Hess Midstream's Q3 2025: Contradictions Emerge on Chevron Rig Count, EBITDA Forecasts, and CapEx Projections

Date of Call: November 3, 2025

Financials Results

• Gross Margin: ≈80% gross adjusted EBITDA margin, above 75% target

Guidance:

• Q4 net income expected ~$170M–$180M; Q4 adjusted EBITDA ~$315M–$325M.
• FY net income narrowed to $685M–$695M; FY adjusted EBITDA $1.245B–$1.255B (implies ~10% YoY at midpoint).
• Full‑year CapEx now expected ≈$270M; adjusted free cash flow ≈$760M–$770M; excess adjusted FCF ≈$140M after funding targeted distributions.
• Targeting at least 5% annual Class A distribution growth through 2027.
• 2026 guidance and 2028 MVCs to be released after December budget; base ongoing CapEx ~ $125M with lower overall CapEx supporting FCF and potential buybacks.

Business Commentary:

• Operational Performance and Revenue Growth:
• Hess Midstream LP reported adjusted EBITDA of $321 million for Q3 2025, up from $316 million in Q2.

• The increase in adjusted EBITDA was primarily due to higher third-party volumes and strong operating leverage.

• Capital Expenditure and Share Repurchase:

• The company completed a $100 million share and unit repurchase in Q3 and increased distributions by 2.4%.

• This strategic move aimed to provide a higher return on capital to shareholders and use excess cash flow.

• Gas Throughput and Volume Trends:

• Gas throughput volumes averaged 462 million cubic feet per day, with a 3% increase compared to Q2.

• The growth was driven by increased customer navigation and the strategic importance of Hess Midstream's midstream assets in the Bakken.

• Financial Outlook and Free Cash Flow:

• The company guidance for 2026 is EBITDA growth of approximately 10% year-on-year.

• The outlook is supported by significantly lower capital expenditures and continued free cash flow growth, providing financial flexibility for share repurchases.

• Infrastructure and Compressor Stations:

• Hess Midstream completed and brought online the first of two new compressor stations in Q3.
• This infrastructure development supports the company's ongoing capital framework and long-term shareholder value.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasized operational execution and capital returns: "continued to execute our operational priorities" and completed a $100M share repurchase and distribution increase. Financial strength cited: adjusted EBITDA margin ~80% (above 75% target) and adjusted free cash flow guidance of $760M–$770M with excess FCF of ~$140M to support returns.

Q&A:

• Question from Jeremy Tonet (JPMorgan Chase & Co, Research Division): Just wanted to dive in a little bit more on, I guess, Bakken trends here. And just wondering if you could talk a bit on how GORs are trending over time and how you think that projects going forward at this point impacting your business?
  Response: With Chevron running a 3‑rig program, oil is expected to plateau while gas rises over time as GORs increase, driving long‑term growth (gas ≈75% of revenues).

• Question from Jeremy Tonet (JPMorgan Chase & Co, Research Division): Given that backdrop and not to get too far ahead of ourselves here, I was just wondering if you could provide any thoughts into 2020 beyond how MVCs might be shaping up expectations there, given Chevron moving to 3 rigs as you described there.
  Response: No details now; the company will finalize the development plan and provide 2026 guidance and 2028 MVCs after the December budget process.

• Question from Jeremy Tonet (JPMorgan Chase & Co, Research Division): We've seen some volatility in the share price here. Just wondering if you could provide any thoughts, I guess, on the cadence or approach to buybacks in the future?
  Response: Lower CapEx and maintained ~3x leverage provide financial flexibility to continue the 5% distribution growth and enable potential future share repurchases.

• Question from Douglas Irwin (Citigroup Inc., Research Division): Maybe to start on the CapEx outlook. You've talked about kind of expecting significantly lower CapEx over the next couple of years... Is $125M the right starting point for '26 or are there still discrete growth projects next year?
  Response: Base ongoing CapEx is about $125M (well connects and third‑party maintenance); 2026 CapEx should be materially below the prior $250–$300M range, though may be slightly above $125M for small growth projects; final numbers in December.

• Question from Douglas Irwin (Citigroup Inc., Research Division): Given some of the changes with the sponsor, how has the relationship with Chevron evolved and how does Hess Midstream fit within Chevron's broader strategy?
  Response: Integration with Chevron is proceeding well—board collaboration has enabled approved distributions and share repurchase—and the relationship supports capital discipline and execution.

• Question from Praneeth Satish (Wells Fargo Securities, LLC, Research Division): You mentioned 2026 EBITDA being flat with 2025 despite rising gas volumes—why would it be flat, and are longer laterals from Chevron baked into that outlook or upside?
  Response: Detailed 2026 EBITDA guidance is pending (December); EBITDA will reflect volumes, contract escalators and OpEx, and efficiencies (e.g., longer laterals) could offset dynamics while lower CapEx should drive free cash flow growth.

• Question from Praneeth Satish (Wells Fargo Securities, LLC, Research Division): Any indications Chevron might reduce to 2 rigs and if so, how should we think about downside risk to oil and gas volumes?
  Response: Base case is 3 rigs with Chevron aiming to maintain a ~200k BOE/d plateau; that level supports free cash flow and the targeted 5% dividend growth, so downside scenarios are not the base assumption.

• Question from John Mackay (Goldman Sachs Group, Inc., Research Division): Can you remind us how the 2028 MVCs will be set and whether the process differs with Chevron as sponsor?
  Response: Process is unchanged per commercial agreements: Chevron delivers a development plan, Hess Midstream models the required system plan, and the MVC is set at 80% of the third year of that development plan.

• Question from John Mackay (Goldman Sachs Group, Inc., Research Division): Clarification—does the 3‑rig program imply the ability to hit the 200k BOE/d plateau (whereas 4 rigs would have exceeded it)?
  Response: Yes—management expects a 3‑rig program can sustain the ~200k BOE/d plateau; a 4‑rig program would have driven production above that plateau.

Contradiction Point 1

Chevron's Rig Count and Impact on Hess Midstream

It involves Chevron's rig count and its impact on Hess Midstream's operations and financial expectations, which are crucial for investor insights.

How are GORs trending, and how are Chevron's plans impacting Hess Midstream's business? - Jeremy Tonet (JPMorgan Chase & Co, Research Division)

2025Q3: With 75% of revenues from gas, this will support long-term growth. - Jonathan Stein(CEO)

Does Chevron anticipate changes in the Bakken's rig count, and how might this affect HESM's 2026 and 2027 EBITDA growth projections? - Vrathan Reddy (JPMorgan Chase & Co)

2025Q2: We are currently running 4 rigs with strong upstream performance and midstream availability. Chevron's involvement will update our development plan later in the year, and we will provide guidance in January. - John A. Gatling(COO)

Contradiction Point 2

2026 EBITDA Expectations and Impact of Chevron's Activity

It pertains to the expectations for 2026 EBITDA and the impact of Chevron's activity levels, which are crucial for financial forecasting and investor expectations.

Why is 2026 EBITDA expected to remain flat despite rising gas volumes? - Praneeth Satish (Wells Fargo Securities, LLC, Research Division)

2025Q3: We do not expect that to drive EBITDA growth for next year. - Jonathan Stein(CEO)

Is HESM exceeding the 2025 midpoint? - Douglas Baker Irwin (Citigroup Inc., Research Division)

2025Q2: EBITDA guidance for the third quarter to range between $1.45 billion and $1.55 billion. We continue to expect a strong finish to the year with fourth quarter EBITDA guidance to range between $1.5 billion and $1.6 billion. - John A. Gatling(COO)

Contradiction Point 3

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

Can you share any insights on 2026 expectations given Chevron's increase to three rigs? - Jeremy Tonet(JPMorgan Chase & Co, Research Division)

2025Q3: I just want to say, we're committed to returning capital to shareholders through dividends and buybacks. And we will obviously prioritize dividends, but we'll be -- we'll obviously consider returning capital through buybacks as well. So we're committed to returning capital to shareholders. - Michael Chadwick(CFO)

Can you outline key business sensitivities given ongoing macroeconomic volatility? How to track these sensitivities throughout the year, considering MVCs' role? - Elias Jossen(JPMorgan)

2025Q1: As I mentioned earlier, our 2025 capital priorities remain unchanged. We will considerable reduce our capital expenditures in 2025 as we continue to benefit from lower base capex run rate. For 2025, we are expect to generate over $400 million of free cash flow. And with a leverage ratio below 2.5 times, we'll still have over $1 billion of financial flexibility. - Jonathan Stein(CFO)

Contradiction Point 4

Rig Activity and Production Planning

It involves differing perspectives on Chevron's rig activity and its impact on Hess Midstream's production planning and financial outlook.

Is Chevron planning to reduce its rig activity further, and how would that impact Hess Midstream? - Praneeth Satish(Wells Fargo Securities, LLC, Research Division)

2025Q3: So as we looked at the sensitivity to rig count, and we've looked at this with Chevron, and we've looked at this with Hess. We do believe that Chevron can deliver the amount of gas that they need to support their development plan to keep that 200,000 BOE per day plateau with just 3 rigs, and they're -- we're comfortable with that. - Jonathan Stein(CEO)

What are the key business sensitivities in light of ongoing macroeconomic volatility? How should we monitor these sensitivities year-round, considering MVCs' role? - Elias Jossen(JPMorgan)

2025Q1: As you know, when we set the MVCs, we use a 4-rig program as our baseline for our budgeting exercism. And it's been that way since day one. And we've been confident that that would work based on the data and the science and the execution of what we've seen, and we'll continue to look at the data and the science and the execution going forward. - John Gatling(COO)

Contradiction Point 5

Capital Expenditure (CapEx) Projections

It involves changes in financial forecasts, specifically regarding CapEx projections, which are crucial for understanding the company's investment strategy and future growth plans.

What is the CapEx outlook for 2026 and are there additional growth projects in the backlog? - Douglas Irwin (Citigroup Inc., Research Division)

2025Q3: Our CapEx will be significantly lower than previously guided, with small growth projects expected but below the $125 million base run rate. - Jonathan Stein(CEO)

What's driving the increase in CapEx, and what does long-term growth CapEx look like? - Doug Irwin (Citi)

2024Q4: CapEx through 2027 will be approximately $250-$300 million, with a step down expected after that. - John Gatling(COO)