Hess Midstream Cuts Outlook As Chevron Scales Back Bakken Drilling

Hess Midstream (HESM) revised its financial and operational outlook downward, forecasting oil throughput to plateau in 2026 due to Chevron's planned reduction in Bakken drilling rigs from Q4 2025. Despite this, the company projects flat Adjusted EBITDA in 2026, followed by renewed growth in 2027 driven by increasing gas volumes and inflation-linked contracts, alongside reduced capital expenditure from scrapping the Capa gas plant project. This strategy supports its commitment to at least 5% annual distribution growth through 2027 and potential share repurchases, though a cut to 2025 gas throughput guidance also contributed to an almost 8% decline in HESM shares.

Analysis

Hess Midstream LP (HESM) has revised its forward-looking guidance due to a planned slowdown in drilling activity by its primary customer, Chevron, in the Bakken shale. Chevron's decision to reduce its rig count from four to three beginning in Q4 2025 is expected to cause HESM's oil throughput volumes to plateau in 2026. This has led management to project flat Adjusted EBITDA for 2026 compared to 2025 levels. To counteract this, the company is pivoting its strategy, emphasizing the expected expansion of gas throughput through at least 2027, which will be buttressed by inflation-linked provisions in its contracts. In a significant capital discipline measure, HESM has removed the Capa gas plant project from its plans, which will substantially lower capital expenditures in 2026 and 2027. This combination of reduced spending and anticipated EBITDA growth in 2027 is projected to increase adjusted free cash flow, securing the company's capital return framework. Despite the near-term headwinds, which also include a reduction in 2025 gas throughput guidance due to weather and maintenance, management reiterated its commitment to at least 5% annual distribution growth through 2027. The market reacted negatively to the revised outlook, with HESM shares declining 7.96% to $36.33 following the announcement.

Key Decisions for Investors

• Investors should re-evaluate near-term growth expectations for HESM, as the combination of a 2025 guidance cut and projected flat EBITDA in 2026 signals a significant growth deceleration before a potential recovery in 2027.
• Consider the company's defensive pivot; the reduction in capital expenditures and reliance on growing gas volumes and contractual inflation escalators are designed to protect free cash flow, underpinning the commitment to a minimum 5% annual distribution growth.
• The 8% share price drop presents a potentially attractive entry point for income-focused investors, but they must closely monitor gas throughput performance and any further updates on Chevron's drilling plans, as these are now the critical drivers for the investment thesis.