Hess Midstream LP's Q2 Earnings: A Barometer for Post-Merger Growth and Valuation

As Hess Midstream LP prepares to release its Q2 2025 earnings on July 22, investors will scrutinize the results for clues about the midstream operator's growth trajectory and valuation prospects amid its $53 billion merger with Chevron. The earnings report, which follows a quiet Q1 2025 release marked by a beat in earnings per share (EPS) of $0.65 but no conference call, will likely focus on operational execution and financial discipline. However, the real story lies in how Hess Midstream's strategic integration with Chevron progresses—and whether the deal's regulatory and legal hurdles are nearing resolution.

The Merger's Progress: A Delicate Balance of Risk and Reward

The merger with Chevron, first announced in late 2024, has been hampered by an ongoing arbitration battle over Hess's 50% stake in the lucrative Stabroek block in Guyana. The dispute, involving Exxon Mobil and CNOOC, is now before the International Chamber of Commerce. While Chevron has already begun preparing for integration—assigning IT teams, holding town halls, and establishing severance plans—the deal's final approval hinges on resolving this arbitration and securing regulatory clearances from the U.S. Federal Trade Commission (FTC) and the EU.

A resolution by mid-2025 could allow the merger to close within days, positioning Hess Midstream to benefit from Chevron's scale and capital allocation. However, delays could pressure Hess Midstream's valuation, as investors grow impatient with the prolonged uncertainty. The Q2 earnings release may offer no direct updates on the arbitration or regulatory timelines, but management's commentary on operational momentum and debt management could indirectly signal confidence in the merger's prospects.

Key Metrics to Watch in Q2 Earnings

1. Production and Costs: Hess Midstream's midstream operations in the Bakken and Three Forks Shale rely on efficient handling of Hess Corporation's oil and gas. Investors will look for signs of cost discipline, particularly as crude prices averaged $75–80/bbl in Q1. A continuation of this trend or higher prices could boost margins.
   

2. Debt and Capital Allocation: With Hess Midstream retaining independence post-merger, its ability to manage debt and fund growth projects will be critical. A strong free cash flow yield (currently ~6%) could justify its valuation relative to peers like Enterprise Products Partners (EPD) or Energy Transfer (ET).
   

3. Regulatory and Legal Updates: While management may avoid detailed commentary on the arbitration, any indication of progress—or a timeline for resolution—could move the stock. The EU's scrutiny of oil-and-gas mergers has become stricter, but Chevron's lobbying and Hess Midstream's narrow midstream focus may ease antitrust concerns.

Valuation Opportunities: Riding the Chevron Wave or Anchoring in Resilience?

Hess Midstream's stock has underperformed Chevron's since the merger's announcement, reflecting investor skepticism about execution risks. However, a successful merger could unlock synergies, such as access to Chevron's global supply chain and reduced financing costs.

• Bull Case: A swift resolution of the arbitration and regulatory approvals by late 2025 could propel Hess Midstream's valuation toward a 15x–16x EV/EBITDA multiple, aligning with Chevron's own metrics. This would imply a share price of $30–$32, up from its current $24.
• Bear Case: Delays or a negative arbitration ruling could force Hess Midstream to operate independently under higher debt burdens, potentially pushing the stock down to $20.

Investment Strategy: Wait for Catalysts or Take a Position Now?

For investors, Hess Midstream's Q2 earnings offer a critical inflection point. If the results show strong operational performance and management reaffirms merger confidence, it could attract buyers seeking exposure to the Bakken's growth and Chevron's capital strength. However, the stock's near-term volatility demands a risk-aware approach:

• Buy: Consider a position if the earnings beat expectations and the arbitration shows progress. Target a 12-month price of $28–$30.
• Hold: Wait for clarity on the arbitration or regulatory approvals before committing capital.
• Avoid: If the earnings miss on costs or management signals merger-related headwinds, the stock may underperform.

Final Take: A Midstream Pivot at a Crossroads

Hess Midstream's Q2 earnings are more than a financial update—they are a litmus test for its ability to thrive in a post-merger world. With Chevron's integration efforts advancing and the arbitration nearing resolution, the company is positioned to capitalize on its midstream strengths. Yet, until the deal's path clears, investors must balance Hess Midstream's resilient fundamentals with the risks of prolonged uncertainty. The July 22 earnings release could tip the scales—or leave the market hanging.

Stay tuned.