Q3 2025 Hess Midstream LP Earnings Call

Good day, ladies and gentlemen, and welcome to the third 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 you that your hand is raised. To withdraw your question, please press *1, 1 again.

Please be advised that today's conference is being recorded for replay purposes.

I would now like to turn the conference over to Jennifer Gordon, Vice President of Investor Relations. Please proceed.

Thank you, Gigi. Good morning, everyone, and thank you for participating in our third quarter earnings conference call. Our earnings release was issued this morning and appears on our website, www.hesmidstream.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 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.

With me today are Jonathan Stein, Chief Executive Officer, and Mike Chadwick, Chief Financial Officer. I'll now turn the call over to Jonathan Stein.

Thanks, Jennifer. Welcome, everyone, to our third-quarter 2025 earnings call.

Today, I have some brief opening comments, and we'll review our operations. Then, I'll hand the call over to Mike to review our financials.

In the third quarter, we continue to execute our operational priorities and deliver our financial strategy that prioritizes return of capital to shareholders.

In August.

Third quarter results benefit from an increase in third-party volumes as our customers navigated northern border pipeline maintenance towards the end of the quarter. This provides upside to our results and is a good reminder of the strategic nature of our midstream assets in the Balkan.

We also executed a 100 million share and unit purchase in the third quarter and increased our distribution by 2.4% or approximately 10% on an annualized basis per Class A share. This included our targeted 5% annual increase per Class A share and a distribution level increase following a repurchase. We maintained our total distributed cash on a lower share and unit count.

During the quarter, throughput volumes averaged 462 million cubic feet per day for gas processing, 130,000 barrels of oil per day for crude terminaling, and 137,000 barrels of water per day for water gathering.

Puts increased approximately 3% in gas gathering and processing compared with the second quarter.

We expect fourth quarter volumes to be relatively flat. With the third quarter on Lower expected, third-party volumes. As announced in the September guidance update into a lawful winter. Weather contingency and plan maintenance at the little Missouri, 4 gas plant.

20 has made Dreams Capital Program.

In the third quarter, we safely completed and brought online the first of two new compressor stations for the year. We expect completion of the second compressor station in the fourth quarter.

As announced in September, we have suspended activities on the Kappa gas plant and removed the project from our forward plans.

As a result of full year 2025, capital expenditures are now expected to total approximately $270 million.

we remain committed to our ongoing strategy with prioritizes online, return of capital to our shareholders, but most excess free cash flow after distributions and leverage capacity, relative to our long-term leverage Target of 3 times, adjusted Ava,

As we noted in our recent guidance update, with the removal of the Kappa gas plant from our forward plan, we expect significantly lower capital expenditures going forward, providing additional free cash flow to support our return of capital framework. Looking ahead, we will release guidance for 2026 and our 2028 MVCs after our budget process concludes in December.

With that, I'll hand the call over to Mike to review our financial performance for the third quarter and guidance for the fourth quarter.

Thanks, Jonathan. And good morning, everyone.

Today, I'm going to review our results for the third quarter and our financial guidance, and then we will open the call for questions.

For the third quarter of 2025, net income was $176 million compared to $180 million for the second quarter.

Adjusted EBITDA for the third quarter of 2025 was $321 million, compared to $316 million for the second quarter.

The increase in adjusted EBITDA relative to the second quarter was primarily attributable to the following.

Total revenues, excluding pass-through revenues, increased by approximately $7 million, driven by higher third-party gas gathering and processing throughput volumes, resulting in segment revenue changes as follows.

Gathering revenues increased by approximately $4 million.

Processing revenues increased by approximately $3 million.

Total costs and expenses, excluding depreciation and amortization, pass-through costs, and net of our proportional share of Little Missouri 4.

That resulted in adjusted EBITDA, before interest and taxes, for the third quarter of 2025 of $321 million.

Our growth suggested Ava and margin for the third quarter was maintained at approximately 80% above our 75% target, highlighting our continued strong operating leverage.

Third-quarter capital expenditures were approximately $80 million, and net interest, excluding amortization of deferred finance costs, was approximately $54 million, resulting in adjusted free cash flow of approximately $187 million.

We had a drawn balance of $356 million on our revolving credit facility at quarter-end.

In January, we announced we are targeting annual distribution per Class A share growth of at least 5% through 2027, which is supported by our existing MVCs.

Last week, we announced our third 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 100 million share repurchase completed in the third quarter.

Turning to guidance.

315 million to 325 million, reflecting scheduled maintenance and lower third-party volumes, as discussed in our September guidance release.

We are narrowing our full-year guidance for net income to $685 to $695 million, and for adjusted EBITDA, to $1 billion to $1.25 billion year-on-year at the midpoint of the guidance range.

Consistent with the suspension of the capital gas plant and the removal of the project from our forward plans, we now expect capital expenditures of approximately $270 million and adjusted free cash flow of approximately $760 to $770 million.

With distributions per class, a share targeted to grow at least 5% annually from the higher distribution level. We now expect excess adjusted free cash flow of approximately $1.14 billion after fully funding our targeted growing distributions.

We expect continued adjusted free cash flow growth through 2027 to support our targeted annual distribution per Class A share growth of at least 5% through 2027 and financial flexibility for incremental return of capital, including potential share repurchases.

As Jonathan mentioned, we will release guidance for 2026 and our 2028 MVCs after completing our budget process in December.

We remain committed to our ongoing strategy, which prioritizes the return of capital to shareholders.

This concludes my remarks. We will be happy to answer any questions. I'll now turn the call over to the operator.

Thank you. As a reminder, to ask a question, please press *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.

Our first question comes from the line of Jeremy Tonette from JP Morgan Securities LLC.

Hi, good morning.

Morning, morning. Morning morning.

Thanks for the uh, could just wanted to um dive in a little bit more on, I guess, block and trends here. And just wondering if you could talk about how goers are trending over time and how you think, um, you know, that projects going forward at this point impacting, uh, your business.

Okay. Sure, um, as you know, in in historically, uh, Hass is not had, you know, increasing goes because they've had a very active program Chevron. Now, operating 3 rigs, uh, certainly as an active program that tends to keep the GRS, uh, lower than, uh, in the program where, you know, Las Vegas and less.

Activity. But in general, uh, as we've talked about our expectation is, uh, based on the new guidance that we gave out, uh, at 3 rigs that that Chevron is running, we expect to maintain oil, uh, to plateau and then, uh, gas to increase over time, and that basically is driven by, uh, goes because at this point, we're really at almost full gas capture. So really the trend in gas is really going to be, uh, dwar driven. So, you know, with that, that will really, uh, continue to drive growth for has Midstream over the long term as gas and represent 75% of our revenues.

Got it, that's helpful. Thank you. And then, you know, given that backdrop, and not to get too far ahead of ourselves here, I was wondering if you could provide any thoughts into 2028 and beyond, how MVCs might be shaping up, expectations there, given Chevron moving to 3 rigs, as you described.

Yeah, what I'd say, like, if we're going to, uh, finish our development planning here with Chevron, uh, we'll approve our budgets in December, and then we'll give out guidance, uh, including 2026 guys, but also our 2020 EVC. So, uh, we'll just wait till then; it's, uh, not too far away.

Got it. Just the last one for me. We've seen some volatility in the share price here. Just wondering if you could provide any thoughts, I guess, on the cadence or approach to buybacks in the future.

Yeah, I could talk to that. 1 and, um,

I think, as we can see at the moment, our leverage is at 3 times. And, you know, we're guided in September that we'd have flat EBITDA in 2026.

And then we'd return to growth in 2027.

However, we would have significantly lower capex, as Jonathan mentioned, that will be an assist to our free cash flow.

Concerns regarding policy and any share, potential share repurchases.

Uh, understood. Thank you. I'll leave it there.

Thank you. One moment for our next question.

Our next question comes from the line of Doug Irwin from City.

Hey, thanks for the questions. Uh, maybe the to start on the capex Outlook. He's, he's talked about kind of expecting significantly, lower capacity over the next couple of years and I know we're about to get guidance and in a month or 2. Um, I think in the past, you you put out 125 million is, is kind of what you view is. More of a, a base level, they'll connect to run rate going forward is, is that kind of the right way to think about the the starting point for for 26, or the maybe still some additional discrete growth projects in in the backlog that we should be be looking at next year as well.

Sure, let me start, and then I'll hand over to Mike. I mean, I think in John Mall, as we said, historically $125 million is our expected ongoing capital, uh, that includes well connects, as you mentioned, as well as maintaining third parties at about 10% of our volumes. Uh, you know, I think certainly we said we're going to be significantly lower than the original guidance we had of $250 to $300 million for 2026 and 2027. I think, you know, we do have some small, uh, growth projects, so we might be, you know, slightly above that $125 million. But, you know, somewhere between that $125 million and significant.

Definitely below the 25,300 again. We'll give guidance coming up here once we complete the business plan, but you know, that gives you at least some kind of range to think about. Let me turn it over to Mike to see if he wants to add anything there. Yeah, no thanks, Jonathan. And just like I said just now, I'll just mention that the lower capital expenditure we're expecting will drive continued growth in our free cash flow. It'll support financial flexibility for incremental return of capital, and that includes any potential buybacks.

And just, you know, just to underline that, you know, that that already starts, uh, next year, right? So we had expected, as I had said, 250,300 million previously in 2026. So next year, already, we'll already see the benefit of that lower capital. And so while we had talked about Ava being flat, you know, relatively flat next year and again, we'll get more details that, in our upcoming guidance. But, uh, do expect next year to see growth in free cash flow and that will provide us flexibility, uh, for returning a capital as early as next year.

Got it, that's helpful. Um, and then maybe just a a higher level 1 given some of the the changes that the sponsor here and and I realized you can't speak for for Chevron. But just wondering if you can comment on on how that relationship has evolved. Now that you've, you've had a few quarters under your belt, working with them as your sponsor and more specifically, just any updated thoughts on on how customers dream kind of fits with them, their broader strategy here moving forward and and how that maybe feeds into your your growth

And capital allocation from here.

Sure. Well I'll leave the uh the last part to Chevron and but in terms of how is it going? Uh you know we're working our way or through now integration and it's gone, you know, very well uh the board new board with the new Chevron board directors. Uh has met, you know, obviously several times and we've approved 2 distribution increases, that go both our base targeted, 5% annual increase as well as 2 distribution. Uh, level increases 1, this week following a repurchase, we also proved to share repurchase that we did there in the third quarter. So uh, you know, going really well. Uh, really at the board level continuing to execute on plan. We're focused on running, has been stream, uh, safely and efficiently, focus on Capital discipline, and continue to execute our Capital framework for our shareholders. So, uh, also, I would say that, you know, as we announced, it may were underway for the search for a fourth independent board member. So, uh, yeah. Going very well working very well. Uh, with Chevron, it's a natural fit for us and, uh, looking forward to, you know, continuing

Got it. Thanks for the time.

Thank you. One moment for our next question.

Our next question comes from the line of Pranee's. Satish from Wells Fargo.

Kind of moving to longer laterals, or would you consider that upside?

Sure. Yeah, I can kind of answer both of those together. Um, really, you know, early guidance that we gave out recently was really designed to provide a shape for guidance. You know, based on our current expectations, after we complete the business plan process in December, we'll provide more detailed guidance for 2026. That's going to include, of course, a range for volumes as well as even and other financial metrics, as we always do.

Of course that final evidence is going to be a combination of oil and gas volumes rates, including our inflation escalator uh Opex expectations. And of course, the business plan development plan that we get from Chevron will incorporate, uh, their expectations in terms of, uh, increased efficiencies and productivities, including things like logging the laterals, as you said, uh, you know, I think critically, I think I just want to reemphasize what I just said, you know, earlier there that we expect continued growth in free cash flow uh and you know as a capital plan uh reduces with removal of the gas plant. So uh you know so under any scenario expecting that continued growth in free cash flow and again we'll give uh more details and a range of outcomes. Uh when we give out our able to guidance and our annual guidance, uh after the budget is completed and we finish board approval in December. Uh, Mike anything you want to add on to that?

No, I think you summarized it. Well, Jonathan and I think we, you know, will obviously provide the updated guidance after the finalization of the planning in December. But, um, I think we've got a good runway with financial flexibility towards 2027, at the very least. And, um, we'll update when we get the 2028 MVCs.

Got you now, that's helpful. And then um, I guess based on your your discussions, recent discussions here with with Chevron, uh, you know, they moved to a 3-way rig program. Are there any indications, um, that they might further reduce the rig activity and and go to 2 rigs. Is that kind of in some of the conversations you're having and then just conceptually, you know, if that were to happen, should we roughly think about, you know, oil maybe declining a bit and, and gas volumes to be flat with Rising goes? Um, you know, I understand, maybe that's not your your base case, but just trying to frame downside risk. Thank you. Sure. Yeah, I mean, I think let's just start with the base case, as you said, you know, the currently chevron's running 4 rigs, as they said they expect to release a rig in the fourth quarter. Uh, and we've said, you know, 3 rigs again, oil plateau in 2026 could and gas will continue to grow at least 2027. And we'll give give again more updates. Uh, when we give out our our guidance, uh, for twenty 6, and then our MVC through 2027. I think it's

Important to note, you know, Chevron just last week.

You know, uh, announced and said in a call that their goal is to maintain a plateau at 200,000 barrels of oil equivalent per day for the foreseeable future. That model works really well for, uh, the Hess Midstream where we're focused on long-term execution. At that level, 200,000 barrels of oil equivalent per day provides ongoing free cash flow generation and ongoing financial flexibility. I also would highlight, of course, as we've always said, you know, the 5% dividend growth can be delivered even at this level. So, in terms of our return of capital program, that's always kind of at the base and that's, you know, well protected. Above and beyond that, at 200,000 barrels of oil equivalent per day, we expect ongoing free cash flow that can generate incremental financial flexibility beyond that. So, uh, I don't want to speculate beyond that and, uh, but, you know, again, we'll give more details on our current plan and expectations when we, uh, finish our budget and development plan here in December.

Got it. Thank you.

Thank you. One moment for our next question.

Our next question comes from the line of John McKay from Goldman Sachs.

Hey everyone, thank you for the time. I want to pick up on that last question a little bit. Can you just? And I know you guys go through this every year, but can you just remind us how the 2028 MBCs will be set again? Effectively, you know what kind of plan does Chev?

Wrong. I kind of need to walk you through, and you know, it's just interesting because it's going to be our first time doing it with them. I'm just curious if that's going to differ at all from the test process before.

System plan together with the goal of optimizing the buck, and that's a win-win, and in everyone's best interest. In terms of the process and the mechanics of setting the MVC, that’s really the process that’s defined in the commercial agreements, and that hasn't changed at all.

That's helpful of it. Maybe just 1 Clarion. I think if we go through what you guys have been talking about before your, you guys are are pretty comfortable. I think arguing that the 200 a day run rate that Chevron wants to wants to flow that can be hit on the 3rd program. So that 4 would have put you I guess decently about that. Is that the implication?

Yeah, I think what I would say is and you could see that in our previous, uh, guidance, you know, before we updated it. You know, that was a based on a format program and we had growth in both oil and gas, uh, and the gas, you know, being a function of the oil growth and obviously Associated gas. So you're going to have growth in gas less than just go RS increasing as well. So then now under the current plan, you're really seeing oil plateau and gas steel containing to grow. So, yeah. The implication there is that previously in 4 weeks because of the efficiencies and productivities that, uh, has to now Chevron has been able to achieve, uh, you know, they were able to achieve was able to get historically at 4 rigs. You know, they were able to now get a 3-way and, you know, continuing to run it 4 weeks. Would have really taken you above that, uh, goal of plateauing at 200,000 boa per day.

There. I appreciate the time. Thank you.

Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.