Hess Midstream LP (HESM) Q3 2025 Earnings Call Transcript
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Overview
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.
Key Financial Performance
Net Income $176 million for Q3 2025, compared to $180 million in Q2 2025. The slight decrease is due to higher seasonal maintenance and employee costs.
Adjusted EBITDA $321 million for Q3 2025, compared to $316 million in Q2 2025. The increase is driven by higher third-party gas gathering and processing throughput volumes.
Revenues (excluding pass-through revenues) Increased by approximately $7 million in Q3 2025, driven by higher third-party gas gathering and processing throughput volumes.
Gathering Revenues Increased by approximately $4 million in Q3 2025, driven by higher third-party gas gathering and processing throughput volumes.
Processing Revenues Increased by approximately $3 million in Q3 2025, driven by higher third-party gas gathering and processing throughput volumes.
Gross Adjusted EBITDA Margin Maintained at approximately 80% in Q3 2025, above the 75% target, highlighting strong operating leverage.
Capital Expenditures Approximately $80 million in Q3 2025. Full-year 2025 capital expenditures are expected to total approximately $270 million, reflecting the suspension of the Capa gas plant project.
Adjusted Free Cash Flow Approximately $187 million in Q3 2025. Full-year adjusted free cash flow is expected to be $760 million to $770 million, with excess adjusted free cash flow of approximately $140 million after distributions.
Revolving Credit Facility Balance $356 million drawn balance at the end of Q3 2025.
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Operating Highlights
New Compressor Stations: The first of two new compressor stations for the year was safely completed and brought online in Q3. The second station is expected to be completed in Q4.
Third-Party Volumes: Increase in third-party gas gathering and processing throughput volumes provided upside to results, highlighting the strategic nature of midstream assets in the Bakken.
Gas Throughput: Gas throughput increased by 3% compared to Q2, averaging 462 million cubic feet per day.
Capital Expenditures: Full-year 2025 capital expenditures are expected to total approximately $270 million, reduced due to the suspension of the Capa gas plant project.
Adjusted EBITDA Margin: Maintained at approximately 80%, above the 75% target, showcasing strong operating leverage.
Capa Gas Plant Suspension: Activities on the Capa gas plant have been suspended and removed from forward plans, resulting in significantly lower capital expenditures and additional free cash flow.
Return of Capital Strategy: Prioritizes return of capital to shareholders through excess free cash flow and leverage capacity, with targeted annual distribution per Class A share growth of at least 5% through 2027.
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Risk or Challenges
Localized flooding impact: Localized flooding in August affected gas throughputs, though the company managed to increase volumes from the second quarter.
Northern Border pipeline maintenance: Third-party volumes increased due to customers navigating pipeline maintenance, but this is not a consistent or guaranteed source of upside.
Winter weather contingency: Lower expected third-party volumes in the fourth quarter due to winter weather contingency and planned maintenance at the Little Missouri 4 gas plant.
Suspension of Capa gas plant project: The suspension of the Capa gas plant project has led to a reduction in forward capital plans, which could impact long-term growth opportunities.
Seasonal maintenance and employee costs: Higher seasonal maintenance and employee costs increased total expenses, impacting adjusted EBITDA.
Revolving credit facility balance: A drawn balance of $356 million on the revolving credit facility could pose financial risks if not managed effectively.
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Guidance & Outlook
Fourth Quarter 2025 Volumes: Expected to be relatively flat compared to the third quarter due to lower expected third-party volumes, winter weather contingencies, and planned maintenance at the Little Missouri 4 gas plant.
Capital Expenditures for 2025: Expected to total approximately $270 million, reflecting the suspension of the Capa gas plant project.
Free Cash Flow: With the removal of the Capa gas plant from forward plans, significantly lower capital expenditures are expected to provide additional free cash flow to support the return on capital framework.
2026 and 2028 Guidance: Guidance for 2026 and 2028 MVCs will be released after the budget process concludes in December 2025.
Fourth Quarter 2025 Financial Guidance: Net income expected to be approximately $170 million to $180 million, and adjusted EBITDA expected to be approximately $315 million to $325 million, reflecting scheduled maintenance and lower third-party volumes.
Full Year 2025 Financial Guidance: Net income expected to be $685 million to $695 million, and adjusted EBITDA expected to be $1.245 billion to $1.255 billion, implying approximately 10% year-on-year EBITDA growth at the midpoint of the guidance range.
Distribution Growth: Targeting annual distribution per Class A share growth of at least 5% through 2027, supported by existing MVCs and excess adjusted free cash flow.
Adjusted Free Cash Flow Growth: Expected to grow through 2027, supporting targeted annual distribution growth and providing financial flexibility for incremental return of capital, including potential share repurchases.
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Shareholder Return Plan
Distribution Increase: Increased distribution by 2.4% in the third quarter, approximately 10% on an annualized basis for Class A shares. This includes a targeted 5% annual increase for Class A shares and an additional increase following share repurchase.
Annual Distribution Growth Target: Targeting annual distribution per Class A share growth of at least 5% through 2027.
Share Repurchase: Executed a $100 million share and unit repurchase in the third quarter.
Future Share Repurchase Potential: Financial flexibility for incremental return of capital, including potential share repurchases, supported by adjusted free cash flow growth through 2027.
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Key Q&A
Q:Can you discuss Bakken trends, specifically how GORs are trending over time and their impact on your business?
A:Historically, Bakken has not had increasing GORs due to active programs. Chevron is now operating 3 rigs, which helps maintain oil plateau and increase gas over time, driven by GORs. Gas represents 75% of Hess Midstream's revenues, and the trend in gas will continue to drive long-term growth.
Q:Can you provide thoughts on 2020 MVCs given Chevron's move to 3 rigs?
A:The development planning with Chevron will be completed, and the budget will be approved in December. Guidance, including 2026 and 2020 MVCs, will be provided at that time.
Q:What are your thoughts on the volatility in share price and future buybacks?
A:Leverage is at 3x, and flat EBITDA is expected in 2026 with growth resuming in 2027. Lower CapEx will assist free cash flow, enabling financial flexibility for capital returns, including potential share repurchases.
Q:What is the CapEx outlook for the next few years?
A:Historically, $125 million is the expected ongoing capital, including well connects and third-party volumes. CapEx will be significantly lower than the original $250-$300 million guidance for 2026-2027, with some small growth projects potentially raising it slightly above $125 million. Guidance will be provided after the business plan is completed.
Q:How has the relationship with Chevron evolved, and how does Hess Midstream fit into their broader strategy?
A:Integration with Chevron has gone well, with new board members and approved distribution increases. The focus remains on running Hess safely and efficiently, maintaining capital discipline, and executing the capital framework. A search for a fourth independent board member is underway.
Q:Why is 2026 EBITDA expected to be flat despite rising gas volumes?
A:The early guidance is based on current expectations, with detailed guidance to follow in December. The final EBITDA range will depend on oil and gas volumes, rates, OpEx, and Chevron's development plan, including efficiencies like longer laterals. Free cash flow growth is expected as the capital plan reduces.
Q:Are there indications Chevron might reduce rig activity to 2 rigs, and what would be the impact?
A:Chevron currently plans to release a rig in Q4, moving to 3 rigs. At 3 rigs, oil is expected to plateau in 2026, and gas will grow through 2027. Chevron aims to maintain a plateau of 200,000 BOE/day, which aligns with Hess Midstream's model. Speculation beyond this is avoided.
Q:How are 2028 MVCs set, and will the process differ with Chevron?
A:The process remains unchanged and is defined in commercial agreements. Chevron provides a development plan, and MVCs are set at 80% of the third year of that plan. The process is mechanical and collaborative to optimize the Bakken.
Q:Can Chevron achieve its 200,000 BOE/day goal with a 3-rig program?
A:Yes, Chevron's efficiencies and productivities allow it to achieve the 200,000 BOE/day goal with 3 rigs. Running 4 rigs would exceed this goal, as previously seen in guidance based on a 4-rig program.
Q:Review of Unclear Management Responses
A:Management avoided providing direct answers to questions about 2020 MVCs and potential reductions to 2 rigs. They deferred detailed guidance to December and avoided speculating on Chevron's future rig activity beyond the current plan.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Border maintenance
Hess Midstream
Investor Relations
MVCs process
Missouri gas
Officer Welcome
President Investor
Relations Vice
Relations conference
Throughput gas
Today opening
Welcome Today
activity gas
asset share
capital cash
capital gas
cash share
comment financials
contingency maintenance
count throughput
distribution basis
end result
expenditure return
financials priority
flooding result
framework MVCs
gas plant
gentleman Hess
increase party
law winter
leverage update
maintenance Missouri
maintenance end
midstream asset
nature midstream
party volume
plan capital
plant Hess
plant plan
plant project
priority return
share unit
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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