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. 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 feet 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 feet per day, crude terminaling volumes to average between 120,000 and 130,000 barrels of oil per day and water gathering volumes to average between 115,000 and 125,000 barrels of water per day. We expect to grow throughput by approximately 10% across our oil and gas systems in 2024 compared to 2023, in line with guidance. Our growth continues to be driven by Hess' development activity and a continued focus on gas capture, partially offset in the fourth quarter by the October wildfires. Now turning to Hess Midstream's 2024 capital program. We continue to make excellent progress on our 2024 capital plans and are focused on supporting Hess and third-party development in the Bakken. As guided, capital expenditures increased in the third quarter as construction activities continued on our multiyear projects to build two new compressor stations and associated gathering pipelines. Engineering and planning continued for our 125 million cubic feet per day greenfield gas processing plant. Construction of the gas plant is planned to start in 2025 and is expected to be online in 2027. We expect capital expenditures for the full year of 2024 to be approximately $270 million, reflecting faster Hess drilling and the continued execution of our multiyear projects in support of Hess' expected production growth. In summary, we remain focused on executing our operational priorities and safely delivering our growth strategy which will continue to drive sustainable cash flow generation and the potential to return additional capital to shareholders. I'll now turn the call over to Jonathan to review our financial results and guidance.

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 execution our return on capital framework, including potential ongoing unit repurchases. Turning to our results. For the third quarter, net income was $165 million compared to $160 million for the second quarter. Adjusted EBITDA for the third quarter was $287 million compared to $276 million for the second quarter. The increase in adjusted EBITDA relative to the second quarter was primarily attributable to the following, excluding pass-through revenues and the one-time $8 million reduction that was included in second quarter results, total revenues increased by approximately $3 million, primarily driven by higher throughput volumes resulting in segment revenue changes as follows: Gathering revenues increased by approximately $3 million, processing revenues increased by approximately $1 million and terminaling revenues decreased by approximately $1 million. Total costs and expenses, excluding depreciation and amortization, pass-through costs and net of our proportional share of LM4 earnings were flat relative to the prior quarter, resulting in adjusted EBITDA for the third quarter of $287 million. Our gross adjusted EBITDA margin for the third quarter was maintained at approximately 80%, above our 75% target, highlighting our continued strong operating leverage. Third quarter capital expenditures were approximately $97 million. And net interest, excluding amortization of deferred finance costs, was approximately $49 million, resulting in adjusted free cash flow of approximately $141 million. We had a drawn balance of $30 million on our revolving credit facility at quarter end. Turning to guidance. For the fourth quarter, we expect net income to be approximately $170 million to $185 million and adjusted EBITDA to be approximately $295 million to $310 million. This represents an approximate 5% increase in adjusted EBITDA at the midpoint compared with the third quarter of 2024, supported by growing throughput volumes, partially offset by volume impacts from power losses due to the October 2024 wildfires as well as higher operating and G&A expenses from expectations of a continued active maintenance program and higher anticipated allocations under Omnibus and succumbent agreements. Looking ahead through 2026, we continue to expect approximately 10% annualized growth in oil and gas volumes, supporting a greater than 10% growth per year in adjusted EBITDA from 2024. With stable CapEx through 2026, we expect adjusted free cash flow to grow greater than 10% per year in excess of our 5% targeted distribution per Class A share growth. That, together with capacity, as our leverage falls below 2.5 times EBITDA supports greater than $1.25 billion of financial flexibility that can be utilized to shareholder returns, including potential continued unit repurchases. And as a reminder, in January, we'll be seeing our 2027 MVCs and providing guidance through 2027. In summary, we are very pleased to have delivered additional incremental return of capital to Hess Midstream shareholders 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 to our shareholders. This concludes my remarks. We'll be happy to answer any questions. I will now turn the call over to the operator.

Our first question comes from 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 owns 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?

Thank you for the question. In terms of secondaries, there's continuous demand from investors. GIP will assess this demand while considering their disciplined perspective on the value of Hess Midstream. There's no predetermined pace or strategy change regarding this. I also want to point out that the 90-day lockup period from the recent transaction will last until the end of 2024. Regarding our return on capital program, it's not a tool for our sponsors to adjust ownership levels. It's an integral part of our return of capital program, and the repurchases are a crucial aspect of it, reflecting our financial flexibility with over $1.25 billion available, which we plan to continue utilizing. Historically, we haven't involved the public in our repurchases as we have focused on enhancing liquidity in HESM, which has been effective. Several assets have taken the opportunity to establish positions in the stock through secondaries, which typically benefits the public by slightly increasing their ownership. Looking ahead, we will keep evaluating opportunities to include the public, but the repurchases remain part of our return of capital program, while secondaries primarily serve as a means for sponsors to change ownership, again driven by demand. We will continue to execute our return on capital program, using the $1.25 billion of capacity 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 is 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, the 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, let me start by highlighting our growth. This year, from Q1 to Q4, we've seen a 10% increase in EBITDA. Comparing the full year of 2023 to 2024, EBITDA is up about 12%. Even with the challenges from the wildfires, as John mentioned, we still achieved 5% growth in EBITDA for Q4 compared to Q3. The wildfires have impacted our volume growth but we are still seeing growth moving forward. We will continue our active maintenance program and have improved our efforts to perform more maintenance in Q4, which helps mitigate the effects of severe winter weather in Q1. While there can be variability in allocations due to year-end accruals and bonuses, it's crucial to focus on our 5% growth in Q4. Regarding the range of our guidance, weather contingencies can impact us in Q4, especially in North Dakota. We will monitor our maintenance progress through the year-end and confirm final allocations based on our bonus accruals. Lastly, we will see normal volume variability from third-party volumes and the performance of Hess' wells. These factors will influence where we end up within our guidance range. However, I want to reiterate the 5% increase in Q4 and affirm that there’s no change to our long-term guidance. We anticipate continued volume growth of about 10% annually through 2026, with EBITDA also growing at 10% per year during that time. There is significant growth in both volume and EBITDA ahead of us this quarter and beyond.

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

I would like to follow up on the growth forecast for 2025 and 2026. I've noted that Hess mentioned increased drilling activity and capital expenditures upstream. I'm interested in understanding how this impacts Hess Midstream in 2025, especially considering you may be accelerating some growth into that year compared to your original expectations when you outlined the 10% annual 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. I believe our previous guidance remains unchanged. Our long-term outlook for well connections and infrastructure development is still consistent. There's a timing aspect involving these multiyear projects shifting between 2024 and 2025, and we need to ensure that the infrastructure is ready for the drilling program as Hess continues its well drilling. So, I would say there are no additional costs associated with this; it's mainly a matter of timing between the two years. Jonathan, do you have anything else you'd like to add?

No, I think we should consider these as multiyear projects. We've mentioned the capital plan, which John might have addressed in his prepared remarks, potentially starting next year, and that would be a multiyear endeavor. So, we should really view 2024, 2025, and 2026 as interconnected, and we'll provide guidance for 2027 regarding the pace in January. I see those years as multiyear projects, meaning there can be fluctuations between the years, as John noted, across those three years. Once we have the capital plan, it leads us to 2027, but overall, as John mentioned, the total capital will remain largely consistent during that time, just with some variations, perhaps a little more one year and a little less the next. This may not follow a straightforward yearly pattern and could span two years before adjusting again. However, within those three years, at least through 2026, you can expect some shifts as project execution evolves.

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.

We will provide our MVCs in January, so there isn’t much to share at this moment. Regarding the 2026 MVC, it suggests we are looking at around 500 million cubic feet per day in gross setup. Moving into 2027, we anticipate continued growth, with the gas plant expected to support about 125 million cubic feet per day, which we believe will help sustain growth for the remainder of the decade. This growth might not occur all in one year, but it will allow us to consistently progress throughout the decade, which is quite impressive. More details will be available in January.

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 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.

From an opportunity perspective, our strategy remains unchanged. We are consistently seeking out strategic bolt-ons that enhance our position in the basin. We are always on the lookout for such opportunities and remain focused on that. These opportunities continue to arise, and we assess them to determine how they can add incremental value to our system. We will persist in this approach. Regarding our efforts to capture volumes, Hess is our anchor and primary customer, and we are dedicated to supporting them. At the same time, we also aim to assist other third-party producers in the basin. From our viewpoint, there is nothing preventing us from exploring other options, aside from the strategic considerations of the opportunity and how it fits within our portfolio to support both Hess and our third-party customers.

That was really great. We have $1.25 billion in financial flexibility, which comes from our conservative three times leverage target and excess free cash flow after distributions. As John mentioned, we continue to explore bolt-on opportunities, but we have made it clear in the past that while we are open to evaluating these opportunities, they must meet a high standard in terms of growth. This is essential in the absence of opportunities that align with our priorities for returning capital.

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