HESM - Earnings call transcript Q1 2022

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Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2022 Hess Midstream Conference Call. My name is Livya 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. [Operator Instructions].

conference recorded this replay reminder, a is for being purposes. As the now Investor to like would conference Relations. to of I President turn over Vice Jennifer Gordon, Please proceed.

Jennifer Gordon

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

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

John Gatling

XXXX capital results program, our sponsors. our Hess our April, outlook shareholders. immediate the EBITDA from review of completed delivered Xx first capital conference call. our additional conservative a our will unit million Corporation's Jonathan structure our performance, XXXX highlights quarter provided Today, I and while execute strategy transactions, adjusted We early Good Jennifer. for review capital full-year our Midstream's for continue announcements $XXX on significant to The shareholders, I and welcome everyone, return Bakken. leverage also results afternoon, accretion recently will the repurchase and we to Hess Thanks, Hess discuss our progress financial to as Midstream. to repurchase In to review a and to basis. and target Jonathan and then operating guidance. we will optimizing positive a from several financial recent

X% week level per X.Xx distribution this relative a target, we ongoing to previous earlier our return flow on XXXX. announced coverage financial using at flexibility a basis least addition, to maintaining increase an the in of ratio In while share free cash conservative distribution shareholders to in our

we financial capital to and With again return the our of to our strength shareholders. demonstrate commitment announcements, and ongoing consistent

Hess XXX water of terminaling, weather. day winter to quarter the Now, per feet XXX,XXX volumes per water barrels processing, severe oil reflecting for for day operations. impacts Midstream turning throughput cubic from of gathering, averaged and XX,XXX per crude first for In million day standard gas barrels

As or physical results. at expected financial there levels, quarter MVC first impact was below volumes to were material our no be to

into April, Now of averaging Hess day, low-end equivalent balance and quarter to come conditions, Bakken weather. recover to and average which today, turning to range XXXX expect XXX,XXX resume near guidance are they severe of Hess barrels of XXX,XXX in oil is between forecasts Hess of will better the XXX,XXX between quarter. and production full-year reaching anticipates day largely half Hess expects per oil per Reflecting quarter quarter. average expected, of XXX,XXX build of transitory, EURs an in Bakken and of equivalent production winter Poor well XXX,XXX impacts, with XXX,XXX rig their year, operations second to continued equivalent growth with than day reported A the remain net fourth barrels drive per of adding of this in reflecting day. barrels over second equivalent and to is Bakken and Upstream results through the four-rig Earlier barrels the second barrels oil impacts net oil in the of a year. in per Hess weather highlights. normal Hess Hess in weather the strong strong, day per consideration or material Hess' infrastructure. to of currently approximately up results the oil and and production the operating Hess' later production and fourth equivalent IPXXXs giving three-rig XXX,XXX ramp program to XXX,XXX line a program first would accelerate Midstream

throughput despite guidance, last and that available XXXX, basin two included was in Midstream website. weather earnings our impacted morning's on which is operations guidance announced this Hess to weeks. the release full-year severe Turning for the reaffirming previously our We're over

expect gas, to our be new first quarter half quarter. organic XXXX, lower approximately systems and Hess volume second on compared volumes wells we online, second the to anticipate X% first oil, plans growth the In half. significant We to wells to of XX in water XX bring as compared

feet to cubic standard day. average and XXX volumes processing gas XXX expect we XXXX, between full-year per For million

Additionally, average XX,XXX average we volumes to between XXX,XXX barrels of between water and of water per terminaling barrels oil crude XX,XXX gathering and XXX,XXX expect volumes and to day per day.

our billion. to volumes to EBITDA providing adjusted in $XXX of at in guidance or remain MVC below approximately levels XX% the giving which our high revenue $X continues of to confidence to XXXX degree range physical expect a financial forecast, project million to protection We

MVCs beyond XXXX to rise Looking continue in physical into expect above we volumes to XXXX. XXXX, and grow

to the up second brought to compressor quarter, Hess XXX expanded activities day capital cubic capacity on gas primarily first which Construction an per day Hess' our the aggregate, additional project The expected We're excellent station, XX in this are is to to stations expect the development future. capital quarter. completed expanding well per million online in in stations million XXXX can on executing budget. of online new capacity progressing the below plans, schedule planned bring of and and we new year. and basin. foot progress In foot the cubic Turning was two the Midstream's capture with supporting third the ahead making provide our on first XXXX in focused be installed we of program. In

the a with Hess' capability Full-year of The pace Hess' quarter we are and investments aligned and emissions of the and reduce publication our footprint. all we an to MVCs. overall We initiate our efforts communities million reduce XXXX creates supports by Hess' in potential of the to maintenance of delivering of to infrastructure our detailing turn Sustainable expenditures expansion to is further capture and finally, flaring, our value process opportunities, comprised Hess financial emissions. third our included help we're which Jonathan station Hess with shareholders, needs future the Hess' strategy, and is shareholders. I'll world's meet inaugural are XX planning financial and meet phased results, XXXX development take the are construction is an supports development aim Leveraging accretive operating our results in to milestone Hess benefit of gas Midstream to and our on considered foundation Social XXXX, and of integrated activity over safe positioned and important to to which enables growing expect million action announced, activity. emissions capital and to installed execute in and enhancing Environmental, Midstream's our to infrastructure in total and Corporation's supporting to volume and In day reliable partners, low-risk million, unique development. proud greenhouse our to already business return XXXX where market infrastructure projections And of and review additional $XXX which reduction activity. per previously Sustainability advantage stakeholders, capacity support As responsible foot our Hess infrastructure gas us for remain million approach providing capital emissions, achieved to implied execution XXXX, the provide to accommodate natural incremental plan focused well energy expected take and acceleration call reducing move cubic of gas equally with of GHG in guidance. the operate. performance we a expected demands, and we continue $XX of Report, significant basin summary, strong business total unchanged our $XXX performance. to the Governance growth operations including have the compressor while now making first strategy are in

Jonathan Stein

John, Thanks, good afternoon and everyone.

have shareholders as described, As capital consistent execute we priority. continued includes a John and our that financial return strategy ongoing delivering to to of our

a B in financial $XX.XX an completed our our utilizing sponsors EBITDA we million leverage of continued increased from the adjusted Xx approximately The higher flow terms $XXX repurchase on distributable approximately our were simultaneous sponsors a purchase offering, flexibility of reduced cash in full-year number of public our on share Hess transaction unit to public the that the approved by same supports on for units the underwritten accretive included price of XX%. accretive AMLP approximately by transaction based of and conflicts was unanimously the this opportunity basis in XXXX Alerian and Index. public Hess and, together shares per basis. The unit paid liquidity offering First, solely April recently recommendation consolidated the shares. Class of that to closed The has indexation committee repurchase increased repurchase independent the brings on of share on Xth consolidated A X% was the per Highlighting a $XXX the of Midstream its outstanding Class A is now basis. million secondary liquidity, secondary per a repurchase the by The Board, Midstream directors. approval composed with Class increasing ownership

greater in X% Class immediate annual the utilizing Hess capital In coverage per XXXX distribution growth shareholders to growing expected annual distribution share a than higher flow with excess continues new of recently level repurchase, target least from adjusted X% distributions. X.Xx coverage to our free our quarterly return distribution we increase by including Midstream at greater addition, distribution cash levels, through in this XXXX. through than X.Xx, further announced beyond an supported A our our

business X.X% distribution of close on will X% May well quarterly the growth share. includes the of annual targeted per increase class A the Xth. shareholders as The payable as XXth May on in Class X% distribution new the record be announced in A recently to distribution of level as increase of Our distributions

we includes As we continue ongoing strategy pursue objective. that our as consistent a to will primary return of and capital plan, our financial execute

free expect target leverage We expected flexibility, for have cash Xx our including EBITDA further return continue to adjusted distributions and early allowing adjusted to as financial after XXXX, as debt shareholders. capital flow potential to below of ongoing to declining

our results. to Turning

a share revenue and terminaling relative decrease $XXX $X activity revenue in excluding primarily other EBITDA was in million, approximately adjusted of by approximately follows: winter driven of by total compared primarily XXXX revenues Plant EBITDA income MVC decreased EBITDA and $XXX million, million. $X XXXX earnings, to Gas pass-through quarter in $X $X net the For for fourth $XXX first the processing decrease weather quarter $X lower XXXX. by in million million approximately of offset as XXXX. as quarter approximately first were and pass-through million; attributable to million of the to resulting higher taxes our of was partially by maintenance $XXX of the of revenues, a in XXXX for of revenues, Tioga changes change compared Adjusted the costs Adjusted million depreciation for was severe to first quarter approximately levels, proportional and of and Total resulting fourth lower lower for XXXX, the costs expenses, excluding $XXX amortization, G&A; by LMX $X quarter operating down costs the million. impacted million; of net of at The property volumes follows: quarter million; segment and by following: fourth the of

capital capital of were representing basis. $XX million of cash First cash end, in $X.X approximately flow the $XXX our approximately quarter billion, the $XXX and adjusted for Expansion distribution XX-month million unit expenditures in excluding to approximately the costs million. million. distributable debt approximately approximately free EBITDA of X.Xx. repurchase, the a quarter first covering approximately was X.Xx flow maintenance deferred was result trailing prior quarter, completion million, by of first leverage quarter net was adjusted was expenditures on $XX that resulting amortization At approximately finance were $X interest, The

Turning to guidance.

to the operating income higher to quarter For adjusted million with seasonal expect of $XXX $XXX be the second XXXX, expected and approximately net that costs. we million, severe the conditions John reflecting be impact approximately weather together described, EBITDA of

amortization cash excluding million, deferred $XX approximately X.Xx. of Second million, approximately net and of distributable delivering distribution to be finance of maintenance flow capital costs, expenditures interest, quarter coverage $XXX in expected approximately resulting are expected

X.X% fund XXXX, interest adjusted adjusted in facility expense and transaction. on primarily full-year amount the principal previously flow For include accretive aggregate income, expenditures guidance announced notes net free our borrowings April and revolving to the reaffirming volumes, updating senior incremental we guidance cash the of repay the issued capital impact for throughput $XXX EBITDA unsecured are to used DCF to of due million credit XXXX under repurchase unit in and

free the million $XXX billion. of $XXX capital million flow XXXX, the adjusted and at million cash million. expect total $XXX million, we to $XXX we For full-year With expect, income $XXX of $X adjusted midpoint, of net expenditures EBITDA generate expected to to of

supported X% half generally the year. to half, the in approximately As implied MVCs guidance, that through higher of to our the relative in EBITDA year first adjusted be by the are increasing anticipate we second

third expect adjusted MVCs, be trajectory QX higher pleased shareholders Hess growth higher guidance in are and differentiated and remarks. on This a summary, additional a focus and our underpins operational we have OpEx. to to to financial incremental metrics capital. return EBITDA and return continued in relative to MVCs Midstream our lower of on quarter very consistent on capital growth with seasonal In second that forward and my delivered quarter with We to adjusted EBITDA of of unique increasing look expected strategy concludes ongoing financial visible

to to the turn call answer We operator. now will the questions. happy over will I be any

Operator

Instructions]. our [Operator And Doug coming first Credit question line from Suisse. of Irwin the with you. Thank

open. now is line Your

Doug Irwin

expected. guys, for year this had if question. potentially just this has the to I'm that with you've in Hey Hess thanks Great producers than curious rig conversations similar fourth little a hear year. later year? is similar adding earlier given a guidance to about look XX% And this just think ramping around commentary kind XX% as activity potentially then to of the at this later still mix we space, then up third-party volume right third-party

John Gatling

Doug, for the question. Yes, thanks

if So, on we're like call a well the focused our for positioned And on sounds good it pretty decides accelerate again, -- based outcome to it Hess which we're support us. priority. Hess as rig four, earnings sounds to

basin. we are goes, rigs third-party as far As the seeing increasing in

we're so focused on but producers again well. And as we're Hess, supporting working towards also third-party we're --

So as we've been, we're connected to third-parties.

and do to support the as them production we to will capability have continue capacity their grows, We and that.

that's development what was from of rig sorry, perspective. question? kind second And So -- focus that's then kind of your our a

Doug Irwin

way Just is it around to I moving mix, to third-party pointed kind volume think and XX% the this still that you've XX% think about in right past, year of to forward? the

John Gatling

as and our view And from what we're of oil kind third-parties. for XX% is again, of long-term both see us. But and built our third-party gas. perspective, we've those kind plan. a we to Yes potential it's into that upside yes, connected for Again,

basin, And in so the ramp to we're them. support other well as Hess production and producers positioned

Doug Irwin

mentioned budget. that just on online the bit a sneak that under was And could more compressor that's in came you CapEx, helpful. if one Okay, I station

the projects? if then about could under the if little potential on cadence expected and of coming the connects CapEx versus driven you for much of bit well you budget. for some that compression savings by remaining see And Just the second the and year talk just curious kind compressor is how of a

John Gatling

Sure.

and continue that, schedule, pressure came focus So of to we're it try ahead some and we there. in yes do budget first out the did, on under station that see and and on to continuing inflationary deliver

sure any have that to with made some that. decision the minimize to pre-buy risk make we So equipment associated we

come something there some manage. continue related drive from going would significant, opportunity in three got to that another as We've don't XXXX. you compression, then in got I to the the cycle an to we've just focus monitor that that opening inflation and it basically but stations then think So perspective. we're will that this a the of and execution and up that and we that from later on cost monitor is And year third that third to time down my is station got continue perspective, being I to offset remarks. we're an But to lined continue we'll will an to mentioned on, execution came on. on about cadence starting see see one the quarter, We that we've in station it come asked

kind we're you somewhere depends represents many coming that basis. that really So -- depending and of well think on activity the it connects the how rig given base the of wells total activity. a large XXX the portion year. this again, million the of of in the that million of When spend to a and million the range, kind And spending $XX we're $XXX on on are $XXX about

We we into we spend But overall to going more are kind spend going continue for to spend. longer-term infrastructure connects on some focus see the would on definitely that. of see well continue capital the as down to

Operator

our of And with from Michael Goldman Lapides Sachs. coming the line question next

open. Your line is

Michael Lapides

you start thank and taking despite for good guys, year, questions to the my weather. challenging the a Hey, congrats of

offset be and XXXX see coming the capital growth bit part fact a increased in compressors going year-over-year? growth the XXXX of XXXX four process, level little do capital Just the plus might up spend fact the the -- of you're year, of late the overall to kind versus think follow-up April. in or five on know capital of I'm it's start directionally does third about starting only doing market well I doing or that inflation dramatically months as spend, see bit you it's this you question. budgeting a you're But you'll you help even ramp to now, two connects capital compressors fewer given this kind from do just early, curious, about year, you little in about the thinking down as

John Gatling

see and thanks spend that. for XXXX do opportunity Yes, reduce the for Thanks beyond. We Michael. question, capital an definitely into to

I to of definitely are bridge going as we develop going see slow is a continue some continue would mentioned, years. we infrastructure one and going to say I is to the of are in would still We that pace going those XXXX in that. to But capital forward. so reduction

is still XXXX. infrastructure that be to of the spend mentioned station that be in there I So is will in station compressor third the bulk of going

overall really component program. activity. it'll mentioned, beyond and So that'll on still connects, focused well on look represent we're as really you depend our XXXX a then, of And when out material we the

Michael Lapides

Got leverage I allocation the target are there think it. And end metrics, are metrics, I'm the meaning leverage you so XX-months get that you think kind Or the Do than looking XXXX of the leveraged have you're And a guess debt XXXX? as you issuance. really your that's when the end potential below of you better other opportunities this before year-end do at in you guidance XXXX. at kind year, is, based hinting to in after and get trailing do outstanding, beyond? including where of of provided you XXXX new think metrics on capital

Jonathan Stein

Right.

to EBITDA, flow plan current into I then the move in year, Hess as into fully with we XXXX. and distribution of will target as the end continued So terms growth that de-lever in going by and next and funding said, being of year that capital continue our cash to positive, the so meet Xx we

change working at assumption, we'll the that point. that's this So though,

recent even continue We step-up in distribution of the our level after flow growing. cash after X% distribution, to positive free be

And positive next a the really continue just see that question. in to also we leverage, cash emphasizes follow-up of as we'll But free flow terms really year. that So first happening on be there.

maintenance to compression ongoing capital, leverage in of the we to continue done. I financial John our we've then financial continue of we we flexibility declining with you flow the capital ongoing in on you and of come the of that and ongoing do the moving that but have, ability about return both going about be to then just think But think have, a basis, do EBITDA of go-forward step-up see connect, into forward, well visibility to this strength really in to cash the really, distributions the flexibility terms you also free of can going level with return talked to capability repurchases basis, mean, our business plus capital. of just still really the as As forward, growing positive, financial and and naturally, have really financial can terms strength, capital, the the

Operator

Morgan. line And our from question next of J.P. coming with the Dan Walk

Your line is open.

Dan Walk

Hi, everyone. good morning,

and the million. whole, guys framework on bought you do last update light the guess, or the I quick increase you and a the financial picture what following-up your you with to there? about, there's curious guys do opportunity January, you Upstream guess, I of big that for broader asked said did relationship, maybe Just question. Michael's you could and could $XXX on the And Guyana back, In [ph] question anything, the I public parent, you I'm if just of stake. in kind

Jonathan Stein

Right.

been with really and last the you that in been being the focused we've And really terms journey if point, progress year we to secondary fronts the continued our really objectives. I'll feel simplification then investors, on, to has been ownership of working offerings. to daily the obstacles at year and obstacles good volume, yes, providing added trading really with One we've those ownership had incremental those objectives. about entry It's XXXX. on really an remove we've started offerings simplification with back indexation. So, have technical two look all as to since through what all in increasing average really say, been And really made these technical on this and to increasing on

recognize focused additional on the value, to disciplined long-term own certainly time, Hess GIP for investors They Hess at Midstream. but target the In float in of secondaries, of forward, they demand no plan, on XX% long-term continued float. or still and specific terms going terms of same set there there's that aren't is

million will the combine financial with additional we've those year. again, this second utilizing capital, last secondary. terms objective is the opportunities return of so been time, in distribution At And $XXX this pursuing and we we $XXX did, mentioned, of that things increase. as we our the did X% million of And distribution same two with of in flexibility terms that then XX% year, the ongoing will repurchase, that is, you the increase a dictate balance

something the to So see of that go-forward. continue in but we long terms as after free target, disciplined opportunity we'll to cash that's our do distribution. be to our Xx relative flow But as just

I'd specific, in terms obstacles, say nothing ongoing the of of -- there's this return terms those of objectives, at in in both then of So, technical rest moving we'll increasing those of but capital. both of this year, and pursue to the terms through float, continue

Operator

today's Thank Ladies gentlemen this participation. your for Thank concludes you. and conference. you

may day. disconnect. You great Have a now

Hess Midstream (HESM) 27 Apr 222022 Q1 Earnings call transcript