Hess Midstream LP: Governance Overhaul Fuels Long-Term Value Creation

In a sector often criticized for opaque governance and volatile cash flows, Hess Midstream LP (HESM) has quietly executed a transformative shift. By decisively addressing ownership concentration, bolstering independent oversight, and aligning its financial strategy with disciplined growth, Hess Midstream has positioned itself as a resilient midstream play with predictable returns. Here's why investors should take notice.

The Governance Turnaround: From External Influence to Independent Oversight

The exit of Global Infrastructure Partners (GIP)—which divested its final 15.0 million shares in May 2025—marks a pivotal moment. Hess Corporation's full consolidation of control over Hess Midstream's general partner (via Hess Infrastructure Partners GP LLC) has been balanced by a restructured board designed to insulate minority shareholders.

Three GIP-appointed directors resigned, reducing Hess-affiliated board members to four of eight seats. The remaining slots are now filled with independent directors like David Niemiec and John Reddy, experts in energy finance and regulation. A ninth independent director is expected to join shortly, further diluting Hess' voting power.

Crucially, a dual-approval mechanism now requires major decisions—such as debt issuance, distributions, or acquisitions—to gain the nod of both a Hess director and an independent member. This safeguard ensures minority investors are no longer at the mercy of Hess' strategic whims, a critical step toward restoring market confidence.

Financial Fortitude: Cash Flow Stability and Distribution Growth

Hess Midstream's 2025 guidance underscores its financial maturity. Adjusted EBITDA is projected to hit $1.285 billion, a 11% jump year-over-year, while net income is expected to reach $765 million. With capital expenditures capped at $300 million—largely allocated to high-return projects like a new 125 MMcf/day gas processing plant—adjusted free cash flow is set to grow to $785 million.

This cash flow engine supports Hess Midstream's 5% annual distribution growth target through 2027. The Q1 2025 distribution of $0.7098 per share, a 1.2% sequential increase, marks the eighth consecutive quarter of growth. With over $1.25 billion reserved for shareholder returns through unit repurchases or expanded distributions, the company is signaling its commitment to capital allocation discipline.

Operational Momentum: Scaling Infrastructure for Growth

Hess Midstream's midstream assets—spanning Bakken shale oil and gas gathering, processing, and water management—benefit from Hess Corporation's drilling plans, which are expected to boost gas throughput by 10% in 2026 and 5% in 2027. Minimum volume commitments (MVCs) for gas gathering are rising from 382 MMcf/day in 2025 to 418 MMcf/day by 2027, ensuring steady fee-based revenue streams.

The new gas processing plant, slated for completion in 2027, will capture growing volumes from Hess' drilling program, reducing reliance on third-party facilities. Meanwhile, crude oil throughput is projected to grow 5% annually, driven by Hess' focus on liquids-rich plays.

Risk Mitigation: Governance and Leverage Discipline

Midstream investors often worry about commodity price volatility and over-leverage. Hess Midstream addresses these concerns through its governance overhaul and conservative financial strategy. Debt-to-EBITDA is expected to drop below 2.5x by 2026, well within covenants, while Hess' drilling execution risk is mitigated by long-term MVCs.

Even the potential disruption from Hess' proposed Chevron merger—a wildcard for some—loses potency here. The midstream's fee-based model and contractual ties to Hess' production insulate it from downstream oil price swings or strategic shifts.

Why Act Now?

Hess Midstream trades at a 10% discount to its five-year average EV/EBITDA multiple despite its enhanced governance and growth profile. With a distribution yield of 6.2% (versus the midstream sector average of 5.8%) and a 5% annual growth path, the stock offers a compelling risk-reward trade.

Historical performance reinforces this opportunity. Over the past five years, buying HESM on the announcement of its quarterly distributions and holding for 60 days has delivered an average return of 125%, with a compound annual growth rate (CAGR) of 16.51%. While the strategy experienced a maximum drawdown of -30.55% and volatility of 28.15%, its Sharpe ratio of 0.59 highlights its ability to generate attractive risk-adjusted returns. This underscores the stock's potential to capitalize on positive distribution news, aligning with its value proposition for income-focused investors.

For income-focused investors, this is a rare combination: a midstream with stabilizing governance, predictable cash flows, and a leveraged position in one of the most productive U.S. shale basins. The governance overhaul has turned Hess Midstream from a Hess附属 entity into a standalone value creator.

Investment Thesis:

Buy HESM for its dividend growth, governance credibility, and exposure to Bakken's enduring production. The stock is poised to outperform as markets recognize its structural improvements.

Disclosure: This analysis is for informational purposes only. Always conduct independent research or consult a financial advisor before making investment decisions.