Q2 2025 Hess Midstream LP Earnings Call
Good day, ladies and gentlemen, and welcome to the second quarter 2025 Hess Midstream conference call. My name is Gigi, and I'll be your operator for today. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *1 1.
On your telephone you will then hear an automated message. Advising your hand is raised to withdraw your question. Please press star 1 1 again.
Please be advised that today's conference is being recorded for replay purposes.
Jennifer Gordon: Thank you, Gigi. 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.hessmidstream.com. Today's conference call contains projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include those set forth in the risk factors section of Hess Midstream's filings with the SEC. Also, on today's conference call, we may discuss certain GAAP financial measures. A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the earnings release.
I would now like to turn the conference over to Jennifer Gordon, vice president of investor relations, please proceed.
Thank you, Gigi good afternoon everyone and thank you for participating in our second quarter earnings conference. Call our earnings release was issued this morning and appears on our website www.hes. Midstream.com,
Today's conference call contains projections and other forward-looking statements. Within the meaning of the federal Securities laws. These statements are subject to known, and unknown risks, and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include those set forth in the risk factor section of Hesse midstream's filings with the SEC.
Also, on today's conference call, we may discuss certain gaap Financial measures.
Jennifer Gordon: With me today are Jonathan Stein, Chief Executive Officer; John Gatling, President and Chief Operating Officer; and Mike Chadwick, Chief Financial Officer. I'll now turn the call over to Jonathan Stein.
A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the earnings release.
Jonathan Stein: Thanks, Jennifer. Welcome, everyone, to our second quarter 2025 earnings call. I have a few opening comments, and then we'll hand the call over to John Gatling to review our operations and Mike Chadwick to review our financials. I wanted to first say that we are all excited and eager to work together with our new Chevron colleagues to continue to drive value for our shareholders. Our new board members, including our new chair, Andy Walz, Chevron's president of Downstream, Midstream, and Chemicals, have significant experience across the upstream, midstream, and downstream businesses and complement the operational and financial expertise of our current board members. I am also excited to welcome Mike Chadwick to his new role as Chief Financial Officer of Hess Midstream.
With me today are Jonathan Stein, chief executive officer, John Gatling president and Chief Operating Officer and Mike, Chadwick Chief Financial Officer. I'll now turn the call over to Jonathan Stein.
Thanks, Jennifer.
Welcome, everyone, to our second quarter 2025 earnings call.
Have a few opening comments, and I will hand the call over to John Gatling to review our operations, and Mike chaddock to review our financials.
I wanted to First say that we are all excited and eager to work together, with our new Chevron colleagues, to continue to drive value for our shareholders.
Our new board members including our new chair Andy walls, chevron's president of Downstream, Midstream and chemicals have significant experience across the Upstream Midstream and downstream businesses and complement. The operational Financial expertise of our current board members.
Jonathan Stein: I've worked alongside Mike for the past 20 years as he's progressed through various financial roles at Hess Corporation, and we are fortunate to have his experience and leadership capabilities working with the Midstream. I am also excited to step into my new role as CEO of Hess Midstream. Since our IPO, we have created value for shareholders through operational excellence and execution that drives a visible trajectory of growth and supported by a financial strategy that includes a differentiated combination of balance sheet strength and a priority on shareholder returns. With the continuity of the Midstream team in place, we are excited to take this strategy forward as we continue to build Hess Midstream with a unique combination of sector-leading growth and shareholder returns. Today, I want to focus briefly on three themes.
I am also excited to welcome Mike. Chadwick to his new role as Chief Financial Officer of hasid stream.
I've worked alongside Mike for the past 20 years. As he's progressed through various Financial roles, it has Corporation and we are fortunate to have his experience and Leadership capabilities, working with the midstream
I am also excited to step into my new role as CEO of has midstream.
Since our IPO, we have created value for shareholders through operational excellence and execution that drives a visible trajectory of growth, supported by a financial strategy that includes a differentiated combination of balance sheet strength and a priority on shareholder returns.
With the continuity of the Midstream team in place, we are excited to take this strategy forward as we continue to build. Hess Midstream has a unique combination of sector-leading growth and shareholder returns.
Jonathan Stein: First, we continue to deliver outstanding operational performance, which you can see reflected in the quarter that we reported today and also in our fourth annual sustainability report, which we issued a few weeks ago and which highlights our commitment and track record of safe and reliable execution. In the second quarter, throughputs increased across all segments, and we are in line with our annual guidance for volumes to grow by approximately 10% across all oil and gas systems in 2025 compared with 2024. Second, we continue to deliver outstanding financial performance. We are estimating an approximate 11% increase in adjusted EBITDA growth in 2025, with approximately 7% growth at the midpoint in the second half of the year.
Today, I want to focus briefly on three themes.
which highlights our commitment and track record of safe and reliable execution.
In the second quarter, throughputs increased across all segments. And we are in line with our annual guidance, or volumes to grow by approximately 10% across all oil and gas systems in 2025, compared with 2024
Jonathan Stein: With total expected capital expenditures of approximately $300 million, we expect to generate adjusted free cash flow of approximately $725 to $775 million, which more than covers our targeted 5% annual distribution growth and generates excess free cash flow. And third, we are committed to our ongoing financial strategy, which prioritizes return of capital to our shareholders and has made Hess Midstream's total shareholder return yield one of the highest of our Midstream peers, while also maintaining one of the lowest leverage ratios. Highlighting our balance sheet strength, last week, Hess Midstream's senior unsecured debt was upgraded by S&P to an investment-grade rating of triple B minus, following the close of the Chevron-Hess merger.
Second, we continue to deliver outstanding financial performance. We're estimating an approximate 11% increase in adjusted EBIT and growth in 2025, with approximately 7% growth at the midpoint in the second half of the year.
With total expected capital expenditures of approximately $300 million, we expect to generate adjusted free cash flow of approximately $725 to $775 million, which more than covers our targeted 5% annual distribution growth and generates excess free cash flow.
Jonathan Stein: Since 2021, we have returned greater than $2 billion to shareholders through accretive repurchases and have increased our distribution per class A share by more than 60% through 5% targeted annual distribution growth and distribution level increases following each share repurchase transaction. We expect to generate greater than $1.25 billion of financial flexibility through 2027 for incremental shareholder returns, including the potential for further unit and share repurchases over this period. With a consistent strategy at Hess Midstream, we are excited for the future. We have a visible trajectory of growth that underpins our unique and differentiated financial strategy with a continued focus on consistent and ongoing return of capital to our shareholders. With that, I'll hand the call over to John to review our operational performance for the second quarter.
And third we are committed to our ongoing Financial strategy which prioritizes return of capital to our shareholders and has made has made dreams total shareholder return. The old 1 of the highest of our Midstream peers while also maintaining 1 of the lowest leverage, ratios highlighting our balance sheet strength. Last week has Midstream senior unsecured debt was upgraded by S&P to an investment grade rating of Triple, B. Minus following the close of the Chevron has merger.
Since 2021, we have returned greater than 2 billion dollars to shareholders through a creative repurchases and have increased our distribution per class A share by more than 60% to 5% targeted, annual distribution growth and distribution, level increases following each share, we purchase transaction.
We expect to generate greater than $1.25 billion of financial flexibility through 2027 for incremental share of returns, including the potential for further unit and Cherry purchases over this period.
With a consistent strategy, it has been streamed. We are excited for the future. We have a visible trajectory of growth that underpins our unique and differentiated Financial strategy. With a continued focus on consistent and ongoing return of capital to our shareholders with that. I'll hand the call over to John to review, our operational performance for the second quarter.
John Gatling: Thanks, Jonathan. Today, I'll discuss our second quarter performance, then Mike will review our financial results and guidance. In the second quarter, Hess Midstream delivered record operating performance. Throughput volumes averaged 449 million cubic foot per day for gas processing, 137,000 barrels of oil per day for crude terminaling, and 138,000 barrels of water per day for water gathering. Throughputs increased across all segments of our business, with gas processing and oil terminaling volumes increasing by approximately 6% and 10%, respectively, from the first quarter, primarily driven by outstanding upstream production performance and high midstream system availability. Turning to Hess Midstream guidance, we're again reaffirming our previously announced full-year 2025 oil and gas throughput guidance. In the third quarter, we expect volume growth from the second quarter across our oil and gas systems, partially offset by higher seasonal maintenance activity.
Thanks, Jonathan. Today, I'll discuss our second quarter performance. Then, Mike will review your financial results and guidance.
In the second quarter, Hess Midstream delivered record operating performance.
Throughput volumes averaged, 449 million cubic foot per day for gas processing.
137,000, barrels of oil per day for crude termine.
And 138,000 barrels of water water per day for water Gathering.
Throughputs increased across all segments of our business with gas processing and oil, termine volumes, increasing by approximately 6% and 10% respectively from the first quarter.
Primarily driven by outstanding upstream production performance and high midstream system availability.
Turning to hes Midstream guidance.
Where again, reaffirming our previously announced full year 2025 oil.
And gas throughput guidance.
John Gatling: Turning to Hess Midstream's capital program, our multi-year projects continue as planned. In 2025, we remain focused on the completion of two new compressor stations and associated gathering systems, as well as continuing to progress the CAPA gas plant. Full-year 2025 capital expenditures remain unchanged and are expected to total approximately $300 million. In summary, we remain focused on executing our strategy of disciplined, low-risk investments to meet basin demand while maintaining reliable operations and strong financial performance. We expect our growth strategy to generate sustainable cash flow and create opportunities to return capital to our shareholders. I'll now turn the call over to Mike to review our financial results and guidance.
In the third quarter, we expect volume growth from the second quarter across our oil and gas systems, partially offset by higher seasonal maintenance activity.
Turning to Hess midstream's Capital program. Our multi-year projects continue as planned and 2025, we remain focused on the completion of 2, new compressor, stations, and Associated Gathering systems, as well as continuing to progress the Kappa gas plant.
Full year 2025, Capital expenditures remain unchanged and are expected to Total approximately dollars.
In summary, we remain focused on executing our strategy of disciplined low-risk Investments to meet Basin demand, while maintaining reliable operations and strong financial performance.
We expect our growth strategy to generate sustainable cash flow and create opportunities to return capital to our shareholders.
Mike Chadwick: Thanks, John, and good afternoon, everyone. I wanted to say first that I'm really excited to join the Hess Midstream team and look forward to meeting you in the future. Today, I'm going to review our results for the second quarter and our financial guidance, and then we will open the call for questions. For the second quarter of 2025, net income was 180 million compared to 161 million for the first quarter. Adjusted EBITDA for the second quarter of 2025 was 316 million compared to 292 million for the first quarter.
I'll now turn the call over to Mike to review our financial results and guidance.
Thanks, John, and good afternoon, everyone. I wanted to say first that I'm really excited to join the Hess Midstream team and look forward to meeting you in the future.
Today I'm going to review our results for the second quarter and our financial guidance and then we will open the call for questions.
For the second quarter of 2025, net income was $180 million compared to $161 million for the first quarter.
Mike Chadwick: The increase in adjusted EBITDA relative to the first quarter was primarily attributable to the following: total revenues, excluding pass-through revenues, increased by approximately 30 million, primarily driven by higher throughput volumes, resulting in segment revenue changes as follows: gathering revenues increased by approximately 16 million, processing revenues increased by approximately 9 million, terminaling revenues increased by approximately 4 million, and third-party services and other income increased by approximately 1 million. Total costs and expenses, excluding depreciation and amortization, pass-through costs, and net of our proportional share of LM4 earnings, increased by approximately 6 million, primarily from higher seasonal maintenance activity and third-party processing fees. This resulted in adjusted EBITDA for the second quarter of 2025 of 316 million. Our gross adjusted EBITDA margin for the second quarter was maintained at approximately 80%, above our 75% target, highlighting our continued strong operating leverage.
Adjusted EBITDA for the second quarter of 2025 was $316 million, compared to $292 million for the first quarter.
The increase in adjusted EBITDA relative to the first quarter was primarily attributable to the following.
Resulting in segment revenue changes as follows.
Gathering revenues increase by approximately $16 million.
Processing revenues increase by approximately $9 million.
Terminaling revenues increased by approximately $4 million, and third-party services and other income increased by approximately $1 million.
Total costs and expenses, excluding depreciation and amortization, pass-through costs, and net of our proportional share of LM4, earnings increased by approximately $6 million, primarily from higher seasonal maintenance activity and third-party processing fees.
This resulted in an adjusted EBA for the second quarter of 2025 of $316 million.
Mike Chadwick: Second quarter capital expenditures were approximately 70 million, and net interest, excluding amortization of deferred finance costs, was approximately 52 million, resulting in adjusted free cash flow of approximately 194 million. We had a drawn balance of 273 million on our revolving credit facility at quarter end. In January, we announced that we are targeting annual distribution per class A share growth of at least 5% through 2027, which is supported by our existing MVCs. This week, we announced our second quarter distribution that included our targeted 5% annual growth per class A share and an additional increase utilizing the excess adjusted free cash flow available for distributions following the repurchase.
Our growth suggested evida margin for the second quarter was maintained at Approximately 80% above. Our 75% Target highlighting our continued strong operating Leverage
Second quarter capital expenditures were approximately $70 million, and net interest, excluding advertising and deferred finance costs, was approximately $52 million, resulting in adjusted free cash flow of approximately $194 million.
We had a drawn balance of $273 million on our revolving credit facility at quarter-end.
In January, we announced that we are targeting annual distribution per Class A share growth of at least 5% through 2027, which is supported by our existing MBCs.
Mike Chadwick: Turning to guidance, for the third quarter of 2025, we expect net income to be approximately 175 to 185 million and adjusted EBITDA to be approximately 315 to 325 million, reflecting higher volumes and revenues partially offset by seasonally higher maintenance costs. We also expect CAPEX to increase in the third quarter, consistent with seasonally higher activity levels. For the full year 2025, we are updating net income and adjusted free cash flow guidance to include the impact of an incremental 15 million in expected interest expense, mainly on higher debt balance following the repurchase transactions completed so far this year. The updated net income guidance also includes the impact of an incremental 15 million in expected income tax expense resulting from ownership changes following the previously completed secondary equity offerings and repurchase transactions. As a result, we now expect net income of 685 to 735 million.
This week, we announced our second-quarter distribution, which included our targeted 5% annual growth per class A share, as well as an additional increase utilizing the excess adjusted free cash flow available for distributions following the repurchase.
Turning to guidance.
For the third quarter of 2025, we expect net income to be approximately $175 million to $185 million and adjusted EBITDA to be approximately $315 million to $325 million, reflecting higher volumes and revenues, partially offset by seasonally higher maintenance costs.
We also expect capital expenditures (capex) to increase in the third quarter, consistent with seasonally higher activity levels.
For the full year 2025, we are updating net income and adjusted free cash flow guidance to include the impact of an incremental $15 million in expected interest expense from higher debt. This balance follows the repurchase transactions completed so far this year.
The updated net income guidance. Also includes the impact of an incremental 15 million in expected income tax expense. Resulting from ownership changes following the previously completed, secondary Equity offerings and repurchase transactions.
Mike Chadwick: We are maintaining our adjusted EBITDA guidance range of 1,235,000 to 1,285,000,000, implying growth of approximately 7% in adjusted EBITDA at the midpoint in the second half of the year. With total expected capital expenditures of approximately 300 million, we now expect to generate adjusted free cash flow of approximately 725 to 775 million. With distributions per class A share targeted to grow at least 5% annually from the new higher distribution level, we expect excess adjusted free cash flow of approximately 125 million after fully funding our targeted growing distributions. We continue to have more than 1.25 billion of financial flexibility through 2027 that can be used for continued execution of our return of capital framework, including potential ongoing unit and share repurchases. This concludes my remarks. We will be happy to answer any questions, and I will now turn the call over to the operator.
As a result, we now expect net income of $685 to $735 million.
We are maintaining our adjusted ebit. Guidance range of 1,235 to 1,285 million implying growth of approximately 70% 7% in adjusted ibida, at the midpoint in the second half of the year.
With total expected capital expenditures of approximately $300 million, we now expect to generate adjusted free cash flow of approximately $700 million to $775 million.
With distributions per class, a share targeted to grow at least 5% annually from the new higher distribution level. We expect excess adjusted free cash flow of approximately $125 million after fully funding our targeted growing distributions.
We continue to have more than $1.25 billion of financial flexibility through 2027, that can be used for continued execution of our return of capital framework, including potential ongoing unit and share repurchases.
Gigi: Thank you. As a reminder, to ask a question, please press star one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star one-one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeremy Tonne from JP Morgan Securities LLC.
This concludes my remarks. We will be happy to answer any questions, and I will now turn the call over to the operator.
Thank you. As a reminder, to ask a question, please press star, 1, 1, 1 on your telephone, and wait for your name to be announced.
To withdraw your question, please press *1 1 again.
Please stand by while we compile the Q&A roster.
Analyst (rotating: Broughton and Reddy for Jeremy Tonne, Doug Irwin, John McKay): Hey, good morning. This is Broughton and Reddy on for Jeremy. I wanted to start off with the Hess deal now closed, if you guys have any insight into Chevron's view in the BOC and whether the rate count there could change. And if there were to be changed, could you remind us on the sensitivity to Hess M in terms of the EBITDA growth you guys have laid out and the expectation for higher volumes across the systems in '26 and '27?
Our first question comes from the line of Jeremy Ton from JP Morgan Securities LLC.
John Gatling: Yeah, maybe I'll touch on it, and then Jonathan and Mike can hit it as well. But just from our perspective, you know we're currently running four rigs. We've seen very strong upstream performance, low delivery with our increased laterals, and the midstream availability has just been phenomenal. You know we'll continue to execute strongly and stay focused on that. And as we do every year, we'll update our development plan as we get an update with Chevron coming in as our sponsor. So that'll happen towards the end of the year, and then we'll be issuing guidance in January.
Hey, good morning. This is, uh, broth and ready on for Jeremy. I wanted to start off with the heel now closed. If you guys have any insight into Chevron's view in the box and whether the rig count could change. And if there were to be changed, could you remind us of the sensitivity to SM in terms of the EVA growth? You guys have laid out the expectation for higher volumes across the systems in 2026 and 2027.
Availability is, is just been phenomenal. You know, we'll continue to to, to execute strongly and stay focused on that. And as we do every year, we'll update our uh, development plan, as we get an update with with Chevron coming as our as our sponsor. So that'll happen at the towards the end of the year and then we'll be issuing guidance, uh, guidance in January.
Analyst (rotating: Broughton and Reddy for Jeremy Tonne, Doug Irwin, John McKay): Got it. Thank you. And then turning to capital allocation, wondering if you could talk a little bit specifically about your appetite for buybacks at current prices and with GIP selldown now complete, if we should think about any change in the magnitude of repurchases going forward.
Got it. Thank you. And then turning to capital allocation, I’m wondering if you could talk a little bit specifically about your appetite for buybacks at current prices. With the GIPP cell down now complete, should we think about any change in the magnitude of repurchases going forward?
Mike Chadwick: Yeah, so with buybacks, as we announced in January, we have about 1.25 billion of financial flexibility through 2027, and we expect to do multiple repurchases a year as we've done in the past. So there's no change to that guidance. As we previously mentioned, our January repurchase that was in lieu of not having completed a repurchase in Q4 of last year, our May repurchase of 200 million, which included the public for the first time, that got us back into our cadence of about 100 million every quarter. However, the size of that is not set in stone. But generally, 100 million a quarter is what we will be completing, as we have done over the last couple of years.
Yeah. So with buybacks, as we announced in January, we have about $1.25 billion of financial flexibility through 2027, and we expect to do multiple repurchases a year, as we've done in the past. So there's no change to that guidance.
As we previously mentioned in January, we purchased, that was in lieu of you not having completed a repurchase in Q4 of last year.
Jonathan Stein: And this is Jonathan. As we said at the beginning, and as I said in my comments, overall, there's no change to our strategy in terms of our business strategy and to our financial strategy. And you saw that just this week. We issued, as Mike said, our quarterly dividend announcement on Monday night that included our distribution level increase, as well as the 200 million increase following the 200 million share buyback that we did earlier. So really, no change in our return of capital program going forward. You mentioned GIP. Obviously, with GIP out in terms of secondaries, that's not something that we expect. But in terms of return of capital, which is really always focused on that framework that continues as is.
Or may we purchase of $200 million, which included the public for the first time, that got us back into our cadence of about $100 million every quarter. However, the size of that is not set in stone, but generally $100 million a quarter is what we will be completing as we have done over the last couple of years.
Analyst (rotating: Broughton and Reddy for Jeremy Tonne, Doug Irwin, John McKay): Makes sense. Thank you, guys.
And this is Jonathan, you know as we said at the beginning as I said in my comments, you know, overall uh there's no change to our strategy in terms of our business strategy and to our financial strategy. And you saw that uh just this week, we issued as Mike said, you know, our quarterly uh dividend announcement on Monday night. That included our distribution level increase as well as the 200 million. Uh, increase following the 200 million share buyback that we did earlier. So you really know no change in our return of capital program, going forward. You mentioned Gip obviously Gip out in terms of uh, secondaries, you know, that's not something that we expect. But in terms of Return of capital, which is really always focused on that framework, that continues as is
Gigi: Thank you. One moment for our next question. Our next question comes from the line of Samuya Jane from UBS.
makes sense. Thank you guys.
Thank you. One moment for our next question.
Samuya Jane: Hi, good afternoon. Congrats on the quarter. I was wondering, how are you guys seeing GORs trending in the near term? And along with that, what's your outlook on the BOC heading into 3Q?
Our next question comes from the line of Somua, Jane from UBS.
John Gatling: Yeah, so the GORs really haven't changed. You know, as the basin matures over the longer term, GORs are expected to increase, which they're acting exactly as we would expect them to. Looking at the North Dakota Pipeline Authority, Justin Crinstedt and the team there are kind of looking at longer-term basin growth in the gas space. And it is anticipated that BOC gas is going to grow over the long term. And we would expect the Hess and Chevron BOC volumes to basically do the same, trend the same way. So we're expecting oil to remain in the Pipeline Authority's forecast. They're expecting oil to remain flattish with gas growing over the longer term.
Hi. Good afternoon. Congrats on the quarter. Uh, I was wondering how you guys are seeing gas trending in the near term, and along with that, what's your outlook on the Bakken for heading into Q3?
Yeah, so the GRS really haven't changed. Um, you know, as the basin matures over the longer term, gas production is expected to increase, which they're acting as exactly as we would expect them to. Um, looking at the North Dakota Pipeline Authority, Justin Kinstead and the team there are kind of looking at longer-term basin growth in the gas space.
Samuya Jane: Got it. Thank you. And then could you detail where gas processing volumes are at now over the past month? Any changes to note? We're just trying to understand the cadence. And same with oil terminaling?
And it is anticipated that bachan gas is going to grow over the long term. And we would expect the uh, the Hess and Chevron bachan volumes to to basically uh, do the same Trend, the same way. So we're expecting oil to remain in the in the pipeline authorities, forecast. They're expecting oil to remain flattish with uh, with with gas growing over the longer term.
Got it. Thank you.
John Gatling: Yeah, I think generally speaking, we've seen and expect to continue to see the growth through the end of the year as our guidance has supported that. So again, we had a very, very strong second quarter. We do continue to expect to see growth into the third and fourth quarters and finish the year at guidance. So I would say you would continue to see that growth through '26, '27 as the MVCs have kind of outlined. And again, if there's any changes to the development plan, that'll happen as part of our normal annual development plan process, and that'll be updated in January.
And then could you detail our gas processing volumes? Are it now over the past month, any changes to know or just trying to understand the Cadence and same with oil terminology,
Samuya Jane: Got it. Thank you.
John Gatling: Yeah, thank you.
Yeah, I I think generally speaking we've seen and expect to continue to see the growth of the end of the year um as our guidance as as, as supported that. So again, we had a very, very strong second quarter. We do continue to expect to see growth into the third and fourth quarters, and, and finish the year, uh, at guidance. So I would say you would continue to see that growth through 26/27 as the as the mvc's have kind of outlined. And again, if if there's any, if there's any changes to the development plan, that'll happen. Uh, as part of our normal annual development, problem process, and, and that'll be updated in, uh, in January.
Gigi: Thank you. One moment for our next question. Our next question comes from the line of Doug Irwin from CITI.
Got it. Thank you. Yeah, thank you.
Thank you. One moment for our next question.
Our next question comes from the line of Doug Irwin from City.
Analyst (rotating: Broughton and Reddy for Jeremy Tonne, Doug Irwin, John McKay): Thanks for the question. Congrats, Jonathan, and Mike on the new roles as well. I'm just trying to start with the guidance range here. So I just took the first half of guidance, first half of '25 guidance just in the aggregate. I think you're trending about 15 million above the guided midpoint here year to date, and now third quarter is pointing to a bit more growth from here. I guess, is it fair to say you're trending above the annual midpoint at this point, or are there maybe some variances or is your initial outlook that has kind of shifted around the timing throughout the year here versus your initial second half expectations?
Hey, thanks for the question. Um, congrats Jonathan Mic on the new roles as well.
I just want to start with the the guidance range here, if I just take the the first half.
John Gatling: Now, maybe I'll touch on the operational side, and I can hand it over to Mike and Jonathan. But overall, again, we had an extremely strong second quarter. You know, very little weather impact, essentially no maintenance activity. You know, coming out of the first quarter, which was a bit more challenging, you know, we were really just trying to stabilize operations, and I think we were very pleased with how both the upstream performed, but also how the midstream performed. You know, we're going to continue to see that growth going into the third and fourth quarters. But you know, as we transition in, we are expecting to see a little bit more maintenance in the second half of the year. And that'll probably be kind of in the later part of the year. We're still kind of planning all of the activity, but there's still some room there.
Of guidance first half 25 guests just in the aggregate. Think you're turning about 15 million of those. The the guided midpoint here year to date. And and now third quarter is pointing to a bit more growth from here, I guess is is is it fair to say you're turning above the, the annual midpoint at this point or there may be some variances? First, your initial Outlook that is is kind of shifted around the timing throughout the year here versus your your initial second half expectations.
John Gatling: And again, I think we're still very comfortable with the guidance that we've got currently.
Mike Chadwick: Yeah, thanks, John. And I'll just tack on the back of that, as we have seen, we're keeping our adjusted EBITDA guidance for the year, which already includes quite a lot of growth baked into the second half. You know, as Jonathan said and I said in my notes, taking the midpoint of our full-year guidance, we expect about 7% higher EBITDA in the second half of the year compared to the first half. And so while revenues are expected to grow on higher volumes, as John described, you know, phasing of maintenance costs means expenses are expected to be higher in Q3. And we also retain some winter weather contingency in Q4. And while winter weather can also lower maintenance costs, Q4 also typically sees some variability in our allocation costs. So we're keeping guidance there for the second quarter.
And it can hand it over to, to Mike and Jonathan. But overall we again, we had an extremely, uh, strong second quarter. Um, you know, very little weather impact, essentially no maintenance activity. Um, you know, coming out of the first quarter which was a bit more challenging, you know, we were really just trying to stabilize operations and I think we were very pleased with how both the the Upstream perform but also how the Midstream performed, you know, we're going to continue to to, to see that growth going into the third and fourth quarters. But you know, as we transition in we we are expecting to to see a little bit more maintenance in the in the second half of the year and that'll probably be kind of in the, in the later. Part of the Year, we're still kind of planning all of the all of the activity but there's there's still there's still some some some room there and we're again I think we're. We're still very comfortable with the guidance that we've got currently.
Yeah, thanks, John. And, and, and I'll just tag on the back of that as we...
Have seen, we keeping our adjusted. EBA guidance for the year which already includes quite a lot of growth baked into the second half. You know, as as Jonathan said and I said in my notes taking the midpoint of our full year guidance, we expect about 7% higher ebita in the second half of the year compared to the first half. And so while revenues are expected to grow on higher volumes, as John described, you know, phasing of Maintenance costs means expenses, are expected to be higher in Q3 and we also retain some winter weather contingency in Q4. And while winter weather can also lower maintenance costs key for also typically sees some variable
Melody and our allocation costs. So we're keeping guidance there um for the second quarter.
Analyst (rotating: Broughton and Reddy for Jeremy Tonne, Doug Irwin, John McKay): Okay, that's helpful. Thank you. And then maybe another on buybacks, just asking a slightly different way. It's obviously early on in the relationship with Chevron here. I'm just curious if you expect them to participate in buybacks kind of similar to how Hess did, or will buybacks moving forward pretty much be entirely dependent on buying back shares from public owners? And to the extent that you are buying back more public shares, does just general liquidity of those public shares impact kind of your ability to maintain the run rate kind of in as smooth of a cadence as you have in the past?
That's all. Thank you. Um, and then.
Another on BuyBacks, just asking if slightly different way. Um, it's it's obviously early on in the relationship with Chevron. Here I'm just curious. If you, you expect them to participate in BuyBacks kind of similar to to how hes did or will BuyBacks, moving forward, pretty much the entirely dependent on on buying back shares from public owners and to the extent that you are buying back more public shares does just general.
Jonathan Stein: Sure. This is Jonathan. Yeah, look, there's no change. As we had said in the past, you know, when we had secondaries and buybacks happening simultaneously, they were really two separate objectives. While the secondaries were changing ownership levels, the buyback program is really just a return of capital program. And so you would expect over time that we'll have the same, you know, participation, more closer to the relative proportional levels of the public and Chevron going forward. So really no change to our approach there. We did include, as you know, now we have the kind of road tested, I'll call it, or use the ASR process last time to include the public in our buyback program and have that mechanism available for us to be able to do that going forward as well. So really no change there.
Liquidity of those public shares. In fact, kind of your ability to to maintain the Run rate kind of in as smooth of a guidance as he has in the past.
Sure, this is Jonathan. Yeah, look, there’s no change, as we had said in the past. You know, when we had secondaries and buybacks happening simultaneously, there were really two separate objectives. While the secondaries were changing ownership levels, the buyback program is really just to return a capital program. And so you would expect, over time,
Jonathan Stein: And in terms of our liquidity, I think you've seen that our liquidity has continued to increase as we did all the secondary transactions and the public ownership went up. Our liquidity at this point and average area trading volume is more than sufficient to handle our buyback program at the level that we've done in the past and expect to do going forward.
That, uh, we'll have the same, you know, participation more closer to the relative proportional levels of of the public, and, and Chevron going forward. So really no change to our approach. Their, uh, we did include, as you know, now we have the, uh, we have kind of Road tested. I'll call it and use, uh, the ASR process last time to include the public in our buyback program and you know, have that mechanism available for us to be able to do that going forward as well. So really no change there. In terms of our liquidity. I think you've seen that our liquidity has, you know, continue to increase as we uh did all those uh the secondary transactions and the public ownership went up or you know, our liquidity at this point and average of trading volume is, you know, more than sufficient to handle our, our buyback program at the level that we've done in the past and expected to do going forward.
Analyst (rotating: Broughton and Reddy for Jeremy Tonne, Doug Irwin, John McKay): Great. That's all for me. Thanks, John.
Gigi: Thank you. One moment for our next question. Our next question comes from the line of Praneeth Satish from Wells Fargo.
Great. That's all for me. Thanks, Sean.
Thank you. 1 moment for next question.
Praneeth Satish: Thanks. Good afternoon. Also, congrats, Jonathan and Michael, on the new roles. Maybe can you just provide any more context around GIP's decision to exit its investment in Hess Midstream back in May? I mean, I know they were selling down their stakes, so it wasn't really a surprise. But I guess, why do it in May versus maybe after the merger with Chevron?
Our next question comes from the line of Praneet Satish from Wells Fargo.
Jonathan Stein: Sure. So as you know, over the past three years plus, we've been executing secondaries in a very disciplined fashion, each one increasing in size generally over time and with increasingly tighter discounts. A very disciplined approach. GIP saw an opportunity, as we'd always said. The secondaries were based on demand from investors, and then GIP would assess that relative to their value proposition expectations, and that opportunity existed in May. And so they continued taking that opportunity. They, of course, have their own investors and timeline and really executing relative to demand and their expectations, really independent of, at that point, any potential merger timing. So really just continuing the disciplined execution that we had had in the past, and the opportunity presented itself.
Thanks, good afternoon. Uh, also congrats to Jonathan and Michael on the new roles. Um, maybe you can just provide any more context around GIP's decision to exit its investment in Ines Midstream back in May. I mean, I know they were selling down their stakes, so it wasn't really a surprise, but I guess why do it in May versus, um, maybe after the merger with Chevron?
Praneeth Satish: Got it. And then maybe as a follow-up, I guess right or wrong, some investors viewed GIP as providing an independent voice that kind of helped balance the sponsor interests with those of the public. So I guess with GIP now out, how do you think about the new governance structure versus having that third-party institutional investor at the table?
Sure. So, you know, as you know, we've over the past, you know, 3 years plus we've been uh, executing secondaries in a very disciplined fashion. Each 1, increasing, in size generally over time, and with increasingly tighter discounts. So very disciplined approach. Jip, uh, saw an opportunity as we'd always said, the second is based on demand from investors and then JP would assess that relative to their value proposition expectations and that opportunity existed in May. And so they continued uh, taking that opportunity, you know, they, of course, have their own investors and timeline and really, you know, really executing relative to demand and they have expectations really independent of at that point. Any potential merger uh timing. So really just continuing the disciplined execution that we had had in the past and opportunity presented itself.
Jonathan Stein: Sure. Yeah, no, we agree that one of our differentiating strengths relative to other sponsored midstream companies has been our balanced governance. And certainly with GIP, historically part of the board that provided some level of that. So consistent with that approach, as you saw, we updated our governance in June following the GIP's exit. And that included that certain key decisions require the approval of one independent director. That includes things like leverage above a certain level, issuing equity, or major capital decision, among other key strategic decisions. That mechanism is now in place. As you know, we're adding also a fourth independent board member. But this mechanism is in place independent of the number of board members at the time or the timing of the fourth independent member joining the board.
Got it. And then maybe as a follow-up, I guess, right? Or wrong. Um, you know, some investors have viewed Gip as as providing an an independent uh voice that kind of helped balance, um, the sponsor interests with those of the public. So I guess, with Gip. Now out, um, how do, how do you think about the new governance structure, um, versus having that, that third-party, uh, Institutional, Investor, at the table?
Sure yeah no we agree that you know, 1 of our differentiating strengths relative to other sponsored. Mission companies has been our balance governance and certainly with Gip historically, part of the board that provided some, you know, level of that. Uh, so consistent with that approach. As you saw, we updated our governance. Uh in June following the gip's exit and that included that certain key decisions, require the approval of 1 independent director. That includes things like Leverage above a certain level issuing Equity, or major Capital decision, among other key strategic decisions.
Jonathan Stein: So I think it really highlights our continued belief in the value of a balanced government model that we've had historically, and then with this new mechanism in place that we will continue to have going forward.
Praneeth Satish: Got it. Thank you.
That mechanism is now in place. As you know, we're adding also a fourth independent board member, but this mechanism is in place independent of the number of void members at the time or the timing of the fourth, uh, independent member joining the board. So I think it really highlights. Our continued belief in the value of a balance of model that we've had historically. And then with this new mechanism in place that we uh, will continue to have going forward.
Gigi: Thank you. One moment for our next question. Our next question comes from the line of John McKay from Goldman Sachs.
Thank you.
Thank you. 1 moment for our next question.
Analyst (rotating: Broughton and Reddy for Jeremy Tonne, Doug Irwin, John McKay): Hey, everyone, thanks for the time. I wanted to pick up a little bit more on the Chevron side. I totally understand it's early, and you'll have your annual review of activity levels later in the year. But Hess had been talking about this kind of 200 KBOE a day target for a long time. And then we've kind of thought about that as the reasonable run rate for the footprint. Could you maybe just, and acknowledging that can, I guess, change, but can you maybe just remind us kind of how that 200 a day level was set, kind of what the thought process behind it was, and then maybe from that any read on why that might be the right level going forward?
Our next question comes from the line of John McKay from Goldman Sachs.
John Gatling: Again, I think as we think about the 200,000 barrels a day, it was really kind of hitting the over 100,000 barrels a day of gross oil or of net oil, and then the gas growth over time. And as we've been doing just from an overall field development plan perspective, as we've really been trying to optimize the upstream drilling activity with the midstream infrastructure plan. And so it's really about having the infrastructure in place and then keeping that infrastructure as utilized as it possibly can be. And so when we looked at the build over time and looked at the infrastructure development and kind of where we felt like the development, the field development from the drilling perspective was happening, we felt like that that 200,000 barrels a day is about the right level.
Hey everyone. Thanks for the time. I wanted to pick up a little bit more on, on the Chevron side. I totally understand. It's early and you're, you know, you'll have your annual review of activity levels later in the year, but has it been talking about this kind of 200k BOE, a day Target for a long time. I think we've kind of thought about that as the the reasonable run rate for the footprint. Could you maybe just an acknowledging that can I guess change? But can you maybe just remind us kind of how that 200 A Day level was set? Kind of what the thought process behind it was and then, you know, maybe from that any read, on on, why that might be the right level going forward.
Again, I I think uh, as we think about the 200,000 barrels a day, it was really kind of hit in the the over 100,000 barrels, a day of of growth soil or of net oil and then the the gas growth over time. And as we've been doing just from a overall field development, plan plan perspective, is we really been trying to optimize the Upstream.
John Gatling: So outside of the two compressor stations that we're building this year, we're in the process of progressing the CAPA gas plant. As far as material long-term infrastructure activity, we're kind of at that level where the infrastructure is stable. And so from our perspective, we're kind of looking at this as how does the drilling activity and the infrastructure system really complement each other so that you get very, very high utilization of that equipment and really optimize the system itself. So that's really kind of where we are and how we've continued to look at it. And as we continue to look longer term, we'll look at our development plan again, which again, it's a very integrated activity between the upstream and the midstream. That'll happen in the fall, and then we'll be updating our longer-term guidance in January.
Drilling activity with the Midstream infrastructure plan. And so it's it's really about having the infrastructure in place and then keeping that infrastructure as utilized as it possibly can be. And so where when we looked at the build over time and looked at the infrastructure development and kind of where we felt like the development, the field development from the drilling perspective was happening. We felt like that that that 200,000 barrels a day is, is about the right level. So, you know, outside of the 2 compression stations that we're building this year, we're, you know, in the process of of progressing, the the Kappa gas plant, you know, as far as material long-term infrastructure, uh, activity. We're, we're kind of at that at that level where the infrastructure is stable. And so, from from our perspective, you know, we're kind of looking at this as how does the, the drilling activity and the infrastructure system really complement each other. So that you get very, very high utilization of of of that equipment.
Jonathan Stein: Yeah, this is Jonathan. One thing just to highlight, John really picked it up on the end, and I think it's important to highlight at this stage, which is one of the historic strengths of Hess Midstream has been the partnership that we've had between the upstream and the midstream, between Hess Midstream and the upstream at Hess, to be able to develop the BOC in the most optimal way. And now as we go forward with Chevron, there's no change to that partnership. There's no change to the focus on both of us working together to optimize the BOC and develop it, as John described. And as he said, the normal process will continue where we get an updated development plan. We'll figure out what's the right infrastructure required to meet that development plan going forward, and then we'll update our guidance based on that going forward.
And, and really optimize the, the system itself. So, that's that's really kind of where we are and and how we've, we've continued to look at it. And, and as we continue to look longer term, we'll we'll, you know, look at our development plan again, which again it's a, it's a very integrated activity between the upstream and the Midstream, you know, that'll happen in the fall and then we'll be updating our our longer term guidance in uh, January.
Jonathan Stein: So really continuing in that strong partnership that has really been a hallmark of our relationship historically.
Analyst (rotating: Broughton and Reddy for Jeremy Tonne, Doug Irwin, John McKay): That's helpful, and that's all clear. Maybe just one related one. Since you've seen kind of increased efficiencies on the upstream side there, just what's been the latest commentary around related inventory life?
Yeah this is Jonathan. You know 1 thing just to highlight John really picked it up on the end and I think it's important to highlight that the stage which is 1 of the historic, strengths of has dream has been the partnership that we've had between the upstream and the Midstream machine has Midstream and the Upstream, it has to be able to develop the Block in the most optimal way. And you know, now as we go forward with Chevron, there's no change to that partnership. There's no change to the focus on both of us, uh, working together to optimize the block and develop it as John described. And as he said, you know, that the normal process will continue where we get a update development plan. We'll figure out what's the right infrastructure required to me that development plan, going forward and then we'll update our guidance based on that going forward. So really continuing in that strong partnership that has really been a Hallmark of our relationship historically,
John Gatling: Yeah, I mean, I think we're still, everybody gets still hung up on rig count and well counts and all of that. And really, as we move into an extended lateral program, it really is the lateral footage drilled. And so from our perspective, the overall lateral footage that's been drilled as far as what's available to develop really remains unchanged. And in fact, we're actually seeing a little bit of growth in that space just from the standpoint of as those extended laterals become a bigger part of the portfolio, that creates opportunities for improved economics on those wells where they may be in more challenged areas. But if you're drilling a three, four-mile lateral, the economics get much better, and that unlocks some of the rock that may have been challenged before.
Since you've seen kind of increased efficiencies on the upstream side, what's been the latest commentary around related inventory, life?
John Gatling: So I think we continue to be extremely optimistic in that space, and that's something that continues to be a tailwind for us as we look forward for the basin development.
Analyst (rotating: Broughton and Reddy for Jeremy Tonne, Doug Irwin, John McKay): All right, that's clear. I appreciate the time. Thank you.
Yeah, I mean, I I think, you know, we're still everybody gets still hung up on rig count and well counts and all of that. And you know, really as we move into an extended lateral program, it really is the lateral footage drilled. And so from our perspective, the the overall lateral footage that's been drilled as far as what's available to develop, uh, really remains unchanged and in fact, we're actually seeing a little bit of growth in that space just from the standpoint of, as those extended laterals, become a bigger part of the portfolio that creates opportunities for improved economics on those Wells where they may be in more challenged areas. But if you're drilling a 3 4 MI lateral your your your the economics get get much better and that that unlocks. Some of the of the rock that may have been challenged before. So I think we're we continue to be extremely optimistic in that space and that's something that that continues to be a Tailwind for us as we as we look forward. Uh, for the the Basin development.
All right. That's clear. I appreciate the time. Thank you.
Gigi: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.