Hess Midstream Partners Q1 Earnings Call Highlights

Key Points

• Hess Midstream cut 2026 capital spending by about a third to roughly $100–105 million (second compressor now online and Chevron’s longer laterals reduce well-connect CapEx) and raised adjusted free cash flow guidance to $910–$960 million, roughly a 20% year‑over‑year increase at the midpoint.
• Severe winter weather pressured first‑quarter volumes (average 430 MMcf/d gas processing, 119k bbl/d crude terminaling, 115k bbl/d water gathering), but management expects volumes to grow through 2026 aside from planned Tioga Gas Plant maintenance in Q2 that will cut volumes by about 5–10 MMcf/d.
• The company completed a $60 million accretive repurchase, raised its distribution (2% increase, ~8% annualized for Class A), expects about $280 million of excess adjusted free cash flow after funding targeted distribution growth for additional buybacks/debt repayment, and does not expect material cash taxes until after 2028 thanks to recent IRS guidance on the Corporate AMT.

Hess Midstream Partners NYSE: HESM reported first-quarter 2026 results that management said met expectations despite severe winter weather early in the period, while also outlining a lower 2026 capital spending plan and higher adjusted free cash flow outlook.

First-quarter operational performance and volumes

Chief Executive Officer Jonathan Stein said the company “continued to execute our operational priorities and deliver our financial strategy,” noting first-quarter performance achieved guidance “which included the impact of severe winter weather in January and February.”

Stein reported average first-quarter throughput volumes of 430 million cubic feet per day for gas processing, 119,000 barrels of oil per day for crude terminaling, and 115,000 barrels of water per day for water gathering. Volumes were lower than the fourth quarter, which Stein attributed primarily to winter weather impacts in January and February, “partially offset by recovery in March, as well as capture of additional third-party gas volumes.”

Looking ahead, Stein said the company still expects volumes to grow through the remainder of 2026, excluding the impact of planned maintenance at the Tioga Gas Plant (TGP) in the second quarter that is expected to reduce volumes by 5 million cubic feet per day to 10 million cubic feet per day for the quarter.

Capital spending reduced; free cash flow outlook raised

Stein said Hess Midstream brought online the second of two new compressor stations during the quarter and reported first-quarter capital expenditures of $10 million, describing spending as “seasonally lower” due to severe winter weather restricting activity.

He added that capital spending is expected to be higher in the second and third quarters as the company continues its program, including completion of greenfield high-pressure gathering pipeline infrastructure started in 2025. However, with the second compressor station online and “reflecting Chevron’s move to longer laterals, which reduces well connect CapEx for Hess Midstream,” Stein said the company reduced its 2026 estimated capital expenditures “by a third to approximately $100 million.”

As a result, and “together with the deferral of cash taxes,” Stein said Hess Midstream increased its 2026 adjusted free cash flow guidance to $910 million to $960 million, which he said represents a 20% year-over-year increase at the midpoint.

Financial results, margins, and second-quarter guidance

Chief Financial Officer Mike Chadwick said first-quarter 2026 net income was $158 million, down from approximately $168 million in the fourth quarter of 2025. Adjusted EBITDA totaled $300 million versus $309 million in the prior quarter, which Chadwick said was “primarily due to lower revenues” tied to the winter weather impacts.

Chadwick said total revenues, including pass-through revenues, decreased by approximately $15 million. Segment changes included:

• Gathering revenues: down approximately $14 million
• Processing revenues: down approximately $6 million
• Terminalling revenues: up approximately $5 million

He also said total costs and expenses (excluding depreciation and amortization, pass-through costs, and net of the company’s proportional share of LM4 earnings) decreased by approximately $6 million, primarily due to lower seasonal maintenance and lower third-party offloads.

Chadwick highlighted operating leverage, stating gross adjusted EBITDA margin was approximately 83% in the quarter, above the company’s 75% target.

Adjusted free cash flow was approximately $237 million, which Chadwick said increased 14% from the fourth quarter, aided by lower capital expenditures. Net interest (excluding amortization of deferred finance costs) was approximately $53 million, and the company ended the quarter with a drawn balance of $343 million on its revolving credit facility.

For the second quarter, Chadwick guided to net income of approximately $150 million to $160 million and adjusted EBITDA of approximately $295 million to $305 million, which he said includes the planned TGP maintenance. He expects second-quarter adjusted free cash flow to decrease from the first quarter due to seasonally higher capital expenditures.

For full-year 2026, Chadwick reaffirmed guidance for net income of $650 million to $700 million and adjusted EBITDA of $1.225 billion to $1.275 billion, “approximately flat at the midpoint compared with 2025.” He said the company now expects full-year capital expenditures of approximately $105 million and continues to expect adjusted free cash flow of $910 million to $960 million.

Distributions, repurchases, and taxes

Stein said that in March the company completed an “accretive” $60 million share and unit repurchase from both the public market and its sponsor. He also said the company increased its distribution by 2% last week, which he described as approximately 8% annualized for Class A shares. Stein said the increase included the company’s targeted 5% annual increase for Class A shares as well as a distribution level increase “following our repurchase that maintains our total distributed cash on a lower share and unit count.”

Chadwick said Hess Midstream expects “excess adjusted free cash flow of approximately $280 million after fully funding our targeted 5% annual distribution growth,” which the company expects to use for incremental shareholder returns and debt repayment. He added the company will “continue to evaluate additional opportunities for incremental returns of capital” as 2026 progresses.

On taxes, Chadwick said the company “no longer expect[s] to pay $50 million of cash taxes in 2026” and does not expect to pay material cash taxes until after 2028, citing “recent interim guidance from the IRS on the application of the Corporate Alternative Minimum Tax.”

Third-party volumes, contract structure, and leverage outlook

On the Q&A portion of the call, Stein said the reduction in capital spending does not reflect a strategic change, describing it as “right-sizing our CapEx to account for things like upstream efficiencies, like longer laterals,” which he said reduces well connect requirements. He also reiterated that the first quarter is typically the low point for volumes and said second-half volumes should be higher than the first half as weather improves, maintenance concludes, and additional wells come online.

Addressing third-party activity, Stein said the company saw additional third-party volume in the first quarter, including “additional throughput from other midstream providers,” and reiterated the company’s target of 10% third-party volumes, with any additional volumes representing upside. He said he was not seeing major macro-driven changes to third-party volumes “at this point.”

Chadwick addressed strength in terminalling revenue, attributing it to an annual tariff adjustment under a cost-of-service structure. He said the terminalling contract extends through 2033 and is rebalanced annually based on anticipated volumes, capital expenditures, and operating expenses to target a mid-teen return, with tariffs flexing accordingly. Stein also noted that terminaling can vary quarter to quarter because of short-term third-party activity.

On leverage, Chadwick said the company does not have a specific target but expects leverage to decline as EBITDA grows without an increase in absolute debt, supplemented by debt repayment using a portion of free cash flow after distributions. He added that “the math would not support us getting really down far below 2.5x leverage by 2028,” providing a longer-term range for expectations through 2028.

About Hess Midstream Partners NYSE: HESM

Hess Midstream Partners LP, formerly traded on the New York Stock Exchange under the ticker HESM, is a midstream energy partnership that owns, operates and develops crude oil, natural gas and produced water infrastructure in the Williston Basin. The company’s assets include crude oil gathering and transportation systems, saltwater disposal wells, natural gas processing and fractionation plants, and associated pipeline and storage facilities. Its integrated network is designed to support upstream production by providing gathering, processing, storage and marketing services for hydrocarbons and produced water.

Headquartered in Houston, Texas, Hess Midstream Partners primarily serves producers operating in North Dakota and Montana’s Bakken Shale region.

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