Good day, ladies and gentlemen, and welcome to the Third 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 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 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 Third Quarter 2024 Conference Call. Today I'll discuss our third quarter performance and review Hess Corporation's results and outlook for the Bakken. Jonathan will then review our financial results and guidance. In the third quarter, Hess Midstream continued to deliver strong operating and financial performance with throughput volumes averaging 419 million cubic foot per day for gas processing, 122,000 barrels of oil per day for crude terminaling and 128,000 barrels of water per day for water gathering. As guided, throughputs remained relatively stable compared to the second quarter, primarily due to planned maintenance activity at the Little Missouri four gas plant, which was successfully completed in the third quarter. Aside from the planned maintenance, our system availability remained high and gas capture continued to be strong in the quarter. Now turning to Hess upstream highlights. Earlier today, Hess reported third quarter net production for the Bakken averaged 206,000 barrels of oil equivalent per day, which was above the high end of their guidance range of 200,000 to 205,000 barrels of oil equivalent per day. Excluding percentage of proceeds volumes, as expected, Hess production was relatively flat in the third quarter compared to the second quarter. Hess anticipates Bakken net production to be in the range of 200,000 to 205,000 barrels of oil equivalent per day in the fourth quarter, primarily reflecting lower expected volumes received under percentage of proceeds contracts and the impact of wildfires in North Dakota. Hess reiterated its plans to continue to run a 4-rig program in the Bakken. Turning to Hess Midstream guidance. We're reaffirming our previously announced 2024 throughput guidance. For full year 2024, we're forecasting gas processing volumes to average between 405 million and 415 million cubic foot per day, crude terminaling volumes to…

Thanks, John. Good afternoon, everyone. We continue to execute a financial strategy that prioritizes return of capital to shareholders with a demonstrated track record of differentiated shareholder returns. Since the beginning of 2021, we have returned $1.85 billion to shareholders through accretive repurchases. In addition, to the combination of our 5% targeted annual distribution growth and nine distribution level increases following each repurchase, we have increased our distribution per Class A share by over 50% since 2021 and by over 10% in 2024 year-to-date on an annualized basis. As a result, our total shareholder return yield is one of the highest of our midstream peers. Furthermore, our leverage of approximately 3.2 times 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, including potential unit repurchases. Utilizing this capacity, year-to-date in 2024, we have completed $300 million of unit repurchases, including our recent repurchase in September of $100 million that was accretive on both an adjusted free cash flow per Class A share basis and an earnings per Class A share basis. As we have done in the past, our third quarter distribution increase included our targeted 5% annual growth per Class A share and an additional increase utilizing the excess adjusted free cash flow available for distributions following the repurchase. As a result, on an annualized basis, our 2024 distribution per Class A share growth of over 10% is significantly above our targeted 5% annual growth through 2026. Following the unit repurchase, we expect to continue to have more than $1.25 billion of financial flexibility through 2026 that can be used for continued…

[Operator Instructions]. Our first question comes from the line of Naomi Marfatia from UBS.

I appreciate the prepared remarks. My first question is on sponsorship appetite. A few weeks ago, HESM announced the final secondary of the year. Well, I know it's early to probably assume what those sponsors may or may not do. Curious on your thoughts on the sponsorship appetite given that GLP now on 15% of HESM and has owned 38% with the pending merger. Do you see an opportunity to buy back from sponsors going forward? Or if we should be thinking about anything outside as it relates to your financial flexibility goals?

Okay. Thanks for the question. So yes, in terms of -- I mean, I think, first of all, in terms of secondaries, they continue to be demand driven from investors. And then GIP will evaluate that demand relative to their disciplined view on value of Hess Midstream. There's no preset pace to that. There's no change in strategy relative to that. And I would also highlight that the 90-day lockup period that was in the recent transaction would take us just about to the end of 2024. In terms of our return on capital program, that's really not a mechanism for our sponsors to change ownership levels. It's really part of our return of capital program, the repurchases are part of that and really leveraging the financial flexibility that we have, the greater than $1.25 billion that we talked about and we expect to continue to execute that program. In the past, as you're looking forward, we haven't included the public in our repurchases because we have been simultaneously working on the goal of raising liquidity in HESM, and that has really helped. Many assets have taken advantage of the secondaries to establish positions in the stock and the way that this is -- they've been set up, that's also generally more accretive to the public as their ownership slightly increases, very small, but slightly increases as a result of each purchase. But certainly, going forward, as we look forward, certainly, we'll continue to evaluate, including the public. But again, the repurchases are really part of our return of capital program, not really separate from secondaries, which are really more a mechanism for ownership changes for the sponsors, again, demand-driven. But really, in terms of return on capital program, we'll continue to execute that, leveraging the $1.25 billion of capacity that we have.

Great. And then maybe just a follow-up on kind of the long-term outlook in Bakken. We've seen a lot of activities recently in the basin, how should we think about third-party volume mix going forward. Can you talk about how HESM thinking about anything strategically different than it did in the past?

Yes. Thank you for the follow-up question. Overall, our forecast of approximately 10% third-party volume still remains kind of our long-term outlook. We do continue to see opportunities to capture additional third-party volumes. I think as we look at our strategic footprint, we're always looking for ways to get the maximum utilization out of that infrastructure that's in the ground. We have a very good footprint that sits on top of really good rock. So, from our perspective, we're definitely well positioned to capture additional third-party volumes. I would say we would continue to maintain the same strategy we've had, which is capture it when we can and when that opportunity is there. But our primary objective is to make sure that we're supporting Hess' production growth going into the future. and then just looking for those incremental third-party opportunities that are out there that we continue to capture.

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

Just want to start on the wildfires. So how much of that was an impact to are assuming an impact to cost versus volumes in the fourth quarter? And on volumes, is that hitting one segment more than the other? Or does this headwind more so flow through the entire footprint for HESM?

Yes. Thanks for the question. The impact is going to primarily be on the volume side. There is some cost, but I would say it's relatively small in the grand scheme of things. The volume impact, there was about a week-long impact associated with power outages related to the fires, particularly in the northwestern portion of the state. I think the response from the community and the firefighters in the area was just phenomenal. I think everybody just rallied together and responded really well. In addition, the co-ops that provide the power to us also responded really well as well. And we're able to get power back up in the area. But it's primarily going to be a bit of a constraint on electricity to well pads, electricity to compressor stations that are impacting the volumes that came through the system. And to your question around how far does this go through the entire system. So, when the wells are down, obviously, you're not getting any oil or gas. Again, it was -- impact was several days and then there's a recovery period coming back from the several days of power disruptions. So overall, it would flow through the system. It would impact oil, gas and ultimately, water volumes coming through our system. But again, I think the recovery has been really strong, and we're feeling like the remainder of the fourth quarter should be strong.

Great. And just as a quick follow-up, excluding that impact, we notice that you did lower the midpoint of guidance for 2024. Could you walk through the rest of the puts and takes of what get you to the bottom and the top of that range? And if you were to outperform the updated guidance, what, if any, could be that tailwind for the fourth quarter EBITDA?

Okay, sure. So, let me start by just emphasizing the growth that we have. Certainly, this year, if you just look Q1 to Q4, 10% increase in EBITDA. Full year basis, 2023 versus 2024, EBITDA up 12% approximately. And then even with the wildfires and all the -- what John described, we're still talking about 5% growth in EBITDA just in Q4 alone relative to Q3. So really, the impact of the wildfires, as John said, the volume impact, but it's really reducing our volume growth and so more limiting it, but we're still having volume growth going forward. The other things we talked about on the call is we'll continue our active maintenance program. And then second would be the allocation on the active -- on the maintenance program there. Historically, if you look back a number of years, probably seasonally, Q4 was a bit lower on maintenance. The team has really worked to optimize to be able to do more maintenance in Q4. That really helps us mitigate against potential severe winter weather conditions that we typically see in Q1. So that's a good thing. And then allocations are typically really, we could have variability in allocation through the year-end accruals or benefits and bonuses. But the important thing is that in terms of -- Q4, really continue to grow 5%. In terms of the range, as you highlighted, we do have a range there. And really, that leads to what is the range or what are the drivers. And it really follows on that. First, it's weather contingencies even though we are trying to get more maintenance done in the fourth quarter. Obviously, the fourth quarter can have some weather impacts in North Dakota. We'll see how that plays out. As I mentioned, the maintenance program, a lot to do. So, we'll see the progress is through the year-end. We'll have final allocations on, as I mentioned, on the final benefits of bonus accruals. And then of course, just normal volume variability based on third-party volumes and a number of Hess' wells online and performing. So, those are kind of the range of the impacts that we'll see in each -- at each of those come out will depend on where we end up in the range. But again, really emphasizing 5% increase in Q4 and then no change for our long-term guidance, moving into as we look forward to 2026, in 2025 next year and then 2026, continued volume growth, approximately 10% annualized growth through 2026 and then EBITDA growing 10% per year through 2026. So, a lot of volume growth ahead of us and growth in EBITDA ahead of us in this quarter and then continuing forward.

Our next question comes from the line of Doug Irwin from Citi.

Maybe just a follow-up on some of the growth in '25 and '26. I think has talked about some accelerated drilling activity and CapEx upstream. I'm just curious what that means for Hess Midstream in '25 with -- you're maybe pulling forward some growth into '25 relative to the initial expectations when you first laid out that 10% a year growth outlook?

Yes. So, I think overall, from a drilling and completions perspective, Hess is absolutely drilling and completing wells a bit faster than anticipated, which is a good story. I'd say that's definitely a tailwind from a volume growth perspective. I would say we increased our MVCs going into January. We've had some volume increases through the year as we've guided higher in that trajectory. From our perspective, we feel like that the pace that Hess is drilling at supports our approximate 10% volume growth through 2026 and just sets us out to have more certainty in the volume delivery going into 2025. So again, we think the combination of the Hess performance from a drilling perspective, but also the infrastructure build that we've got to support that growth we feel like that, that's positioning us really well as we roll into '25 with that continued approximate 10% volume growth through '26.

Great. That's helpful. And then maybe on HESM CapEx. I know in the past, you've talked about at $250 million to $275 million being a good range going forward. But it sounds like for '24, you've maybe pulled a little bit of that CapEx forward into '24. So just curious initial directional messaging on '25 CapEx? Should we expect to step down next year? Or are you maybe still kind of accelerating some spending next year as well?

Yes. No, I think our previous guidance remains the same. I think our longer-term outlook for well connects and infrastructure build remains consistent. I think you've got a little bit of a timing thing here with these multiyear projects shifting between '25 -- or '24 and '25, and then also just making sure that the infrastructure is in place for the drilling program as Hess continues to drill its wells out. Just making sure that infrastructure is in place. So, I would say there's no additional cost to this. It's really more of a timing thing, shifting between the 2 years. I don't know, Jonathan, if there's anything else you wanted to add any additional color?

No, I think that was in terms of -- we'll think about these as multiyear projects. We've talked about the cap plan, potentially John mentioned that in his prepared remarks, potentially starting next year, and that would obviously be a multiyear project. So really kind of look at '24, '25, '26 as -- and then we'll give '27 even kind of guidance in terms of kind of pace at least in January. So, I look at those as kind of multiyear projects. So, there can be some give and takes, if you will, as John said, between the years, across those 3 years, and certainly, once we have the cap plan that takes your mind to '27, but on a total capital basis, as John said, across that period of time, really the same, just a shifting of a little bit more, maybe one day a little bit less later. It may not be one year to the next and maybe 2 years and then one year, but just among those, call it, 3 years, at least through 2026, certainly, you'll have some movement just as the projects themselves, the execution changes.

Our next question comes from the line of Noah Katz from JPMorgan Chase.

First, I wanted to touch on the trends you're seeing in the Bakken at large currently? And what is your expectation for future basin growth across all the value streams in the long term? Thank you.

Sure. I think consistent with what the North Dakota Pipeline Authority has talked about the Department of Mineral Resources and the North Dakota Industrial Commission, I think oil is trending flattish is where we see kind of the volumes going from an oil perspective. As expected, gas and GORs will continue to increase over time. That's just kind of a natural occurring thing that's expected to happen. So, we do expect gas volumes to continue to increase. I think Justin Kringstad's shown some gas growth from the range of about 3.5 Bcf up to approximately 5 Bcf of gas. So, we would continue to anticipate the basin kind of showing that trajectory of growth. From the Hess perspective, we continue to see growth across all of our systems, oil, gas and water systems. Gas is definitely the area that's growing a little bit faster than the oil, but overall, the systems are growing in that kind of 10% range that we've talked about through '26.

Thanks for that. And as a follow-up, beyond the '26 MVCs, can you frame how we should think about the 2027 MVCs with the processing plant coming online? Anything there would be helpful.

Well, I think we'll give our MVCs in January. So, nothing really to say at this point. What I would say is if just looking at the 2026 MVC, obviously, that puts us right about if it implies -- on a gross setup that implies that will be approximately 500 million cubic feet per day. So, as we move into 2027, we expect to continue to see some growth there. Although really, you think of the gas plant as really 125 million cubic feet per day, as we've talked about really supporting growth really the rest of the decade. So, it may not all be in one year, it's going to really kind of give us the ability to continue to grow really just continuously through the rest of the decade, which is quite amazing. But we'll get more in January, nothing to really say at this point.

Our next question comes from the line of Praneeth Satish from Wells Fargo.

Good afternoon, everyone. I guess just maybe going back to the growth outlook, volume growth outlook for 2025. I mean I think you quoted some of Justin's numbers. I guess I'm trying to compare that against the 10% volume growth outlook that you provided. Obviously, Hess is drilling. But on the third-party side of things, if we see kind of flat oil volumes and maybe a little bit a positive number on the gas side. Does that impact at all that 10% guidance that you put out there for '25? And also, as we think about the volume cadence, would you expect it to be kind of 10% in '25 and '26 or kind of more lumpy?

Yes. I think overall, again, I think it's where you are in the basin. And from our perspective, the rock that we're drilling it creates that opportunity for that growth trajectory that we've been talking about, so the approximate 10% through 2026. I would say that the third-party volumes are really kind of those add-on opportunities that we've got out there. I mean we've obviously had about 10% third parties. We expect to continue to have about 10% third parties. Hess is going to grow at a faster pace than the basin average. And I would say the rock that we're drilling in that the Hess Midstream infrastructure sitting on top of creates an opportunity for a growth trajectory that's higher than the basin average. I would say that on the third-party side, we still see a lot of opportunity to capture those volumes. There's still a lot of drilling activity out there. And I think we're always looking to bring in that incremental volume into our system and just maximize the utilization of that. So, I think we've kind of indicated that we're planning to build the gas plant, that's showing a longer-term bullish look towards volume growth. I think there's also a third-party component to that as well that gets us a chance to actually go and provide services to other third parties in addition to providing the support to Hess on its very attractive growth trajectory over the next several years.

Praneeth, just one thing, just from a modeling point of view, we did update most of our MVCs last year. So, to your question on kind of the lumpiness, if you will, of the trajectory. So most of those are set now at 80% of expected volumes. So, if you look at that, you can see that on the gas side, it's pretty much approximately 10% per year on the oil side, a bit more growth in '25 and a little bit less than '26.

Got you. Okay. And then I guess I just wanted to check in on M&A, where that stands. Obviously, you're kind of in somewhat of an autopilot here in terms of the consistency of the capital return. But yes, I guess just where does M&A fall in your financial flexibility stack that you have out there?

So, maybe I'll talk about the opportunity first, and then Jonathan can talk a little bit about the financial side of it. So, from the opportunity perspective, our strategy really remains the same. We continue to look, and we're always looking for those strategic bolt-ons that strengthen our position in the basin. I think we're constantly on the lookout for that, and we're not distracted from that. So those opportunities continue to present themselves. We continue to evaluate them and see how they incrementally add value to our system. And we'll continue to go down that path. From the standpoint of -- it's a little bit back to the earlier question around capturing the volumes. Obviously, Hess as our anchor and our primary customer, we're obviously very focused on providing support to Hess, but we're also trying to provide support to other third-party producers in the basin as well. So, from our perspective, it's really not -- there's not anything restricting us from looking at other than the strategic nature of the opportunity and kind of where it fits in the portfolio and how it supports both Hess and our third-party customers. So, I don't know, Jonathan, if there's anything you wanted to add on the financial flexibility side.

That was really great. I mean, obviously, we have the $1.25 billion of the financial flexibility that we've talked about. Part of that is from leverage relative to our conservative 3 times target. And part of that is just excess free cash flow after distributions. So as John said, you don't continue to look at bolt-ons. We're not -- we've said in the past, now can get any corporate -- but to the extent the bolt-on opportunity is available, then we'll evaluate those, but the bar is high relative to the growth that we have and absent any opportunity to execute our -- and prioritize our return of capital program.

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