Hess Midstream LP (HESM) Stock Analysis and Metrics

Sector: Energy Industry: Oil & Gas Midstream CIK: 0001789832

Market Cap 19.00 Bn

P/E 5.95

P/S 11.65

Div. Yield 0.01

ROIC (Qtr) 0.00

Total Debt (Qtr) 3.77 Bn

Revenue Growth (1y) (Qtr) 2.02

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About

Hess Midstream LP is a growth oriented limited partnership that owns operates develops and acquires a diverse set of midstream assets and provides fee based services to its sponsor and third party customers. The company's asset base consists of natural gas gathering pipelines crude oil gathering systems water gathering and disposal facilities gas processing plants fractionation units storage terminals and export infrastructure. These assets are primarily located in the Bakken and Three Forks shale plays of the Williston Basin in North Dakota. Hess...

Hess Midstream LP is a growth oriented limited partnership that owns operates develops and acquires a diverse set of midstream assets and provides fee based services to its sponsor and third party customers. The company's asset base consists of natural gas gathering pipelines crude oil gathering systems water gathering and disposal facilities gas processing plants fractionation units storage terminals and export infrastructure. These assets are primarily located in the Bakken and Three Forks shale plays of the Williston Basin in North Dakota. Hess Midstream LP focuses on delivering reliable midstream infrastructure that supports the production growth of its sponsor and other producers in the region.

The company generates revenue primarily through fee based services for natural gas gathering compression processing and natural gas liquids fractionation crude oil gathering terminaling loading and transportation propane storage and terminaling and produced water gathering and disposal. These fees are earned under long term agreements with Chevron that include minimum volume commitments inflation escalators and fee recalculation mechanisms designed to provide stable cash flows. In addition the company collects fees from third party volumes that are contracted directly with Hess Midstream LP or delivered under its agreements with Chevron. Pass through revenues are recognized for certain third party costs such as rail transportation electricity and water trucking and disposal where the company acts as a conduit and records revenue equal to the incurred cost.

The company operates through the following three reportable segments: gathering processing and storage and terminaling and export. Each segment represents a distinct set of midstream activities that together support the full value chain from wellhead to market. The gathering segment handles the collection and initial compression of hydrocarbons and water. The processing and storage segment treats natural gas separates natural gas liquids and provides storage for propane and other products. The terminaling and export segment prepares crude oil and natural gas liquids for loading onto rail or other transport modes and supports export activities. This segmentation allows Hess Midstream LP to manage operations allocate capital and report performance effectively.

• Gathering segment provides natural gas and crude oil gathering services compression and produced water gathering and disposal.

• Processing and storage segment processes natural gas fractionates natural gas liquids stores and terminals propane and provides related storage services.

• Terminaling and export segment terminals and loads crude oil and natural gas liquids transports crude oil and natural gas liquids stores and terminals propane and supports export activities.

The company benefits from long term fee based agreements with Chevron that include minimum volume commitments inflation escalators and fee recalculation mechanisms providing cash flow stability and downside protection. Its asset concentration in the Bakken a major oil and gas producing region gives it a strategic location relative to prolific drilling activity. While it competes with other midstream service providers in the Bakken its fee based model and dedicated acreage under sponsor contracts reduce direct commodity price exposure. The investment grade rating assigned to its debt enhances financial flexibility and lowers borrowing costs compared to many peers that remain below investment grade. These factors position Hess Midstream LP as a stable cash flow generator within the midstream sector.

The company primarily serves Chevron Corporation under long term fee based agreements and also provides services to Hess Corporation and its affiliates as the sponsor. In addition Hess Midstream LP gathers processes terminals and disposes of volumes for third party producers operating in the Bakken including independent exploration and production companies. This mixed customer base combines the stability of sponsor contracts with the upside potential of third party tie ins.

Investment thesis

Bull case

The capital expenditure outlook that management disclosed in the fourth quarter call represents a dramatic 40% reduction from the prior year, a figure that is underpinned by the completion of a multi‑year gathering and compression system build‑out. This disciplined spend is expected to lower capital outlays to roughly $150 million in 2026, with a further decline to below $75 million in 2027 and 2028, freeing significant cash that can be redirected to shareholder distributions or debt reduction. The company’s guidance explicitly states that this lower capex will support a projected adjusted free cash flow expansion of 10% annually through 2028, a growth trajectory that outpaces the company’s own 5% distribution target. The free cash flow resilience is reinforced by a 95% volume commitment coverage for 2026, which protects revenue even in a weather‑impacted environment. The combination of lower debt, higher free cash flow, and a consistent distribution policy positions the company as an attractive income play with strong upside potential.
The Q&A session revealed a shift in the company’s integration strategy following the Chevron merger, with a clear emphasis on leveraging Chevron’s optimized development plan to achieve a 200,000 BOE per day plateau in the Bakken. This partnership is expected to drive gas volume growth, as Chevron’s drilling cadence increases, which in turn supports Hess Midstream’s gas processing throughput that averaged 444 million cubic feet per day in 2025. Management’s reference to “long‑term growth” through 2028 suggests that the company will capture a larger share of the regional production curve, especially as the gas field expands and new wells become productive. The company’s ability to capitalize on Chevron’s scale and well‑connect strategy will likely reduce upstream bottlenecks and improve throughput reliability, which is critical for maintaining high operating margins.
Hess Midstream’s operational metrics demonstrate a robust gross adjusted EBITDA margin of 83% in the fourth quarter of 2025, surpassing the 75% target and indicating strong operating leverage. The company’s management highlighted that the majority of revenue is protected by fixed‑fee contracts, a feature that insulates the business from short‑term price volatility. Fixed‑fee exposure also aligns with the company’s long‑term risk‑reduction strategy, as it mitigates the impact of volatile commodity spreads on cash flow. Moreover, the maintenance of high margins amid lower volumes during severe weather underscores the resilience of the business model.
A new compressor station commissioned in January 2026 provides an additional 50 MMcf/d of capacity, with the potential to scale up by 20 MMcf/d. This expansion enhances the company’s ability to service higher volumes, especially during peak demand periods, and positions it to capture incremental gas volumes from Chevron’s expanding operations. The station’s modular design reduces capital risk while providing operational flexibility, allowing Hess Midstream to adjust output in response to market conditions. Such capacity expansion also reinforces the company’s long‑term volume protection strategy, further cementing its revenue base.
The company’s debt profile, at roughly $3.8 billion and a leverage ratio of 3.1x adjusted EBITDA, sits comfortably below the industry benchmark for midstream operators. Management’s assurance that leverage will naturally decline as EBITDA grows, coupled with a strategic focus on free cash flow, implies a disciplined approach to balance‑sheet management. Lower leverage translates to reduced interest expense, improving net income and freeing cash for distributions or further capital investments. This conservative stance also positions the company favorably for refinancing or debt‑repayment initiatives should market conditions deteriorate.

The capital expenditure outlook that management disclosed in the fourth quarter call represents a dramatic 40% reduction from the prior year, a figure that is underpinned by the completion of a multi‑year gathering and compression system build‑out. This disciplined spend is expected to lower capital outlays to roughly $150 million in 2026, with a further decline to below $75 million in 2027 and 2028, freeing significant cash that can be redirected to shareholder distributions or debt reduction. The company’s guidance explicitly states that this lower capex will support a projected adjusted free cash flow expansion of 10% annually through 2028, a growth trajectory that outpaces the company’s own 5% distribution target. The free cash flow resilience is reinforced by a 95% volume commitment coverage for 2026, which protects revenue even in a weather‑impacted environment. The combination of lower debt, higher free cash flow, and a consistent distribution policy positions the company as an attractive income play with strong upside potential.
The Q&A session revealed a shift in the company’s integration strategy following the Chevron merger, with a clear emphasis on leveraging Chevron’s optimized development plan to achieve a 200,000 BOE per day plateau in the Bakken. This partnership is expected to drive gas volume growth, as Chevron’s drilling cadence increases, which in turn supports Hess Midstream’s gas processing throughput that averaged 444 million cubic feet per day in 2025. Management’s reference to “long‑term growth” through 2028 suggests that the company will capture a larger share of the regional production curve, especially as the gas field expands and new wells become productive. The company’s ability to capitalize on Chevron’s scale and well‑connect strategy will likely reduce upstream bottlenecks and improve throughput reliability, which is critical for maintaining high operating margins.
Hess Midstream’s operational metrics demonstrate a robust gross adjusted EBITDA margin of 83% in the fourth quarter of 2025, surpassing the 75% target and indicating strong operating leverage. The company’s management highlighted that the majority of revenue is protected by fixed‑fee contracts, a feature that insulates the business from short‑term price volatility. Fixed‑fee exposure also aligns with the company’s long‑term risk‑reduction strategy, as it mitigates the impact of volatile commodity spreads on cash flow. Moreover, the maintenance of high margins amid lower volumes during severe weather underscores the resilience of the business model.
A new compressor station commissioned in January 2026 provides an additional 50 MMcf/d of capacity, with the potential to scale up by 20 MMcf/d. This expansion enhances the company’s ability to service higher volumes, especially during peak demand periods, and positions it to capture incremental gas volumes from Chevron’s expanding operations. The station’s modular design reduces capital risk while providing operational flexibility, allowing Hess Midstream to adjust output in response to market conditions. Such capacity expansion also reinforces the company’s long‑term volume protection strategy, further cementing its revenue base.
The company’s debt profile, at roughly $3.8 billion and a leverage ratio of 3.1x adjusted EBITDA, sits comfortably below the industry benchmark for midstream operators. Management’s assurance that leverage will naturally decline as EBITDA grows, coupled with a strategic focus on free cash flow, implies a disciplined approach to balance‑sheet management. Lower leverage translates to reduced interest expense, improving net income and freeing cash for distributions or further capital investments. This conservative stance also positions the company favorably for refinancing or debt‑repayment initiatives should market conditions deteriorate.

Bear case

While the company highlights a 95% minimum volume commitment coverage for 2026, the reliance on fixed‑fee contracts and third‑party volumes exposes it to the risk that Chevron’s drilling schedule could slow, directly reducing the volumes the company can service. A decline in Chevron’s production pace would undermine the projected volume growth and could force the company to lower rates or negotiate renegotiated terms, compressing margins. The company’s guidance assumes a 10% third‑party volume share, but management’s response to a question about third‑party outlook was largely evasive, providing no concrete evidence of a stable or growing third‑party base. The potential for a contraction in third‑party volumes creates a hidden downside that may erode the company’s revenue base.
The company’s capital spending schedule shows a significant reduction to $150 million in 2026, yet this figure is still heavily dependent on the completion of a compression build‑out. Management’s statement that the company will “continue to use lower capital” is vague and does not account for potential unforeseen maintenance or regulatory compliance costs that could arise. If unexpected capital requirements emerge, the company could be forced to increase spending or tap its revolving credit facility, thereby increasing debt levels and diluting shareholder returns. The company’s focus on lower capex also means it may forgo strategic acquisitions that could generate long‑term growth.
The company’s forecast of a flat to slightly positive EBITDA in 2026 ignores the potential impact of severe winter weather on throughput volumes. The Q&A highlighted that the company expects “lower volumes” in 2026 due to winter weather, yet the guidance remains flat, suggesting a potential underestimation of weather‑related disruptions. A persistent cold spell could lead to extended shut‑ins and higher operating costs, eroding margins and free cash flow. The company’s assumption that volume commitments will fully protect revenue is contingent on the reliability of third‑party supply, which could be compromised.
The company’s debt profile, while currently at a leverage of 3.1x adjusted EBITDA, remains significant given the oil and gas sector’s exposure to commodity price swings and regulatory changes. Management’s lack of a specific leverage target or timeline for deleveraging introduces uncertainty. The company’s strategy to “delever naturally” as EBITDA grows could be compromised if revenue growth stalls, leading to a higher debt‑to‑EBITDA ratio that could weaken credit metrics and increase borrowing costs.
The company’s focus on fixed‑fee contracts, while providing revenue stability, also exposes it to rate pressure if market conditions change. The company’s reliance on inflation escalators capped at 3% means that revenue growth may lag behind rising operating costs, compressing gross margins. Management’s emphasis on maintaining a 5% distribution growth could be at odds with the need to reinvest in maintenance or to upgrade infrastructure to keep pace with aging assets.

While the company highlights a 95% minimum volume commitment coverage for 2026, the reliance on fixed‑fee contracts and third‑party volumes exposes it to the risk that Chevron’s drilling schedule could slow, directly reducing the volumes the company can service. A decline in Chevron’s production pace would undermine the projected volume growth and could force the company to lower rates or negotiate renegotiated terms, compressing margins. The company’s guidance assumes a 10% third‑party volume share, but management’s response to a question about third‑party outlook was largely evasive, providing no concrete evidence of a stable or growing third‑party base. The potential for a contraction in third‑party volumes creates a hidden downside that may erode the company’s revenue base.
The company’s capital spending schedule shows a significant reduction to $150 million in 2026, yet this figure is still heavily dependent on the completion of a compression build‑out. Management’s statement that the company will “continue to use lower capital” is vague and does not account for potential unforeseen maintenance or regulatory compliance costs that could arise. If unexpected capital requirements emerge, the company could be forced to increase spending or tap its revolving credit facility, thereby increasing debt levels and diluting shareholder returns. The company’s focus on lower capex also means it may forgo strategic acquisitions that could generate long‑term growth.
The company’s forecast of a flat to slightly positive EBITDA in 2026 ignores the potential impact of severe winter weather on throughput volumes. The Q&A highlighted that the company expects “lower volumes” in 2026 due to winter weather, yet the guidance remains flat, suggesting a potential underestimation of weather‑related disruptions. A persistent cold spell could lead to extended shut‑ins and higher operating costs, eroding margins and free cash flow. The company’s assumption that volume commitments will fully protect revenue is contingent on the reliability of third‑party supply, which could be compromised.
The company’s debt profile, while currently at a leverage of 3.1x adjusted EBITDA, remains significant given the oil and gas sector’s exposure to commodity price swings and regulatory changes. Management’s lack of a specific leverage target or timeline for deleveraging introduces uncertainty. The company’s strategy to “delever naturally” as EBITDA grows could be compromised if revenue growth stalls, leading to a higher debt‑to‑EBITDA ratio that could weaken credit metrics and increase borrowing costs.
The company’s focus on fixed‑fee contracts, while providing revenue stability, also exposes it to rate pressure if market conditions change. The company’s reliance on inflation escalators capped at 3% means that revenue growth may lag behind rising operating costs, compressing gross margins. Management’s emphasis on maintaining a 5% distribution growth could be at odds with the need to reinvest in maintenance or to upgrade infrastructure to keep pace with aging assets.

Product and Service Breakdown of Revenue (2025)

Segments Breakdown of Revenue (2025)

Peer comparison

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3	EP-PC	Kinder Morgan, Inc.	450.75 Bn	32.97	25.72	32.06 Bn
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5	ET	Energy Transfer LP	263.37 Bn	16.01	3.76	69.34 Bn
6	TRGP	Targa Resources Corp.	235.18 Bn	27.59	14.20	19.13 Bn
7	MPLX	Mplx Lp	230.21 Bn	12.23	25.60	25.63 Bn
8	OKE	Oneok Inc /New/	224.24 Bn	15.81	6.37	32.01 Bn

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Hess Midstream LP (NYSE: HESM)

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Product and Service Breakdown of Revenue (2025)

Segments Breakdown of Revenue (2025)

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Hess Midstream LP (NYSE: HESM)

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Segments Breakdown of Revenue (2025)

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