Hess Midstream Q4 2024 Earnings Call Transcript

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Provided by Quartr
January 29, 2025
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Operator

Good day, ladies and gentlemen, and welcome to the 4th 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 speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded for replay purposes.

Operator

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

Jennifer Gordon
Jennifer Gordon
Vice President, IR at Hess Midstream

Thank you, Gigi. Good afternoon, everyone, and thank you for participating in our Q4 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.

Jennifer Gordon
Jennifer Gordon
Vice President, IR at Hess Midstream

These risks include those set forth in the Risk Factors section of Hess Midstream's filings with the SEC. Also on today's conference call, we may discuss certain GAAP financial measures. A reconciliation of the differences between these non GAAP financial measures and the most directly comparable GAAP financial measures can be found in the earnings release. With me today are John Gatling, President and Chief Operating Officer and Jonathan Stein, Chief Financial Officer. I'll now turn the call over to John Gatling.

John Gatling
John Gatling
President & COO at Hess Midstream

Thanks, Jennifer. Good afternoon, everyone, and welcome to Hess Midstream's Q4 2024 conference call. Today, I'll review our 2024 performance and highlights, provide an overview of our 'twenty five 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 execution for Hess Midstream.

John Gatling
John Gatling
President & COO at Hess Midstream

We delivered significant volume growth, including 14% year over year growth in gas processing throughputs. Additionally, we made excellent progress on key multiyear 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. Our long term growth remains driven by Hess' planned development activity and increasing third party volumes reinforcing the need for additional gas processing capacity. Now turning to Hess upstream highlights.

John Gatling
John Gatling
President & COO at Hess Midstream

In the Q4, Bakken net production averaged 208,000 barrels of oil equivalent per day, including 20,000 barrels of olekum 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 olekum per day, marking a 12% year over year increase. Hess reaffirmed its plan to maintain a 4 rig drilling program in 2025 and projected Q1 2025 net production to be in the range of 195 to 200,000 barrels of Ola Kum per day. The decrease from the Q4 2024 is primarily attributed to severe winter weather in January. Now turning to Hess Midstream results.

John Gatling
John Gatling
President & COO at Hess Midstream

In the Q4, we delivered strong operational performance with gas processing volumes averaging 447,000,000 cubic foot per day, crude terminalling volumes averaging 127,000 barrels of oil per day and water gathering volumes averaged 130,000 barrels of water per day. For full year 2024, Hess Midstream's gas processing volumes averaged 420,000,000 cubic foot 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 $1,136,000,000 Now moving to Hess Midstream's guidance. For the Q1 of 2025, we anticipate volumes to be lower than the Q4 of 2024 due to the impact of severe winter weather in January and the possibility of further weather related impacts in the Q1. For full year 2025, we anticipate approximately 10% growth in volumes across our oil and gas systems compared to 2024, primarily driven by Hess' development activity and increasing third party volumes. We expect gas processing volumes to average between 455,000,000 and 465,000,000 cubic foot per day, crude terminalling volumes to average between 130,000 to 140,000 barrels of oil per day and water gathering volumes to average between 120,000 and 130,000 barrels of water per day.

John Gatling
John Gatling
President & COO at Hess Midstream

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 $1,235,000,000 to $1,285,000,000 Building on our 2025 volume growth, we anticipate gas volumes to increase by approximately 10% in 2026 5% in 2027, while oil volumes are expected to grow by approximately 5% annually over the same period. 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 10,000,000 cubic foot 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 125,000,000 cubic feet per day Capa 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.

John Gatling
John Gatling
President & COO at Hess Midstream

Now turning to Hess Midstream's 2025 capital program. Total capital expenditures for the year are expected to be approximately $300,000,000 with $125,000,000 dedicated to ongoing expenditures for gathering system well connects and maintenance and $175,000,000 allocated to project based investments, including volume driven gas gathering and process and expansions. In 2025, we are focused on completing 2 new compressor stations and their associated gathering systems. Once operational, these stations are expected to add a combined 85,000,000 cubic foot per day of gas compression capacity with the potential to expand up to approximately 140,000,000 cubic foot per day. Additionally, our growth capital will support the construction and fabrication of the 125,000,000 cubic foot per day Capa Gas Plant.

John Gatling
John Gatling
President & COO at Hess Midstream

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 to $300,000,000 through 2027. This includes completing the Capa gas plant and starting construction on an additional compressor station in 2026. 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 Capa Gas Plant in 2027. In summary, we remain focused on executing our strategy of disciplined, low cost investments to meet growing basin demand, while maintaining reliable operations and strong financial performance.

John Gatling
John Gatling
President & COO at Hess Midstream

With growth projected through 2027 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
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 us 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 line of sight to greater than 10% growth in net income, adjusted EBITDA and adjusted free cash flow in each of 20252026 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 20252026, followed by approximately 5% in 2027.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

We continue to execute a financial strategy that prioritizes returning capital to shareholders with a demonstrated track record of differentiated shareholder returns. Since the beginning of 2021, we have returned $1,950,000,000 to shareholders through accretive repurchases. In addition, through 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 return, while also maintaining balance sheet strength.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

Earlier this month, we completed our 1st unit repurchase transaction in 2025 of $100,000,000 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've done in the past, our 4th quarter distribution increase included our targeted 5% annual growth per Class A share and an additional increase utilizing excess adjusted free cash flow after distribution following the repurchase. As a result, for 2024 and every year since we started our return of capital framework, our distribution for 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. We have extended our annual distribution per Class A share growth target of at least 5% through 2027 and are expecting greater than $1,250,000,000 of financial flexibility through 2027 for capital allocation that includes prioritization of potential unit repurchases on an ongoing basis, while maintaining a long term leverage target of 3 times adjusted EBITDA.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

Turning to our results. For the Q4, net income was $172,000,000 compared to $165,000,000 for the 3rd quarter. Adjusted EBITDA for the 4th quarter was $298,000,000 compared to $287,000,000 for the Q3. The increase in adjusted EBITDA relative to the Q3 was primarily attributable to the following. Total revenues, excluding pass through revenues, increased by approximately $15,000,000 Pravella 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 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 and A allocations under our omnibus and employees' incumbent agreements, partially offset by lower general maintenance, resulting in adjusted EBITDA for the Q4 of $298,000,000 Our gross adjusted EBITDA margin for the 4th quarter was maintained at approximately 80%, above our 75% target highlighting our continued strong operating leverage.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

4th 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 with a drawn balance of $15,000,000 on a revolving credit facility at year end. 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 2,030 3. For our terminalling and water gathering systems that represent approximately 15% of our revenues, we continue to reset our rates through our annual rate redetermination process through 2,033. Based on this rate setting process for 2025, tariff rates across all our systems are higher than 2024 rates.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

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 20262027. Gas volumes are expected to grow by approximately 10% in each of 20252026 followed by approximately 5% in 2027. Based on this expected growth rate, we expect to exceed our current gas processing capacity in 2027, and we'll begin construction this year as planned of our new 125,000,000 cubic feet 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 3 years in advance through 2,033.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

In our guidance release 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 where required increased, while MVCs for 2027 were newly established based on 80% of the Hess nominated volumes for each system in that year. Turning to our financial guidance for 2025 and beyond. For the full year 2025, we expect net income of $7.15 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 gross adjusted EBITDA margin of approximately 75 percent in 2025.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

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 $785,000,000 and excess adjusted free cash flow of approximately $135,000,000 after fully funding our targeted growing distribution. With increasing adjusted EBITDA, we expect our leverage for 2025 to be below our 3 times adjusted EBITDA target on a full year basis. For the Q1 of 2025, we expect net income to be approximately 160 dollars to $170,000,000 and adjusted EBITDA to be approximately $285,000,000 to $295,000,000 including the impact of severe winter weather in January and the potential for additional winter weather events through the quarter. 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.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

Supported by volumes that continue to grow in both oil and gas to at least 2027, fees that are steadily increasing based on our annual inflation escalator, they 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, 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 the rest of the decade providing significant financial flexibility to continue returning capital to shareholders. In addition, we are continuing to prioritize shareholder returns with our return on 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. 2nd, we have financial flexibility for potential significant incremental shareholder returns beyond our growing base distribution.

Jonathan Stein
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 3 times adjusted EBITDA leverage target. As a result, with a growing cash balance and significant leverage capacity, we expect to have greater than $1,250,000,000 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. 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.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

I will now turn the call over to the operator. Thank

Operator

you. Our first question comes from the line of Naomi Marfascia from UBS.

Naomi Marfatia
Naomi Marfatia
Associate Director - Equity Research at UBS Group

Hi, good afternoon. Thanks for taking my questions. My first question is on your multi year growth outlook. So, has some established 27 MVCs and slightly increased 20 7 and 26 MVCs. And you all have alluded to 10% EBITDA growth in 20 6.

Naomi Marfatia
Naomi Marfatia
Associate Director - Equity Research at UBS Group

So just kind of curious on how you think about like is this base is this growth based off MVCs and could we potentially see an upside to your EBITDA growth target?

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

Hi, this is Jonathan. 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.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

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 5% growth in 2027. So if you look at our MVCs, you can see they provide visibility to the volumes that underpin that growth. So if you take, for example, 2026, our MVC goes up at 80%, that's 495,000,000 cubic feet per day compared with the midpoint of our 2025 guidance that implies more than 7.5% growth. As we look at 2027, our MVC growth is up there, that's 505,000,000 cubic feet per day.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

You need to add back the 10,000,000 cubic feet per day maintenance impact that John mentioned for the TGP maintenance. That gets you to 550,000,000 cubic feet 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. 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
John Gatling
President & COO at Hess Midstream

Sure. Thanks, Jonathan. Yes, I mean, it's a good question. We continue to be focused on the 4 rig development plan. And as productivity and efficiency improves, drilling longer laterals, improved cycle time, overall productivity of the wells.

John Gatling
John Gatling
President & COO at Hess Midstream

Overall, the Hess' program is continuing to generate growth, both on the oil side and on the gas side. And as Jonathan mentioned, we've got oils growing 10% from 24% to 25%, 5% from 25% to 26% and 5% from 26% to 27%. 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.

John Gatling
John Gatling
President & COO at Hess Midstream

So, it's playing out exactly as we expected. 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
Naomi Marfatia
Associate Director - Equity Research at UBS Group

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 Hessam is thinking about growing Bakken either organically or via M and A?

Naomi Marfatia
Naomi Marfatia
Associate Director - Equity Research at UBS Group

And if Hassan is thinking of expanding beyond Bakken at any point in the future?

John Gatling
John Gatling
President & 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. I think we're really, really happy with the position we've got. Our strategic footprint is sits right on top of some of the best rock in the basin.

John Gatling
John Gatling
President & COO at Hess Midstream

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 3rd 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 and A activity, we continue to look at opportunities in the basin.

John Gatling
John Gatling
President & COO at Hess Midstream

We're always interested in looking at bolt on opportunities. But from our perspective, with the growth built in, the bar is extremely high. 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 125,000,000 cubic feet per day.

John Gatling
John Gatling
President & COO at Hess Midstream

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
Naomi Marfatia
Associate Director - Equity Research at UBS Group

Great. I'll leave it there. Have a great rest of the year.

John Gatling
John Gatling
President & COO at Hess Midstream

Okay. Thank you so much.

Operator

Thank you. One moment for our next question.

Operator

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

Doug Irwin
Doug Irwin
Equity Research Analyst at Citi

Maybe one on CapEx to start. 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. And 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 as you see a pretty meaningful step down beyond 27 as you come out of a relatively higher growth phase with the processing build out?

John Gatling
John Gatling
President & COO at Hess Midstream

Yes. 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. They're drilling faster wells, bringing the wells on sooner.

John Gatling
John Gatling
President & COO at Hess Midstream

We're also seeing good productivity from the wells, drilling longer laterals. So that's 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.

John Gatling
John Gatling
President & COO at Hess Midstream

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 $300,000,000 in 2025 is about right. We do anticipate through 'twenty seven spending to be an approximate $250,000,000 to $300,000,000 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. With that infrastructure, there will be some opportunity for additional compression as the as Hess decides where it's going to drill and how it's going to operationalize the opportunity it has ahead of it.

John Gatling
John Gatling
President & COO at Hess Midstream

But we would expect post-twenty 20 7 to see a step down in CapEx activity after that. Jonathan, is there anything you wanted to add to that?

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

No, no, that was good. I think as we've highlighted of our growth of our capital budget, dollars 125,000,000 is ongoing capital. So that's kind of capital that we'll have ongoing through 'twenty seven 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 'twenty seven and certainly would be declining relative to where we are right now.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

And I think that's really just to highlight, I think that's one of the exciting things 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, been here over the next couple of years, but then declining. So with growing EBITDA for 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 for the rest of the decade. And that will really provide the opportunity for us to continue to fund distribution growth, to gain to fund potential incremental return of capital, not only through the 2027 as we've extended that today, but really visibility through the rest of the decade.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

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.

Doug Irwin
Doug 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 20 27. 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 Headway sponsor actions might factor into your decisions moving forward.

Doug Irwin
Doug Irwin
Equity Research Analyst at Citi

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
Jonathan Stein
CFO at Hess Midstream

Sure. Yes. No, we're really proud of our return on capital framework with our 2 parts, really our 5% annual distribution growth that we can achieve even at MVC levels. So that's really we're highly confident in our ability to continue to deliver that. And then our incremental return of capital through repurchases.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

And then 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 started this program, our average distribution growth per year has really been approximately 10%, really almost double what we have just had our base. So now looking forward, we talked about $1,250,000,000 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, Really, I think no real change to that. I think is there potential in the future that we would incorporate the public?

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

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 our the liquidity of the public float and the size. At this point, we are at the public being 48% of the ownership is only 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. 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.

Doug Irwin
Doug 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.

Operator

Our next question comes from the line of Jackie Colletis from Goldman Sachs.

Jackie Koletas
Equity Research Analyst at Goldman Sachs (India) Securities Pvt Ltd.

Hi, thank you for taking my question. First, just want to start, given your expectations to reach below 2.5 times in 26, how do you think about the use of leverage going forward as you get below that target?

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

Right. So what we said is, if you think about the $1,250,000,000 of capacity that we have, that's really funded by 2 elements. 1st is 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 $1,250,000,000 The other half is really as our free cash flow exceeds growth, exceeds our 5% target distribution that gives you above the other half of that $1,250,000,000 Certainly, we're in a great position to be able to primary objective is continue to focus on return of capital. That's a priority, as I said in my comments.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

John talked about, of course, we'll continue to look at bolt on opportunities. For us, we're very fortunate. It's a bit of an and not an 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.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

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.

Jackie Koletas
Equity Research Analyst at Goldman Sachs (India) Securities Pvt Ltd.

Thanks. Appreciate the color there. And just following up, the Q1 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 the rest of the months we have left?

John Gatling
John Gatling
President & COO at Hess Midstream

Yes. 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. Generally speaking, the Q1 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%.

John Gatling
John Gatling
President & COO at Hess Midstream

HES is down less than that. I would say overall recovery has been strong. We expect volumes to get back online, but we still have 2 more at least 2 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 Q1, but just trying to manage expectations going into Q1. So overall, I think we feel like it's our Q1 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
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 Q1 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, it's only a significant step up and continued growth for the rest of the year.

Jackie Koletas
Equity Research Analyst at Goldman Sachs (India) Securities Pvt Ltd.

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

Operator

Thank you. One moment for our next question.

Operator

Our next question comes from the line of Noah Katz from JPMorgan Chase.

Noah Katz
Equity Research Associate at JP Morgan Chase & Co

Hey, thanks for the question. 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 'twenty four? Thanks.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

Yes. I think the way to think about this is generally the seasonality that we have particularly in North Dakota, let's say that will 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. And then what I would say in Q4 is we have had different types of quarters.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

If the weather is good, the team has really worked to optimize, 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. So 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.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

So that's 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 JP Morgan Chase & Co

Thanks for that. And then as a quick follow-up, just looking at the trend of around $100,000,000 in repurchases every quarter, do think you could exceed this threshold in 2025 or should we expect for this to stay relatively consistent? Thanks.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

Sure. Yes, what I would say is, look, we 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 $100,000,000 but that's not a set in stone, I would say, amount. Certainly, I would say that we did do $100,000,000 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 that, we didn't want to kind of execute it right at year end. So that was more of a kind of catch up to Q4, so I would kind of think of it that way.

Jonathan Stein
Jonathan Stein
CFO at Hess Midstream

And then the pace will set throughout the year, but certainly expect multiple repurchases per quarter similar to per year, similar to what you've done in the past.

Noah Katz
Equity Research Associate at JP Morgan Chase & Co

Thank

Operator

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

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Executives
Analysts
    • Naomi Marfatia
      Associate Director - Equity Research at UBS Group
    • Doug Irwin
      Equity Research Analyst at Citi
    • Jackie Koletas
      Equity Research Analyst at Goldman Sachs (India) Securities Pvt Ltd.
    • Noah Katz
      Equity Research Associate at JP Morgan Chase & Co
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Earnings Conference Call
Hess Midstream Q4 2024
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