HESM - Earnings call transcript Q2 2020

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Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2020 Hess Midstream Conference Call. My name is Andrew, and I will be your operator for today. [Operator Instructions]. I would now like to turn the conference over to Jennifer Gordon, Vice President of Investor Relations. Please proceed.

Jennifer Gordon

Andrew. you, Thank and quarter everyone, for in participating Good conference thank call. second earnings our afternoon, you

please these Jonathan Chief President and financial can of so the their are as John found each implied will turn call Risk prepared posting in most set to Our was projections section such of in cause non-GAAP These that GAAP website, are me distancing with social comparable Chief federal may of known www.hessmidstream.com. statements results earnings and us. earnings expressed reconciliation on and the a are In measures actual differ securities Operating filings John those be Today's appears release the those result within and protocols conducting directly Stein, discuss are conference today issued financial laws. this unknown issues, These the release. A call risks subject Also Gatling. conference call Midstream's Financial forth over and be Hess transcripts remotely, or With in SEC. of Officer. risks case on Factor from may measures the compliance presentation. we of www.hessmidstream.com contains on I'll COVID-XX, following include certain remarks speaker's audio In the now call, with we Gatling, non-GAAP meaning and measures. differences statements to forward-looking and statements. other between there with the morning to financial today's our the and uncertainties Officer; the we bear

John Gatling

earnings XXXX. our as second Second and results with for plans and and our the operational Conference I'd results. and and Hess outlook welcome Despite exceeded Thanks, review Today, today, we're latest like Bakken. continue guidance, begin strategy, details quarter execute XXXX Corporation's discuss the Jennifer. review Quarter then will our highlights environment, to our for regarding to and a announcing additional raised Call. we quarter lowered guidance. operating Jonathan provide Good our volatile to second results expenses financial that our Hess XXXX financial I'll everyone, XXXX our Midstream's performance we afternoon,

XXXX adjusted per EBITDA growth and Additionally, a our full compared annual of growth we're year guidance, to reaffirming X%. XX% including targeted of distribution share XXXX

Bakken Our exceeding performance Midstream above guidance. Corporation, strong led drove Hess EBITDA adjusted second second which results quarter our and by reflect contributed to quarter expectations throughputs Hess

XX% barrels per the driven quarter, our third-party to volumes quarter, terminaling oil quarter the Water to XXX,XXX gas compared XX,XXX volumes incremental capture in line decrease expectations a quarter into continue lower For of to with guidance. by decreases expanding Both averaged to and water of decrease day, was cubic XXXX, day were first the gathering as primarily XXXX, compared and XX% gathering trucked processing a second per throughputs, our which water in system. of increase compared first we XX% day, a foot barrels second XXX quarter. crude per of averaged million first were volumes

oil range. the the approximately gas our in consistent the Third our expectations second parties contributed X% midpoint XX% guidance of our of and of with quarter, at and volumes

production and mild results to design conditions. second turning highlights. Hess Hess completion success plug-and-perf strong today, of upstream Now reported on Earlier quarter the capitalizing weather the

of barrels above XXX,XXX the Second of ago increase quarter equivalent XXX,XXX barrels from per of equivalent oil guidance per day, XX% an of day. quarter oil year Bakken net production averaged and approximately

River and markets large deliveries States, in south Hess half which curtailments the production to by load including of United and optionality, significant throughout avoid Hess very key pipeline to first able of was Midstream's Missouri chartered leveraging provides XXXX system capacity and to rail Hess Additionally, terminal crude export the carriers. north

forecasts now of production per Hess equivalent day. full XXX,XXX Bakken barrels equivalent previous per XXX,XXX from average the guidance oil of year approximately day, of to XXXX, oil up barrels For

guidance. Midstream Hess to Turning

safety quarter until announced Plant, turnaround to priority. the well positions work execution of the of undertaken the the this As as earlier originally where ensure timely turnaround COVID-XX in planned safe we in workforce XXXX, is complete and will And Gas light operate to deferred be the for date of month, the such, activities scheduled Tioga our and The maintenance XXXX. communities pandemic. for third us our top the XXXX preparation to

be progress well completed the continue be as Incremental project by of with now expansion end the the to announced gas natural processing and of Tioga tied plant XXXX. gas be Gas previously construction completion which expected will and pipelines the to liquids time during We turnaround the advanced is expected Plant facility in. of expanded to and takeaway residue upon capacity available XXXX in the

gas to XX% downtime As compared a year of we deferral, We to expect removes of forecast, turnaround our from day the previous the result increase which processing for average million previously to guidance. cubic midpoint XXX foot volumes full our the an per at full XXX now year planned gas throughput updated XXXX, million have guidance.

operational Our was is release available complete our on distributed earnings this morning. that financial guidance and

For guidance assumption continue or the conservative our full will reflect effectively levels. updated low Midstream continues Hess receive our MVC XXXX. X the remainder of volumes volume that end to balance year a systems of XXXX, to to for we the below to operate of third-party expect majority of The close

annual this targeted scenario share structure not do the most continue anticipate X.Xx. deliver being of a Hess likely XXXX distribution allows growth contract our with coverage of approximately Corporation, with this the per to downside we strength which us in outcome, our demonstrates X% While to

to volumes second reduction lower Consistent guidance, volumes terminaling and quarter, third be the and approximately water operating compared and close quarter. crude gathering levels, throughput systems the of the to to the or third Hess second relative quarter further all minimizing than approximately the Again, we lower financial gas second quarter with to as to processing we For be oil to due both volumes declined volumes with count below throughputs as the downside. persist. MVC operated quarter, curtailments in XX% rig expected X% expect producer our expect midpoint third-party lower lower with

to Midstream's $XXX guidance work the full gas million we're previous guidance, Turning program. expected approximately to to well the to compression pad the $XX Tioga capital positioned of from in the Plant on year summary, reduced turnaround well In deferral. beyond. million $XXX updated project. been to $XX comprising a million capital capital capital XXXX primarily million deferral gathering million, meet and of as of a be expansion challenges Maintenance tie-in reflect Hess to of We've million approximately expansion XXXX and $XX reduction and final in is turnaround Gas has Full year million $XXX in processing, gas $XX the interconnects. and TGP our result

approximately of underpins We a which half our $XXX for continue to level to contract provides range guidance certainty and million deliver adjusted and has MVCs result our narrowed EBITDA of which revenues $XXX a structure, year. second for increased. as of updated the projected XXXX of XX% visibility This been the of million,

resilience full long financial term. deliver XX% grow expect MVC to XX% protection, Hess to market in Additionally, and to Midstream's adjusted XXXX weather to strong continue relative we by XXXX, and XXXX, approximately current conditions year for operational EBITDA the performance to with looking demonstrating forward and

The safely reliably and review to, of commitment and to now operate during financial continued pandemic. results. to we our want operating where top the our emphasize to again, we safety the call unprecedented remain priority. Finally, this over our our I'll workforce communities turn Jonathan

Jonathan Stein

afternoon, everyone. good Thanks, John, and

strong the strength results with of pleased of are we made environment, business the our further progress described, uncertain emphasizing the John financial against how both model. in our backdrop half first As to we and differentiate continuing an structure deliver macro have contract and XXXX,

us quarter year beat combination in guidance. financial to to TGP this our And turnaround, deferral the second costs have again Our results raise the full our lower-than-anticipated of with XXXX year guidance. due quarterly allowed

We to full be EBITDA representing compared XXXX, of total XXXX growth is resulting million, in $XXX distributable are flow the to consistent $XXX to still approximately guidance year net We year income be million to interest maintain the and EBITDA million cash range to XX% of in with historical coverage million. $XXX approximately $XXX our are approximately expected cash Maintenance the to be XXXX, in increasing full and in the Adjusted $XXX to expect expected year range million, to full expected for capital of to XX% our is million projected in approximately $XXX results. million margin range distribution margin. $XXX of XXXX X.Xx.

year leverage target. expect with adjusted Xx end below EBITDA the to leverage conservative our or We at

volumes third-party of EBITDA XXXX while the end adjusted second half our stability our still XXXX approximately guidance the MVCs protected XX% in X.Xx. lower distribution revenues of approximately coverage highlighting the our of of balance year, assumes providing of conservatively by X the includes Our XXXX, guidance for

stability approximately expect Midstream visibility defined continue trajectory while XX% interest financial cash the approximately protected after approximately contract. contract by structure distribution, to mechanisms and any funding X.Xx adjusted our the XXXX strong Our and cash In to $XXX also for and turnaround, EBITDA our sufficient by growth free Even to growing of supported for as less to provide of approximately full year strength distribution our be free flow, we compared without or expect in cash of incremental Hess coverage million us and TGP deferral includes XX% forward stability CapEx. with both XXXX, EBITDA equity. through of protection MVCs, enable That we flow maintaining revenues flow-positive adjusted need and debt downside in XXXX. expense XXXX, the to XXXX

results. quarter. will our to I to the from the compare Turning quarter results first second

with guidance adjusted of costs approximately $XXX approximately exceeding and decreasing million top TGP general lower approximately approximately million, $XXX quarter certain and following: by $XXX associated $X $XX second a administrative $XXX expenses resulting million; higher $X including operating including volumes activities million to and million, excluding EBITDA our in third-party $X to approximately by third lower EBITDA of primarily to of of the for first in due operating the the production, compared of higher-than-expected approximately $X was end terminaling the decrease million; turnaround and Adjusted deferral of quarter to adjusted adjusted driven for operating second million, higher costs higher, amortization to the were $X pass-through revenues second million, $X million first in gathering income first revenues was revenues the attributable the Hess decrease quarter, million quarter quarter. revenues net for a including The processing million $XX in change of a the was lower quarter. and EBITDA by to of decrease total to in the the relative $XXX and compared million maintenance million approximately seasonally EBITDA total decreased quarter. of and approximately range For by million, maintenance due expenses, costs by offset costs, G&A depreciation $X and

distribution end, million, that was annualized announced our we amortization on Second On quarter quarter, trailing approximately $X XX, by approximately on the quarter capital EBITDA net the in cash Expansion million. of basis. costs, approximately excluding The covering expenditures maintenance second million. flow million quarter X.Xx. And approximately second that $XX basis. expenditures approximately XX-month $X.X an leverage distribution increased million. finance quarter was deferred of result was were was capital were representing $XX that distributable for Xx X% adjusted a our interest, second $XXX July At

income million balance million third $XX million. to for In adjusted net to $XXX to expect be year. $XXX Turning the quarter of approximately to guidance be approximately $XXX the XXXX, to of million the and EBITDA we

flow Third costs, million, approximately $XXX interest, $XX in million of approximately approximately excluding distribution to of to million, net expected resulting amortization expected are projected deferred finance quarter X.Xx revenues by delivering MVCs. with be capital expenditures cash maintenance and coverage XX% approximately protected of distributable $XXX of

of based deferral by maintenance costs $X approximately Our expected which reduces capital TGP turnaround, $XX the quarter cost updated includes million million. and approximately operating third guidance by on the

workforce and We expect quarter, the to completed immobilization to including spend the third and turnaround before approximately $X the preservation related work of of in costs materials. the maintenance deferral, capital million across the operating

XX% in to the addition, that, seasonally costs, or and EBITDA call and cash MVC million to redetermination seasonal share be and operating capital, lower increase In and adjusts with EBITDA This with with XX% XXXX. periods over be together expected our expected to model relative activity quarter, With continue to approximately in flow we the happy rate distribution volume protected Even years less, visibility and targeted quarter approximately by $XXX my we million adjusted the is to clear. approximately have X.Xx XXXX metrics, In as in revenues approximately $XX the X% includes levels leverage financial great quarter. maintenance for protected throughput including Xx Conservative answer by of MVC MVCs the uncertainty, that changes decreased our XXXX. that now next to rates decreases that $X annually volumes, be differentiated of strength to are revenues and our coverage concludes MVCs. X.X I business expect adjusted at to to revenues of lower third million annual our adjusted growth XX% of per levels, expected the any distribution expected fourth questions. our EBITDA guidance We'll second operator. turn remarks. XXXX in to higher the will by mechanism free

Operator

JPMorgan. the comes question first line [Operator of Instructions]. Jeremy Tonet with our And from

Vinay Chitteti

on for Jeremy. Vinay This is

EBITDA lot after a quickly guidance very EBITDA you have talk third-party market to be well. the $XXX guidance seems the seeing assumption assumed when 'XX. Could what in recovery books, seems pieces about you of third-party why XH assumed guidance talk also have XXXX the but were XQ? a a risk are volume upside we since Just the just lot there X moving there of of even you XX% touch like assumption EBITDA about guys of in I XQ here. for understand lot With have as X the almost in to production seen Can curtailments gas for be balance your year, already approximately approximately volume and to wanted you upon million conservative. for

John Gatling

the Yes. addressing Maybe to parties, over and third I'll the hand it to address start with then aspects financial just off it. I'll Jonathan of

and first second continued into So even perspective. from about in XX% averaged yes, third quarter. a we quarter, our second very strong the had We a it party's quarter

But upper are low midpoint doing. parties look to of what in a and our on at about And there, our X. Looking depends guidance the seeing the approximately that's third When to to system that. as it it right now, will end they're perspective, what volume conservative our relates and at our be handle to it guidance just this. kind up the capacity on, mean, the has producers our reminder, guidance X% take really producers, system. they And of already available we're, we'll has us, with guidance third-party a XX%. our capacity that From to it. you're about the very hooked I trying bring And of have the again, has the end --

wanted they just open in. So we really, the as of kind leave producers for volumes additional that to bring

that, that. side with address to Jonathan the to over it I'll of hand financial So

Jonathan Stein

Sure. Thanks, John.

that about in me change just in the let through I let go me changes how our start of and guidance, So -- the can talk drivers would then work.

of terms second that quarter. top we our in look strong of you that the increased So were -- change, guidance at by if million. end drivers The $XX a of

upper by some with the the above did of We TGP defer opportunity million turnaround. typically the our to in reduced we $X $XX do the end QX. would back We add million. of that QX turnaround that OpEx gave projects do projects deferral was That us seasonally into that now So our the guidance.

decrease from added $XX $X decline, QX. of QX we back. together as about with million the I talked So million talked that about revenue I part the to QX, -- to That's

projects So that. included additional are within

level of that, now the I To the I that the or mean, then the first would extent see to that we MVCs before any would MVCs. In is XX% first, terms protection first, those we'll volumes as see to of below above we order volumes come in to upside provides year. And that get course, I come upside. we what above upside at think, MVC would have highlight are rest of back,

this have costs that critically, but year think, deferral with important I EBITDA. rest the increase year, does into think have the going of in protection, year, even lead MVC with to -- of it's then I this we through we XX% XX% the that the the that next

the that's supports even year, cost $XXX which our flow next in million with of XXXX, into and deferral Going cash free XXXX.

have number growth our a of -- pieces then sets get XXXX. that some there, above of occur. will MVC potentially levels stage So And upside, to we MVC to into the upside the for for really course, but have to moving continued

Vinay Chitteti

Thanks the Got wanted it, on mean, guys. for color. I I just the as to there XXXX upon guidance touch well.

So to looks here. a upside. couple things the of guidance XXXX EBITDA base of One, the

guide increment of assume in $XXX $XX previous XQ your like XXXX, you much looks to million XXXX. if guidance end And from OpEx in that's there to million additional top -- the up million, an from then another $XXX is shifted how coming So of $XX you million.

So of from and talk about then what's there. also upside the increased there base upside is side? XX% Could you an an about like actually guidance. still a driving reaffirmed the And EBITDA you lot of OpEx here your increased guidance

Jonathan Stein

Yes, sure.

OpEx as So $XX the and the QX for We terms to across of just CapEx I deferred of QX numbers, $XX mean, both to through our we had this and look turnaround. from turnaround. million maintenance million spend we of XXXX, on the in gather spent We'll year. XXXX expect those,

TGP some occur was work that of some capital that John time. preserved, will of expansion ramp-up $X the also at at release the million the of that talked time Some deferred tie-in the occur it that about expansion. to some related costs. will It's will tie-in be of of about same will but turnaround

and that as be million have in Certainly, our for of we cash 'XX. CapEx of and But is But guidance. for we XXXX, closer. that's that highlighted, right some forward. we to expect into flow. million about there give then $XX elements -- just said it, we're XXXX you example, look call the we clearly, to and But drilling going give EBITDA at the work look, a EBITDA will what get interconnect still things $XX million underlying now. get as growth increase are our at decreases free let's more And talked going saying, XX% in detail and XXXX. decrease like, closer have we can the to if that we'll you as Certainly, less we we $XX that's, we as So upside costs of

you So something go that could down. that see being will

outs we certainly at of of we to occurs closer. That will have end the of So well, that and cost, increased lot details incremental are into rate reset, and a the -- a there's ins the costs But this any which total going We're basis. year. account as really at plan a this point. give above get as number more on the take

you still going MVCs then an incremental supports that up, cash free with that all next when any together the basis flow without we distributions supports fact put of supports million our sufficient $XXX so And the growth, together, that year that to revenue debt. that really EBITDA XX% just fund are the So on alone. that MVC our have,

EBITDA for metric therefore, flow next So year. to change, growth no cash or free our

Vinay Chitteti

to want touch quickly the just upon I Great. FCF debt.

So substantial and flow will have after even FCF you And distributions. million have you in your cash a XXXX looking $XXX at guys 'XX. like of about generating --

strategy the allocation do M&A the at assets there? in be Just your increased if want to capital you or you capital would side. allocation would think about How looking any be if small at you looking buybacks understand or strategy

John Gatling

the -- then with the off Maybe and M&A me Jonathan. I'll let to side, it Yes. over hand on start

our through focused of mean, for that. both priority be we've to through It we're kind strengthen bolt-on and Bakken footprint our our acquisitions. very priority. continues working third to is be So I In looking on to want and we what parties. particular, acquisitions opportunities think to our Hess said is support I

would would point basin us we've Mexico as to Hess So say through of Mexico there's for before, that an also grow. talked potentially I Gulf opportunity of us about continue has be new we the entry for assets to Gulf definitely enter relationship. And then a that have to assets,

being perspective. got M&A our very capital the see we do again, growth us, from with ahead acquisitions. an those to from even We've of opportunity we deploy But that. So have perspective, selective without luxury some of

it how a are So asset to base. focused needs for be But for of and sense make continue we do opportunities there strengthen us and lot our again, things. really to smart to

at in on something we contractual an there. we example, addition, look to continue place basins of we've In build look to as would as got Bakken other assets structure similar Gulf look do that like and the for the to very Mexico,

So we we've our again, got and around -- fortunate of targets. we're acquisition I kind really specific don't we've the our And got have very acquisitions built-in. a chase defined focused to that think strategy that growth

the you So want a bit with financial about that, do to little Jonathan, talk side?

Jonathan Stein

Thanks. Yes.

absent and well, being conservative very is using course, after our flexibility opportunities, think, just a John exit what capital then the only opportunity whatever add return in said, and the the of focus continuing that have of we'll that including have, course, disciplined would of said, stay just we -- with be whatever I to buybacks. the is to making John basis, be sure our thing then table, disciplined shareholders and flow leverage I is on is, as we cash on at echoing, dividends free we target the financial Xx

that sponsors, float, for our our accretive all given us, for be buybacks would but be opportunities of shareholders. the from would Now very

remain certainly, at look disciplined again, come. certainly, those opportunities as we'll So they but,

Operator

line Your next Dounis Crédit from Spiro of comes question with the Suisse.

Spiro Dounis

mentioned spending Gulf like fairly you of Mexico. hitting, It sounds sounded I there something Just to M&A. a doing to like there. prior guys And you're getting follow-up around a of that close you John, know time on something lot COVID on. question last it were

been think bit. I then, since a that's stabled

is feel strategic that what to now election work? pencils degree point? a the this any more really little visibility there maybe like can into you at pick you Just the curious, do do and factoring up you decisions have enough And

John Gatling

of the of impact, high-quality Gulf with of economic aspects some that thanks mean, in really pencil little obviously No, think environment bit COVID Yes. I the hitting down. good. to obviously, in for And changed of that question. assets us. the Mexico. We both a we put I are continue But see direction never there for would -- the

has Hess building opportunity done assets for any focus that. are a think in definitely great that I a job midstream

term. obviously owner those assets I think we're natural a from of our perspective, longer

So think we've to and I that that. continued at evaluate look

still assets that high-quality excited on know we some we're The done and think well about Mexico. -- and but got the done midstream well-established that leverage operational of is the political decisions, Gulf. focused we're is the we're They're I well-established look something We we've the We operated. North to in do on. again, at I which just same wouldn't good Gulf, can have making very basically we in and there. we're think -- there we've same administration excellence, -- in replicate Gulf that job a the getting that into like something regardless the Dakota, continue has Hess dynamic in that anticipate feel of managing definitely like understand, we assets. those So Hess to being any -- is model

So from we're to to continuing at. our good option as it perspective, for and a look be something definitely that continuing us we see

Spiro Dounis

Great. That's helpful.

follow-up being around your us just question, guidance, conservative previous moving of here could but sort guys the give know you obviously specifics just on some Second one. also a customers. maybe in -- with aside, just some discussion that of the are a you I

enough is some is crews crude course, environment basin. back, substantial the to least, the current completion production. at shut-ins that price guess, just the next your of very return DUC coming to, to on when peers to, alluding pretty I question rigs the One of Bakken But the return fact actually in the inventory, was the earlier,

view? producers just how like So been and discussions what influencing your have your with curious that's

John Gatling

very with very other all producers relationships Sure. our the Hess, maintain in mean, basin. customers. of but Yes. we're No, obviously, Hess, I we the also continue with good to integrated

X, at -- X, look around mean, seen plus kind you above just but look sure that too, you X, as X, minus of you rig have and double count, the I'm it's there. it's it, look digits it, weekly at as at bouncing minus We plus in guys I

to we do side. see activity monitor basin. and really that are And production seeing kind But completion curtailed on the based. on, regional coming -- additional is so we're we continuing and previously of that, The the back it it's some across

the the that where gathering they're on affects so are systems are up. bringing set producers And production how

it's So from -- our the perspective, moment. really unpredictable at we just

we just producers We prices, we around activity. are the to like the felt But seeing some are additional seeing and are some what ultimately going improvement uncertainty in do.

Just -- and like because setting I the we're we opportunity there's previously, we already the sense. capacity, felt mentioned of range I that us targets customers. made connected place. lot got pipe there just we've to and as think do a just Again, did guidance got in those We've

I again, we're lot do So it important or decisions MVC levels. Jonathan that's that an it's relates as our is, our near is, positioned regional are reiterate back point how system online, mentioned to and where of kind to as gathering up, a production below all of to, just bring in and to of into on nature and they again, we make think the MVCs, we're it our that depends really either at well of so capture bring systems, it our what because And system. set

So that And that. Jonathan... the will of established something of into guidance year as the XXXX. at range we And be balance things we that plays things the that also and into going all those looking our considered are

Spiro Dounis

it. Got

During your -- Sorry.

John Gatling

you to was don't if, Yes. anything. I going No, say. want no, if know I add to Jonathan, just

Jonathan Stein

go Spiro, ahead. no. No,

Spiro Dounis

obligatory one shutdown DAPL is last question. And Yes. the

you Any would that appreciated. an that guys thoughts curious thinking Just potential? about be on it opportunity how Is for you? are or threat a

Jonathan Stein

call continuing monitoring it earlier. We're mean, their addressed the and Yes. Hess DAPL the the I or in to think monitoring, stay. look, with DAPL. decisions the Hess ship of uncertainty, Hess on I court is Obviously, is

for been north not Missouri we've and planning both the pipe south our been that's into planning for been really this of River, significant customers, Missouri optionality that So for event, active set all specific River, in obviously of but we've support But terminal it. provide that of -- rail playing we've the both flexibility up strong capacity time really and position throughout think and can We And entire export kept the terminals. third started to reliable Hess I we to it's parties. a now. our continue to us it operation from rail we terminals,

differentiate having assets anywhere ability So tremendous that with we I definitely flexibility to have much high-quality and the United export in crude think pretty that States. ourselves

perspective, DAPL be incremental our would that while was some to line for potential shut So from if in, cost create the Hess.

flexibility go anywhere in want call infrastructure. to mentioned through tremendous minimize and, to today, structure have they cost we John pretty the advantaged Hess our additional ultimately, much that market earlier As can get to

Operator

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

Hess Midstream (HESM) 29 Jul 202020 Q2 Earnings call transcript