Hess Midstream Partners Goes Public-Only, Buys Chevron’s DJ Basin Assets

Key Points

• Hess Midstream will become fully publicly owned by acquiring Chevron’s entire ownership interest, including the general partner, in exchange for modified Bakken contracts and a $200 million cash payment.
• The deal expands Hess Midstream into the DJ Basin, adding crude, gas and water gathering assets plus a 20% Saddlehorn pipeline stake. The company expects crude throughput to nearly triple, gas throughput to rise more than 30%, and third-party volumes to reach about 20% of total volumes.
• Hess Midstream issued preliminary 2027 guidance for $900 million of adjusted EBITDA, $125 million in capital spending and approximately $575 million of adjusted free cash flow, while maintaining its distribution at the fourth-quarter 2026 level.

Hess Midstream Partners NYSE: HESM said it has entered a definitive agreement with Chevron to become an independent, publicly owned multi-basin midstream company, expanding beyond its Bakken operations through the acquisition of Chevron’s DJ Basin midstream assets.

Under the agreement, Hess Midstream will simplify its Bakken commercial arrangements with Chevron. The revised contracts will reduce rates from 2027 through 2033, extend contract terms through 2045, and replace multiple volume-based minimum volume commitments with a basin-wide minimum revenue commitment, or MRC. The MRC will be established three years in advance and, once set for a given year, may be increased but not decreased based on Chevron’s updated annual development plans.

The MRCs for 2027 through 2029 have been set based on a two-rig development program. Hess Midstream said all fees will move to a fixed-fee structure with inflation escalators.

DJ Basin Assets and Ownership Changes

In exchange for the Bakken contract changes and a $200 million cash payment to Chevron at closing, which Hess Midstream expects to fund through its revolving credit facility, the company will acquire DJ Basin midstream assets and Chevron’s full ownership interest in Hess Midstream, including the general partner.

The DJ Basin assets include crude oil gathering and storage infrastructure, gas and water gathering systems, full ownership of the Black Diamond gathering system, and a 20% interest in the Saddlehorn interstate crude pipeline. Saddlehorn connects Colorado production to the Cushing storage hub in Oklahoma.

Jonathan Stein, Hess Midstream’s chief executive officer, said Chevron’s exit will reduce the total unit share count by about 40%, lowering total distributions and supporting accretion on an adjusted EBITDA-per-share basis. Following the transaction, Hess Midstream will be owned entirely by public investors and will remain an Up-C structure rather than converting to a C corporation.

Stein will continue as CEO. The initial board will have seven members, including Stein and the company’s three current independent directors. John P. Reddy, one of the existing independent directors, will become board chairman. The company said it will begin searching for three additional directors and that public investors will elect directors beginning in 2028.

Expanded Operating Footprint

Hess Midstream said the DJ assets will approximately triple its crude gathering throughput and increase gas gathering throughput by more than 30%. The company expects third-party volumes to rise to approximately 20% of total volumes following the deal.

The DJ gathering systems have approximately 400,000 barrels per day of crude throughput capacity, 300 million cubic feet per day of natural-gas gathering capacity, and two terminals with 420,000 barrels of combined storage capacity, according to the company. The systems connect to major DJ Basin pipelines including Saddlehorn, White Cliffs, Grand Mesa and Pony Express.

Stein said Hess Midstream expects to gather nearly all of Chevron’s crude volumes in both the Bakken and DJ Basin. He added that the DJ platform is largely built out and could support efforts to win additional third-party business with limited capital investment.

Chevron intends to reduce its Bakken activity from three rigs to two in December. As a result, Hess Midstream expects Bakken volumes to decline by approximately 5% through 2027 before reaching a plateau in 2028.

Financial Policy and Preliminary 2027 Outlook

Chief Financial Officer Mike Chadwick said approximately 70% of post-transaction revenue will have downside protection, supported by Bakken MRCs and Chevron ship-or-pay commitments, primarily associated with DJ long-haul pipeline capacity.

Hess Midstream issued preliminary 2027 guidance calling for adjusted EBITDA of $900 million at the midpoint and capital spending of $125 million. Planned capital expenditures include about $75 million in the Bakken, including a scheduled turnaround at the Tioga Gas Plant, and $50 million in the DJ Basin.

The company expects a 75% gross adjusted EBITDA margin and said it anticipates approximately $575 million of adjusted free cash flow at the midpoint of its 2027 outlook. Chadwick said the company expects about $160 million of adjusted free cash flow after distributions at the midpoint.

Management said GAAP accounting for the contract modification will require certain consideration to be recorded as deferred revenue and amortized through 2045. However, Chadwick said the net impact of deferred-revenue adjustments on 2027 EBITDA is expected to be relatively small, while adjusted free cash flow will exclude non-cash deferred-revenue accounting impacts.

The company plans to grow its distribution by 5% annually through the fourth-quarter 2026 distribution, resulting in approximately 7% year-over-year growth in 2026. It expects to maintain the distribution at that fourth-quarter 2026 level during 2027, representing approximately 2% annual growth, while remaining free-cash-flow positive.

Hess Midstream’s priorities after maintaining the distribution include pursuing accretive growth opportunities, preserving balance-sheet strength and considering additional shareholder returns. The company is targeting long-term leverage of 3.5 to 3.75 times adjusted EBITDA, compared with preliminary 2027 leverage guidance of 3.75 to 4.0 times. The transaction is expected to close at the end of the year, after which the company plans to provide updated 2027 guidance.

About Hess Midstream Partners (NYSE:HESM)

Hess Midstream Partners LP NYSE: HESM is a fee-based midstream energy company that owns and operates infrastructure supporting crude oil, natural gas and produced-water production in the Bakken Shale of North Dakota. The partnership primarily serves Hess Corp. and other producers operating in the region.

Its assets include systems for gathering and processing natural gas, gathering and transporting crude oil, and handling and disposing of produced water. Hess Midstream also provides storage, terminal and transportation services, helping connect production sites with downstream pipelines, rail facilities and other market outlets.

The company was formed to own midstream assets previously developed or operated by Hess and began trading publicly in 2017.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.