Good day, ladies and gentlemen, and welcome to the Second Quarter 2022 Hess Midstream Conference Call. My name is Victor, and I'll be your operator for today. 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, Victor. Good afternoon, everyone, and thank you for participating in our second 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 and our transcript of today's prepared remarks. 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 Second Quarter 2022 Conference Call. Today, I will review the progress we're making on executing our strategy, discuss our operating performance and capital program and review Hess Corporation's results and outlook for the Bakken. Jonathan will then review our financial results and guidance. Beginning with Hess' upstream results. Today, Hess reported second quarter Bakken net production averaged 140,000 barrels of oil equivalent per day, reflecting the impact of severe weather in April and May. Hess' production is recovering. Well results continue to meet or exceed expectations, and Hess anticipates production to build in the second half of the year as they bring approximately 50 wells online compared to 32 wells in the first half of 2022. Bakken net production for the third quarter is expected to increase to between 155,000 and 160,000 barrels of oil equivalent per day and further grow to between 160,000 and 165,000 barrels of oil equivalent per day in the fourth quarter. For full year 2022, Hess forecasts Bakken net production to average between 150,000 and 155,000 barrels of oil equivalent per day. Furthermore, Hess announced a fourth drilling rig commenced operations in the Bakken during July, supporting Hess' planned production ramp to approximately 200,000 barrels of oil equivalent per day by 2024. With Hess Midstream's focused gathering infrastructure expansion, we're ready to meet Hess' accelerated development pace, which is expected to drive volume growth through our system, allowing us to reaffirm our expected throughput growth above MVCs in 2022 and 2023 and 2024. Turning to Hess Midstream's results. Our second quarter throughput volumes averaged 292 million cubic feet per day for gas processing, 93,000 barrels of oil per day for crude terminaling and 65,000 barrels of water per day for water gathering. As physical volumes are already expected to be at or below MVC levels, there was no material impact to our second quarter financial results relative to our guidance. The weather-related deferral of planned maintenance activity to the second half of the year drove lower-than-anticipated operating costs for the second quarter, resulting in adjusted EBITDA of $243 million compared to our guidance of approximately $235 million. Turning to Hess' Midstream guidance, which was included in our earnings release and is available on our website. We're reaffirming our previously announced full year 2022 financial guidance and updating our throughput guidance to reflect the impact of severe weather experienced in the second quarter. For full year 2022, we now expect gas processing volumes to average between 315 and 330 million cubic feet per day and crude terminaling volumes to average between 103,000 and 108,000 barrels of oil per day. Reflecting strong growth and operating performance, we continue to expect water gathering volumes to average between 70,000 and 75,000 barrels of water per day for full year 2022. As a reminder, with physical volumes on our systems expected to be at or below MVCs in 2022, our 95% revenue protection gives us a high degree of confidence in our financial guidance. Turning to Hess Midstream's 2022 capital program. We continue to make excellent progress on our 2022 capital program with activities primarily focused on flare reduction through the continued expansion of our gas capture infrastructure. We recently completed construction and commenced commissioning of the second of 2 new compressor station start-ups planned this year. We expect to bring the stations online in the third quarter completing the project below budget and several months ahead of schedule. In aggregate, our 2 new compressor stations provide an additional 85 million cubic feet per day of installed capacity in 2022 and can be efficiently expanded up to 130 million cubic feet per day in the future. As previously announced, we expect to initiate construction on a third compressor station in the fourth quarter, which would provide an additional 65 million cubic feet per day of installed capacity in 2023, further growing our capacity and supporting Hess' accelerated development. In addition, our close integration with Hess and lean focused standard design philosophy has enabled us to largely mitigate near-term inflation and maintain full year capital guidance. 2022 capital expenditures are expected to total approximately $235 million, comprised of $225 million of expansion and $10 million of maintenance activity. We expect to invest approximately $120 million in compression expansion and reflecting increased drilling activity by Hess, approximately $105 million in gathering system well connects. In closing, we continue to execute our strategy, making efficient and low-risk infrastructure investments to meet basin growth demands, delivering safe and reliable operating performance and strong financial results, enabling us to grow our business and return capital to our shareholders. I'll now turn the call over to Jonathan to review our financial results.

Thanks, John, and good afternoon, everyone. As John described, we are making good progress in executing our strategy, and we are excited to support Hess' accelerated development in the Bakken while continuing to deliver on our strategy of consistent and ongoing return of capital to our shareholders. Over the past 12 months, we have executed in excess of $1 billion in accretive share buyback, announced 2 separate distribution level increases and continued our track record of growing our distribution per share every quarter since our IPO in 2017. We recently announced our second quarter 2022 distribution growing 1.2% quarterly, consistent with our targeted 5% annual distribution growth to Class A share through at least 2024, with expected annual distribution coverage greater than 1.4x, including distribution coverage greater than 1.5x in 2022. We expect to continue to execute our financial strategy over the coming years as we have clear visibility to expected revenue and adjusted EBITDA growth, supported by increasing MVCs in the second half of 2022, followed by organic growth above MVCs in 2023 and 2024, underpinned by Hess' recent addition of a fourth operating rig. Based on our 2024 MVCs set as part of Hess' nomination at the end of 2021 at 80% of our expected 2024 gas gathering and processing throughput, our volumes are expected to grow by approximately 20% relative to our 2022 MVCs. Gas revenues, excluding pass-through revenues comprise approximately 75% of total affiliate revenues, emphasizing the visibility we have to continued growth in adjusted EBITDA. Looking forward, annual capital expenditures to deliver this growth plan through 2024 are expected to remain stable relative to 2022, with activity tightly focused on phase build-out of compression, well connects and system optimization, aligned with Hess' development plan. As a result, with growing adjusted EBITDA and stable CapEx, we expect growing adjusted free cash flow sufficient to support our growing distribution and incremental financial flexibility, allowing for continued return of capital to shareholders, consistent with our financial strategy. Turning to our results. For the second quarter, net income was $152 million compared to $160 million for the first quarter. Adjusted EBITDA for the second quarter was $243 million compared to $242 million for the first quarter. The change in adjusted EBITDA relative to the first quarter was primarily attributable to the following: Total revenues, excluding pass-through revenues, increased by approximately $4 million, primarily driven by higher MVC levels, resulting in segment revenues as follows: an increase in processing revenue of approximately $3 million and an increase in gathering revenue of approximately $1 million. Total cost and expenses, excluding depreciation and amortization, pass-through costs and net of our proportional share of LM4 earnings, increased by $3 million as follows: Higher operating and maintenance activity on our expanding gathering infrastructure of approximately $4 million, partially offset by lower G&A of approximately $1 million, resulting in adjusted EBITDA for the second quarter of $243 million, above our guidance of approximately $235 million, primarily due to deferral of certain maintenance activities to the third quarter. Our gross adjusted EBITDA margin for the second quarter is greater than 80%, highlighting our continued strong operating leverage. Second quarter maintenance capital expenditures were approximately $1 million. And net interest, excluding amortization of deferred finance costs, was approximately $35 million. The result was that distributable cash flow was approximately $206 million for the second quarter, covering our distribution by 1.5x. Expansion capital expenditures in the second quarter were approximately $70 million, resulting in adjusted free cash flow of approximately $136 million. At quarter end and following the completion of our recent unit repurchase, debt was approximately $3 billion, representing leverage of approximately 3.2x adjusted EBITDA on a trailing 12-month basis. By year-end, we expect the leverage to return to our 3x adjusted EBITDA target and decline below this target in 2023, providing flexibility for incremental return of capital to shareholders. Turning to guidance. We are reaffirming our previously announced guidance for full year 2022, which we expect net income of $610 million to $640 million and adjusted EBITDA of $970 million to $1 billion. With total expected capital expenditures of $235 million, we expect at the midpoint to generate adjusted free cash flow of $615 million. As implied in our guidance, we anticipate adjusted EBITDA in the second half of the year to be higher relative to the first half, supported by MVCs generally increasing through the year. We expect third quarter adjusted EBITDA to be approximately flat relative to second quarter results as increasing revenues driven by higher MVCs are offset by higher seasonal operating costs, including maintenance activities that were deferred from the second quarter. For the third quarter of 2022, we expect net income to be approximately $150 million to $160 million, and adjusted EBITDA to be approximately $240 million to $250 million. Third quarter maintenance activity, maintenance capital expenditures and net interest, excluding amortization of deferred finance costs expected to be approximately $40 million, resulting in expected distributable cash flow of approximately $200 million to $210 million, delivering distribution coverage at the midpoint of the range of approximately 1.5x. In the fourth quarter, we expect continued adjusted EBITDA growth relative to the third quarter on higher MVCs and expected lower seasonal operating expenses. In closing, we are very pleased with the progress we are making in our business and look forward to a visible trajectory of growth in our operational and financial metrics that underpin our unique and differentiated financial strategy with a focus on consistent and ongoing return of capital. This concludes my remarks. We'll be happy to answer any questions.

Our first question will come from the line of Stephen McGee from JPMorgan.

For the 2022 volume guidance, do you expect most of that to be made up in 2023? Did the fourth rig come online with expectations? Or did that pull forward any growth? And then finally, would this provide any opportunity to raise the 2023 MVC level?

Sure. Let me hit the 2022 question first. So the rig came on in July. We would expect to see some wells coming out towards the end of the year, but we don't expect any real material volumes from the fourth rig. We do still continue to expect to see growth into the second half of the year and into the fourth quarter with the addition of the third rig and then obviously with the fourth rig coming on. As far as looking at 2023 volumes, we are expecting to be above MVCs in 2023 and 2024. As we look further forward with the fourth rig, we'll make adjustments to our guidance as we go into 2023 at the beginning of the year.

Yes. And this is Jonathan. Just on the MVCs, just for clarity, just as a reminder of how that works, we set the MVCs 3 years in advance. Once they're set, they can only be increased and not reduced. For example, at the end of 2021, when Hess updated its nomination, we set a new MVC for 2024. We then also went back and looked at our MVCs. In that case, the 2023 MVCs actually went up as a result. As John said, we have growth going into next year. We'll set a new MVC at the end of this year for 2025. Then we'll look at the volumes for 2023 and 2024, to the extent that the volumes are higher than what's in our current nomination, then the MVCs will go up at that point. As a reminder, the MVCs can only go up; they can't go down. So when we evaluate them, it's only for upward adjustments. Otherwise, MVCs that we have will stay in place.

Got it. And then with your expectations to be above MVCs in the next few years, is it fair to assume that there could be an increase in MVCs?

I think we'll update that at the end of this year when we come up with new MVC for 2025 and then we'll look back. But the important point, which John highlighted, is that with the fourth rig now in place, along with our continued focus on gas capture and the Zero Routine Flaring goal by the end of 2025, all that really supports visible growth for us. It underpins the growth that's already implied by our MVCs. I talked about the 20% growth from this year's MVCs to the 2024, its implied throughput, and that's going to include growth next year as we move from MVCs to physical volumes and then continued growth in 2024 as we expect to grow both gas, oil, and water volumes across all of our systems, supported by that. So remember, with increasing revenue and our consistent EBITDA margin, that's going to add stable CapEx, which John and I both highlighted, that's going to translate into continued growing free cash flow after distribution and continued deleveraging, which gives us the opportunity for continued return on capital.

Our next question will come from the line of Doug Irwin from Credit Suisse.

Maybe just a broader one on the Bakken with Hess adding a fourth rig, and I think we've seen some other rigs start to come back this summer. Just curious if you see any capacity constraints developing in the basin over the next few years? And I guess specific to Hess system, you mentioned the ability to expand the recent compressors that came online. Is that a decision that might be needed over the next couple of quarters? Or is that more of a longer-term opportunity that you're thinking about?

Yes, sure. So maybe I'll just take the export question first. I think, overall, just speaking for Hess, Hess is in good shape. We have sufficient capacity to stay within flaring regulations, process, and export oil, NGLs, and natural gas. From our perspective, we're in very good shape to support Hess and third-party volumes. And as we think about expanding our system, we've built our system with maximum flexibility as efficiently as we possibly can. Our design once, build mini approach, our lean focused approach has enabled us to expand as the basin growth dictates. As Hess looked to add the third and ultimately the fourth rig, we were well positioned to expand our infrastructure to support that growth. That will continue to be our philosophy as we develop the basin and support Hess and other third parties. As third parties potentially grow as well, we'll look at opportunities to support them on their way to reducing flaring and Hess' objective of Zero Routine Flaring by the end of 2025.

Okay. That's helpful. And maybe one on capital allocation, just in light of both the repurchases that took place during the quarter. I think it's been a pretty balanced approach in the past between buybacks and distribution growth. Just curious how you're weighing those options moving forward from here, if there's a certain level of public float you're looking to achieve or maybe there's a yield that you're targeting? Just curious how you're thinking about that.

Look, I think first of all, we got a lot of positive feedback on the recent combination of the buyback and the secondary offering. We won't always plan to do those together, but it certainly worked out, and we're happy that the transaction went well. But as I said in the past, they really cater towards two different objectives, with the buyback being part of our continuing and ongoing return of capital program, and then our secondary is really part of removing technical obstacles to ownership. In terms of the secondaries, as we said, there's really no specific plan there. Our targeted flow is really just a combination of demand from investors looking to increase their position and removing technical obstacles while balancing Hess and JP being disciplined investors who see the long-term value in Hess Midstream. In terms of the balance between buybacks and distribution increases, as we've done those together, I think those have worked out well, and certainly as part of our continuing program, as you know, there are 2 parts to our ongoing return on capital. It's a 5% per share growth, which will continue at least through 2024, and we'll update more on that at the end of the year when we give our guidance for the next year on our MVC for 2025, along with the incremental return on capital, including the share repurchases. We've been able to combine those really with distribution increases that maintain the same level of distributed cash flow but on a lower share count. This has allowed for ongoing and immediate return on capital, both in terms of buyback combined with the dividend increase. These are certainly parts of our program that will continue. The timing of the secondary will be when you see that balance between demand from investors and Hess and JP's long-term value perspective relative to their disciplined holdings.

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

I think based on your MVC cadence, it sounds like you'd start to hit 90% of your processing capacity in the 2025 timeframe. If that assessment is correct, would you consider expanding processing capacity at that point? Or is it kind of dependent on whether Hess moves past its 200,000 barrel per day target?

Yes. So we haven't actually given 2025 MVCs yet. It sounds like you're forecasting that growth out beyond 2024. We're obviously expecting to be above MVCs in 2023 and 2024. We feel like we have sufficient capacity to cover Hess' plans. We'll continue to evaluate the needs in the basin. Our focus right now is just on gas capture and adding the compression necessary from a processing perspective. 500 million cubic feet per day capacity covers our current plan, but we'll continue to look at that. We'll look at Hess' plans with its fourth rig and the performance that it expects to see there. We'll also look at third parties to understand what the demand is, and we'll take it from there. From our perspective, we are prepared to plan and engineer whatever infrastructure we need to support the basin. However, we want that to be rightsized, fit for purpose, and make sure that we have good volumes accounted for going into any system that we build.

Got it. And then maybe if you could just comment on the puts and takes of where you think rates could go in 2023. I know you've got some inflation tailwinds, but then you've had weather-related disruptions, but then you've got better volumes in 2023 because of the fourth rig potentially. Just net-net, directionally, would that support higher rates in 2023 or kind of flattish?

Go ahead, Jonathan.

No, I think that as you said, there are puts and takes to this. In our plan, we did have a big increase in rates in 2021. As we've set the plan here, which includes growth, we've been saying about the fourth rig; it really underpins the growth that's in the existing plan. We do have capital that has been positioned to add additional compression and other measures. Our expectation is generally that rates will – we have an inflation escalator. But net-net of that, we expect the rates to be relatively flat, maybe slightly increasing with the inflation escalator. Besides that, we're not expecting a big move in rates. The big driver into 2023 will be as we continue that growth supported by the fourth rig and that ongoing gas capture, which will continue to drive our EBITDA and revenue as I've described.

Our next question comes from the line of Michael Lapides from Goldman Sachs.

One or two easy ones. I just want to make sure I heard correctly. 2023 expansion capital, are you saying it's going to be roughly flat to the 2022 level? And can you just give the number of compressors you're doing this year? The third one you're planning on starting kind of at the beginning of next year, can you talk about the components of that?

Sure. So maybe I'll just start with the compression question, and I'll hand the first part of your question over to Jonathan. It really comes down to phasing when the compressors start. The compressors that we're bringing online this year, some of that spend actually happened last year. Some of it's happening this year. We're going to be kicking off that third compressor station this year, and the bulk of the spend for that activity will actually be next year. So from an overall compression perspective, we're going to expect to see that spend relatively flat, and that holds for the broader program as well, generally looking at 2022 into 2023. So I don't know, Jonathan, if there's anything else you wanted to add to that?

No. No, I think we are really saying that, look, we expect stable CapEx through next year, as John described, but with that complemented by growing EBITDA supported by growing revenues as we've described. Therefore, growing free cash flow after distributions and continued deleveraging. But on the CapEx side, we are maintaining stability based on what John said.

Got it. I have a question about what happens with the tariffs when we enter the second 10-year process. I'm curious because volumes were challenging this quarter due to the weather in late April or early May. However, with the MVCs, that suggests a higher tariff. If I recall correctly, when the next tranche occurs, it averages the previous three years' tariffs and then increases based on an inflation factor. I'm wondering what the implications are for this quarter, especially considering it's potentially positive if I think about the next two or three years.

I think the way, as you described, we'll have a rate reset at the end of this year. The average rates for '21, '22, and '23 become the set rate plus the inflation escalator for 2024. To the extent that total volumes for the year are lower than expected, then yes, that would have a positive impact on rates. However, as mentioned before, we do expect growth in the second half. Therefore, we still expect rates generally to be stable going into next year. The primary impact on rates occurred in 2021 when rates went up relative to where they were in 2020, feeding into the averages going forward. This year, as volumes are really at MVCs, lower volumes at MVCs do not impact future rates. Again, we expect stable rates going into next year, which will roll into our 2024 rates.

Thank you very much. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a great day.