Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2022 Hess Midstream Conference Call. My name is Twanda, and I will be your operator for today. At this time, all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded for replay purposes. I would now like to turn the conference over to Jennifer Gordon, Vice President of Investor Relations. You may proceed.

Thank you. 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. I'll now turn the call over to John Gatling.

Thanks Jennifer. Good afternoon, everyone, and welcome to Hess Midstream's fourth quarter 2022 conference call. Today, I'll review our 2022 operating performance and highlights, provide details regarding our 2023 plans and outlook for through 2025 and discuss Hess Corporation's latest results and outlook for the Bakken. Jonathan will then review our financial results. Despite severe winter weather conditions, 2022 was a year of continued strong performance and execution for Hess Midstream. We delivered volume growth and expanded our compression capacity by more than 25%, further enhancing our gas capture capability. As discussed in our guidance release, we've established our 2025 minimum volume commitments and we're confident in the implied volume growth which is underpinned by the following. First, Hess plans to continue to operate a four-rig drilling program and expects to bring approximately 110 wells online per year in 2023 and 2024. This will grow Hess' production to an average of approximately 200,000 barrels of oil equivalent per day in 2025. Second, Hess has an approximate 15-year inventory of profitable drilling locations with a four-rig program at $60 WTI. And finally, Hess Midstream's focused capital program prioritizes the expansion of our gas gathering system to support gas throughput volumes increasing by more than 30% in 2025, relative to 2022, driven by Hess' planned development activity and goal of achieving zero routine flaring by the end of 2025. We're also confident in the delivery of our financial guidance and the potential to provide incremental shareholder returns above our targeted annual distribution growth as our revenues are 80% to 90% covered by MVCs through 2025 and the significant growth in gas volumes which is supportive to Hess Midstream as approximately 75% of our revenues are generated from our gas business. Now turning to Hess Upstream highlights. Hess announced Bakken net production averaged…

Thank you and good afternoon, everyone. Today, I will summarize our financial highlights from 2022, discuss our recently completed nomination process with Hess and provide details on our 2023 guidance and outlook through 2025 including our continued prioritization of ongoing an incremental return of capital to shareholders. For 2022, we delivered strong results, with full year net income of $621 million and adjusted EBITDA of $983 million, an 8% increase compared to the prior year. Looking forward, we have line of sight to at least 10% annual growth in net income, adjusted EBITDA and adjusted free cash flow in 2024 and 2025 driven by Hess' growth in the Bakken and underpinned by our 2025 MVCs that provide visibility to approximately 10% annualized growth in physical volumes across gas, oil and water systems from 2023. Return of capital to shareholders continues to be a key priority for our financial strategy. In 2022, we increased our distributions per share, consistent with our 5% annual target, and also completed incremental shareholder returns, including a $400 million repurchase of units of our sponsors and an additional increase in our distribution level by 5% following the repurchase. As a result, over the past two years, we have completed $1.15 billion of unit repurchases and grown our distributions by approximately 27% on a per share basis. These shareholder returns as a percent of market capitalization represent differentiated and peer leading metrics. Looking forward, we plan to continue this financial strategy that includes consistent and ongoing return of capital as a primary objective. We are targeting 5% annual distribution growth through 2025 and we expect greater than $1 billion in financial flexibility through 2025 for capital allocation that includes prioritization of potential unit repurchases on an ongoing basis. Turning to our results. For the fourth quarter, net…

Thank you. [Operator Instructions] Our first question comes from the line of Doug Irwin with Citi. Your line is open.

Hey, everyone, thanks for the question. Maybe just starting with capital allocation. Just want to ask how you're thinking about the cadence of the potential $1 billion in returns? Should we expect it to be pretty ratable over the next few years? Or do you plan to be a little more opportunistic? And to that point, I guess, would you be willing to kind of move above your three times leverage target to return capital kind of more near term if you have a pretty good line of sight to lower leverage moving forward?

So great, thanks for the question. So let me provide a little bit more context on our return on capital program, which we're really excited about. So first, let's start with how do we get to a $1 billion. As we talked about, we have 10%, at least 10% EBITDA growth in both 2024 and 2025. And as I said, we expect leverage to be at 2.5 times by the end of 2025. So with a half return of EBITDA based on that growing EBIDTA growth that gets you to at least $600 million there. We also noted that we're going to be free cash flow positive after distributions as our EBITDA is growing and our CapEx is stable. So we're growing cash flow, free cash flow in excess of our 5% target distribution growth. With that we expect to build approximately or at least $400 million of cash through 2025. So you put that together that gets you to the $1 billion, and again, that $1 billion is targeted, as a potential we target with just unit repurchases or share repurchases and does not include potential dividend step ups and dividend level increases as we've done after each of the share repurchases. In the past those are funded primarily through the fact that our share repurchases end up with lower share count. And then we're just bringing our distributed cash flow back to where it was before. So a $1 billion with the potential to use that for share repurchases. So in terms of the timing, second part of your question, we see the ability to do this really multiple opportunities over the period starting this year and then really on an ongoing basis through 2025. Just to utilize that $1 billion in really just multiple potential buybacks and then potential related distribution level increases that would come with that as well beyond our 5% distribution growth. Now, that brings us finally to our leverage, and as you note that no change to our three times long-term target. But if you look at what we've done in previous transactions, we have gone slightly above that three, let's say past three to, based on visibility of getting back to our long-term leverage target of three time, we expect that as we execute multiple opportunities over the next starting this year, and then through 2025, that we continue that same strategy, and particularly with the visibility that we have, through our 2025 MVCs driving our expected growing EBITDA, we felt confident that as we execute these multiple potential share buybacks over this period, that we could go slightly above that three times, with visibility to getting back to our long-term three times targeted leverage. Again, we're really excited about this program with a $1 billion in capacity. As we noted, we've really had peer leading metrics in terms of shareholder returns. And we look forward to the opportunity to continue that forward with this return on capital program.

Great, that's helpful, and maybe a follow up just on kind of guidance. You maybe talk about how you're factoring third-party volume mix in the kind of your '23 volume guidance. And then as we kind of think about the 10% growth in both '24 and '25. Is that pretty much all driven by MVCs in Hess' outlook, or does that kind of assume some third-party volume index as well?

Yes, so the third-party, we've been staying consistent without third-party assumption, which is about 10% for both oil and gas, with our strategic infrastructure and our position in the basin, we obviously can attract volumes into infrastructure. And we're going to continue to focus on that. But as we've seen over the last year or so, it's been in the kind of a 10% range. And that's essentially what we're planning for into the future. And so, as we talk about the growth and kind of transitioning above MVCs, heading into 2025. We kind of, we expect that to be about the same percentage of between split between Hess and third-party volumes.

Okay. Great . That's all from me. Thanks for the time.

Thanks, Doug.

Please standby for our next question. Our next question comes from the line of John Mackay with Goldman Sachs. Your line is open.

Hey, everyone, thanks for the time. I wanted to pick up on Doug's first question, just on the $1 billion potential incremental cash returns? Can you talk a little bit about maybe just, it's a $1 billion of potential, maybe just some of the puts and takes on actual kind of willingness to deploy that. Because if we look at a $1 billion, that's 15% of your market cap or something right now, that's a pretty big number. Is that someone dependent on share price? Could it swing more towards a larger distribution increase? Just trying to think of the, again, the puts and takes on us actually kind of seeing that $1 billion come out over the next three years.

Sure. So in terms of capital allocation and in terms of our, I'll call it, willingness or focus on that $1 billion and what it for, as we've said, really, the focus of our financial strategy is really on, of course, maintaining our financial strength, but in terms of our leverage target, but also prioritizing return on capital. We're very fortunate that, as we've talked about, with the investments we've made historically, we can really get this 10% per year EBITDA growth and volume growth, as we described, really under stable capital. So there's really, at least nothing, of course, it's always look at, we've talked about bolt-on in the past, but absent anything like that. There's really nothing in our plan, or we certainly don't need any of that in order to be able to achieve the growth that we already have in our plan. So with that said, then that $1 billion is the prioritization of that would be for returning capital to shareholders. Of course, everything every transaction will be subject to market conditions and board approval at the time, but that is the priority in the financial strategy that we've laid out. In terms of share repurchases versus dividend increases. Of course, we'll make a decision at the time, but we do have gotten very positive feedback and we're very positive ourselves and the strategy we've executed so far, which has been share repurchases, and then with those shares repurchases, utilizing as I discussed, in that previous answer was utilizing the fact that we have now lower share count, to be able to just really increase the dividend. And really just getting us back to that distributed cash flow that we had before the repurchase. And that has allowed us to, as I mentioned in my comments, generate not only the 5% annual growth, but now over the past two years, 27% increase in our dividends just an amazing result, they're together with the $1.15 billion in repurchases. So I'd say that's going to be our focus, that's our priority. Of course, we'll make decisions each time on what the exact right optimization is in terms of capital structure. But certainly, the strategy that we've taken so far, it's certainly one that we like, and certainly that would be probably our base case going forward. And again multiple opportunities to do this going forward through now through 2025.

All right. That's great. Maybe just turning to operations. I mean like there's always going to be weather up in the Bakken. December was really bad. It was also really bad early on in '22. I guess this was a little more of a Hess question. But maybe, could you just talk a little bit around your comfort in kind of not getting pushed to the right again, when there's bad weather again, up there? I mean, you commented that your guide, and the Hess guide are, I guess, weather adjusted, or there's some give in there for weather, but maybe just how much kind of conservatism you have in there, and how you're thinking about that going forward? And whether it's maybe evolved over the last year or two?

Yes, thanks. I mean, I think it's somewhat difficult to say, I mean, obviously, North Dakota, there's weather every year, it snows every year, starting sometime in October, November timeframe, and it kind of carries on through March, April timeframe. And sometimes in the May. 2022 was definitely challenging. It was abnormal weather two times, I mean, it kind of struck twice in one year, we had the freezing rain, earlier in the year in April, May timeframe, and that just totally took out power. And without the power, we obviously couldn't, we couldn't list the hydrocarbons, and couldn't get it to the infrastructure and ultimately, to be processed and shipped out via pipe or rail or to the export markets. So that was the challenge in, at the beginning of the year. And then in December, we just had abnormally high snowfall, and then very, very cold weather. And so as the team as the upstream team attack the snow with winds and very cold weather, the snow would just blow back. And it was a constant battle for them over that timeframe. I've been working in the Bakken for going on 12 years and the weather in 2022 was abnormal. Having said that, the upstream team, and obviously that carries into some of our forecasts as well, they do build in weather contingencies in the first quarter and the fourth quarter of every year. They're really based more on historical weather contingencies, and not abnormal, I would say that based on what we saw in 2022, we're probably a little bit gun shy here, going into the first quarter of this year. But again, we're going to continue to monitor it. And I mean, the team is doing a great job trying to stabilize the system and really reinforce it for even abnormal weather. So we've got, we feel like we've got a good plan, we've got a very integrated team between the upstream and the midstream, we have good transparency and visibility into the forecast and understand kind of where the plan is and what we need to do to help them achieve it. So I would say that both Hess and Hess Midstream are confident in the delivery, in particular, as we march towards the average of 200,000 barrels of oil equivalent per day in 2025. And I think that's going to be the real anchor point to the growth over the next three years. So we see solid growth in '23, '24 and into '25. And then there's a lot of opportunity there. So, again, I know it's a little bit of a long-winded response to your question, but the weather in '22 was abnormal and challenging for the team.

Really. I appreciate it. Thanks for the time today.

Absolutely.

Thank you. I'm showing no further questions in the queue. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.