Hess Midstream LP (HESM) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong financial performance with increased net income and EBITDA, alongside positive guidance for future growth. The Q&A session confirmed continued growth in gas processing volumes and a robust buyback program, reinforcing positive sentiment. The company's strategic plans and financial flexibility support further shareholder returns, enhancing the outlook. Despite some uncertainties in management responses, the overall sentiment is positive, with expected stock price movement in the 2% to 8% range over the next two weeks.
Key Financial Performance
Net Income $180 million for Q2 2025 compared to $161 million for Q1 2025, reflecting an increase due to higher throughput volumes and revenues.
Adjusted EBITDA $316 million for Q2 2025 compared to $292 million for Q1 2025, driven by increased revenues from higher throughput volumes.
Throughput Volumes 449 million cubic feet per day for gas processing, 137,000 barrels of oil per day for crude terminaling, and 138,000 barrels of water per day for water gathering in Q2 2025. Gas processing and oil terminaling volumes increased by approximately 6% and 10%, respectively, from Q1 2025, due to strong upstream production and high system availability.
Revenue Changes Total revenues (excluding pass-through revenues) increased by approximately $30 million in Q2 2025, with gathering revenues up by $16 million, processing revenues up by $9 million, terminaling revenues up by $4 million, and third-party services and other income up by $1 million.
Gross Adjusted EBITDA Margin Maintained at approximately 80% in Q2 2025, above the 75% target, indicating strong operating leverage.
Capital Expenditures Approximately $70 million in Q2 2025, consistent with planned investments in infrastructure projects.
Adjusted Free Cash Flow Approximately $194 million in Q2 2025, supported by strong EBITDA performance and controlled expenses.
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Operating Highlights
Throughput volumes: Increased across all segments, with gas processing averaging 449 million cubic feet per day, crude terminaling at 137,000 barrels per day, and water gathering at 138,000 barrels per day.
New compressor stations and gas plant: Focused on completing two new compressor stations and progressing the Capa gas plant as part of multiyear projects.
Chevron Hess merger: Integration with Chevron colleagues and new board members, including Andy Walz, Chevron's President of Downstream, Midstream, and Chemicals.
Operational performance: Record operating performance with throughput volumes increasing by 6% for gas processing and 10% for oil terminaling from Q1 2025.
Financial performance: Adjusted EBITDA increased to $316 million in Q2 2025 from $292 million in Q1 2025, with a gross adjusted EBITDA margin of 80%.
Shareholder returns: Targeting 5% annual distribution growth through 2027, with excess free cash flow enabling further unit and share repurchases.
Financial flexibility: Expecting over $1.25 billion of financial flexibility through 2027 for incremental shareholder returns.
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Risk or Challenges
Seasonal Maintenance Costs: Higher seasonal maintenance activity is expected to partially offset volume growth in the third quarter of 2025, which could impact operational efficiency and financial performance.
Debt and Interest Expense: Incremental $15 million in expected interest expense due to higher debt balance following repurchase transactions could strain financial resources and impact net income.
Tax Expense: Incremental $15 million in expected income tax expense resulting from ownership changes could reduce net income and financial flexibility.
Capital Expenditures: Total expected capital expenditures of approximately $300 million in 2025 could limit available resources for other strategic initiatives or shareholder returns.
Supply Chain and Project Execution: Ongoing multiyear projects, including compressor stations and the Capa gas plant, require disciplined execution to avoid delays or cost overruns, which could impact operational and financial outcomes.
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Guidance & Outlook
Annual Guidance for Volumes: Volumes are expected to grow by approximately 10% across all oil and gas systems in 2025 compared with 2024.
Adjusted EBITDA Growth: Estimated to increase by approximately 11% in 2025, with approximately 7% growth at the midpoint in the second half of the year.
Capital Expenditures: Total expected capital expenditures of approximately $300 million for 2025.
Adjusted Free Cash Flow: Expected to range between $725 million and $775 million in 2025, more than covering the targeted 5% annual distribution growth and generating excess free cash flow.
Shareholder Returns: Targeting annual distribution per Class A share growth of at least 5% through 2027, supported by existing MVCs. Excess adjusted free cash flow of approximately $125 million is expected after funding distributions in 2025.
Financial Flexibility: Expected to generate greater than $1.25 billion of financial flexibility through 2027 for incremental shareholder returns, including potential unit and share repurchases.
Third Quarter 2025 Guidance: Net income is expected to be approximately $175 million to $185 million, and adjusted EBITDA is expected to be approximately $315 million to $325 million, reflecting higher volumes and revenues, partially offset by seasonally higher maintenance costs.
Full Year 2025 Net Income: Updated guidance for net income is $685 million to $735 million, including impacts of incremental interest and income tax expenses.
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Shareholder Return Plan
Annual Distribution Growth: Targeting annual distribution per Class A share growth of at least 5% through 2027.
Second Quarter Distribution: Included targeted 5% annual growth per Class A share and an additional increase utilizing excess adjusted free cash flow available for distributions following the repurchase.
Historical Distribution Growth: Since 2021, distribution per Class A share increased by more than 60%.
Share Repurchase Program: Since 2021, returned greater than $2 billion to shareholders through accretive repurchases.
Future Share Repurchase Potential: Expect to generate greater than $1.25 billion of financial flexibility through 2027 for incremental shareholder returns, including potential further unit and share repurchases.
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Key Q&A
Q:What is Chevron's view on the Bakken and potential changes to the rig count?
A:Currently, there are 4 rigs running with strong upstream performance and increased laterals. Midstream availability has been excellent. Development plans will be updated towards the end of the year, with guidance issued in January.
Q:What is the company's appetite for buybacks at current prices and any changes in the magnitude of repurchases?
A:The company has $1.25 billion of financial flexibility through 2027 and expects to do multiple repurchases annually. The cadence is generally $100 million per quarter, but the size is not fixed. There is no change to the return on capital program.
Q:How are GORs trending in the near term and what is the outlook for the Bakken heading into 3Q?
A:GORs have not changed and are expected to increase over the long term as the basin matures. Bakken gas is anticipated to grow over the long term, while oil is expected to remain flat.
Q:What are the current gas processing volumes and any changes to note?
A:Gas processing volumes are expected to grow through the end of the year, with strong growth in the second quarter. Growth is anticipated to continue into the third and fourth quarters, aligning with guidance for 2026 and 2027.
Q:Is the company turning above the annual midpoint guidance at this point?
A:The company had a strong second quarter with minimal weather impact and no maintenance activity. Growth is expected in the third and fourth quarters, but maintenance and winter weather contingencies are planned for the second half. The company is comfortable with its current guidance.
Q:Will Chevron participate in buybacks similar to Hess, and how does public share liquidity impact buybacks?
A:There is no change in the buyback approach. Participation will be proportional to public and Chevron ownership. Liquidity is sufficient to handle the buyback program at current levels.
Q:What was the context around GIP's decision to exit its investment in Hess Midstream in May?
A:GIP executed the exit based on investor demand and their value proposition expectations. The timing was independent of the Chevron merger and aligned with their disciplined approach to secondaries.
Q:How does the governance structure change with GIP's exit?
A:Key decisions now require the approval of one independent director, including leverage, equity issuance, and major capital decisions. A fourth independent board member will be added, maintaining balanced governance.
Q:What is the rationale behind the 200,000 BOE/day target for the Bakken?
A:The target optimizes upstream drilling activity with midstream infrastructure, ensuring high utilization. The infrastructure is stable, and development plans will be updated in the fall, with guidance issued in January.
Q:What is the commentary on inventory life given increased upstream efficiencies?
A:The overall lateral footage drilled remains unchanged, with some growth due to extended laterals unlocking previously challenged areas. This provides a tailwind for basin development.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing whether Chevron would participate in buybacks similar to Hess, providing only general statements about proportional participation. Additionally, they did not provide specific details on the rationale behind GIP's timing for exiting its investment, citing general investor demand and value proposition expectations.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
BBB close
Bank Research
CEO IPO
COO GP
Chadwick Chief
Chadwick financials
Chadwick role
Chair President
Chase Co
Chemicals experience
Chief Executive
Citigroup Inc
Co Research
Division Conference
Division Praneeth
Division Ross
Division Saumya
Division Vrathan
Downstream Midstream
ET day
Executive Officer
Fargo Securities
Gatling President
Hess
Inc Research
Investor Relations
LLC
Officer Chadwick
President Investor
Research Division
Throughput
member
week
HESM Transcript
Hess Midstream LP (HESM) Q1 2026 Earnings Call Transcript
Positive5-4
The earnings call reflects positive sentiment with strong financial metrics: a 14% increase in adjusted free cash flow, an 8% annualized distribution increase, and improved guidance for 2026. Despite revenue decline due to weather, gross margins remain high, and strategic CapEx reduction supports growth. The Q&A reveals confidence in maintaining growth and leveraging efficiencies with Chevron. The market cap suggests a moderate reaction, leading to a positive outlook (2% to 8%) over the next two weeks.
Hess Midstream LP (HESM) Q4 2025 Earnings Call Transcript
Unknown2-2
The earnings call presents a mixed outlook. While there are positive aspects such as targeted distribution growth, strong EBITDA margins, and potential share repurchases, there are also concerns including lower revenues due to third-party volumes, maintenance, and inflationary pressures. The Q&A session did not provide significant new insights but highlighted the company's focus on deleveraging and optimizing operations. Given the market cap and mixed signals, the stock price is likely to remain within a neutral range over the next two weeks.
Hess Midstream LP (HESM) Q3 2025 Earnings Call Transcript
Unknown11-3
The earnings call presents a mixed outlook. Financial performance shows slight improvements in EBITDA and revenues, but net income decreased slightly. The Q&A section reveals uncertainties about future rig activity and flat EBITDA in 2026 despite higher gas volumes, which tempers optimism. Positive aspects include strong operating leverage, cash flow, and shareholder returns. However, the lack of detailed guidance and potential rig reductions introduce caution. Given the company's market cap, the stock is likely to remain stable, with a neutral prediction for stock price movement over the next two weeks.
Hess Midstream LP (HESM) Q2 2025 Earnings Call Transcript
Positive7-30
The earnings call reveals strong financial performance with increased net income and EBITDA, alongside positive guidance for future growth. The Q&A session confirmed continued growth in gas processing volumes and a robust buyback program, reinforcing positive sentiment. The company's strategic plans and financial flexibility support further shareholder returns, enhancing the outlook. Despite some uncertainties in management responses, the overall sentiment is positive, with expected stock price movement in the 2% to 8% range over the next two weeks.
HESM Report
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