Hess Midstream's Governance Overhaul and Financial Flexibility: A Catalyst for Shareholder Value

The departure of Global Infrastructure Partners (GIP) from Hess Midstream LP (HESM) has catalyzed a transformative shift in the company's governance and financial strategy, positioning it as a standout opportunity in the midstream sector. With GIP's full exit on May 30, 2025, Hess Midstream has streamlined its ownership structure, strengthened its board independence, and unlocked unprecedented financial flexibility. These moves not only reduce operational complexity but also align incentives decisively with public shareholders, creating a compelling case for investment in a sector still navigating macroeconomic volatility.

Governance Reform: A Balancing Act for Shareholder Interests

The exit of GIP—formerly a 37.8% stakeholder—has reshaped Hess Midstream's governance landscape. Three GIP-appointed board members resigned, reducing Hess Corporation's influence from 50% of the board to a capped 50% (four of eight seats), with the remaining four seats reserved for independent directors. Crucially, the company now requires dual approvals for key decisions: at least one Hess-affiliated director and one independent director must concur on matters like related-party agreements, leverage ratios, distributions, and material capital expenditures.

This structure mitigates potential conflicts of interest. For instance, Hess Corporation's proposed merger with Chevron introduces regulatory and operational uncertainties. However, the new governance framework ensures that Hess Midstream's strategic choices are subject to independent scrutiny, reducing the risk of decisions favoring Hess Corporation at the expense of minority shareholders.

Financial Flexibility: Fueling Buybacks and Distribution Growth

Hess Midstream's governance overhaul coincides with a robust financial posture. The company now boasts over $1.25 billion in financial flexibility through 2027, a figure bolstered by its May 2025 $200 million repurchase plan. This included $190 million in Class B units repurchased from former sponsors and $10 million in Class A shares via an accelerated share repurchase (ASR) with JPMorgan.

The goal is clear: enhance distributable cash flow per Class A share to fuel distribution growth above its 5% annual target. With 62.2% of the company now publicly owned, the emphasis on buybacks and distributions directly rewards shareholders. The $1.25B cushion provides ample room to navigate commodity price swings or regulatory hurdles without compromising liquidity.

Operational Stability in the Bakken: A Bedrock of Resilience

Hess Midstream operates in North Dakota's Bakken and Three Forks plays, regions known for stable, fee-based midstream assets. Its business model—focused on oil, gas, and produced water handling—insulates it from commodity price volatility, as revenue streams are tied to volumes rather than prices. This structural advantage, combined with Hess Corporation's continued production growth in the Bakken, positions HESM as a low-risk, high-yield play.

Risks and Considerations

While the governance reforms and financial flexibility are positives, risks persist. The Hess-Chevron merger's regulatory approval timeline remains uncertain, though Hess Midstream's commercial agreements with Hess Corporation remain intact post-GIP exit. Additionally, midstream valuations have lagged due to broader sector skepticism. However, HESM's debt-to-EBITDA ratio (likely below 3.5x given its conservative leverage stance) and its coverage ratio for distributions (projected to remain above 1.2x) suggest it can weather these headwinds.

Investment Thesis: A Compelling Midstream Opportunity

Hess Midstream now offers a rare combination of governance discipline, financial firepower, and operational stability. With buybacks set to boost per-share metrics and distributions poised to grow beyond 5%, the stock presents a high-conviction entry point.

Key catalysts to watch:
1. Filling the fourth independent board seat: Finalizing the board's independence could accelerate investor confidence.
2. Hess-Chevron merger resolution: A green light would likely stabilize Hess Corporation's production trajectory, benefiting HESM's volumes.
3. 2024-2027 financial flexibility utilization: Executing buybacks and distributions without over-leveraging will be critical to sustaining momentum.

Final Take: Capitalize on the Turnaround

Hess Midstream's strategic moves—governance reforms, financial discipline, and a focus on shareholder returns—signal a shift toward maximizing value for public investors. With a yield of ~6% (assuming current distribution rates) and a price-to-DCF multiple likely below its peers, HESM is undervalued relative to its risk-adjusted prospects. Investors seeking a defensive midstream name with growth catalysts should consider accumulating shares here.

The path forward is clear: Hess Midstream has transformed itself into a leaner, more accountable entity. For patient investors, this overhaul could deliver outsized rewards as the company capitalizes on its financial flexibility and operational bedrock in the Bakken.

As of July 2025. Past performance is not indicative of future results. Consult financial advisors before making investment decisions.