Hess Midstream LP Class A Share

Q3 2021 Earnings Conference Call


spk_0: that day ladies and gentlemen and welcome to the third quarter two thousand and twenty one has midstream conference call my name is michelle and i will be your operator for today at this time all participants earn a listen only mode later we will conduct the question and answer session is it any time you require operators assistance please press star followed by the zero and we will be be happy to assist you as a reminder that conferences they reported for replay purposes i would now like to turn the conference overtook jennifer gordon vice president of investor relations please proceed
spk_1: thank you resell good afternoon everyone and thank you for participating in our third quarter earnings conference call or earnings release was issued this morning and appears on our website www dot had midstream dot 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 and such statements these risks include those set forth in the risk factor section of has midstream filings with the scc 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 gap financial measures can be found any earnings release with me today or john gatling president and chief operating officer and jonathan stein chief financial officer in case or audio issues we will be posting transcripts of each speakers prepared remarks on w w w dot has midstream dot com following their presentation on they'll turn the call over
spk_2: huh jaune gatling
spk_3: thanks jennifer good everyone and welcome to has midstream stirred quarter twenty twenty one conference call goodale of you are offering performance and hi like it's as we continue to execute er strategy and discuss has corporations latest results and outlook for the balkan jonathan with him review our financial results we continue to deliver strong operational performance in the third quarter anchored by the safe and successful execution of the tiber gas plant term extensive coverage nineteen protocols were implemented to keep the workforce of more than six hundred and fifty people safe the proud of our team for their outstanding execution under challenging conditions following the safe in quick ramp up of ttp the team has turned their attention to the commission of the hundred and fifty million cubic foot per day expansion which is underway and progressing well the additional capacity is expected to be available at your end concurrent with the completion of the be i residue export time focusing on our third quarter performance gas through puts exceeded expectations as processing volumes ramped more quickly than anticipated following the turnaround third quarter gas processing volume averaged two hundred eighty five million cubic foot per day and as expected remained below in the sea levels third quarter crude tumbling volumes averaged one hundred eleven thousand barrels of oil per day and water gathering biomes averaged seventy five thousand barrels of one water per day now turning the has upstream highlights earlier today has reported third quarter production results with the and that production averaging one hundred and forty eight thousand barrels of oil a good while equivalent per day versus a guidance of one hundred forty five thousand barrels of oil a coma per day primarily driven by the strong execution of the ttp term iran has confirmed that the third drilling rig commenced operations in september allowing has to celebrate the development of their inventory of high return well locations a three rig program allows has to grow production and leverage our strategic infrastructure driving and permit the volume growth for the midstream the additional raid combined with are aggressive cap gas capture strategy positions has midstream for strong organic growth for for your twenty twenty one has expects spock and net production to average approximately one hundred fifty five thousand barrels of oil a common per day now turning to our guidance for for your twenty twenty one we now expect gas prices in binds to average approximately three hundred million cubic foot per day modestly higher than previous guidance primarily driven by the successful execution of the ttp turn around and stronger up ramp up upon resuming operations we expect for your twenty twenty one crew turmoil in volumes to average approximately one hundred and twenty thousand barrels of oil per day and water gathering binds to average approximately seventy five thousand barrels of water per day our for your throughput guidance continues to anticipate that third parties will contribute approximately ten percent of our gas and fifteen percent of our oil volumes or higher expected for your gas volumes is the primary reason for increasing our twenty twenty one adjusted ebitda guidance to nine hundred million dollars at the midpoint or for financial an operational guidance is included in our earnings release and is available on our website now turning toward twenty twenty one capital program we continue to make good progress on or capital program the commission of the ttp expansion and focus build out of our gas compression system ensures that were well positioned to meet has has accelerated development pace during the third quarter turn around we completed a series of plant thailand's for the ttp expansion which is now being commissioned we expect final export times to be completed at the end of the sheer concurrent with the wb i residue system start up taken has midstream total processing capacity up to five hundred men cubic for per day enabling us to meet our customers expected accelerated develop a pace in twenty twenty two we anticipate substantial organic growth in our gas processing blames although we expect physical binds to remain generally at or below nbc levels which are approximately fifteen percent higher compared or twenty twenty one physical volume guidance we expect physical volumes to above currently set indices and twenty twenty three in line with our previous guidance construction activities have commenced on to new greenfield compressor stations which will expand our gas compression capacity by approximately twenty percent on line and twenty twenty two approximately fifty percent of the expenditures for the new stations and related infrastructure is expected to be incurred and twenty twenty one with the balance plan for twenty twenty two when complete when we complete construction and bring the stations online we're also executing our oil gas and water well connect program to meet has has accelerated development plan for your twenty twenty one capital expenditure guy it is unchanged at one hundred and eighty million dollars we expect expansion capital be approximately one hundred sixty five million dollars which is comprised of ninety five million dollars for compression projects sixty million dollars for a low pressure gathering and well interconnects and ten million dollars for gas processing made of capital is expected to be approximately fifteen million dollars in summary for continued to execute er strategy make focused investments to expand infrastructure to meet the needs of our customers delivering safe and reliable operating performance and strong financial results which provides the flexibility to take advantage of future creative growth opportunities including potential incremental return of capital to our
spk_4: shareholders
spk_3: on now turn the call of the job and review our financial results and guidance
spk_5: thanks john and good afternoon everyone during the third quarter we continue to execute er of adults edgy that optimizes or capital structure and utilizes castle genovese it they provide increase the capital to our shareholders on october thirtieth we paid our second quarter distribution including a temperate that increase in the distribution level compared to the first quarter of twenty one in addition to a quarterly increase consistent with has been targeted five percent growth in in or distributions per class asia during august we also completed a seven hundred and fifty million dollar we purchase of view that from our sponsors optimizing our capital structure and bringing our leverage approximately three times adjusted ebitda or a full year twenty twenty one basis together these actions delivered immediate a creative and meaningful full turn of capital to have met him shareholders have the gym could easy target and old distribution per class a share growth of at least five percent to twenty twenty three with distribution coverage of at least one point four times in addition we need a and significant financial flexibility a put a expected are going for castle after distributed i leveraged of hiding below or three times adjusted able to target a twenty twenty two a for potential feature a creative opportunities including incrementally turn of capital to shareholders turning to our results for the third quarter that income was one hundred and thirty one million dollars compared to one hundred and sixty two million dollars for the second quarter adjusted ebitda for the third quarter with two hundred and five million dollars compared to two hundred and thirty billion dollars for the second quarter the change in adjusted ebitda relative to the second quarter was primarily attributable to the fallen gov processing revenue excluding path through revenue was lower by one million dollars as i do puts a generally below and the sea levels in the third quarter driven by the plan turn around at that have a gas plant total operating expenses including a day but excluding depreciation and amortization a pass through costs were higher or decreasing adjusted ebitda by approximately twenty three billion dollars including ave expenses related specifically to the target gas plant turn on of approximately fifty million dollars higher other season maintenance activity at that how they got plant of approximately seven billion dollars and higher operating jane i'm approximately one million dollars l m for proportional she of earnings and appreciation data processing fees decrease ape adjusted ebitda by approximately one million dollars without the and adjusted ebitda for the third quarter of twenty twenty one of two hundred and five million dollars at the top and of our guidance primarily driven by lower than expected to low maintenance and higher gas gathering that is from the strong volume grab find the ttp tournament third quarter made it's capital expenditures were approximately seven million dollars and that edges excluding amortization of deferred financing costs were approximately twenty six million dollars the with that distributed cash flow with approximately one hundred and seventy two million dollars her third quarter covered are distributed by wow one point three times expensive capital expenditures in the third quarter were fifty two million dollars a quarter and that was approximately two point six billion dollars representing leverage of approximately three times adjusted ebitda on a trailing twelve month basis trying to guidance as i describe the strongest capture performance has enabled us to once again increase our full year fan so guidance we expect net income to be in a range of six hundred and five to six hundred and fifty million dollars adjusted ebitda is expected to be in the range of eight hundred ninety five to nine hundred and five million dollars that presenting at the midpoint twenty percent growth compared to full year twenty twenty results david capital and cause interests are projected to total approximately one hundred and fifty nine dollars for the full year twenty twenty one and digital cash flow is expected to be in the range of seven hundred eighty two seven hundred ninety million dollars resulting in it expected distribution coverage upgraded at one point four time times as implied in are fully and twenty twenty one guidance we anticipate fourth quarter net income and adjusted ebitda to be significantly higher compared to third quarter results supported by increasing volumes and law operating costs with the completion of the ttp turn around and lower seasonal maintenance activity at the midpoint of ugh audience we expect fourth quarter adjusted ebitda to be approximately two hundred and forty million dollars or fifty percent higher than third quarter results with distribution coverage of approximately one point six times with revenues that are practically ninety five percent protected by embassies we expect to end the year with levy it at our conservative three times adjusted even to leverage target it's way late to in a decent organic growth we expect higher revenues that are approximately ninety five percent protected by generally increasing embassies we expected revenue growth to continue into a twenty three as a physical volume degrees above embassies for the hot there has production and continued in pc gas capture as a result we have visibility ticket painted growth and adjusted ebitda a generation of adjusted free cash flow after disobeys in expected the lever below are conservative three times adjusted even eleven target a twenty twenty two provided continuing flexibly to take advantage of feature acquitted
spk_0: growth opportunities including potential incrementally to capital to shareholders it anyway we will release i played played to operational and financial guidance including twenty twenty four and the sees this concludes my remarks will be happy to answer the questions elena turn a call over to the operator ladies and gentlemen if you have a question please post star followed by one on your telephone it's your question has been answered are you would like to withdraw your question please press pound questions will be taken in the order received please press star one to begin
spk_6: and i first class incomes and the line of brian reynolds with you bs your line as open please go ahead hi good afternoon everyone to start off on kappa allocation he talk about prepared remarks about incremental return a couple opportunities going forward
spk_5: given twenty twenty one saw distribution step up on the by back and secondary offering and given that twenty twenty two at the summer free castle low profile we potentially happen all the above scenario gun and with terms of return of capital as we look at in the two hundred twenty two bucks thanks yes i mean our financial strategy includes maintaining a op and life i are not about couple structure with target to leverage at are three times eva as you mentioned that yeah we did both the seven hundred fifty million dollars every purchase and the tabitha distribution i increase at the disease a level increase the that accomplish that by tragedy of i began lavage back to three times a bit up on a tweet i am basically intellect and up because well says we look forward as a metro going to continue to be free castle positive attitude vision and a leverage will decline blow that three times ah just that either target and twenty twenty two so therefore from a cabal case in point you
spk_6: until i expect that part of our capital allocation shadier will be the companies by back to increase dividends utilize that financial flexibility great thanks to the colors super helpful as a follow up on them had talked about on it's called out increase perfect spin and us gulf of mexico to spend on pie backs and on money on an exploration well no from a had them perspective what has has a me to see from upstream activity
spk_3: for those conversations to restart around the gulf of mexico long cycle assets good as be a twenty twenty three then know if the results come back positive and has no continue to spend capital and got mexico thanks yeah thanks for the question brain in overall you know the gone transaction isn't immune immediate priority for us for the midstream or for has homework were continued focus on our strategy around you know building the out the business in the bargain you know the work that we did for the gulf of mexico remains active you know we're we're continually looking at the the asset looking at the future opportunity i mean it's definitely something that's available to us in the future it just kind of depends on when the timing is right for that so at this point there's there's nothing immediate on the horizon but but you know again we're continuing to look at the the development opportunity that that's that's
spk_6: going on in the gulf of mexico and it remains definitely an asset that that were interested in in know in the long term but there isn't anything on our plans right now
spk_0: great at all you for me to then how good i buy things bro
spk_7: thank you and our next question comes from the line at your me network t p morgan your line as open please go ahead hi good afternoon all i just wanted a follow up on the are yeah discussion here on the capital allocation validate really see some pick up in the kim than solution official in the permian and bargain
spk_3: how can you share your thoughts on have it is pathetic currently evaluating by that philosophy and many opportunities any thoughts what you consider of the market right love in maybe maybe i'll take the first the last party or question first and as talk about kind of our overall strategy the jonathan can talk i'm a bit about the the financial side of it so you know we're continuing to look at assets in in the block and as it relates to vote on opportunities things that will strengthen our or foot print in our strategic infrastructure position in the back and in particular as it relates to supporting house and are are currently connected third parties that's really our primary focus right now is just executing the boc and plan and were just as a reminder all of those things are incremental to to our current plan to the activities in the and the guidance that we've we've already provided so again those all
spk_5: represent upside opportunities but we're we're always looking for quality assets that strategically fit in with with our infrastructure so that's that's our our focus from a from him and a prospect so headed over jonathan for them for the first part of the question yeah i think john is that it well with our focus really not on ah active am a day and really just looking at potential both on opportunities that really means that ah err flexibility and fans like so that we have a really primarily up and a bolt ons be utilized for return capa like i mentioned again you know as we move into twenty twenty two will be below or three times or even a target and could have wifi castle positive that are really allows for the complication that tied to a point as a return a cap on to the buybacks backs off dividends ah increases as appropriate but really will continue to accede up and society we
spk_7: have a very clean and toy with a visible growth and so will contain a focus on that agenda sad got it
spk_5: maybe just picking up on the by that and that ought to really see your to be elected i love song sponsor my baggage student few months back then better than other stay or leave it so it in public feel above the dirt up like this one guy understand if you could shed any thought that was deficient that anyone with sponsored a machine as at the very well integrated into had been to the have any time they get over the next yet maybe with respect to jp i had just help it does
spk_8: okay is a little hard to understand that i think you're asking
spk_5: sponsor plans and relative to the second there in a buyback that we did earlier though i think look i think if you look at the to types the actions we did this past year the each had different objectives the secondary we're really focused on tactical ownership to or have your articles ownership the back to got from investors that they see that relative to the flow illiquidity to those offerings were really targeted at addressing that issue since march syntax and our average daily trading volume has more than doubled so in terms of focus on that objective as that lead been focused on achieving that out in value accretion to that transaction and marches off at a twenty one and still early days on our with a transaction but again it's targeted towards that focus of increasing all liquidity an increase in the float going forward again and no specific plan with the guy to secondaries i have and jp recognize that there's contain demand for additional full of pretty but they also have a discipline investors you see the loved him value and has made midstream the buyback the really a different different objective those a really good at as i said before our financial strategy interns maintaining optimized capital structure in terms of our target leverage particularly at three times even a so there you know we've still got a lot of positive feedback from that's is relative to that his actions we did earlier this year had to the by back in particular and they talked about we could have science electability add silly as that will continue to be part of our strategy going forward thought of as a couple such a tube
spk_7: my back i add increased evident that appropriate so willing to different objectives really geared with has been betrayed that all geared towards the sponsors i made him the the secondary only those are relatively small amounts relative to happen and jp so really the focus has been on how do we
spk_0: we improve locally and float and how do we get paid to execute of judge in terms of having an optimized capital structure and using that they have the flexibility for returning cobbles elders
spk_9: got it that's it that's a sunny day thank you and or next question comes from the line of that or when with credit suisse your line as open please go ahead everyone likes to the question maybe just one on expansion tsx as wonder if you could help frame and what we should expect and twenty twenty two now that the ttp turn around is complete
spk_3: come from from art sounds like we should expect another ninety five million and spend on compression next year on and then some will connect catholics on top of that curious year over year how we should be thinking about that move yeah i think though we know what we've said his we're we're planning to be in or out or below twenty twenty levels we we do expect capital to to increase slightly in trying to give some indication of of direction we were that's heading home it's definitely a well contained spend and it's it's primary least in
spk_5: in the focus of supporting has his development plan over the next couple years as the ramped up to three rigs men potentially ramping up to four rigs but have you as you say i mean as with the expansion capital behind us it really is more focused on the compression activity to support the development and then than well connected that's that's primarily our focus over the next the over the next year so and that added that is ill with that with john
spk_9: the that them contact them to the reminder it as he said we do expect able to continue to grow into i tried to and twenty three ah that's bass as we talked about based on i mean he's provide line of sight to that both in terms of a greeting amputees and twenty two and a continued physical volume growth between twenty three so with that too diving are able to up and even with the girl higher capek the judges mentioned into the to to will continue to be free castle positive attitude visions and as i've talked about can to the lovable or three times target
spk_4: oh that deafness helpful thank you
spk_3: the navy just on more of a macro level in the back and obviously has just added or rigs that is curious how how the conversations with third parties had been going here recently with with the the run up and crude prices on the scene of increased appetite from from third party producers or years ago and still stay free disciplines from from your conversations young yeah i mean i i think the overall tone in the basin is is is fairly consistent with what has his plans or hermann hesse's has increased some activity and as you're probably aware and then there's there's definitely been rig increases in the basin so we we are seen activity increases but i think that overall the producers are true
spk_9: to stick planned trying to maintain that position of a free cash flow and and in making smart investment so in where we are seeing some increased activity both are obviously from house as you as you heard from has his call and also as in in are prepared remarks but also seeing an increased activity in third parties as i'm
spk_10: mentioned in my prepared remarks we see gas kind of at the the ten percent level and crude up the fifteen percent level but that does represent there is some potential upside in in both of those as well as the basin you know continues to recover from from my with the higher oil prices
spk_0: got it thanks as offer me like it
spk_11: can i think you thank you thank you and i next class incomes know line of maverick cat with morgan stanley your line as open please go ahead
spk_3: thanks so much maybe more of a macro question here for the as when you see if i could ask for some high level thoughts and your outlook franklin recovery in the back and you certainly we've been seen profit margins increase of it recently so just curious for your thoughts on how you see that trend in and twenty two and really what sorts of margins you think might be necessary to incentivize more meaningful at the recovery crossed the basin thank you yeah minutes i think it's difficult for me to comment on what other processes are going to do in the basin but you know we're very fortunate that we have us a high quality our said in the tioga gas plant that has full fractionation capability up to two hundred and fifty make a bit for per day with school ethane extraction and we have a reliable export marketed to send that ethane am as i mentioned in my prepared remarks we also expanded the gas plant by an additional hundred and fifty million cubic foot which will be available at the end of the sheer i once we have residue export we feel like we've met the needs from an of the in perspective and overall frac availability
spk_12: so we feel like we got a nice mix of a both for fraction a to products and and also why grade export from a liquids perspective so so overall we feel like we're very well positioned to take advantage of have any prices across a different products in our ability to flex on that end and or
spk_0: optimize for our for has ultimately providing the best net back to to house and our third party customers
spk_13: good thank you thank you thank you and i like pressing concern the line of michael the fact that goldman sachs your line adult them please go ahead hey guys thank you for taking my question and congrats on our and exciting last couple months i'm a little bit a macro questions and than one micro on the macro side kiss curious when you look at the base and windy think the base and and then know you'd has expanded pgp so i may be premature here but when do you think given your outlook for the basin a
spk_3: they'll be a need for even more processing capacity that's my first question my second it is my second to are a little more micro i'm i'm going to just make sure i understand the on the growth cap that for twenty twenty do you expect growth cat back to be roughly in line is with twenty one or up slightly and then fine me are you planning when you give guidance in january the end of january to also given up paid on capital allocation of the same time yeah sure so let me i just talk about the basin processing first and then all address the twenty two cap x and then all all handed over to jonathan to mop up anything amiss under the guidance question and then also kind of moving into the couple allocation piece on the process inside you know really depends on in a we have very good visibility into what has his plans are as and obviously our our development in our infrastructure is is anchored by house and also our third parties i think were uniquely positioned that we really have a us strong understanding of the subsurface or with our relationship with house and and other producers that we're we're currently contract and connected with so from our perspective if we feel like has made streams uniquely positioned to take advantage of the expansion we've already done that's part of the reason why we're going to be investing in more compression in twenty twenty two so we feel like we're well positioned to meet the needs of our customers if you look at some of the broader forecasts coming out of the out at for the basin there definitely is an upward trend that looks like a continues towards the end of the into the decade so i mean depending on where you are in the basin there may be additional need for for processing i mean i've seen some curves that have exceeded the cumulative processing is available in the basin am site i definitely think there's more opportunity for for further build out and i would say that you know for us we we're looking at that long term horizon as we think about our process he needs as well and what house and our third party customers' needs to that that's continues to be a focus for or us to your first micro question and and again i'll jonathan kind of mop up anything amiss here and and talk about the be allocation peace a on occasion piece you know we do expect capital to to increase going into twenty twenty two as a comparison twenty one however we know we do expect though the the long term as we look back at say twenty twenty
spk_5: expect to be at or below that level so we're trying to kind of put a a range on on what we're talking about as we as we move into twenty two the be increases really driven by the the development pace that that were seeing from has an from from third party so that's that's really kind of what we're focused on and that's why we gave a little bit of indication of where we are from a from a compression perspective and then as jonathan mentioned you know in the in one of the prior answers you know we are focused on a but we still continued to see substantial iba growth with still continue to see substantial organic volume growth so the investments that we're talking about in a we're we're talking about the things that are gonna ultimately support that that iba and and physical bind growth as we transition from embassy levels and twenty twenty two two above m b c's expected above embassies and twenty twenty three so with that are hinder over job and for for any clean up
spk_14: none of those get an ad on or that it's on the last question on cap on case and i made solely as we
spk_13: pr move into played twenty two and we give our guide and identify my on friday at that will continue to be a that to change their which will be to utilize our our our financial flexibility
spk_0: ill pie valley and silly for a couple case including by back and a great dividends or we will have and twenty twenty two i give our guidance will be your obvious it feels the what rp castle the after distribution pets on a guidance we have a better feel for of they thought that we have a specific number on cap act again off get a feel

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