Hess Midstream's 2026 Earnings Call: CapEx Shifts, Leverage Uncertainty, and EBITDA Guidance Delays Clash

Date of Call: Aug 3, 2026

Financials Results

• Revenue: $433M (throughput volumes, midpoint)
• Gross Margin: 85% (EBITDA margin, well above 75% target)

Guidance:

• Q3 2026 net income expected to be $165M to $175M.
• Q3 2026 adjusted EBITDA expected to be approximately flat at $310M to $320M midpoint.
• Q3 2026 adjusted free cash flow expected to decrease relative to Q2 2026 due to higher capital expenditures.
• Full year 2026 net income expected between $650M and $700M.
• Full year 2026 adjusted EBITDA expected between $1,225M and $1,275M, approximately flat at midpoint vs 2025.
• Full year 2026 adjusted free cash flow expected to be $910M to $960M, with $280M projected after funding distribution returns and debt repayment.

Business Commentary:

Operational Performance and Maintenance:

• TETRA Technologies Midstream completed planned maintenance at TGP on time and under budget. The capital expenditures for the second quarter were $31 million, with expectations for higher spending in the third quarter.
• The efficiency in maintenance and capital allocation is driven by the company's focus on operational priorities and investments in infrastructure.

Financial Performance and Guidance:

• The company reported net income of $174 million for Q2 2026, compared to $158 million in Q1, with an adjusted EBITDA of $314 million.
• The increase in financial performance is attributed to lower operating expenses, G&A savings, and increased pass-through revenues.

Volume Trends and Revenue Expectations:

• Throughput volumes averaged $433 million at the midpoint, with expectations for continued growth in the second half of the year.
• The volume trends are supported by increased third-party volumes in gas processing and planned operational activities.

Capital Expenditure and Shareholder Returns:

• TETRA Technologies Midstream expects capital expenditures to be higher in Q3, in line with the completion of greenfield high-pressure gathering pipeline projects.
• The company plans to use excess adjusted free cash flow for debt repayment and shareholder returns, maintaining a leverage ratio target of around two and a half times.

Weather and Execution Impact:

• The company's EBITDA guidance range is influenced by weather conditions and operational execution in the second half of the year.
• Favorable weather and strong maintenance execution are critical for achieving the higher end of the EBITDA guidance range.

Sentiment Analysis:

Overall Tone: Positive

• Executives highlighted strong operational execution, increased distribution, and record adjusted free cash flow. They state 'we're continuing to remain focused on executing safe and reliable operations while leveraging significant adjusted free cash flow' and 'we're doing our historical investment in existing infrastructure' for growth.

Q&A:

• Question from Jeremy Tonet (J.P. Morgan): Appreciate the comments and the prepared remarks and the full year guide, but maybe curious if you could talk to some of the puts and takes that could drive the high end versus low end.
  Response: The EBITDA guidance range depends on weather and operational execution in the second half; favorable conditions drive the high end, while interruptions drive the low end.

• Question from Jeremy Tonet (J.P. Morgan): And then on the cost side, how you see OpEx and maintenance.
  Response: Maintenance costs are higher in Q3 due to phasing shifts, and OPEX typically lowers in Q4, causing expected volatility.

• Question from Jeremy Tonet (J.P. Morgan): And then could you maybe just dive a little bit deeper on the second half?
  Response: Volume growth is expected to continue into the second half, with revenue growth outpacing higher OPEX in Q3 and driving higher EBITDA in Q4.

• Question from John McKay (Goldman Sachs): Hey, team. Thank you for the time. Jonathan, you touched on this a little bit, but Chevron also made a point of bringing it up on there. Anything you can kind of walk us through of what you're seeing on the ground or call just in terms of the efficiency gains they are seeing in the basin and to the extent that you're starting to see kind of initial results, maybe any commentary you can share about how to frame up
  Response: Chevron's efficiencies help maintain production at lower rig counts, supporting volume guidance, and are seen in capital efficiency and operational synergies.

• Question from John McKay (Goldman Sachs): They also made a point of mentioning on the call just a review. I want to ask one follow-up, and I understand there's probably not a ton. You can kind of their broader midstream strategy in the basin. Is there any kind of context or perspective that you guys are able to share at this point?
  Response: Chevron's strategy focuses on Bakken production efficiency and leveraging existing infrastructure, aligning with Hess-Midstream's investment plans for cash flow generation.

• Question from Doug Irwin (Citi): Hey, Kim. Thanks for the question. I wanted to start with the EBITDA margin this quarter. You hit 85%, which is well above your 75% target, and realize there are probably some one-time cost benefits this quarter. But if I look back, it's been quite some time since you've even been below 80%, I think, of today, or if there's maybe an expectation of converging back towards that over time.
  Response: The strong 85% margin reflects some minor one-time benefits but is driven by strong operational performance; the company expects to maintain margins above 80% long-term while targeting at least 75%.

• Question from Doug Irwin (Citi): but we're not intending to change up the buyback this quarter and activity has been a little less great. And then maybe just to follow up on capital allocation, you didn't do the bull here despite the free cash flow outlook remaining pretty strong. So I'm just curious kind of how you you're thinking about IVACs versus debt pay down and the trend relative to that three times long-term leverage range you've talked about. And if you kind of have an ultimate target of where you expect...
  Response: The board will evaluate the mix of debt paydown and shareholder returns; the company expects leverage to decline below three times, targeting around two and a half times, using excess cash flow for debt reduction.

Contradiction Point 1

Capital Expenditure (CapEx) Outlook

Contradiction on whether CapEx is increasing or decreasing through 2026 and on the level of future capital spending flexibility.

Jeremy Tonet from J.P. Morgan asks about the key takeaways from the recent earnings report? - Jeremy Tonet (J.P. Morgan)

2026Q2: We expect CapEx to be higher in Q3 due to a phasing shift of maintenance work from Q2 into the second half. - Jonathan Stein(CEO)

Could you elaborate on second-half volume growth drivers? - Francina Kolluri (JPMorgan Chase & Co)

2026Q1: It is expected to be the low point of the year, with spending increasing in Q2 and Q3 to complete greenfield high-pressure gathering pipeline infrastructure. The overall 2026 CapEx guidance was reduced by one-third... - Jonathan Stein(CEO)

Contradiction Point 2

Leverage Target & Capital Allocation Strategy

Contradiction on specific target for leverage ratio and the primary use of excess cash.

What are your thoughts on the company's performance during the quarter? - Doug Irwin (Citi)

2025Q4: CapEx is trending down following Chevron’s integration and optimization plan. In 2026, CapEx is $150M (40% lower than 2025), with $25M for completing pipeline build-out and $125M for gathering systems & maintenance. For 2027/2028, CapEx is expected to be around $75M or lower. - Michael Chadwick(CFO) & Jonathan Stein(CEO)

Given strong free cash flow and no buyback this quarter, how are you prioritizing capital allocation between buybacks and debt paydown, and what is your target leverage ratio? - John Mackay (Goldman Sachs Group, Inc.)

2026Q2: The leverage ratio is expected to decline to around 2.5x by year-end. The company does not have an absolute debt target but expects leverage to go lower than the current 3x level. - Mike Chadwick(CFO)

Contradiction Point 3

Timing and Nature of 2026 EBITDA Guidance

Contradiction on when and how detailed 2026 EBITDA guidance will be provided.

Jeremy Tonet (J.P. Morgan) - Jeremy Tonet (J.P. Morgan)

2026Q1: The goal is to achieve a leverage ratio naturally below 2.5x by 2028, with continued focus on shareholder returns and debt repayment. - Michael Chadwick(CFO)

What factors could drive the high vs. low end of the guidance, and how do you see OpEx and maintenance costs evolving? - Praneeth Satish (Wells Fargo Securities)

2025Q4: There is no specific target leverage ratio; deleveraging will occur naturally. Over the next three years, free cash flow after distributions will be used for both incremental shareholder returns and debt repayment, without increasing absolute debt levels. - Michael Chadwick(CFO)

Contradiction Point 4

Capital Allocation and Share Buyback Strategy

Contradiction on the financial flexibility and stated plans for share repurchases.

What were Doug Irwin's key questions during the Citi earnings call? - Doug Irwin (Citi)

2026Q2: The EBITDA guidance range is driven by weather and execution... The high end requires strong maintenance execution and favorable weather; the low end would result from interruptions. - Mike Chadwick(CFO)

How are you prioritizing capital allocation between debt paydown and buybacks, and what is the target leverage ratio? - Jeremy Tonet (JPMorgan Chase & Co)

2025Q3: The preliminary guidance is a 'shape' only. The final EBITDA range for 2026, to be provided in December, will depend on the completed development plan from Chevron. - Jonathan Stein(CEO)

Contradiction Point 5

Capital Allocation and Share Buyback Strategy

Contradiction on the company's stated allocation of excess cash flow.

Doug Irwin (Citi) - Doug Irwin (Citi)

2026Q2: The board evaluates the mix of debt paydown and shareholder returns throughout the year. For 2026, the company is guiding to use ~$280 million of excess adjusted free cash flow for this purpose, which includes both public share repurchases and revolver paydowns. - Mike Chadwick(CFO)

Why wasn't a buyback executed this quarter despite strong free cash flow, and how are you balancing capital allocation between buybacks and debt paydown, along with your target leverage ratio? - John Mackay (Goldman Sachs Group, Inc.)

2025Q3: With leverage at the target 3x, and guided flat EBITDA for 2026 but significantly lower capital expenditures, the company expects continued growth in adjusted free cash flow. This provides financial flexibility for incremental return of capital, including potential share repurchases, at least through 2027. - Michael Chadwick(CFO)