Good day, ladies and gentlemen, and welcome to the First Quarter 2024 Hess Midstream Conference Call. My name is Gigi, and I'll be your operator for today. [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. Please proceed.

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

Thanks, Jennifer. Good afternoon, everyone, and welcome to Hess Midstream's First Quarter 2024 Conference Call. Today, I'll discuss our first quarter performance, which demonstrates a continued focus on the safe delivery of our strategy. I'll also review Hess Corporation's results and outlook for the Bakken. Jonathan will then review our financial results and guidance. In the first quarter, we continued to progress our 2024 business objectives in a safe and efficient manner. Throughput volumes averaged 393 million cubic foot per day for gas processing, 117,000 barrels of oil per day for crude terminal and 116,000 barrels of water per day for water gathering. In line with our guidance, overall volumes were broadly flat compared to the fourth quarter, reflecting severe winter weather experienced in January, resulting in slightly lower oil volumes offset by strong gas capture performance. We continue to support Hess' commitment to achieving 0 teen flaring by the end of 2025. Now turning to Hess upstream highlights. Earlier today, as reported Bakken net production for the first quarter averaged 190,000 barrels of oil equivalent per day, which included 19,000 barrels per day of volume perceived from percent of proceeds contracts, which do not impact test Hess Midstream throughput First quarter net production was broadly flat compared to the fourth quarter of 2023, again, reflecting the severe winter weather experienced in January, followed by a strong recovery in February and March. Hess also reiterated their plans to continue running a 4-rig drilling program in 2024 and expect Bakken net production to average between 195,000 and 200,000 barrels of oil equivalent per day in the second quarter. Turning to Hess Midstream guidance. We're reaffirming our previously announced 2024 throughput guidance, which was included in our earnings release. For full year 2024, we're forecasting gas processing volumes to average between 395…

Thanks, John, and good afternoon, everyone. We continue to execute our financial strategy that prioritize return of capital to shareholders with a demonstrated track record of differentiated shareholder returns. Since the beginning of 2021, we have returned $1.65 billion to shareholders through accretive repurchases that have reduced our total unit count by over 20%. In addition to the combination of our 5% targeted annual distribution growth and 7 distribution level increases following each repurchase. We have increased our distribution per Class A share by approximately 45% over this period. As a result, our total shareholder return yield is one of the highest of our Midstream peers. Furthermore, our leverage of approximately 3.2x adjusted EBITDA is one of the lowest among our peers, highlighting our differentiated ability to deliver significant shareholder returns while also maintaining balance sheet strength. In January, we announced that we expect to generate greater than $1.25 billion of financial flexibility through 2026 for incremental shareholder returns, including potential unit repurchases. Utilizing this capacity in March, we completed our first repurchase transaction in 2024 of $100 million, that was accretive on both a distributable cash flow per Class A share basis and an earnings per Class A share basis. Supported by this repurchase, we recently announced a further return of capital to our shareholders through an immediate 1.5% increase in our quarterly distribution level in addition to our targeted 5% annual distribution for Class A share increase. As we have done in the past, with the reduced share count following the repurchase, this distribution level increase maintains our distributed cash flow at approximately the same amount as before the repurchase. Following the unit repurchase, we expect to continue to have more than $1.25 billion of financial flexibility through 2026 that can be to continued execution of our return…

[Operator Instructions] Our first question comes from the line of Doug Irwin from Citi.

Okay. Just trying to start with the second half growth expectations. You just talked about kind of 9% relative to the first half of the year. Just wondering if you can talk about some of the main drivers there that kind of bridge that growth into the second half of the year. Just wondering how much of that is driven just by the absence of some of the one-time turnarounds and weather impacts versus kind of organic growth on top of that. And then maybe you could just talk about some of the puts and takes that could drive the high end or the low end of the range for the rest of the year.

Sure. Maybe I'll take the volume, and then I'll hand it over to Jonathan to talk a little bit about the financial side. So on the volumes, obviously, we had the challenging weather in January. But I would say that the recovery from the January weather was very strong in February and March, as I mentioned in my script. As we grow into Q2, Q3 and through the end of the year, we do expect the volumes to have a strong trajectory. I mean when you look at the growth that we had from our guidance from '23 to '24, we're expecting some strong growth there. We would anticipate that growth to be relatively stable through the rest of the year. So from our perspective, we feel like there's a lot of opportunity to continue to support the growth, Hess' performance has been very good, as you probably saw on the release earlier this morning from them as well. So, again, we're just translating that into higher throughput volumes. As far as the kind of the puts and the takes, I mean, weather is always unpredictable. We're kind of coming out of the winter weather now. We've had a very good winter with the exception of that very cold snap we had in January. And I would say that we're seeing overall delivery and throughput remaining very strong. So I don't know, Jonathan, if there's anything else you wanted to add?

Yes. No, I think that was good. And let me just kind of walk through the trends that we expect for the rest of the year. So as we look into Q2, as John said, we continue to expect continued volume growth, but that will drive revenue growth. As we go into Q2, we have seasonally higher OpEx. And then on top of that, we expect some incremental costs associated with routine maintenance at the Tioga plant as we discussed. So that if you will take into our EBITDA guidance for Q2. So as we move into Q3, we expect again continued volume growth and therefore, revenue growth. OpEx would already be at a higher level. So really, we expect growth in EBITDA in Q3, primarily driven by volumes. And then as we move into Q4, we expect accelerated EBITDA growth again. There again, we'll have volume growth continuing, but we'll also have the benefit of seasonally lower OpEx that we typically have in Q4, so that really gives you the trend. Your continuing revenue growing each quarter through the year and then Q2 and Q3 higher OpEx and then expecting lower OpEx again in Q4.

Okay. Got it. That's really helpful. And then just kind of touch on the contract structure here just given that the first quarter in one the new fee mechanism. Could you maybe just help quantify or even just directionally kind of frame up what kind of impacts the rate reset at this quarter relative to last quarter. And then as we think about just the rest of the year, are those rates stable for the rest of the year now? Or is some of those inflation escalators maybe say in throughout the year.

Sure. So just as a reminder, the way we got to the fixed fee for this year was that we took the average 2021 through 2023. That was inflated -- those rates are inflated to a 2023 basis and then it's late again to get into a 2024 rate. That design was designed to create a smooth transition from our cost of service period. And therefore, as we move into this period, we're comparing the 2023 rate to that average. Did you have a little bit of noise as you do that comparison. But overall, as we described, rates were up across all of our systems on average. And particularly, as we mentioned in gas, you saw that rates were higher there, and you can see that in the results. Now going forward, with the rate now set, 85% of our fees are on a fixed fee basis. And therefore, they will really just be set each year, increasing with inflation based on CPI at the end of the year. And then that will, therefore, create a steadily increasing fee structure as you go all the way through 2033, really supporting continued growth in EBITDA over that period.

Got it. That's helpful.

Our next question comes from the line of Jackie Koletas from Goldman Sachs.

So you mentioned that costs were lower this quarter after the higher fourth quarter levels, and there is some seasonality there throughout the year. But should we think that this level can kind of hold here? Or how should we think about it -- think about continued change in the business going forward?

Yes. Maybe I'll take the first shot at this and then hand it over to Jonathan. As Jonathan mentioned, and we talked a little bit about fourth quarter was higher from -- again, from a favorable weather perspective. We were able to get more meta done in the fourth quarter. January was a difficult month, and it caused us, as we normally expect in the first quarter to be seasonally lower spend on the OpEx side. And then as I mentioned in my script and Jonathan reiterated, we are planning to do some additional maintenance activities in Q2, beyond our normal seasonal increase in maintenance activities in Q2 and Q3. So we do expect to see OpEx higher in Q2 and then also relative to our normal seasonal impact in Q2 and Q3. So I don't know, Jonathan, if there's anything you wanted to add to that.

Yes. The only thing I would add is we talked about the seasonality in Q2 and Q3, there being higher and then typically Q1 and Q4 are lower. I think it's important to highlight, if you look at our operating costs and admin G&A, excluding post costs for this year for 2024, really their forecast to be flat relative to 2023. And I think that really highlights the operating leverage that we have as our ability to keep operating costs stable while our expanding system footprint continues to grow. We continue to target our 75% EBITDA margin target for 2024. Already in the first quarter, we've already exceeded that. But certainly, given the seasonality, we certainly continue to expect to meet or exceed that. So really in a good spot in terms of that. Obviously, I think the ability to be able to have kind of flat OpEx cost year-over-year idea really highlights again that operating leverage.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.