Hess Midstream LP(HESM) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company exceeded its second quarter earnings guidance, lowered expenses, and raised its 2020 operational and financial guidance, reaffirming its 2021 guidance with adjusted EBITDA growth of 25% compared to full year 2020 and a targeted annual distribution growth per share of 5% [9][22] - For Q2 2020, gas processing volumes averaged 289 million cubic feet per day, a decrease of 10% compared to Q1, while crude terminaling volumes were 144,000 barrels of oil per day, a 12% decrease compared to Q1 [10] - Net income for Q2 was $108 million compared to $129 million for Q1, and adjusted EBITDA for Q2 was $173 million compared to $195 million for Q1 [29] Business Line Data and Key Metrics Changes - Water gathering volumes averaged 66,000 barrels of water per day in Q2 2020, a 22% increase compared to Q1, driven by incremental trucked water into the gathering system [11] - Third parties contributed approximately 11% of gas and 8% of oil volumes in Q2, consistent with guidance expectations [11] Market Data and Key Metrics Changes - Hess Corporation reported strong second quarter production results, with Bakken net production averaging 194,000 barrels of oil equivalent per day, a 39% increase from the year-ago quarter [12] - Hess now forecasts Bakken production to average approximately 185,000 barrels of oil equivalent per day for the full year 2020, up from previous guidance of 175,000 barrels [13] Company Strategy and Development Direction - The company is focused on maintaining the safety of its workforce and communities, deferring the planned maintenance turnaround for the Tioga Gas Plant until 2021 due to COVID-19 [14] - The expansion of the Tioga Gas Plant is well advanced, with facility construction expected to be completed by the end of 2020, and incremental gas processing capacity expected in 2021 [15] Management's Comments on Operating Environment and Future Outlook - Management emphasized the strength of its contract structure, which provides MVCs for approximately 97% of projected revenues for the second half of the year, supporting updated 2020 adjusted EBITDA guidance of $690 million to $710 million [21][22] - The company expects lower throughputs in Q3 relative to Q2 due to reduced operated rig count and lower third-party volumes [18] Other Important Information - The full year capital guidance has been updated to $260 million, reflecting a reduction of $15 million primarily due to the deferral of the turnaround and final tie-in work on the Tioga Gas Plant expansion project [20] - The company expects to maintain approximately 75% EBITDA margin in 2020, consistent with historical margins [26] Q&A Session Summary Question: Regarding EBITDA guidance for 2020 and 2021 - The company acknowledged the conservative nature of its guidance, with the low end assuming 0 third-party volumes for the remainder of the year, despite a strong second quarter performance [39][40] Question: Discussion on 2021 guidance and operational costs - Management confirmed that despite some increased operational costs, they still expect 25% EBITDA growth in 2021, supported by MVCs and a strong contract structure [47][53] Question: Capital allocation strategy and M&A opportunities - The company is focused on selective acquisitions, particularly in the Bakken region, while also considering the Gulf of Mexico assets for potential growth [55][56] Question: Impact of DAPL shutdown - Management indicated that while a DAPL shutdown could create incremental costs, the company has significant flexibility and capacity to support its customers, minimizing potential impacts [77][78]