Hess Midstream Revises Outlook Following Chevron Bakken Activity Reduction

Hess Midstream Adjusts Guidance Amidst Reduced Bakken Activity

Hess Midstream LP (HESM) has issued updated financial and operational guidance for the remainder of 2025 and for the years 2026 and 2027. The revision is primarily driven by an expected decrease in drilling activity by Chevron Corp (CVX) in the Bakken Region, leading to a notable decline in HESM's share price.

The Event in Detail: Chevron's Operational Shift and Hess Midstream's Forecast

Chevron Corp is set to reduce its rig count in the Bakken from four to three drilling rigs, commencing in the fourth quarter of 2025. This strategic decision by a key partner has directly influenced Hess Midstream's forward-looking projections. As a result, Hess Midstream anticipates that oil throughput volumes will plateau in 2026, although gas throughput volumes are still forecast to expand through at least 2027.

The company now projects Adjusted EBITDA for 2026 to be relatively flat compared to 2025, with growth expected to resume in 2027. This anticipated growth is underpinned by continued increases in gas throughput volumes and the inflation escalation provisions embedded within Hess Midstream's existing commercial agreements. Capital spending is also set for a significant reduction in 2026 and 2027, as the Capa gas plant project has been removed from its forward plan, and early engineering activities have been suspended. For the full year 2025, Hess Midstream has updated its gas throughput guidance, with gas gathering volumes now expected to average between 455 to 465 million cubic feet (MMcf) of natural gas per day, and gas processing volumes projected between 440 to 450 MMcf per day. These adjustments are partly attributed to adverse weather conditions, third-quarter maintenance, and lower anticipated third-party volumes in the fourth quarter. Both third-quarter and full-year 2025 net income and Adjusted EBITDA are now expected to be at the lower end or within the lower half of previously announced guidance ranges.

Following the announcement, Hess Midstream shares experienced a decline of approximately 6.3% on the day, with the stock down nearly 8% at the time of initial publication, reflecting immediate investor concerns.

Analysis of Market Reaction: Navigating Partner-Dependent Growth

The market's immediate reaction to the revised guidance for Hess Midstream underscores the sensitivity of midstream operators to the activity levels of their upstream partners. The reduction in Chevron's drilling rigs in the Bakken directly impacts the volume of crude oil and natural gas flowing through Hess Midstream's infrastructure, thereby affecting its fee-based revenue streams. While the company maintains that throughput volumes will generally remain above already-established minimum volume commitments (MVCs), the plateauing of oil throughput in 2026 and the projected flat Adjusted EBITDA for the same year signal a deceleration in growth that investors had not initially factored in.

The cancellation of the Capa gas plant, while leading to lower capital expenditures and enhancing free cash flow, also indicates a more conservative growth posture. This cautious approach, while fiscally prudent, tempers the growth expectations that often drive valuation in the Oil & Gas Midstream Sector. The market is actively repricing Hess Midstream's near-term growth trajectory in light of these operational shifts.

Broader Context and Implications: Midstream Resilience in a Evolving Landscape

Hess Midstream's situation plays out against a backdrop of a broader midstream energy sector that has increasingly prioritized capital discipline and enhanced shareholder returns. The sector has seen a significant reduction in capital spending—by a third compared to prior peak levels—leading to improved financial metrics. Returns on incremental Return on Invested Capital (ROIC) have increased from 10% to an estimated 15-20%, enabling comparable cash flow growth with reduced expenditure. The sector has largely transitioned from being free cash flow negative to positive, with balance sheet leverage remaining historically low.

This strategic shift has been well-received by the market, with the Alerian MLP Total Return Index and Alerian Midstream Total Return Index reporting strong performance in 2024, increasing +24.4% and +44.5% respectively, significantly outperforming the S&P 500 Energy Sector Total Return of +5.7%. While Hess Midstream's commitment to financial strength, a long-term leverage target of 3x Adjusted EBITDA, and targeted annual distribution growth of at least 5% through 2027 aligns with this industry trend, the Chevron decision highlights the inherent vulnerability of even fee-based models to the specific investment strategies of major exploration and production partners. HESM currently offers a substantial 7.5% dividend yield, trades at a Price-to-Earnings (P/E) ratio of 14.7, and holds a market capitalization of $8.3 billion, with a beta of 0.63, indicating lower volatility relative to the broader market.

Expert Commentary: Revisions and Catalysts

Market analysts have adjusted their outlooks following Hess Midstream's guidance update.

Wells Fargo analyst Praneeth Satish downgraded Hess Midstream from Overweight to Equal Weight, lowering the price target from $48.00 to $39.00. Satish noted, "their prior positive thesis was driven by growth under a 4-rig program with strong capital return and a potential buyout, but under a 3-rig setup, the buyout is now the main catalyst."

UBS analyst Manav Gupta maintained a Neutral rating with a $43.00 price target on Hess Midstream. Gupta cited concerns over potential reduced drilling activity in the Bakken due to low commodity prices but also acknowledged that "throughput volumes are expected to remain above established minimum volume commitments."

Hess Midstream CEO Jonathan Stein emphasized the company's ongoing strategic focus:

"Hess Midstream's strategy continues to focus on delivering differentiated cash flow stability and balance sheet strength that supports consistent and ongoing return of capital to shareholders."

Looking Ahead: Operational Resilience and Future Catalysts

Hess Midstream is expected to provide further updated operational and financial guidance, including 2028 minimum volume commitments, following the receipt of an updated development plan from Chevron and its own 2026 budget approval in December. The company's ability to leverage its continued growth in gas throughput volumes and benefit from inflation escalation provisions in its commercial agreements will be crucial for resuming Adjusted EBITDA growth in 2027.

Key factors for investors to monitor include Hess Midstream's continued execution on its commitment to return capital to shareholders, including the targeted 5% annual distribution growth and potential share repurchases. The long-term stability of gas volumes, coupled with disciplined capital allocation, will be vital for mitigating the impact of plateauing oil throughput. Additionally, the broader market will be watching for any further shifts in major upstream players' investment strategies within key basins such as the Bakken, as these decisions will continue to shape the trajectory of midstream operators like Hess Midstream. The potential for a strategic buyout, as alluded to by analysts, also remains a speculative yet significant catalyst for the stock.