Good day, ladies and gentlemen, and welcome to the Third Quarter 2022 Hess Midstream Conference Call. My name is Shannon, 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. 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, Shannon. 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 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 third quarter 2022 conference call. Today, I'll 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's results, today Hess reported third quarter Bakken net production of 166,000 barrels of oil equivalent per day, which was above their guidance range of 155,000 to 160,000 barrels of oil equivalent per day, reflecting strong execution and recovery following challenging weather conditions in the first half of the year. Hess anticipates fourth quarter Bakken net production to be in the range of 165,000 to 170,000 barrels of oil equivalent per day and full year 2022 Bakken net production to average approximately 155,000 barrels of oil equivalent per day, which is at the high end of Hess' previous guidance range of 150,000 to 155,000 barrels of oil equivalent per day. Hess' fourth Bakken drilling rig commenced operations in July, supporting Hess' planned production ramp to approximately 200,000 barrels of oil equivalent per day in 2024, which drives long-term volume growth for Hess Midstream. Looking ahead, we expect all our systems to be above MVC levels in 2023 and 2024, primarily driven by Hess' planned production growth and its goal of achieving zero routine flaring by the end of 2025. Turning to Hess Midstream results. Our third quarter throughput volumes recovered strongly, growing approximately 20% on average from the second quarter. Third quarter volumes averaged 110,000 barrels of oil per day for crude terminaling and 83,000 barrels of water per day for water gathering. Reflecting strong gas capture, third quarter gas processing volumes exceeded MVC levels, averaging 354 million cubic foot per day, contributing to third quarter adjusted EBITDA, up $254 million, which was above the top end of our guidance range. We anticipate fourth quarter gas, oil and water volumes to be relatively flat compared to third quarter, driven by planned maintenance activities deferred from the third quarter. Now, moving to Hess Midstream guidance, which was included in our earnings release and is available on our website. We've updated our volume guidance to reflect third quarter performance and now expect full year 2022 gas processing volumes to average approximately 330 million cubic foot per day, crude terminaling volumes to average approximately 105,000 barrels of oil per day and water gathering volumes to average approximately 75,000 barrels of water per day. We continue to make excellent progress on our 2022 capital program, with activities primarily focused on flare reduction due to the continued expansion of our gas gathering infrastructure. In September, we brought online the second of two new compressor stations planned this year. In aggregate, the two stations provide an additional 85 million cubic foot per day of capacity and can be expanded up to 130 million cubic foot per day in the future. Additionally, the stations were safely completed several months ahead of schedule and below budget, demonstrating the benefits of our lean approach to standardized compression design. We're proud of our team for outstanding execution amid a challenging inflationary cost environment. 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 foot per day of capacity in 2023 to further support Hess and third-party production growth. We expect full year 2022 capital expenditures to total approximately $235 million, comprised of $120 million in compression expansion, approximately $105 million in gathering system well connects and $10 million of maintenance activity. In closing, we continue to execute our strategy, focus on safe and efficient operations, preserving cost discipline through our lean-driven standard design and build philosophy, allowing us to efficiently grow throughput, sustainably generate cash flow 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' development in the Bakken, while continuing to deliver on our strategy of consistent and ongoing return of capital to our shareholders. Beginning with our results. For the third quarter, net income was $159 million, compared to $152 million for the second quarter. Adjusted EBITDA for the third quarter was $254 million, compared to $243 million for the second quarter. The change in adjusted EBITDA relative to the second quarter was primarily attributable to the following. Total revenues, excluding pass-through revenues, increased by approximately $19 million, primarily driven by a combination of higher MVC and throughput volumes that exceeded our MVCs and gas processing and one of our gas-gathering subsystems, resulting in segment revenue changes as follows. An increase in processing revenue of approximately $5 million and an increase in gathering revenue of approximately $14 million. Total costs and expenses, excluding depreciation and amortization, pass-through costs and net of our proportional share of LM4 earnings, increased by $8 million as follows. Remediation expenses for a produced water release of approximately $6 million, inclusive of both actual costs incurred to date and estimated total future expenses, higher operating and maintenance activity of approximately $2 million in our gathering segment that was seasonally higher compared to the second quarter but lower than anticipated as a result of the deferral of some maintenance activities until the fourth quarter, resulting in adjusted EBITDA for the third quarter of $254 million, above the top end of our guidance range. Our gross adjusted EBITDA margin for the third quarter was maintained at approximately 80%, highlighting our continued strong operating leverage. Third quarter maintenance capital expenditures were approximately $1 million, and net interest, excluding amortization of deferred finance costs, were approximately $38 million. The result was that distributable cash flow was approximately $215 million for the third quarter, covering our distribution by 1.6 times. Expansion capital expenditures in the third quarter were approximately $59 million, resulting in adjusted free cash flow of approximately $156 million. At quarter end, debt was approximately $2.9 billion, including a drawn balance of $43 million on our revolving credit facility, representing leverage of approximately three times adjusted EBITDA on a trailing 12-month basis. We expect to decline below this target in 2023, with increasing adjusted EBITDA providing flexibility for incremental return of capital to the shareholders. Consistent with our return of capital framework, earlier this week, we announced our third quarter distribution that increased 5% on an annualized basis and represents a 10% increase compared to the third quarter of 2021, including our distribution level increase earlier this year. Turning to guidance, we anticipate fourth quarter net income and adjusted EBITDA to be approximately flat compared to our higher third quarter results, reflecting the combination of the following. Stable revenues for the majority of our systems with throughput below MVC levels, downtime from planned maintenance activity that was deferred from the third quarter driving expected lower throughput volumes and revenues at our gas gathering system operating above MVCs and lower total OpEx in the fourth quarter due to the produced water remediation expenses in the third quarter. Reflecting these fourth quarter expectations and our strong third quarter results, we have updated and raised our full year financial guidance relative to the midpoint of our prior guidance. We now expect net income to be approximately $630 million, and adjusted EBITDA of approximately $990 million, representing 9% growth compared to full year 2021 results. Maintenance capital and cash interest are projected to total approximately $150 million for the full year 2022, and distributable cash flow is expected to be approximately $840 million resulting in an expected distribution coverage of greater than 1.5 times. We expect to end the year with leverage at our conservative three times adjusted EBITDA leverage target. Looking forward, in January, we will release our 2023 operational and financial guidance including 2025 MVCs. 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 organic growth above MVCs in 2023 and 2024. Emphasizing this visibility to continued growth in adjusted EBITDA, our current MVCs in 2023 and 2024 reflect continued organic growth in gas processing and gathering throughput, driving increasing gas revenues that excluding pass-through revenues comprised approximately 75% of total affiliate revenues. As a result, we anticipate continued growing adjusted EBITDA and stable CapEx and 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. 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 underpins 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. I will now turn the call over to the operator.

Your first question comes from the line of Michael Lapides with Goldman Sachs. Your line is now open.

Hi. Thanks, everyone. Thanks, John and Jonathan, for taking my questions. Actually, I have a few, one kind of more near-term, one a lot longer term. On the near term, Jonathan, you used the word stable when referring to CapEx going forward. Does that imply that future CapEx or growth CapEx or expansion CapEx looks a lot like 2022 levels, or should we be thinking, given the amount of new compression you added in 2022, that future CapEx may even be a little bit lower than this year's?

Alright. Let me start with an overview and discuss our guidance direction before handing it over to John Gatling for more details. Regarding capital expenditures, we anticipate that CapEx for 2023 will remain stable, at or below this year's levels. John can elaborate on that further, but we will continue to be well connected and focused on compression. With this stable capital and as I noted earlier, we expect our EBITDA to grow, which you can observe through our current MVCs. We will update these MVCs, including our 2025 MVC, which will demonstrate our continued growth. It's important to note that with stable capital next year and growing EBITDA, we will achieve considerable financial flexibility concerning leverage. We're already at our 3 times target, and as we move into next year with increasing EBITDA, we expect this to decrease. Additionally, our revolvers stand at $43 million right now, so as we progress into next year, we will generate excess free cash flow beyond our increasing distributions, providing us with added financial flexibility for our return on capital program as well. This outlines the general direction we foresee. We'll provide more details in January, including our 2025 MVC. Now, I'll turn it over to John for any further comments on CapEx.

Sure. Thanks, Jonathan. We have been aiming for Hess's production to reach 200,000 barrels of oil equivalent per day in 2024. Our capital expenditure plans are aligned with this target, particularly in compression and gathering. We are continuing to emphasize compression. The spending in 2023 will be at or below the level of 2022. However, we expect growth, as reflected in the implied volumes from our 2023 and 2024 minimum volume commitments. We will keep focusing on well connects and compression. Currently, we have a total processing capacity of 500 million a day and will continue to expand towards that capacity as Hess increases its production in the basin.

Got it. Looking ahead, as we consider our long-term objective of achieving zero flaring, how should we evaluate the steps necessary to reduce current flaring to zero, especially in relation to production growth?

We see Hess's commitment to Zero Routine Flaring as a positive development and a catalyst for the midstream sector. Hess is performing exceptionally well, currently achieving over 95% gas capture. They have pledged to reach Zero Routine Flaring by the end of 2025, and we are on track to support their growth toward that goal. Hess's sustainability report shows their commitment to improving emissions reduction activities in the basin, and we believe we are well-positioned to aid in that effort. From a planning perspective, the forecasts include the gas capture component and Zero Routine Flaring commitment as we project volumes for 2023 and 2024, with additional guidance for 2025 provided in January. We are confident in our position, as it supports our growth and aligns with Hess's climate and emissions reduction objectives.

Got it. And then one last one, and this may be one for Jonathan. How should we think about the move in interest rates? And, A, what that means for financing costs for you, including doing things like using the revolver. But B, kind of, thinking more two to three years, using incremental debt issuance as a mechanism or a tool in kind of the broader return of capital to shareholders' process?

Sure. That's a great question. Currently, our bank facilities, which we just renewed through 2027, are the only part of our debt that is exposed to floating interest rates. The remainder is fixed, leaving us with only 15% of our total debt linked to floating rates. In terms of our $1 billion revolver, we currently have only $43 million drawn against it. With the extension of our bank facilities, we won't have any debt maturities until 2026. This situation provides us with significant flexibility to execute our repurchase program from a leverage perspective as we move into next year and focus on reducing our debt. Additionally, we will be generating excess free cash flow beyond our growing distribution without needing to draw down the revolver for working capital. This will enable us to fund our internal capital program effectively. Overall, the weighted average cost of our fixed debt is above 5%, which is quite favorable. We are in a strong position without any pressures from short-term maturities. We have considerable flexibility with the revolver to optimize as needed, and our cash flow will support our leverage for repurchases. We feel confident that the interest rate environment will not hinder our ability to execute our return on capital program.

Got it. Thanks guys. And sorry to hog up the beginning of the call. Much appreciated.

Thanks, Mike.

Thank you. Your next question comes from the line of Stephen McGee with JPMorgan. Your line is now open.

Hi. Good afternoon. I guess just starting out with the volume increase there. Does this kind of flow through into 2023 for you guys? And then with that, do you see all systems above MVCs next year with this? And then is that for all four quarters, or is that more of an average?

Yes. Why don't I'll hit the volume question, and then I can hand the MVC question over to Jonathan. So, on the volumes, from Hess’ perspective and the volume growing to 200,000 barrels of oil equivalent per day by 2024, we've built that into our forecast. Again, we'll update guidance going into January as far as the 2025 MVCs. So that'll give you an indication of where volumes are heading. But from our perspective and looking at the implied 2023 and 2024 volumes from the MVC based on the implied nomination from Hess, we definitely see growth going into 2023 and 2024. And from an MVC perspective, we're definitely going to be in good shape, but I'll hand it over to Jonathan for a little bit more detail.

Yes. Just to clarify, MVC refers to three being in advance. The last MVC before the downturn occurred in 2022, which led to a reduction in the number of rigs. Moving into 2023 and 2024, we anticipate exceeding these MVCs, which were established based on a more recent plan and set at 80% of that plan. Our confidence in this growth stems from Hess working towards a net production goal of 200,000 BOE per day, along with our aim for zero routine flaring, both of which support the growth we expect. We will provide an update for 2025 that should show continued growth as well. Regarding volumes, we are currently at MVC levels for most of our systems this year, and as I mentioned, we will be above those levels. The MVCs set at 80% of expected throughput indicate that the growth from this year to next will transition from MVC levels to actual volume levels. In 2023 and 2024, we will maintain sustained growth beyond MVC, evolving from physical volumes in 2023 to further volume growth in 2024 and so on for 2025. This year should be viewed as a transition from MVC levels to the physical levels anticipated next year as we approach growth moving forward.

Got it. Thank you for that. And then if one has hit their 200 barrels of oil equivalent per day, how do you gauge third-party interest? How do you determine that on your system? And what is the interest level there from Hess M perspective?

Hess will be our main customer, and we will concentrate most of our efforts there. However, we will also aim to capture any third-party volumes we can to cover any shortfalls in our system. We aim to fill any available capacity with third-party resources. This is a positive challenge, as we are located on valuable acreage. There are other third parties around us as well, and we serve as a natural aggregator for those volumes. We expect around 10% contribution from oil and gas third parties, and we will continue to update our forecasts. We are actively seeking opportunities to capture more volumes as they arise, and we believe our system is well-positioned to attract additional volumes when we have capacity available.

Understood. And then one more, if I could. Just wanted to see what you're seeing in the basin right now as far as ethane recovery rejection and then how you kind of see that progressing, I guess, going forward?

Ethane recovery is somewhat divided at the moment. Some processors are recovering ethane and bringing it to market, while others are rejecting it and including it in the residue stream from the basin. The situation will largely depend on the market and the value of ethane, as well as the export capacities for ethane, residue, and NGLs. From Hess' viewpoint, we are fortunate to have full fractionation capabilities up to 250 million cubic feet per day at the Tioga gas plant, along with an additional 150 million a day of Y-grade capacity. We have a reliable means of transporting all three streams: residue, ethane, and NGLs, whether they are fully fractionated or Y-grade. We believe we have export solutions in place and will continue to work on optimizing the balance between ethane recovery and other NGLs, including what to reject into the residue stream. Ultimately, this comes down to economics and available export capacity.

Got it. Appreciate it. Thanks guys.

Yeah. Thanks you.

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