital spend.

And our next question coming from the line of Michael Lapides with Goldman Sachs. Your line is open.

Hey, guys, thank you for taking my questions and congrats to a good start of the year, despite the challenging weather. Just curious, I'm going to follow-up on that capital spend question. I know it's a little bit early, it's only late April. But as you're starting to think about in about four or five months from now, you'll dramatically ramp up the budgeting process, as you start thinking about 2023 capital spend, just directionally given the fact you're doing the two compressors this year, and even part of the third this year, do you see growth capital -- do you see growth capital kind of coming down in 2023 versus 2022 or does the level of increased well connects plus inflation in the overall market kind of help offset the fact you might be doing a little bit fewer compressors year-over-year?

Yes, thanks for that. Thanks for the question, Michael. We do definitely see an opportunity to reduce capital spend into 2023 and beyond. We are going to continue as I mentioned, we are going to continue to develop some infrastructure in that. But the pace of that is going to slow and so we would definitely see a reduction in capital going forward. I would say 2023 is still one of those bridge years. So there still is going to be infrastructure in that third compressor station I mentioned is the bulk of the spend of that station will be in 2023. So that'll still represent a material component of our overall program. And then, as you mentioned, when we look out beyond 2023 and we're really focused on well connects, it'll really depend on the activity.

Got it. And when you're looking at year-end 2022 leverage metrics, so kind of trailing 12-months as you get to the end of this year, based on the guidance you provided in the debt outstanding, including after the new issuance. Do you think you get below kind of your leverage metrics, meaning have leveraged metrics that are better than target before the end of 2022? Or do you think that's really a 2023 and beyond? And I guess where I'm hinting at is, do you think there are other potential capital allocation opportunities in 2022.

Right. So the current plan Hess as I said, to meet that 3x target by the end of the year, and then as we move into next year with continued growth in EBITDA, and being cash flow positive, in terms of fully funding our capital and distribution so that we will continue to de-lever going into 2023. So that's the working assumption, though, we'll change that at this point. We continue to be free cash flow positive after distribution, even after the recent step-up in our distribution of 5% level growing. So we'll continue to be free cash flow positive there. But in terms of leverage, we really see that happening next year. And that really emphasizes just as also a follow-up on the first question. As you think about the financial strength of the business going forward, with capital, we still have, as John talked about compression going forward, but then moving into really just well connect, and then maintenance capital with growing EBITDA continue to be free cash flow positive, plus declining leverage naturally, I mean, you can really come to think of the financial flexibility that we have, and the ability to continue to do the ongoing return of capital, both in terms of the repurchases that we've done. But also in terms of the step-up in the level of our distributions on a go-forward basis, really just ongoing basis, really, you can see the visibility we have to our financial flexibility and financial strength, and capability to do this ongoing return of capital.

And our next question coming from the line of Dan Walk with J.P. Morgan. Your line is open.

Hi, good morning, everyone. Just a quick big picture question for you and kind of following-up on Michael's last question. In January, I asked you guys about, the broader financial framework and your relationship, I guess, with the parent, what you could do there? And on the whole, you bought back, or you did the $400 million. I'm just curious if there's anything, maybe in light of the Guyana update and opportunity said [ph] Upstream that you guys could do to I guess, increase the public stake.

Right. So, yes, if you really look at what we've really been really working on and the journey we've been on, I'll say, really since back to the simplification in 2019. It's really had two objectives. One has been to remove technical obstacles to ownership really started with that simplification continued through last year with added to this year with the secondary offerings. And those have really been focused on being technical obstacles to ownership in terms of increasing our average daily trading volume, providing incremental investors, these offerings as an entry point, and then increasing indexation. And we feel good about the progress we've made on all fronts and all those objectives. In terms of going forward, there's no specific plan, or set target to float on in terms of secondaries, Hess and GIP still own 82% of Hess Midstream. They certainly aren't disciplined long-term investors focused on the long-term value, but at the same time, they recognize that there is continued demand for additional float. And so the balance of those two things will dictate additional opportunities in terms of secondary. At the same time, the second objective we've been pursuing is, is this ongoing return of capital, utilizing our financial flexibility that in terms of we did that last year, with $750 million repurchase, we will combine that with a 10% distribution increase. And then again, we did, as you mentioned, the $400 million and the 5% distribution increase this year. So that's something that we do see the opportunity to continue to go-forward. But we'll be disciplined just in terms of relative to our 3x target, but as long as our free cash flow after distribution. So, there's nothing specific, I'd say at this in terms of the rest of this year, but in terms of we'll continue to pursue those -- both of those objectives, both in terms of moving technical obstacles, through increasing the float, and then ongoing return of capital.

Thank you. Ladies and gentlemen this concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.