Hess Midstream Partners Q4 2024 Earnings Report

Hess Midstream Partners EPS Results

• Actual EPS: $0.68
• Consensus EPS: $0.65
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: N/A

Hess Midstream Partners Revenue Results

• Actual Revenue: $395.90 million
• Expected Revenue: $392.13 million
• Beat/Miss: Beat by +$3.77 million
• YoY Revenue Growth: N/A

Hess Midstream Partners Announcement Details

• Quarter: Q4 2024
• Date: 1/29/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, January 29, 2025
• Conference Call Time: 12:00PM ET

Hess Midstream Partners (NYSE:HESM) (NYSE:HESM) is a fee-based, publicly traded midstream energy company that provides infrastructure and logistics services for crude oil, natural gas and produced water. The partnership’s operations are primarily supported by long-term commercial agreements with Hess and other customers.

The company owns and operates midstream assets in the Bakken and Three Forks shale plays of North Dakota. Its services include gathering crude oil and natural gas from producing wells, processing and compressing natural gas, gathering and disposing of produced water, and providing storage, terminaling and transportation services.

Hess Midstream’s infrastructure includes gathering systems, natural gas processing facilities, crude oil and natural gas storage assets, rail and pipeline connections, and water-handling facilities. Through these operations, the partnership helps move hydrocarbons and related fluids from production areas to downstream markets and other transportation networks.

Hess Midstream Partners Q4 2024 Earnings Call Transcript

Key Takeaways

• In 2025, Hess Midstream expects approximately 10% year-over-year volume growth and an 11% increase in adjusted EBITDA to a range of $1.235–$1.285 billion, driven by Hess' development activity and third-party volumes.
• Hess Midstream has commenced construction of a 125 MMcf/d Capa gas processing plant slated to begin operations in 2027, addressing forecasted capacity constraints and supporting growth through the end of the decade.
• The 2025 capital expenditure program is set at approximately $300 million—$125 million for ongoing gathering systems and $175 million for project investments—and is expected to trend lower after 2027 as expansions complete.
• Severe winter weather in January is projected to weigh on Q1 2025 volumes, with overall first-quarter throughput anticipated to be lower than Q4 2024.
• Since 2021, Hess Midstream has returned $1.95 billion to shareholders through repurchases, achieved ~10% annual distribution growth, and extended its 5% per-share distribution growth target through 2027, while maintaining a leverage ratio near 3.1× EBITDA.

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to the fourth quarter 2024 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 star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one 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.

[Jennifer Gordon, VP of Investor Relations at Hess Midstream]

Thank you, Gigi. Good afternoon, everyone, and thank you for participating in our fourth 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 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 John Gatling, President and Chief Operating Officer, and Jonathan Stein, Chief Financial Officer.

[Jennifer Gordon, VP of Investor Relations at Hess Midstream]

I'll now turn the call over to John Gatling.

[John Gatling, President and COO at Hess Midstream]

Thanks, Jennifer. Good afternoon, everyone, and welcome to Hess Midstream's fourth quarter 2024 conference call. Today, I'll review our 2024 performance and highlights, provide an overview of our 2025 plans and longer-term outlook through 2027, and give an update of Hess Corporation's results and outlook for the Bakken. Jonathan will then review our financial results. 2024 was a year of continued strong performance and execution for Hess Midstream. We delivered significant volume growth, including 14% year-over-year growth in gas processing throughputs. Additionally, we made excellent progress on key multi-year projects to strategically grow our gas gathering system while advancing our planned gas processing expansion. Today, we issued our guidance release, extending our MVCs and growth profile through 2027, with gas volumes expected to grow by more than 25% from 2024.

[John Gatling, President and COO at Hess Midstream]

Our long-term growth remains driven by Hess's planned development activity and increasing third-party volumes, reinforcing the need for additional gas processing capacity. Now, turning to Hess Upstream highlights. In the fourth quarter, Bakken net production averaged 208,000 barrels of oil per day, including 20,000 barrels of oil per day from percentage of proceeds contracts, which do not impact Hess Midstream throughputs. For full year 2024, Bakken net production averaged 204,000 barrels of oil per day, marking a 12% year-over-year increase. Hess reaffirmed its plan to maintain a four-rig drilling program in 2025 and projected first quarter 2025 net production to be in the range of 195,000 to 200,000 barrels of oil per day. The decrease from the fourth quarter 2024 is primarily attributed to severe winter weather in January. Now, turning to Hess Midstream results.

[John Gatling, President and COO at Hess Midstream]

In the fourth quarter, we delivered strong operational performance, with gas processing volumes averaging 447 million cu ft per day, crude terminaling volumes averaging 127,000 barrels of oil per day, and water gathering volumes averaging 130,000 barrels of water per day. For full-year 2024, Hess Midstream's gas processing volumes averaged 420 million cu ft per day, crude terminaling volumes averaged 123,000 barrels of oil per day, and water gathering volumes averaged 125,000 barrels of water per day, resulting in a full-year Adjusted EBITDA of $1.136 billion. Now, moving to Hess Midstream's guidance. For the first quarter of 2025, we anticipate volumes to be lower than the fourth quarter of 2024 due to the impact of severe winter weather in January and the possibility of further weather-related impacts in the first quarter.

[John Gatling, President and COO at Hess Midstream]

For full year 2025, we anticipate approximately 10% growth in volumes across our oil and gas systems compared to 2024, primarily driven by Hess's development activity and increasing third-party volumes. We expect gas processing volumes to average between 455 million and 465 million cu ft per day, crude gathering volumes to average between 130,000 and 140,000 barrels of oil per day, and water gathering volumes to average between 120,000 and 130,000 barrels of water per day. Driven by volume growth, our Adjusted EBITDA for 2025 is projected to increase by 11% at the midpoint compared to 2024, with an expected range of $1.235 billion-$1.285 billion. Building on our 2025 volume growth, we anticipate gas volumes to increase by approximately 10% in 2026 and 5% in 2027, while oil volumes are expected to grow by approximately 5% annually over the same period.

[John Gatling, President and COO at Hess Midstream]

This includes planned regulatory inspections and maintenance at the Tioga Gas Plant in 2027, which is expected to temporarily reduce gas volumes and have a full-year impact of approximately 10 million cu ft per day. Given our growth trajectory, we anticipate exceeding our current gas processing capacity in 2027. To address this, we are beginning construction this year on the previously announced 125 million cu ft per day Kappa Gas Plant. Once operational in 2027, the new plant will support throughput growth from Hess and third parties through at least the end of the decade. Now, turning to Hess Midstream's 2025 capital program, total capital expenditures for the year are expected to be approximately $300 million, with $125 million dedicated to ongoing expenditures for gathering system well connects and maintenance, and $175 million allocated to project-based investments, including volume-driven gas gathering and processing expansions.

[John Gatling, President and COO at Hess Midstream]

In 2025, we are focused on completing two new compressor stations and their associated gathering systems. Once operational, these stations are expected to add a combined 85 million cu ft per day of gas compression capacity, with the potential to expand up to approximately 140 million cu ft per day. Additionally, our growth capital will support the construction and fabrication of the 125 million cu ft per day Kappa Gas Plant. These projects are expected to provide necessary gas gathering and processing capacity to meet growing demand. We plan to maintain annual capital expenditures in the range of approximately $250,000,000-$300,000,000 through 2027. This includes completing the Kappa Gas Plant and starting construction on an additional compressor station in 2026.

[John Gatling, President and COO at Hess Midstream]

While capital allocation will shift as our growth projects progress, we generally expect spending to decline over time as we finalize gathering expansions and focus on the commissioning of the Kappa Gas Plant in 2027. In summary, we remain focused on executing our strategy of disciplined, low-cost investments to meet growing base and demand while maintaining reliable operations and strong financial performance. With growth projected through 2027 and beyond, we expect to generate sustainable cash flow and create opportunities to return additional capital to our shareholders. I'll now turn the call over to Jonathan to review our financial results and guidance.

[Jonathan Stein, CFO at Hess Midstream]

Thanks, John, and good afternoon, everyone. Today, I will summarize our financial highlights in 2024, discuss our recently completed nomination process with Hess, and provide details on our 2025 guidance and outlook through 2027, including our continued prioritization of ongoing and incremental return of capital to shareholders. For 2024, we delivered strong results, with full-year net income of $659,000,000 and Adjusted EBITDA of $1,136,000,000. This Adjusted EBITDA represents a growth of approximately 12% from 2023. Looking forward, we have a line of sight to greater than 10% growth in net income, Adjusted EBITDA, and Adjusted Free Cash Flow in each of 2025 and 2026, followed by greater than 5% growth in 2027, supported by growing oil and gas throughput volumes. Gas volumes, which make up 75% of our revenues, are expected to grow by approximately 10% in each of 2025 and 2026, followed by approximately 5% in 2027.

[Jonathan Stein, CFO at Hess Midstream]

We continue to execute a financial strategy that prioritizes return of capital to shareholders, with a demonstrated track record of differentiated shareholder returns. Since the beginning of 2021, we have returned $1.95 billion to shareholders through accretive repurchases. In addition to the combination of our 5% targeted annual distribution growth and 10 distribution level increases following each repurchase, we have increased our distribution per Class A Share by approximately 55% since 2021 and by over 10% in 2024. As a result, our Total Shareholder Return Yield is one of the highest of our Midstream peers. Furthermore, our leverage of approximately 3.1 times Adjusted EBITDA is one of the lowest among our peers, highlighting our differentiated ability to deliver significant shareholder returns while also maintaining balance sheet strength. Earlier this month, we completed our first unit repurchase transaction in 2025 of $100 million.

[Jonathan Stein, CFO at Hess Midstream]

That was accretive on both an Adjusted Free Cash Flow per Class A Share basis and an earnings per Class A Share basis. As we have done in the past, our fourth quarter distribution increase included our targeted 5% annual growth per Class A Share and an additional increase utilizing excess Adjusted Free Cash Flow after distributions following the repurchase. As a result, for 2024 and every year since we started our return of capital framework, our distribution per Class A Share growth has been approximately 10%, significantly above our targeted 5% annual growth. As announced in our guidance release this morning, we are continuing to prioritize shareholder returns and a strong balance sheet.

[Jonathan Stein, CFO at Hess Midstream]

We have extended our annual distribution per Class A Share growth target of at least 5% through 2027 and are expecting greater than $1.25 billion of financial flexibility through 2027 for capital allocation that includes prioritization of potential unit repurchases on an ongoing basis while maintaining our long-term leverage target of three times Adjusted EBITDA. Turning to our results, for the fourth quarter, net income was $172,000,000, compared to $165,000,000 for the third quarter. Adjusted EBITDA for the fourth quarter was $298,000,000, compared to $287,000,000 for the third quarter. The increase in Adjusted EBITDA relative to the third quarter was primarily attributable to the following: total revenues, excluding pass-through revenues, increased by approximately $15,000,000, primarily driven by higher throughput volumes, resulting in segment revenue changes as follows: processing revenues increased by approximately $9,000,000, and gathering revenues increased by approximately $6,000,000.

[Jonathan Stein, CFO at Hess Midstream]

Total costs and expenses, excluding depreciation and amortization, pass-through costs, and net of our proportional share of LM4 earnings, increased by approximately $4,000,000, primarily from higher G&A allocations under our Omnibus and employee secondment agreements, partially offset by lower general maintenance, resulting in Adjusted EBITDA for the fourth quarter of $298,000,000. Our gross Adjusted EBITDA margin for the fourth quarter was maintained at approximately 80%, above our 75% target, highlighting our continued strong operating leverage. Fourth quarter capital expenditures were approximately $84,000,000, and net interest, excluding amortization of deferred finance costs, was approximately $50,000,000, resulting in Adjusted Free Cash Flow of approximately $164,000,000. We had a drawn balance of $15,000,000 on a revolving credit facility at year-end.

[Jonathan Stein, CFO at Hess Midstream]

Turning to our rates for 2025 and beyond, the majority of our systems that represent approximately 85% of our revenues are fixed fees, with rates increased each year based on an inflation escalator capped at 3%, resulting in steadily increasing rates through 2033. For our crude and water gathering systems that represent approximately 15% of our revenues, we continue to reset our rates through our annual rate redetermination process through 2033. Based on this rate-setting process for 2025, tariff rates across all our systems are higher than 2024 rates. Turning to volumes, as John described, we expect continued growth in oil and gas throughputs from Hess and third parties. Oil volumes are expected to grow by approximately 10% in 2025 and approximately 5% in each of 2026 and 2027. Gas volumes are expected to grow by approximately 10% in each of 2025 and 2026, followed by approximately 5% in 2027.

[Jonathan Stein, CFO at Hess Midstream]

Based on this expected growth rate, we expect to exceed our current gas processing capacity in 2027. We'll begin construction this year as planned of our new 125 million cu ft per day gas processing plant that is expected to be aligned in 2027. This investment in gas processing to meet our growing volumes is underpinned by our downside protection from MVCs with Hess across all of our systems that continue to be set at 80% of nominated volumes set three years in advance through 2033. In our guidance released this morning, we provide MVCs for the year 2025 through 2027. As part of the nomination process, MVCs for 2025 and 2026 were reviewed and were required increased, while MVCs for 2027 were newly established based on 80% of the Hess nominated volumes for each system in that year.

[Jonathan Stein, CFO at Hess Midstream]

Turning to our financial guidance for 2025 and beyond, for the full year 2025, we expect net income of $715,000,000 to $765,000,000 and Adjusted EBITDA of $1,235,000,000 to $1,285,000,000. This Adjusted EBITDA growth of approximately 11% at the midpoint of our range is supported by continued growing revenues from physical volume growth across oil and gas systems, as John described. We continue to target a growth Adjusted EBITDA margin of approximately 75% in 2025. For 2025, with total expected Capital Expenditures of approximately $300,000,000, we expect to generate Adjusted Free Cash Flow of between $735,000,000 and $785,000,000, and excess Adjusted Free Cash Flow of approximately $135,000,000 after fully funding our targeted growing distributions. With increasing Adjusted EBITDA, we expect our leverage for 2025 to be below our three times Adjusted EBITDA target on a full-year basis.

[Jonathan Stein, CFO at Hess Midstream]

For the first quarter of 2025, we expect net income to be approximately $160,000,000-$170,000,000 and Adjusted EBITDA to be approximately $285,000,000-$295,000,000, including the impact of severe winter weather in January and the potential for additional winter weather events through the quarter. For the remainder of 2025, we expect growing Adjusted EBITDA each quarter, consistent with increasing volumes across oil and gas systems. Looking beyond 2025, we have clear visibility to volume, Adjusted EBITDA, and Adjusted Free Cash Flow growth that supports our financial strategy. Supported by volumes that continue to grow in both oil and gas through at least 2027, fees that are steadily increasing based on our annual inflation escalator, and a targeted gross Adjusted EBITDA margin of approximately 75%, we expect greater than 10% growth in Adjusted EBITDA in 2026, followed by greater than 5% growth in 2027.

[Jonathan Stein, CFO at Hess Midstream]

In line with growing Hess gas volumes supported by incremental gas processing capacity and rates that increase annually with inflation, we expect continued growth in EBITDA at least through the rest of the decade. With growing adjusted EBITDA and relatively stable capital expenditures that are expected to trend lower in 2027, we expect adjusted free cash flow to grow by greater than 10% in 2026, by greater than 5% in 2027, and then continue to grow through the rest of the decade, providing significant financial flexibility for continuing return of capital to shareholders. In addition, we are continuing to prioritize shareholder returns with our return of capital framework. First, we are continuing to grow our base distribution by extending our targeted distribution growth of at least 5% annually per Class A share through 2027. Second, we have financial flexibility for potential significant incremental shareholder returns beyond our growing base distribution.

[Jonathan Stein, CFO at Hess Midstream]

With expected Adjusted EBITDA and Adjusted Free Cash Flow growth of greater than 10% in 2026 and greater than 5% in 2027, in excess of our targeted annual distribution growth of at least 5%, we expect to generate excess Adjusted Free Cash Flow beyond our distribution and leverage expected to decline to below 2.5 times Adjusted EBITDA by the end of 2026 and to continue below this level through 2027, providing leverage capacity relative to our long-term three times Adjusted EBITDA leverage target. As a result, with a growing cash balance and significant leverage capacity, we expect to have greater than $1.25 billion of financial flexibility through 2027 for capital allocation that includes the potential for multiple unit repurchases per year through this period and the potential for incremental distribution level increases associated with these repurchases beyond our targeted at least 5% annual distribution per Class A Share growth.

[Jonathan Stein, CFO at Hess Midstream]

In summary, we are pleased to have delivered a strong 2024 and look forward to a visible trajectory of growth in our operational financial metrics that underpins our unique and differentiated financial strategy with a focus on consistent and ongoing return of capital to our shareholders. This concludes my remarks. We'll be happy to answer any questions, and I will now turn the call over to the operator.

[Operator]

Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Naomi Marfatia from UBS.

[Naomi Marfatia, Associate Director and Equity Research at UBS]

Hi, good afternoon. Thanks for taking my questions. My first question is on your multi-year growth outlook.

[Naomi Marfatia, Associate Director and Equity Research at UBS]

So Hess has established its 2027 MVCs and slightly increased 2025 and 2026 MVCs, and you all have alluded to 10% EBITDA growth in 2026. So just kind of curious on how you think about, is this growth based off MVCs, and could we potentially see an upside to your EBITDA growth target?

[Jonathan Stein, CFO at Hess Midstream]

Hi, this is John. I'm going to start. Maybe I'll just walk through kind of the math of how we set the MVCs and what those mean in terms of the volume growth. I'll turn it over to John to talk about underpinning that growth from a business point of view. So as we said, I'm going to use gas processing. As we've said in the past, gas is 75% of our revenues. So focusing on that, we provide guidance of 10% growth in 2026 and 5% growth in 2027.

[Jonathan Stein, CFO at Hess Midstream]

If you look at our MVCs, you can see they provide visibility to the volumes that underpin that growth. If you take, for example, 2026, our MVC grossed up at 80%, that's 495 million cu ft per day. Compared with the midpoint of our 2025 guidance, that implies more than 7.5% growth. If we look at 2027, our MVC grossed up there, that's 505 million cu ft per day. You need to add back the 10 million cu ft per day maintenance impact that John mentioned for the TGP maintenance. That gets you to 550 million cu ft per day, which is about a 4% annual growth rate. On top of that, add in additional third-party volumes, and that gets you to the growth rate, with the Hess volumes really being the primary driver of our growth through the period.

[Jonathan Stein, CFO at Hess Midstream]

So with that, now I'll turn it over to John. He can give you the background on kind of what's driving that growth.

[John Gatling, President and COO at Hess Midstream]

Sure. Thanks, Jonathan. Yeah, I mean, it's a good question. We continue to be focused on the four-rig development plan. And as productivity and efficiency improves, drilling longer laterals improves cycle time, overall productivity of the wells. Overall, Hess's program is continuing to generate growth both on the oil side and on the gas side. And as Jonathan mentioned, we've got oil's growing 10% from 2024 to 2025, 5% from 2025 to 2026, and 5% from 2026 to 2027. In addition, our gas is outpacing oil a little bit, as expected. The GORs in the basin are continuing to increase. As the wells mature, GOR naturally increases over time. So it's playing out exactly as we expected.

[John Gatling, President and COO at Hess Midstream]

And so from our perspective, the growth trajectory supports the additional infrastructure that we'll need both from a field gathering perspective but also from additional processing. So there's good line of sight between now and 2027 and actually even beyond that, showing the growth trajectory based on the MVCs that we've set and the guidance we've given in the earnings call.

[Naomi Marfatia, Associate Director and Equity Research at UBS]

Thanks. That's helpful. And then my second question is on your long-term outlook in Bakken. I know there has been quite some activity in Bakken recently. Can you help us understand on how HESM is thinking about growing in Bakken, either organically or via M&As, and if HESM is thinking of expanding beyond Bakken at any point in the future?

[John Gatling, President and COO at Hess Midstream]

Sure. Well, maybe I'll hit the last part of your question first. I mean, at this point, no, there's no plans to expand outside of the Bakken.

[John Gatling, President and COO at Hess Midstream]

I think we're really, really happy with the position we've got. Our strategic footprint sits right on top of some of the best rock in the basin. We obviously have the support of Hess as a sponsor and a significant partner for us to work with. From our perspective, the growth trajectory is really underpinned by Hess production. There's additional third-party opportunities out there, and we're going to continue to leverage our infrastructure to capture those third-party volumes. And we do anticipate third parties will grow about at the same pace that Hess is growing. But it really is underpinned. The organic growth is really underpinned by Hess. To your question on organic versus M&A activity, we continue to look at opportunities in the basin. We're always interested in looking at bolt-on opportunities. But from our perspective, with the growth built in, the bar is extremely high.

[John Gatling, President and COO at Hess Midstream]

Our disciplined approach is really kind of the thing that's stabilized us over the years. As I mentioned, we're in the process of building our own gas plant. It's right-sized at 125 million cu ft per day. It plays right in naturally with the growth trajectory that we've got planned through the end of the decade and even beyond that. So from our perspective, we're really happy with the infrastructure, but we're always interested to look at bolt-on opportunities that make sense and integrate nicely into our strategic footprint.

[Naomi Marfatia, Associate Director and Equity Research at UBS]

Great. I'll leave it there. Have a great rest of your day.

[John Gatling, President and COO at Hess Midstream]

Okay. Thank you so much.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Douglas Irwin from Citi.

[Douglas Irwin, Equity Research Analyst at Citi]

Thank you. Thanks for the question. Maybe one on CapEx to start.

[Douglas Irwin, Equity Research Analyst at Citi]

I was wondering if you could maybe provide a little bit more color on just what's driving the CapEx budget higher near term, both the 2025 guide moving higher, and I think you came in a little above budget on 2024. Then just curious to get your view on what longer-term growth CapEx might look like once some of these projects come online. Is it fair to assume that you see a pretty meaningful step down beyond 2027 as you come out of a relatively higher growth phase with the processing build-out?

[John Gatling, President and COO at Hess Midstream]

Yeah. Maybe I'll start and then hand it over to Jonathan for a little bit of the longer-term CapEx view. From our perspective, the main component of CapEx in both 2024 and 2025 has really been activity phasing. Hess has really done a great job from an overall efficiency perspective.

[John Gatling, President and COO at Hess Midstream]

They're drilling faster wells, bringing the wells on sooner. We're also seeing good productivity from the wells, drilling longer laterals. So we're really just trying to maintain the pace with Hess on the growth side. And third parties are generally following that same trajectory as well. So that's a little bit of the acceleration into 2024. And then 2025 kind of represents the same. I mean, as we start to kick off construction and fabrication of our gas plant expansion, we'll be doing some spending in 2025 for that. We think that approximately $300 million in 2025 is about right. We do anticipate through 2027 spending to be in the approximate $250 million-$300 million range. And then after that, we do expect the bulk of our growth infrastructure to be in place that will actually be able to support the growth trajectory through the end of the decade.

[John Gatling, President and COO at Hess Midstream]

With that infrastructure, there will be some opportunity for additional compression as Hess decides where it's going to drill and how it's going to operationalize the opportunity it has ahead of it. But we would expect post-2027 to see a step down in CapEx activity after that. Jonathan, if there's anything you wanted to add to that?

[Jonathan Stein, CFO at Hess Midstream]

No, that was good. I think as we've highlighted of our capital budget, $125 million is ongoing capital. So that's kind of capital that we'll have ongoing through 2027 and beyond. And then, as John said, it's really the project capital to be some phasing over the next couple of years, but in general, expect that to decline as some of these projects come online. And then while there may be some additional kind of growth capital beyond 2027, it certainly would be declining relative to where we are right now.

[Jonathan Stein, CFO at Hess Midstream]

And I think that's really just to highlight. I think that's one of the exciting things about what we're talking about today is not only that we can talk about visibility through 2027, both on the volume side and on the financial side, but really we can talk about now really visibility through the rest of the decade. And really there, we've talked about continued gas growth with the new plant coming online that supports growth for the rest of the decade. We just talked about capital over the next couple of years, but then declining. So with growing EBITDA through the rest of the decade and declining capital, that means that we'll have growing free cash flow, really not just through 2027, as we've talked about, but really visibly now through the rest of the decade.

[Jonathan Stein, CFO at Hess Midstream]

And that will really provide the opportunity for us to continue to fund distribution growth, to continue to fund potential incremental return of capital, not only through 2027 as we've extended that today, but really visibly through the rest of the decade. So it's really an exciting time in our journey, really exciting time where we are right now that we can give the visibility not just through 2027, which is already differentiated, but now we really have clear line of sight to our volume and financial metric growth through the rest of the decade.

[Douglas Irwin, Equity Research Analyst at Citi]

Okay. That's really helpful. Thanks. And my second question, I guess I just wanted to get your latest thoughts around the capital allocation program that you've extended into 2027?

[Douglas Irwin, Equity Research Analyst at Citi]

And I guess in the context of all the potential changes that could happen at the sponsor level this year, I'm just curious how heavily sponsor actions might factor into your decisions moving forward. And specifically, I'm just wondering if buybacks potentially become less attractive relative to other uses of cash down the line if you're eventually having to repurchase from the public rather than directly from the sponsors.

[Jonathan Stein, CFO at Hess Midstream]

Sure. Yeah. No, we're really proud of our return on capital framework with our two parts. Really our 5% annual distribution growth that we can achieve even at MVC levels. So that's really where we're highly confident in our ability to deliver that. And then our incremental return of capital through repurchases.

[Jonathan Stein, CFO at Hess Midstream]

I think what we've done, and we've gotten a lot of very positive feedback on this, is matching off those repurchases with dividend increases that are really funded by the lower share count and maintaining our total distributed cash at the same level. So it's allowed us that even though we've targeted at least 5% distribution growth, really since 2021, since we've started this program, our average distribution growth per year has really been approximately 10%, really almost double what we have just had in our base. So now looking forward, we talked about $1.25 billion at least of financial flexibility. Expect to utilize that for certainly unit repurchases going forward and multiple times per year as we've done in the past, and then matching those with distribution level increases as I described. I think in terms of how does that change potentially as our shareholder earnings change?

[Jonathan Stein, CFO at Hess Midstream]

Really, I think no real change to that. I think, is there a potential in the future that we would incorporate the public? I mean, certainly as the sponsor kind of percentages change over time, that's certainly something that we would consider. In the past, we didn't include the public in the repurchases really because we were building up the liquidity of the public float and the size. At this point, we have the public being 48% of the ownership, and certainly as we go forward, that becomes less of a concern, so certainly there's an opportunity to bring the public into the repurchase program, something we would certainly consider, not something we're taking a step right now, but certainly something that we'd consider particularly as ownership would continue to change.

[Jonathan Stein, CFO at Hess Midstream]

But really, it's something in terms of the program, no real change to the program. May adjust as I described depending on ownership changes, but really continuing to execute the program and deliver the, really, as I talked about, one of the highest total shareholder yields in the sector.

[Douglas Irwin, Equity Research Analyst at Citi]

Got it. That's all for me. Thanks for your time.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Jacques Koletas from Goldman Sachs.

[Jacqueline Marie Koletas, Equity Research at Goldman Sachs]

Hi. Thank you for taking the question. First, just want to start, given your expectations to reach below 2.5x in 2026, how do you think about the use of leverage going forward as you get below that target?

[Jonathan Stein, CFO at Hess Midstream]

Right.

[Jonathan Stein, CFO at Hess Midstream]

What we said is if you think about the $1.25 billion of capacity that we have, that's really funded by two elements versus leverage capacity and then excess free cash flow after distributions. If you kind of do the math with the EBITDA growth that we've given, assume about a half a turn, let's say at least, what you'll come up with is about half of that comes from leverage capacity, meaning half of the $1.25 billion. The other half is really as our free cash flow exceeds growth, exceeds our 5% target distribution, that gives you about the other half of that $1.25. Certainly, we're in a great position to be able to primary objective is continue to focus on return to capital. That's a priority, as I said in my comments. John talked about, of course, we'll continue to look at bolt-on opportunities.

[Jonathan Stein, CFO at Hess Midstream]

For us, we're very fortunate. It's a bit of an and/or, but continuing our priority will be continued value opportunities, but the bar is high. We have significant organic growth, and so there's not a need to do anything. And then absent that, of course, we'll continue to focus on shareholder returns as we've done through incremental returns through repurchases and dividend increases.

[Jacqueline Marie Koletas, Equity Research at Goldman Sachs]

Thanks. Appreciate the color there. And just following up, the first quarter guidance is adjusted for those weather impacts in January. What does that guidance assume beyond what has already occurred in the quarter, and how do you expect the basin to recover for the rest of the months we have left?

[John Gatling, President and COO at Hess Midstream]

Yeah. So I think for January, the weather has been kind of bouncing around a little bit just from an overall temperature perspective and wind also contributing to some operational challenges as well.

[John Gatling, President and COO at Hess Midstream]

Generally speaking, the first quarter tends to be a little bit more unpredictable from a weather perspective. So again, we've obviously seen the impact, and I think the basin order of magnitude is down about 10%. Hess is down less than that. I would say overall recovery has been strong. We expect volumes to get back online, but we still have at least two more months of weather ahead of us. So we're just trying to be thoughtful and maybe a little bit conservative on our approach to the first quarter, but just trying to manage expectations going into first quarter. So overall, I think we feel like our first quarter numbers are deliverable, and we're just kind of focused on supporting Hess as best we can as that volume recovers in the basin.

[Jonathan Stein, CFO at Hess Midstream]

One thing I just would add is if you look at our full year EBITDA guidance and then take our first quarter guidance, that really implies that on average, our EBITDA Q2 through Q4 is going to be up 11% on average. So really significant growth. I would expect that growth to be phased, as John has described, volume growth throughout the rest of the year. So expect that EBITDA to continue to grow. But certainly, once we get past the weather and all the things that John just described, certainly a significant step up and continued growth through the rest of the year.

[Jacqueline Marie Koletas, Equity Research at Goldman Sachs]

Great. Thank you so much for the time. That's it for me.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Noah Katz from JPMorgan Chase.

[Noah Katz, Equity Research Associate at JPMorganChase]

Hey, thanks for the question.

[Noah Katz, Equity Research Associate at JPMorganChase]

First, it would be helpful if you could provide a walk of expectations for EBITDA and costs throughout each quarter of 2025. How should we think about the business seasonally compared to 2024?

[Jonathan Stein, CFO at Hess Midstream]

Thanks. Yeah. I think the way to think about this is generally the seasonality that we have, particularly in North Dakota. Let's say that'll start on the cost side. Really, Q1 typically a bit lower than other quarters. Q2 and Q3 are really the quarters where we have the highest amount of activity. Then what I would say in Q4 is we've had different types of quarters. If the weather is good, the team has really worked to optimize our CapEx, credit to the team, to really take advantage of getting work done in Q4 before you get back into Q1 and really potential for severe winter weather.

[Jonathan Stein, CFO at Hess Midstream]

So if it's a bit milder, we have had years where we'll be able to do a bit more in Q4. So that's always kind of a bit of a variable. Also in Q4, as you saw this year, allocations kind of finalized in Q4, so that always provides a little bit of variability. On the volume side, expect really just steady growth quarter on quarter. Obviously, that will vary depending on wells online and all of that type of thing. But in general, steady growth throughout the year as we continue to bring more wells online, continue to see growth in oil, and then growth with that in associated gas as well.

[Noah Katz, Equity Research Associate at JPMorganChase]

Thanks for that.

[Noah Katz, Equity Research Associate at JPMorganChase]

And then as a quick follow-up, just looking at the trend of around $100 million in repurchases every quarter, do you think you could exceed this threshold in 2025, or should we expect for this to stay relatively consistent?

[Jonathan Stein, CFO at Hess Midstream]

Thanks. Sure. Yeah. What I would say is, look, consistent with what we've been doing, expect multiple repurchases per year. We have, as you saw in 2024, and before that, we've been doing about $100 million, but that's not a set in stone, I would say, amount. Certainly, I would say that we did do $100 million already at the beginning here of the quarter, but that was really think of that more as a Q4. Just as we kind of got into the Q4 holidays and all of that, we didn't want to kind of execute it right at year-end.

[Jonathan Stein, CFO at Hess Midstream]

So that was more of a kind of catch-up for Q4, so I would kind of think of it that way. And then the pace will set throughout the year, but certainly expect multiple repurchases per quarter, similar to per year, similar to what we've done in the past.

[Noah Katz, Equity Research Associate at JPMorganChase]

Thank you.

[Operator]

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

Participants

Executives

• Jonathan Stein, CFO
• John Gatling, President and COO

Analysts

• Jacqueline Marie Koletas, Equity Research at Goldman Sachs
• Jennifer Gordon, VP of Investor Relations at Hess Midstream
• Naomi Marfatia, Associate Director and Equity Research at UBS
• Douglas Irwin, Equity Research Analyst at Citi
• Noah Katz, Equity Research Associate at JPMorganChase