Q2 2021 Hess Midstream LP Earnings Call
Good day, ladies and gentlemen, and welcome to the second quarter 2021, Hess Midstream Conference call. My name is Michelle and I will be your.
Your operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
If at any time you require operators assistance. Please press star followed by zero and we will be happy to assist you. As a reminder, this conference is being recorded for replay purposes I would now like to turn the conference.
Conference over to Jennifer Gordon Vice President of Investor Relations. Please proceed.
Thank you Michelle good afternoon, everyone and thank you for participating in our second quarter earnings Conference call. Our earnings release was issued this morning and appears on our website Www Dot Hess midstream Dot com.
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.
Fourth in the risk factors section of Hess Midstream has filed with the SEC on.
Also on today's conference call, we may discuss certain non-GAAP financial measures a reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in.
Those settings release.
With me today are John Gatling, President and Chief operating Officer, and Jonathan Stein, Chief Financial Officer in case their audio issues, we will be posting transcripts of each speaker's prepared remarks on www Dot Hess midstream dot com following their presence.
Any earn Asian, I'll now turn the call over to John Gatling.
Thanks, Jennifer good afternoon, everyone and welcome to Hess Midstream second quarter 2021 conference call today, Jonathan and I will review the highlights from a series of announcements that Hess Midstream and Hess Corporation made earlier this morning.
We will also discuss our operating performance and financial results as we continued to deliver our strategy provide an update to our 2021 guidance and review Hess Corporation's latest results and outlook for the Bakken.
The announcements we made this morning delivered multiple positive catalysts for Hess midstream.
First.
We reported strong second quarter results that surpassed our quarterly guidance, driven by increasing gas capture and lower than anticipated operating costs.
Second driven by strong performance in the first half of 2021, we're raising our key full year throughput.
Financial guidance and confirming our transition.
2 significant free cash flow generation.
Full year adjusted EBITDA is now anticipated to be in the range of $880 million to $900 million, representing an increase of 19% at the midpoint compared to full year 2020.
Third Hess midstream announced a 10% increase in our district.
Distribution per share level relative to the previous target, allowing us to use our financial flexibility to return free cash flow to shareholders on an ongoing basis, while maintaining at least 1.4 times coverage.
Fourth the board of directors of our general partner also approved a $750 million.
Unit repurchase from Hess midstream sponsors.
The unit reported Optimizes, our capital structure to a conservative 3 times, adjusted EBITDA leverage target and generates ongoing accretion to shareholders.
The repurchase and distribution increase demonstrates the strength of our financial position and allows.
<unk> liver and immediate and meaningfully accretive return of capital to our shareholders.
Finally, Hess Corporation announced plans to add a third operated rig in the Bakken in September 2021, reflecting the improvement in oil prices and continued strength of their inventory of high return drilling locations.
As to do moving to a 3 rig program allows hess to grow cash flow on production better leverage our strategic infrastructure and drive incremental volumes growth for the midstream.
The additional rig combined with our aggressive gas capture strategy leaves Hess midstream poised for strong organic growth.
We focused expansion of our gas compression and processing capacity ensures that we're well positioned to meet Hess has accelerated pace of development.
We're about 1 third of the way through a well planned maintenance turnaround at the Tayo good gas plant and when final export tie ins are completed towards the end of the year Hess Midstream is total gas.
Gas processing capacity will increase by 40% to 500 million cubic foot per day.
Additionally, procurement and fabrication activities continue on 2 new Greenfield compressor stations, which went online in 'twenty 'twenty, 2 will meaningfully expand our gas compression capacity by approximately 20% further supporting.
Courting Hess and third party customers in meeting North Dakota's flare reduction targets.
With our expected strong 2021 performance Hess has plans to increase development pace and the continued execution of our gas capture strategy, we're well positioned for sustained free cash flow sufficient to fund growing.
Distributions and the potential for future accretive opportunities, including additional return of capital to shareholders.
Now turning to Hess midstream second quarter, 'twenty, 1.2021performance.
Throughput volumes in the second quarter exceeded expectations, primarily driven by increasing gas capture and strong.
Delivery across the business.
Second quarter gas processing volumes averaged 304 million cubic foot per day crude terminalling volumes averaged 116000 barrels of oil per day and water gathering volumes averaged 74000 barrels of water per day.
Third parties contributed approximately 10% of.
Our gas and 15% of our oil volumes in the second quarter consistent with the first quarter and in line with guidance for the full year.
Turning to Hess upstream highlights earlier today Hess reported strong second quarter production results with the Bakken net production, averaging 159000 barrels of oil equivalent per day.
This was above Hess as guidance of approximately 155000 barrels of oil equivalent per day, primarily reflecting increased gas capture which allowed hess to drive flaring to under 5% well below the states 9% minimum.
For full year 2021 Hess continues to expect Bakken net.
Section to average between 155, and 160000 barrels of oil equivalent per day.
Now turning to Hess midstream guidance as mentioned earlier, we're increasing our full year operational and financial guidance, which was included in this morning's earnings release and is available on our website.
For full year 'twenty 'twenty 1.
Net product spec gas processing volumes to average between 285, and 295 million cubic foot per day, an increase of approximately 5% at the midpoint compared to previous guidance.
Our guidance incorporates the planned to 45 day maintenance turnaround at T. G P, which commenced on July 12th is progressing to plan.
We now is expected to conclude by the end of August.
Turning to our crude oil assets, we expect full year 2021 crude terminalling volumes to average between 120 and 130000 barrels of oil per day unchanged from previous guidance.
Full year water gathering volumes are expected to average between 70.
On an 80000 barrels of water per day, an increase of 15% at the midpoint compared to previous guidance, reflecting excellent performance year to date, we're continuing to build out our system and applied lean learnings to improve operational efficiencies and drive more water into pipe.
Our full year throughput guidance continues to anticipate.
And Eva parties will contribute approximately 10% of our gas and 15 per some of our oil volumes, which is comparable to the levels that we achieved in the first half of 'twenty 'twenty 1.
Now focusing on the third quarter with the planned maintenance turnaround at T. G. P. In progress, we expect third quarter gas volumes to be below MVC levels.
Before returning to normal operating levels in the fourth quarter.
Oil and water volumes are each expected to be approximately flat compared to the second quarter.
Turning to Hess Midstream is 2021 capital program.
We've made several optimizations to our plans accelerating field compression and low pressure gathering well connections to occur.
Accommodate hess is increasing development pace.
Full year 2021 capital expenditures are now expected to total $180 million, an increase of $20 million from previous guidance.
We expect expansion capital to be approximately $165 million, which is comprised of $95 million for compression project.
<unk> $60 million for low pressure gathering and well interconnects and $10 million for gas processing mainly.
Maintenance capital is expected to be approximately $15 million.
In summary, we're continuing to deliver our strategy, making focused investments to expand infrastructure to meet the accelerating development plans from our customers.
Be safe and reliable operating performance and strong financial results, enabling Hess midstream to deliver accretive and meaningful return of capital to our shareholders.
I'll now turn the call over to Jonathan to review, our financial results and guidance.
Thanks, John and good afternoon, everyone.
As John.
Delivery club.
Pleased to have made some important announcements this morning.
Immediate accretive and meaningful return of capital Hess midstream share holders.
First.
Turning excess free cash flow to shareholders through an increase in the level of our distribution by 10%, while continuing to target 5 per.
This is why its growth through 'twenty to 'twenty 3 as.
As we said before the dividend is an output not an input that should be consistent with our financial metrics on strategy. We are unique and that we have the visibility on balance sheet to deliver an ongoing and last thing return of capital to our shareholders.
Second we are optimizing.
Our capital structure doing accretive $750 million repurchase of units from our sponsors that brings our leverage to 3 times adjusted EBITDA on a full year 2021 basis.
We believe that it conservative 3 times adjusted EBITDA leverage target is the optimal capital structure for our business and are excited.
To execute on our financial strategy today.
After these announcements we will continue to have financial flexibility, including distribution coverage of at least 1.4 times expected ongoing free cash flow after distributions and leverage declining below our 3 times adjusted EBITDA target as early as 2022.
Allowing for potential future accretive opportunities, including incremental return of capital to shareholders.
Let me provide some additional details on these announcements.
Our second quarter distribution represents an approximate 11% increase compared to the distribution for the first quarter of 2020.1 including.
10% increase in the distribution level. In addition to a quarterly increase consistent with Hess midstream targeted 5% growth in annual distributions per class a share.
Hess Midstream continues to target annual distribution per class a share growth of at least 5% through 2023.
On this new higher distribution level and expected annual distribution coverage of greater than 1.4 times.
The quarterly distribution will be payable on August 13th 2021 to class a shareholders of record as of the close of business on August 9th 2020.1.
Turning to the.
We repurchased $750 million unit repurchase from Hess N. G. O P is consistent with Hess midstream 3 times adjusted EBITDA leverage target on a full year 2021basis is expected to be approximately 8% accretive on a distributable cash flow per class a share basis.
On a unit repurchase.
The unit is expected to result in distribution savings to Hess midstream of approximately $30 million in the second half of 2020.1 on a consolidated basis.
The purchase price per class B unit is $24 that is equivalent to an approximate 4% discount to the 30 day volume weighted average trading price.
Of Hess Midstream class a shares through July 27th 2021.
The repurchase transaction reduces the consolidated number of outstanding shares and units by approximately 31 to 5 million units or 11% as a result public ownership of Hess midstream on a consolidated basis will increase.
<unk> to approximately $9.5 per cent the terms of the proposed repurchase transaction, we unanimously approved by the board based on the approval and recommendation of its conflicts committee composed solely of independent directors.
Repurchase is anticipated to close in August 2021, and Hess midstream ex.
<unk> expects to fund the repurchase through new new debt financing.
Following the distribution increase and repurchase transaction Hess midstream expects to continue to generate ongoing free cash flow after distributions over the next several years.
For full year 2021, we expect adjusted free cash flow in excess of distributions.
To be approximately $75 million in 2022. In addition to organic growth driven in part by the planned addition of a third Hess operated rig in the Bakken later this year. Our revenues continued to be approximately 95 per cent protected by generally increasing N V C.
20.
'twenty 'twenty 3 we expect continued higher revenues with physical volumes growing above N V sees from higher Hess production and continued increasing gas capture.
With this increase the expected revenue and lower ongoing capital spending relative to historical levels, we have visibility to continued growth in adjusted EBITDA and.
And generation of adjusted free cash flow after distributions and expect to Delever below our conservative 3 times adjusted EBITDA leverage target as early as 'twenty 'twenty, 2 providing continued flexibility for future accretive growth opportunities, including incremental return of capital to shareholders.
Turning to our results.
For the second quarter net income was $162 million compared to $160 million for the first quarter adjusted EBITDA for the second quarter with $230 million compared to $227 million for the first quarter.
The change in adjusted.
EBITDA relative to the first quarter was primarily attributable to the following.
Total revenues were up by $6 million, primarily driven by increasing gas capture and higher MVC levels, resulting in segment revenue changes as follows an increase in gathering revenues of approximately 2 million.
Adjusted EBITDA.
An increase in processing revenues of approximately $2 million and an increase in terminalling revenues of approximately $2 million.
Total operating expenses, including G&A, but excluding depreciation and amortization and pass through costs were higher decreasing adjusted EBITDA.
By approximately $3 million, including higher seasonal maintenance activity in our gathering and processing segment of approximately $4 million, partially offset by lower G&A expenses of approximately $1 million.
I'll take on adjusted EBITDA for the second quarter of 2021.
EBITDA of $230 million of 4.5% above the top end of our guidance, primarily due to higher revenues and lower than expected operating costs as certain maintenance activities were deferred to the third quarter of 2021.
Second quarter, 2021 maintenance capital expenditures were approximate.
Of Chile, $2 million and net interest excluding amortization of deferred finance costs was approximately $21 million. The result was that distributable cash flow was approximately $207 million for the third quarter of 2020, 1 covering our increased distribution by approximately.
Approximately 1.4 times.
Expansion capital expenditures in the second quarter were $45 million at quarter end debt was approximately $1.85 billion representing leverage of approximately 2.2 times adjusted EBITDA on a trailing 12 month basis.
Turning to guidance.
As a result of strong first half performance, we are updating our full year 2020, 1 financial guidance full year, 2020..1 net income guidance is $590 million to $610 million, we expect full year 2021adjusted EBITDA.
And <unk>.
To $900 million, an increase of 2% at the midpoint compared to our previous guidance and an approximate 19% increase compared to full year 2020.
Firstly, focusing more closely on the balance of 2020.1 as John described the Tioga gas plant turnaround commenced earlier in July.
As previously guided we expected to incur.
Additional operating expenses of approximately $15 million and maintenance capital of approximately $50 million related specifically to the turnaround.
As a reminder, Hess midstream will receive MVC payments during the turnaround with revenues.
It is expected to be modestly lower than the second quarter, where certain systems were above MVC levels.
In addition to costs in current specific to the turnaround we expect other operating costs to be approximately $10 million higher relative to the second quarter as we conduct routine seasonal maintenance activities, including activities.
These deferred from the second quarter.
As a result for the third quarter of 2021, we expect net income to be approximately $120 million to $130 million and adjusted EBITDA to be approximately $195 million to $205 million.
Third quarter maintenance capital expenditures.
I expect it to be approximately $15 million and net interest excluding amortization of deferred finance costs.
<unk> to be approximately $25 million, resulting in expected distributable cash flow of approximately once a day and $55 million to $165 million with distribution.
At the midpoint of the range of approximately 1.2 times.
In the fourth quarter, we expect increased financial results supported by MVC protected revenues and low operating costs with the completion of the U T G P turnaround and lower seasonal activities.
In summary, we are excited to have made.
These important announcements that deliver immediate accretive and meaningful return on capital to Hess midstream shareholders. Looking forward, we continue to have financial flexibility, including distribution coverage of at least 1.4 times expected ongoing free cash flow after distributions and declining leverage.
As we move below our 3 times adjusted EBITDA leverage target and our free cash flow continues to grow we will continue to execute our financial strategy maintain an optimized capital structure, allowing for potential future accretive opportunities, including incremental return on capital to shareholders. This concludes my remarks, we'll be happy to answer.
I will now turn the call over to the operator.
Ladies and gentlemen, if you have a question. Please press star followed by 1 on your telephone. If your question has been answered or you would like to withdraw your question press the pound questions will be taken on the order receipt. Please press star 1 to begin.
There anything quite first question comes from the line of Jeremy net with J P. Morgan. Your line is open. Please go ahead.
Hi, good afternoon.
Hey, Jeremy good afternoon, Hi.
I just wanted to touch base on the Big news today, and just wanted to see you know big allocations of capital going back.
Uh huh.
Shareholders through buybacks and just wondering if you could talk a bit more on the on the process. There and you know if it is how you got to that decision can you share any thoughts on how you evaluated buybacks versus M&A or dropdowns and leaving capacity for that in the future.
Just wanted to kind of you know.
If that's something.
To that you know what your latest thoughts are on drop downs at this point.
Yeah, maybe I'll just I'll start and then and then Jonathan can can just from the standpoint of Dropdowns on assets within the house you know gum gum continues to still be an option for us, but it's it's been it's become clear that it's it's really not going to happen. This year, it's a great opportunity.
<unk>.
But we really don't needed to achieve our targets so with that I'll hand, it over to Jonathan.
Thanks, John right, so with that background.
Forward at our capital structure for the year as I mentioned in my remarks at the end of the quarter were $2.2 times, our EBITDA in terms of leverage and as we look.
By the end of the year, we had always said we'd be at 2 times and had we done nothing at this point, so rather than let our our capital structure become suboptimal. We've always said that we believe 3 times.
<unk> is the optimal capital structure for the business and given the fact that we're free cash flow positive after distributions.
We thought this was the right opportunity to be able to execute on return on capital both in terms of using that leverage for a buyback as we discuss it and they're very accretive way, but then also to be able to increase our distribution on an ongoing and long term basis.
It can be supported and still be free cash flow positive after distribution and I.
It's important to highlight that even after these transactions will continue to be free cash flow positive. We will continue to have distribution coverage of 1.4 times and most critically our leverage will continue to decline as we look forward as early as next year. It will already be below again, our 3 times.
Leverage target so.
That means that opportunities whether it be investments like our Gulf of Mexico, dropdown or other bolt on opportunities or potentially additional incremental return on capital to shareholders will continue to be something that we can continue to execute.
In the future and they're in the really near term and we have the financial flexibility are just about as much as we had before.
Going forward and continue to have that going forward to be able to execute on those on that strategy.
Got it so it sounds like even after this large buyback and dividend increase still a lot of financial flexibility to execute in I guess across a number of different measures. So that's that's great to hear.
Maybe maybe kind of pivoting towards growth Capex I think you discussed growth Capex could increase next year with higher Hess activity. I was just wondering if you could boiled down a little bit more what that might look like if that compression well connects or anything bigger that we should be thinking about here.
Yes, no I mean with our with the T. G P expansion behind.
Find us and the turnaround ongoing now.
Have the processing capacity that we need here in the near term. So most of the the Capex that's going to be there's going to be increasing in particular in 2022 is going to be tied to the greenfield compression that I mentioned before.
There will be a little bit associated with with well connects with the.
The acceleration of the third rig and.
And potentially a fourth rig, but but right now it's it's mainly driven from the from the compression capex in the in the well connects.
Got it that's helpful Oops, sorry, yeah yeah.
Yeah, I mean, just I mean, just to add to what that background, so even as our.
So we may see as John described some higher Capex I do just that and we emphasize that with that we're still going to be as you know our revenues next year are going to be growing based on growing nbc's.
About 18% growing <unk> on the gas side, that's about 70% of our revenues and then capex, even with a slightly higher capex.
Still below let's.
Let's say historical levels, certainly 2020 or below we will still going to be free cash flow positive. After distributions on next year. So we will still maintain significant financial flexibility and as I mentioned and of course, we'll continue to Delever as a result, so William just a great position, even with that being able to support <unk> ramping up.
Our rigs.
Got it that's very helpful I'll leave it there thanks.
Thank you.
Thank you on our next question comes from the line of Brian Reynolds with UBS. Your line is open. Please go ahead.
Hi, good afternoon, everyone and congrats on the announcement this morning as a.
A follow up to Jeremy's question on capital allocation, just looking ahead in the 22 and 2023.
How should we I mean should we be effectively targeting a specific payout ratio assume all growth or M&A high high teen return hurdles have been met I guess, just any color on that would be targeting maybe free cash flow neutral after dividends as a way to return capital to shareholders assuming.
Assuming all growth for Hess has been met.
Yes.
Yeah look it turns on a financial strategy it continues to be a.
What we've sandwiches that we believe are 3 times, even though leverage target is the optimal capital structure. We've also said that in terms of our distribution and dividend policy that we believe it should be an LP.
Important meaning it should be consistent on something thats sustainable and meets with our financial strategy on a financial metric. So as we go forward you know today, we're really just executing on that strategy and then as we go forward. We'll continue to do that to the extent that were below our target level, we'll be looking for opportunities to optimize our balance sheet to the extent that there are investment opportunities.
Whether they'd be dropdowns of bolt on certainly will take advantage of those and to the extent that.
They're not there we don't have visibility to those and looking at our forecast in terms of free cash flow growth on a leverage profile. Then we will continue to execute on our strategy as we did today.
By using our financial flexibility for additional return on capital to shareholders.
Holders whether that be in the form of buybacks or distributions I think the good news for US is that we have the financial flexibility to be able to as we did today execute both.
Yeah.
Great. So it sounds like.
3 times leverage is the target there is a follow up on gas capture.
You guys were hovering.
And on an MVC for gas gathering for the quarter was just wondering about the future gas capture opportunities free free.
Are you guys is there more wood to chop and how would you kind of.
Help characterize like what percentage of the increase in gas gathering for the quarter was attributable to a reduction of flaring or just higher <unk> on your footprint in general thanks.
Sure and maybe I'll just start off with the on the wealth side as you know there really hasn't been a change in well performance from a from a gas to oil ratio perspective. So so it's primarily associated gas capture and as Hess mentioned earlier today.
They're running below 5% flaring and you know obviously the state target.
It is set at a it's set at 9% so they're exceeding expectations from from that perspective, but but as John Hess mentioned earlier and Greg also discussed on their call.
They've got it there's a commitment to continue to drive flaring down continue to have a more positive impact from our sustainability.
Paying ability perspective, so from that perspective.
We're continuing to continue to aggressively.
Chase the gas and make sure that we're able to capture it and get that the level as low as possible.
So again I mean, I think we've we've made strong strides over the last several years and helping Hess get below.
So the 5 per cent flaring level.
But I think as we as we continue to build on our infrastructure, we're going to we're going to continue to see improvements in that area. So that that is going to continue to be a focus for us and that's part of the reason why.
The 2 additional greenfield compressor stations are going to be added along with the associated gathering system to support that.
Great. That's all for me have a great day. Thanks, Okay, you too thanks.
Thank you on our next question comes from the line of premise teach with Wells Fargo. Your line is open. Please go ahead.
Thanks. Good afternoon, just 1 question for me, we're seeing inflation picking up on a traditional metrics like CPI and PPI.
From a from a personnel perspective.
Right you covered the local what kind of tariff increase should we expect in 2022, I think you have inflation escalators across all your contracts and then as a follow up do you think that revenue increase will all flow through to EBITDA or do you think some of that revenue increase will get eaten up by higher costs.
Maybe I'll, maybe I'll take the actual come on the you know the.
The.
Execution inflation, and then I'll, let Jonathan talk a little bit about the inflation structure of kind of the CPI built into the contract but from a from an inflationary perspective, you know we are seeing some cost increases, but you know we we continue to leverage our technology.
Knowledge on innovation and lean activities to try and offset the inflation. So from our perspective, you know the big areas, where we are seeing seeing price increases around steel. It's it's a it's around the cost of social still and associated chemicals, but overall, we feel like that we're able to moderate that and.
For operational efficiencies offset the pressures. We're currently seeing from an inflationary perspective, so with that I'll hand, it over to Jonathan for the for the contractual piece.
Thanks in terms of day the contract mechanics, I mean, firstly in terms of as you mentioned there is on our inflation.
Inflation escalator that can backs out up to 3%.
So we will certainly pick up some of that inflation will go into into the weights are in terms of costs. The costs will really go into the rates, but essentially we also as we have been discussing we are going to have certainly high volumes on a longer term basis next year with total.
To be primarily driven beyond that.
Certainly there's opportunity for volume growth as John has talked about from Hess, increasing production and as well as continued gas capture so I think in terms on the mechanics, and we're not necessarily expecting significant weight increase gesture events on the mechanics of our volumes and costs although.
Certainly pick up any inflation, but again that'll be within the range that up to that 3%. So besides.
Besides that not really expecting any significant change really we think the real driver going forward will be again MVC volumes MVC levels going up next year and then as we move into 2023 organic growth driven by.
Growing Hess production and gas capture.
Got it thank you.
Thank you and our next question comes from the line of Doug Erwin with Credit Suisse. Your line is open. Please go ahead.
Hi, guys. Thanks for the question maybe.
Maybe just as a follow up to Brian's question on gas capture.
If you look at gas volumes this quarter theyre above M D. CS and I'm just curious if there are projects coming on line and Hess, adding a third and they even talked about potentially adding a fourth rig on their call. This morning.
Wondering if there's a scenario where we could potentially see some upside versus N V 6 and 2022 maybe.
Expectations.
Yeah, so from a from a 'twenty 'twenty 2 perspective, if you remember the the 'twenty 'twenty 2 is set at a higher rig rate back win win Hess was still running at 6 rigs so.
We're going to be at or slightly below N V. CS are until.
Get ahead of it to be at or slightly below and b. He's in 'twenty 'twenty, 2 but as we move into 2023, we see opportunity for continued volume growth with the addition of a third rig and potentially the addition of a fourth rig so we do anticipate.
Being above M P. CS in the longer term so so overall.
<unk>, I think where we're well positioned 'twenty 'twenty 2 is going to be.
Kind of a transitional year for US and then we'll we'll begin to see that that volume growth again and start to get above the the MVC levels.
Okay got it that's helpful. Thank you and then maybe back to just some of the potential.
We're all on big opportunities you talked about.
If in the absence of the Gulf of Mexico, just kind of curious what kind of opportunities in terms of bolt ons, you think would make sense for Hassan.
I guess, specifically are you looking just at the Bakken or would you be interested in potentially looking at opportunities in other basins.
I mean, I think we've been pretty clear that our focus is the Bakken our focus is taking care of Hess and our other customers in the in the basin. So that is our priority.
As we talked about you know Gulf of Mexico is definitely an attractive opportunity for us and something that is available to us we don't need it from a growth perspective, but it.
Yeah and that we're continuing to work through and you know can can pull that can pull that trigger pretty much anytime we're ready for that again, there's no plans to do anything this year for that and back to the Bakken as far as our infrastructure goes that we definitely see opportunities to continue to build on our strategic.
Is some footprint and that's the priority, it's really a priority around Hess and our third party customers and where the infrastructure adds strength in our footprint strengthen our ability to take care of our customer needs and make sure that we're able to get them to market. So we would we would definitely look at opportunities for bolt ons are there going to be.
Eric you know smaller opportunities I would say and I would say and the other piece that's again.
Then really important to emphasize is it's all it represents all upside for us it's all growth potential so nothing that we've built into our plans as of yet, but you know we're always interested in the strengthening of our position and that continues.
Used to be a focus for us.
Got it I'll leave it there thank you.
Okay. Thank you.
Thank you on our next question comes from the line of Alonso Guerra Garcia with Scotiabank. Your line is open. Please go ahead.
Hey, guys I appreciate the time a couple here.
Here at a pretty brief but wondering about the more about the 10% distribution increase that came along with the sponsor buyback announcement of course, that's in excess of the 5% growth target. So it was this more of a 1 time right sizing of the distribution level I guess I'm just.
Curious about the decision to lift that meaningfully and if that's something that that's.
That's sort of stays on your playbook for the future just given that guidance on growing by a by a minimum of 5%.
Sure. So as we've always said the way we look at the dividend is on what's the right output what is sustainable what is consistent with our financial metrics. As you look forward as we had said we're going to be free cash flow positive after.
Conditions are still above 1.4 times coverage, even with this distribution level step up and even after this distribution increase we're still going to be $75 million on free cash flow positive. After distributions this year and as I said earlier, we will continue to be free cash flow positive. After distributions again next year. So we're really on a unique position that.
That we're able to not just do some type of special 1 time dividend.
Dividend, but actually to be able to provide ongoing and lasting.
Return on capital to our shareholders through a step up in the level and again, we're stepping up the level of distribution by 10% and then we'll be growing off that new level 5 per cent going forward on an annualized basis. So.
Really for US that's the right output, it's sustainable it's consistent with our financial metrics on with our strategy.
Got it that's helpful. Jonathan.
And then I guess.
Follow up on on activity in the Bakken I guess so.
Obviously third rig potentially force maybe by the end of.
Year I'm, just wondering what you're seeing in terms of activity increases from the third party customers and ultimately you know how you see that kind of playing into the to the mix of third parties for your business you know for the foreseeable future.
Sure just from the standpoint of third parties just to hit that first I mean, we've we've continued to see.
Pretty stable volumes coming from third parties are about 10% on the gas and 15% on oil and so that's that's kind of our revised forecast or our estimate going into the into the future.
Now as I as I, just kind of look at the basin more broadly there definitely is activity ramping up across all producers. So it's not it's.
Not just Hess theres other producers as well and so that does represent upside for us, but until we start to see that coming into the system. You know that'll be something that we'll continue to monitor and manage the the fortunate thing that we have is the the infrastructure's in place we're already connected to a lot of these customers as it as it is.
So as they grow their volumes, where we're well positioned to capture that upside and so from our perspective.
We're forecasting the 10 and 15% respectively between gas and oil and then looking at opportunities as the as the broader base on ramps and to be in a position to help our customers capture their volumes.
So meet flaring with reductions in capture water and oil as well and get to get to the best are the best markets available.
Got it makes sense, thanks, John I'll leave it there thanks.
Okay. Thank you.
Thank you very much. This concludes today's conference. Thank you for participating.
And you May now disconnect everyone have a great day.
Yeah.
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