Hess Midstream to cut share count nearly 40% in Chevron deal

By year-end 2026, Hess Midstream LP NYSEHESM expects its outstanding share count to fall nearly 40 per cent under an Oct. 6 agreement with Chevron Corporation NYSECVX. Hess Midstream will pay Chevron US$200 million in cash and take its DJ Basin midstream assets as Chevron contributes its ownership interests. Chevron will remain the counterparty to Bakken gathering and processing agreements through 2045, with reduced tariffs payable by Chevron from 2027 through 2033.

At 11:38 a.m. EDT Wednesday, the NYSEHESM quote showed Hess Midstream shares down 15.5 per cent to US$32.70 on the New York Stock Exchange. Hess Midstream expects 2027 adjusted EBITDA of US$850 million to US$950 million after the deal. Its updated 2026 forecast is higher, at US$1.225 billion to US$1.25 billion.

The partnership still targets 5 per cent annualized distribution growth per Class A share in the third and fourth quarters of 2026. It expects to hold quarterly 2027 distributions at the anticipated fourth-quarter 2026 level, with the payments fully funded by adjusted free cash flow.

Chevron will contribute 77,827,485 Class B units of Hess Midstream Operations LP and 449,000 Class A shares, all of which Hess Midstream will cancel at closing. Chevron will also hand over its interests in the general partner; Chevron-affiliated directors are to leave the board at closing, and shareholders gain the right to elect directors beginning in 2028.

Bakken Contracts Run Through 2045

The Oct. 6 Hess Midstream release describes the DJ Basin package as having about 400,000 barrels a day of oil gathering capacity and 300 million cubic feet a day of gas gathering capacity. It also includes 420,000 barrels of storage and a 20 per cent stake in Saddlehorn, a FERC-regulated crude pipeline from the DJ Basin to Cushing, Oklahoma. Those are existing assets described by the company, with new Chevron service agreements supported by dedicated acreage through 2045.

Bakken crude and gas gathering and processing tariffs payable by Chevron will fall from 2027 through 2033. The agreements convert cost-of-service terms to fixed fees with inflation escalators and set a minimum revenue commitment equal to 80 per cent of expected Bakken revenue attributable to Chevron through 2033. Commitments for 2027 through 2029 are based on a two-rig program. Chevron expects to cut its Bakken fleet from three rigs to two in December 2026.

Hess Midstream estimates 2027 adjusted free cash flow of US$525 million to US$625 million after about US$125 million in capital expenditure across the DJ and Bakken basins. Its 2027 EBITDA forecast includes estimated revenue from a contract liability created by the contributed assets and shares, which the company says will be recognized through 2045.

"This transaction is expected to be accretive on an Adjusted EBITDA per share basis, accelerating value to our shareholders while providing a solid foundation for future capital allocation and shareholder returns," Hess Midstream chief executive Jonathan Stein said in the Oct. 6 release.

A listed midstream peer, ONEOK, Inc. NYSEOKE, said in its Oct. 6 release that it completed a US$4.425 billion cash acquisition of Brazos Midstream's Permian Midland Basin natural gas gathering and processing assets. Separately, the U.S. Energy Information Administration forecast on Oct. 6 that Brent crude would average US$105 a barrel in the fourth quarter of 2026. Its forecast for 2027 was US$84 a barrel.

The conflicts committee of Hess Midstream's general partner approved the agreement after consulting its advisers. Chevron expects to deconsolidate about US$3.7 billion of Hess Midstream debt at closing and record a one-time after-tax loss of about US$3 billion to US$4 billion.

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The next milestone is the expected closing by year-end 2026, subject to regulatory approvals and customary conditions.