Jennifer Gordon - Director, IR John Gatling – COO John Hess - Chairman Jonathan Stein – CFO.

Jeremy Tonet - JPMorgan Mirek Zak - Citigroup Richard Roberts - Howard Weil Tom Abrams - Morgan Stanley.

Good day, ladies and gentlemen, and welcome to the Third Quarter 2017 Hess Midstream Partners Conference Call. My name is Sonia, and I'll be your operator for today. [Operator Instructions]As a reminder, this conference is being recorded for replay purposes.

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

Thank you, Sonia. 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.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 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 the earnings release.

With me today are John Gatling, Chief Operating Officer; and Jonathan Stein, Chief Financial Officer. I'll now turn the call over to John Gatling..

Thanks, Jennifer. Good morning, everyone, and welcome to Hess Midstream's Third Quarter Conference Call. I'll review our operating performance, discuss several highlights and milestones achieved this quarter and provide an update on midstream throughput guidance for the remainder of 2017.

I will also discuss Hess' latest Bakken results, including the temporary addition of a third completion crew to build production momentum through the remainder of this year, well productivity results that drive the ability at 4 rigs to grow net production at approximate 10% per year for the next several years and, as Hess discussed yesterday, the potential to increase drilling activity to 6 rigs in 2018, driving further growth in the Bakken.

Jonathan Stein will then review our financial results. Our strong third quarter results delivered on key objectives we highlighted during our IPO and reinforced during our prior conference call, which demonstrates our commitment to executing our strategy. First, we're increasing utilization of our high quality asset base.

Second, we continue to progress projects that incrementally capture additional Hess and third-party volumes contracted through Hess. And third, we're delivering consistent 15% annual distribution growth. All of which is enabled by the competitive advantage we enjoy from our strategically located infrastructure in the core of the Bakken.

Now turning to Hess upstream highlights. Yesterday, Hess reported third quarter net production from the Bakken of 103,000 barrels of oil equivalent per day, modestly below guidance of 105,000 to 110,000 barrels of oil equivalent per day due primarily to heavy impact of a rainfall resulting in road closures and deferrals of completions.

Hess operated 4 rigs in the Bakken for the quarter. To help recover from the weather-related production impacts experienced in the third quarter, Hess announced yesterday that they are temporarily adding a third completion crude, which will drive volume growth in the fourth quarter of 2017.

Hess is now forecasting fourth quarter net production from the Bakken to average between 105,000 and 110,000 barrels of oil equivalent per day and reiterated full year Bakken net production guidance of approximately 105,000 barrels of oil equivalent per day.

Hess continues to test higher stage count and profit loading in the standard sliding sleeve wells and have begun to test plug-in for completions, in line with Hess' focus on maximizing the value of drilling space units or DSUs. To date, Hess has fracked 14 50-stage wells and 20 60-stage wells, with profit loading of 140,000 pounds per stage.

ATUs well are online, and although they are in their early stages of their type curves, results to date have been encouraging. Early next year, Hess will issue new guidance for completion design, well cost, IP rates and EUR.

Approximately 3 quarters of the wells connected completed in the third quarter were 60-stage, high profit oils, which had an average cost of approximately $6 million. With the positive well results to date, Hess expects average gross EURs for wells drilled in 2017 to exceed 1 million barrels of oil equivalent.

This underscores Hess' strategic position in the Bakken with more drilling locations in the core of the play than any other operator. Hess continues to project that at 4 rigs, Bakken net production can grow by approximately 10% per year for the next several years.

And announced yesterday, based on the strong financial returns in the Bakken, Hess is evaluating increasing its rig count to 6 in 2018. Turning to Hess Midstream highlights.

In September, we successfully completed the Johnson's Corner Header System project, enabling us to receive crude oil from Hess and third parties to deliver into interstate pipelines south of Missouri River, primarily dapple. This project was completed ahead of schedule, with volumes now flowing in the dapple and we're currently ramping up throughput.

We're in the process of engineering a supplemental phase of the project, planned to be completed in the summer of 2018, which add booster pumps to further increase terminal system throughputs from our gathering systems.

The Johnson's Corner Header System project is a great example of our ability to incrementally capture more Hess volumes through the execution of key projects as well as continued focus on infrastructure build out to capture both increasing Hess production and currently trucked oil and flared gas.

Looking beyond Hess, we continue to actively target third-party opportunities, which includes new production, currently trucked oil and flared gas and the use of our strategically positioned crude oil terminals, which offers export optionality and attractive netbacks to our customers.

In the third quarter, as I discussed, the completion of the Johnson's Corner Header System enabled us to attract additional third-party volumes to our crude oil terminal system, underscoring the strategic position we enjoy.

With the completion of the project, we now anticipate that approximately 15% of our crude oil throughputs will come from third parties, an increase of approximately 10% from prior levels. Additionally, in the third quarter, despite challenging weather conditions impacting the region, we are able to grow our gas throughputs.

This was primarily due and by capturing additional third-party volumes above the long-term third-party target of approximately 30% of total gas, which is still a good basis for Hess' production -- as Hess production continues to grow.

The growth of our business in the quarter provides further tangible evidence of our integrated system proposition and service offering, which attracts incremental volumes to our assets.

The long-term growth trajectory for Hess production, execution of key midstream projects and capture of trucked oil and flared gas from Hess and third parties, represents multiple layers of organic growth, which provides visibility even in a low price environment to increasing long-term throughputs and creating opportunity for additional investment to expand system capacity as needed.

Turning to throughput volumes for the quarter. Tioga Gas Plant processing volumes for the third quarter were 214 million cubic foot per day, an increase of 9% from the second quarter, driven by strong operating performance of our assets and capture of additional third-party volumes.

Third quarter crude oil terminaling volumes were 71,000 barrels of oil per day, an increase of 8% from the second quarter, primarily driven by the completion of the Johnson's Corner Header System, which includes increased third-party business delivered to the terminals.

Reflecting strong performance across our assets, the early completion of the Johnson's Corner Header System and capturing additional third-party business, we are raising our throughput guidance across the majority of our assets for the balance of 2017.

In the second half of 2017, gas gathering volumes are forecasted to be between 230 million and 235 million cubic foot per day, increase from prior guidance of 210 million to 220 million cubic foot per day.

Gas processing volumes are anticipated to be between 215 million and 220 million cubic foot per day for the second half of 2017, increase from previous guidance of between 200 million and 210 million cubic foot per day.

Crude gathering volumes are forecasted to be in the range of 60,000 to 65,000 barrels of oil per day for the second half of 2017, slightly lower than our previous guidance of 65,000 to 70,000 barrels of oil per day, primarily due to weather impacts in the third quarter.

Crude terminaling volumes are anticipated to be between 72,000 and 77,000 barrels of oil per day for the second half of 2017, an increase from previous guidance of 65,000 to 70,000 barrels of oil per day, which again was primarily driven by the early startup of the Johnson's Corner Header System.

In closing, we're continuing to execute our strategy, we're delivering on key projects and enhance the flexible and optionality of our system and create value for our customers and our unitholders.

We are growing throughputs across our assets, driven by Hess' strategic position in the core of the Bakken and the capture of additional third-party business. We've announced our first quarter distribution increase and are on track to meet our long-term 15% distribution per unit growth target.

We're excited about the future and focused on the growth ahead of us. I'll now turn the call over to Jonathan to review our financial results..

Thanks, John.

Before reviewing our third quarter results in detail, I will briefly discuss our growth outlook over the next several years, which is a number of highly visible components that allow us to be confident in our ability to continue to deliver our targeted 15% distribution per unit growth, not only in its the short term, but on a long-term and consistent basis.

Beginning with 2017. On August 14, we paid our first quarterly distribution and we recently announced our second quarter distribution of $0.31 per unit, an increase of 3.6% compared to our second quarter distribution of 15% on an annualized basis.

This is our first quarterly distribution increase from the minimum quarterly distribution and is consistent with delivery of our targeted 15% annual distribution per unit growth.

For the remainder of 2017, we have cleared visibility to continued growth with financial guidance that includes 15% annualized DPU growth based on the lower end of our DCF guidance range with at least 1.1x coverage and revenues that are 90% protected by minimum volume commitments.

Looking ahead, in 2018, our contracts with Hess have rising minimum volume commitments across our assets compared to 2017, providing visibility to next year's continued growth.

Looking to 2019 and beyond, we expect to be above our MVCs across all of our systems, with growth driven by continued organic growth from increasing Hess volumes, capture of existing Hess production is being trucked or flared and interconnects of third-party volumes into our system.

Additionally, we have a highly competitive drop down inventory that is greater than 4x to EBITDA that can be utilized to compliment organic growth on a long-term basis.

We also have significant financial flexibility and ample liquidity, including our undrawn $300 million revolving credit facility to fund our growth, including our initial dropdowns will help the need to access the capital market.

Combination of our contract structure, high visibility of growth and significant financial flexibility highlights the clear line of sight that we have to deliver our targeted 15% distribution per unit growth on the long-term and consistent basis.

Now turning to results, I will compare results of the third quarter of 2017 to the second quarter of 2017. Our performance in the third quarter demonstrated continued execution of our financial strategy of delivering stable and growing cash flows, consistent distribution growth and maintaining financial flexibility.

For the third quarter, consolidated net income was $77 million compared to $68 million for the second quarter. Consolidated EBITDA for the third quarter was $105 million compared to $97 million for the second quarter, an increase of approximately 8%.

The increase in consolidated EBITDA relative to the second quarter was primarily attributable to the following changes. Revenue for our gathering segment increased by approximately $5 million, primarily from higher third-party gas volumes and higher MVC levels in both our oil and gas gathering systems.

Revenue for our processing and storage segment increased by approximately $3 million, primarily from higher third-party volumes. Total operating expenses, including G&A, but excluding depreciation and amortization, remained approximately flat compared to the second quarter.

As a result, our third quarter EBITDA, attributable to the MLP of $21.1 million, was above our previous guidance of $19 million to $20 million. Maintenance capital expenditures, net to the MLP, was $1.5 million for the third quarter, lower than our previous guidance of $3 million to $5 million as a result of rephasing of certain projects to 2018.

Consistent with our contribution agreement, maintenance capital expenditures are funded by our sponsor, Hess Infrastructure Partners, for 12 months following the IPO, and therefore did not reduce distributable cash flow. Cash interest was less than $1 million, as the revolver remained undrawn during the quarter.

The results was that our distributable cash flow was $20.9 million for the third quarter, covering our distribution by 1.2x. On October 24, we announced that the Board of Directors of our general partner approved an increasing distribution of $0.31 per unit, a 3.6% quarter-on-quarter increase or 15% annualized.

This distribution will be paid on November 13 to holders as of November 3. Hess Midstream had expansion capital expenditures of $18.5 million growth or $3.7 million net to the MLP in the third quarter, primarily related to well tie-ins, additional compression at Tioga Gas Plant and continued work on the Johnson's Corner Header System.

Highlighting our ability to grow while maintaining our financial fix ability, finished the quarter with an undrawn $300 million credit facility. Turning to guidance, consistent with the higher throughput forecast that John discussed earlier, we are also increasing our financial guidance.

Consolidation did adjusted EBITDA is projected to be in the range of $106 million to $111 million in the fourth quarter, and $211 million to $216 million for the second half of 2017, increase from previous guidance of $200 million to $205 million.

Adjusted EBITDA attributable to Hess Midstream Partners is projected to be in the range of $21 million to $22 million in the fourth quarter, and $42 million to $43 million for the second half of 2017, increased from previous guidance of $39 million to $40 million.

Maintenance capital net to the MLP is projected to be $1 million to $2 million in the fourth quarter, and $2 million to $3 million for the second half of 2017, down from previous guidance of $4 million to $5 million as a result of refacing certain projects to 2018.

Maintenance capital is expected to be funded by Hess Infrastructure Partners during this period. Cash interest is forecast to be less than $1 million for the second half of 2017, unchanged from prior guidance as we expect limited use of our revolver.

Distributable about cash flow is expected to be in the range of $21 million to $22 million in the fourth quarter, and $42 million to $43 million in the second half of 2017, increased from previous guidance of $39 million to $40 million.

Highlighting our growth visibility, the bottom end of our DCF guidance generates our targeted DPU growth rate of 15% annualized growth with at least 1.1x coverage and revenues that are approximately 90% protected by MVCs.

Finally, turning to our expansion capital, as John discussed earlier, we are pleased to have completed strategic capital project this year, including the Johnson's Corner Header System and the Hawkeye Gas Facility.

In the fourth quarter, expansion activities continued to focus on profession of the projects, including installation of additional compression at the Tioga Gas Plant and continued buildout of our gathering system.

We have replaced certain small-scale activities into our 2018 plan, and as a result, anticipate expansion capital for the second half of 2017 to be in the range of $9 million to $11 million, down from previous guidance of $15 million to $20 million. Fourth quarter expansion capital is projected to be in the range of $5 million to $7 million.

We expect to file our third quarter 10-Q by November 13. This concludes my remarks. We will be happy to answer any questions. I will now turn the call over to the operator..

[Operator Instructions] Your first question comes from the line of Jeremy Tonet of JPMorgan. Your line is now open..

Just wanted to - given the beaten race this quarter, and your comments and the potential for 2 rig adds for the Bakken, for Hess, just wondering if you can give us any thoughts of as far as what you think MVC resets or nominations between 2019 could be any color that you could provide as far as what the outlook on a forward basis, given this potential increase in activity here?.

Yes, intensive MVCs, those will be set as part of our nomination process. That will occur at the end of this end of this year. As you know, MVC is 1 clear set, it's only the increase not decrease. As you know, '17 and '18 we're set based on prior nominations when Hess is running at 8 rigs, and '19 was recently set based on our '16.

As we're going through the nomination process now, and as we had into that will be providing guidance in January for '18 and '19 based on the results of that nomination process..

And then there's been some concern in the marketplace with regards to LP protection and dropdown stories and it seems like the Hess stories at a bit differently been out wondering if we just refresh us on how you guys see Hess and your model contrast others out there?.

Yes, so I think one thing that is unique about our structure compared to some others, in particular is that of the assets of our ready been sold down from Hess into our sponsor Hess Infrastructure Partners.

And so as a result there from a governance point of view in terms of particularly rofos those assets already sit up there and they were, in turn then sold down at 20% controlling interest down to the MLP.

So in terms of certain areas where maybe rofos with the potential go away, those assets perhaps the change of control of something like that assets would have to be bought back from both HIP and then from the MLP neither of which is necessary incentivized to do that.

Of course, both Hess and increasing the ownership of the LP and GP and then also encourages of antiquity focused on MLP value..

Our next question comes from Mirek Zak of Citigroup. Your line is now open..

Some aggression pertains to if Hess does do the 6 rigs in 2018 and if the stay there, the levels of production that you might expect from this with the higher stage count and proppant loadings, at what point do you think that the production could actually outgrow your current crude gathering capabilities and maybe require some sort of expansion?.

I mean, I think as we mentioned before, the investments that we've made and the systems that we built kind of pre the midstream is designed to support a substantial Hess growth profile.

And so from the standpoint of having the system capacity to handle our growth to 6, and let's say we maintain 6 for a period of time, we absolutely have the infrastructure in place to support that. That doesn't mean that we don't need to optimize our system and continue to build out and do a kind of small projects to debottleneck.

And then we talked a little bit about expanding our gathering system, further expand our gathering system, particularly on the gas side, went through the compression and through additional gathering systems. You know we talked about the TGP expansion as well.

Those are all opportunities for us, but they are relatively small opportunities in the kind of in the grand scheme of things overall strategic footprint we have.

So the backbone is in place, the key assets that we need to support that production growth is in there and then there's opportunities for us to continue to optimize that system, expand that system. But again, the major infrastructure is -- anchored infrastructure is in place..

And you touched on this point a little bit before, but is your gas and processing volumes obviously saw boost in the quarter from connecting some previously flared gas wells.

Do you expect that to set up the a more short-term phenomenon running out after a few quarters or a benefit that you see you can get a recurring benefit over the next few quarters or maybe that's just something that will make your volume numbers sort of a little bit more volatile with some ups and downs over the next few quarters?.

Yes. I would say from a well connect perspective in reducing the flaring, in particular with regard to Hess volumes, that's going to be something that's going to continue to grow. I mean as has continues to build out given at 4 rigs, they are projecting a 10% growth over the next several years at 4 rigs. If they go to 6, it can be higher than that.

Those represent, those connects, those pad connects represent an opportunity for us to continue to build outs and gather additional flared volumes. I don't necessarily see on the Hess side volatility that you're kind of describing, but maybe on the third-party side we do.

There are definitely is a lot of activity in the basin with third parties, whether it be producers or midstream companies that can create some of that volatility quarter-over-quarter.

We think and we continue to emphasize that our strategic position definitely places us in a superior place to capture those volumes and provided that support to both Hess and third parties. But it still is going to represent – it represents opportunity for us.

One thing to keep in mind as you think about the increase in the gas volumes, the 30% basis that we've been talking about, that represents the 30%, that would be third-party volume going through our system. As Hess continue to increase, the implication there we're implying effectively that third parties will increase kind of proportionate as well.

So while we did see a bump above 30% for third-party gas gathered in the quarter, we still feel like 30% is a good target number to have as Hess production continues to grow. So I think, supporting both of those, are opportunities.

And then on the oil side, obviously, with adding in an export route south of the river, we see that being a potential to add incremental third-party volumes as we have that additional market access..

And then just very lastly, real quick.

Does the rig count of up to 6, does that change you're expected timing of the potential expansion?.

We were kind of expecting that one. So as of right now, when you think about kind of the capacity of the system, for the quarter, we announced we had 214 million cubic foot per day going to the gas plant, 250 million cubit foot a day plant. And just keep in mind, the 250 million is a nameplate.

We think that there's some smart optimization that you can do that really will not require shut down, minimal investment that can potentially optimize and we could see volumes going to the facility, upgraded to 250 million cubic foot per day.

So when we think about the growth between now and 2019, which is when we projected the debottleneck would actually occur, we see an opportunity here is to continue to leverage the system capacity that we have and also optimize the system capacity, whether we're talking about gathering systems compression, processing all of those things are opportunities for us to continue to optimize..

And your next question comes from Richard Roberts of Howard Weil. Your line is now open..

A couple of lessons for me on the third-party side. You mentioned the increase in third-party volumes in the quarter.

I was wondering if you could comment if any of that is from new customers or new arguments or anything or primarily just ramping up from the existing arrangements or existing customers?.

Most of the volume that came in from the quarter were with existing customers. However, we've seen new volume additions from those customers. So it's an effective extension of an existing relationships with some of those third parties.

But we have also seen, and there is a fair bit of activity even outside of those core agreements that we have, where we've actually seen volume increases. So I think it's both.

I think there is opportunity with existing connects, with existing agreements to continue to see increases, specially as we think about our anchor assets, like the Tioga Gas Plant, the crude oil terminals.

They provide tremendous opportunity from a netback perspective, from a market access perspective, and that's going to continue to attract volumes into our system. So we see that as opportunity to attract additional volumes from current customers, but also additional volumes from customers yet to be contracted..

And just as a follow-up on that one. Clearly, there's other that's out there that compete for the same business that you are in Bakken. Any thoughts on where you are best positioned to win out on some of third-party business on the gas gathering side (indiscernible).

Yes. Richard, you're breaking up pretty bad. But I think I got the gist of your question. So again, I think we -- because our infrastructure really sits in the kind of in the best acreage of the basin, we see that as an opportunity to capture third parties.

And then again, those anchor assets that we have, the Tioga Gas Plant and the terminals provide tremendous market flexibility to our customers. Our strategic position, again, allows us to capture at the source, allows us to capture at the wells and other gathering systems to bring into ours.

But again, to leverage of those kind of anchor assets that provide the market access and provide the attractive netbacks to the customers, we think both on the gas and oil side across our entire system that we provide some of the most complete system flexibility and market access of any midstream provider in the basin.

As we've mentioned before, we've added in the Johnson's Corner Access. Again, it's provides more access to our customers and again creates an opportunity to attract more volumes. So I think it's a real positive thing from our perspective..

Our next question comes from Tom Abrams of Morgan Stanley. Your line is now open..

So I think your key production flat about 2.5 rigs, 4 rigs get you 10% a year growth, so 6 years would be, what, a 20% growth? Was that a fair assumption set?.

Yes. Tom, so, no, that's -- I think the question is fair. I think the math maybe a little bit aggressive there. But, again, when we are looking at the 4 rigs, as we've kind of talked about our nomination, 4 rigs provides 10% per year growth for the next several years, and that supports our nomination.

6 rigs represents upside to us, Hess Upstream is still evaluating that. That position has not been made. They are in the process of their planning process right now, so the actual program that they would execute at a 6 rigs is still being considered and reviewed as part of that evaluation process.

So it's really premature for us to estimate any volumes assumption associated with going up to 6 rigs. But again, just to reiterate, the 4 rigs for us represents significant upside and supports our plan that we've put forward..

Yes, what I show again in part was if you go to 6 rigs in '18, does that set up the possibility for that bonus return in '19? Because you're north of, I guess, 15% potentially up here in MVCs in that year?.

Yes. So the way that, that works is that 15% over at a cumulative basis across all production and all nomination overall the years, so it won't be just an individual year change. It would have to actually be a complete change across all the years are relative to last. And it's not necessarily related to MVCs. It compared to the previous nomination..

Okay. And then, if they -- I'm sorry..

No, I was just going to add to that as well that, again, we've kind of talked about the succeeding MVC period in 2019. I think all of these things that we're talking about, whether we're talking about opportunities with third-party, talking about Hess ramping a bit more aggressively than previously announced, again, still upside here.

But those growth opportunities represent an acceleration or a way to get above MVC quicker. So I definitely think there is some upside potential associated with that. And so that I think that's an attractive thing for us.

I mean, again, we're already planning to kind of be exceeding the MVC levels in '19, but maybe that brings out a little bit forward for us as well..

So just logistically, if Hess doesn't commit to the 6 rigs by the end of the year, yet you have to set your 2020 MVCs or nominations, and then they commit in January, it would really set you up nicely for exceeding things in 2020 or do you expect them to come in before the end of the year?.

Yes, I mean, I think Hess is going through that as part of their budget process, which is what they're going through now and probably the end of the year. So, I mean, I don't know if we can comment on exactly when Hess will make that decision. Certainly they're going through that part of the budget process.

I mean, the process does work like you're saying. Clearly if our 2020 MVCs that, that can be increased in the future if Hess does nominate a higher volume in that year on a subsequent nomination..

And ladies and gentlemen, this does conclude our question-and-answer session. Thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect. Everyone, have a great day..