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DATE
Tuesday, July 29, 2025 at 8 p.m. ET
CALL PARTICIPANTS
Chief Executive Officer — Jonathan Stein
President and Chief Operating Officer — John Gatling
Chief Financial Officer — Mike Chadwick
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RISKS
Mike Chadwick cited an incremental $15 million in expected interest expense for full year 2025, mainly due to a higher debt balance following the repurchase transactions, as a negative driver in net income guidance.
Guidance for full year 2025 includes an incremental $15 million in expected income tax expense resulting from ownership changes, as reported by Mike Chadwick.
TAKEAWAYS
Throughput Volumes: Gas processing averaged 449 million cubic feet per day, crude terminaling reached 137,000 barrels per day, and water gathering averaged 138,000 barrels per day.
Growth vs. Prior Quarter: Gas processing and oil terminaling volumes increased by approximately 6% and 10%, respectively, from the previous quarter, reflecting strong upstream production and system availability.
Adjusted EBITDA: $316 million in adjusted EBITDA for the second quarter, up from $292 million in the first quarter, driven by a $30 million increase in total revenues, excluding pass-through revenues, primarily from volume growth in the second quarter.
Segment Revenue Drivers: Gathering revenue increased by $16 million, processing by $9 million, terminaling by $4 million, and third-party services by $1 million compared to the previous quarter.
Costs and Expenses: Excluding depreciation, pass-through costs, and LM4 earnings net, costs rose by $6 million from the first to the second quarter, mainly due to seasonal maintenance and higher third-party processing fees in the second quarter.
Adjusted EBITDA Margin: Maintained at approximately 80% in the second quarter, which is above the company's 75% target.
Capital Expenditures: $70 million in capital expenditures for the second quarter; Full-year 2025 capital expenditures guidance remains unchanged at $300 million.
Net Income: $180 million in net income for the second quarter, up from $161 million in the first quarter; Full-year 2025 expected net income range raised to $685–$735 million following updated interest and tax costs.
Adjusted Free Cash Flow: $194 million in adjusted free cash flow for the second quarter; Updated full-year 2025 adjusted free cash flow guidance is between $725–$775 million.
Distributions: Annual distribution per Class A share is targeted to grow at least 5% per year through 2027. The latest quarterly distribution in the second quarter included growth beyond the annual target after repurchase transactions.
Share Repurchases: The $200 million repurchase in May 2025 included public shareholders for the first time. The company is maintaining an approximate cadence of $100 million in share repurchases per quarter, but actual amounts may vary.
Leverage and Credit Rating: Senior unsecured debt upgraded by S&P to BBB- investment grade.
Liquidity: $273 million drawn balance on the revolving credit facility at the end of the second quarter, with management citing sufficient trading liquidity for ongoing buybacks.
Financial Flexibility: More than $1.25 billion available through 2027 for further unit and share repurchases and incremental shareholder returns.
Governance Changes: New board structure now requires approval from at least one independent director on major decisions, following GIP's full exit and Chevron’s governance participation.
SUMMARY
Hess Midstream LP (HESM 3.47%) reported record operating metrics for the second quarter of 2025, including sequential increases in both throughput and adjusted EBITDA (non-GAAP), supported by strong upstream performance and system availability. Management reaffirmed full-year 2025 guidance for volumes, capital expenditures, and adjusted EBITDA, while incorporating higher interest and income tax expenses into updated net income and cash flow projections. The company maintained its shareholder return strategy, including a targeted 5% annual distribution growth per Class A share through 2027 and a consistent share repurchase cadence, all underpinned by an upgraded investment-grade credit rating and revised board governance requirements to ensure balanced oversight after GIP's exit.
Jonathan Stein stated, Senior unsecured debt was upgraded by S&P to an investment grade rating of BBB- following the close of the Chevron Hess merger, highlighting enhanced credit quality.
Mike Chadwick confirmed, We are maintaining our adjusted EBITDA guidance range of $1,235 to $1,285 million for 2025, directly addressing second-half expectations.
Shareholder return flexibility extends to over $1.25 billion in potential excess capital available for distributions and buybacks through 2027, as stated by management.
Jonathan Stein emphasized, "key decisions require the approval of one independent director" with this mechanism designed to preserve a balanced governance model post-GIP exit.
INDUSTRY GLOSSARY
MVC: Minimum Volume Commitment—a contractual obligation between a producer and the midstream provider, ensuring baseline throughput for a set period, directly impacting revenue predictability.
GOR: Gas-to-Oil Ratio—the volume of produced gas relative to produced oil, an important factor in assessing basin maturity and infrastructure planning in oil and gas development.
ASR: Accelerated Share Repurchase—a mechanism allowing a company to buy back its own shares quickly, often from the open market and/or large shareholders, typically as part of capital return programs.
Full Conference Call Transcript
Jonathan Stein: Thanks, Jennifer. Welcome, everyone, to our second quarter 2025 earnings call. I have a few opening comments, and I will hand the call over to John Gatling to review our operations and Mike Chadwick to review our financials. I wanted to first say that we are all excited and eager to work together with our new Chevron colleagues to continue to drive value for our shareholders. Our new board members, including our new chair, Andy Walls, Chevron's President of Downstream, Midstream, and Chemicals, have significant experience across the upstream, midstream, and downstream businesses and complement the operational and financial expertise of our current board members.
I am also excited to welcome Mike Chadwick to his new role as Chief Financial Officer of Hess Midstream. I've worked alongside Mike for the past twenty years as he's progressed through various financial roles at Hess Corporation. And we are fortunate to have his experience and leadership capabilities working with the midstream. I am also excited to step into my new role as CEO of Hess Midstream. Since our IPO, we have created value for shareholders through operational excellence and execution that drives a visible trajectory of growth and supported by a financial strategy that includes a differentiated combination of balance sheet strength and a priority on shareholder return.
With the continuity of the midstream team in place, we are excited to take this strategy forward as we continue to build Hess Midstream with a unique combination of sector-leading growth and shareholder returns. Today, I want to focus briefly on three themes. First, we continue to deliver outstanding operational performance, which you can see reflected in the quarter that we reported today and also in our fourth annual sustainability report, which we issued a few weeks ago and which highlights our commitment and track record of safe and reliable execution.
In the second quarter, throughput increased across all segments, and we are in line with our annual guidance for volumes to grow by approximately 10% across all oil and gas systems in 2025, compared with 2024. Second, we continue to deliver outstanding financial performance. We are estimating an approximate 11% increase in adjusted EBITDA growth in 2025, with approximately 7% growth at the midpoint in the second half of the year. With total expected capital expenditures of approximately $300 million, we expect to generate adjusted free cash flow of approximately $725 to $775 million, which more than covers our targeted 5% annual distribution growth and generates excess free cash flow.
And third, we are committed to our ongoing financial strategy, which prioritizes return of capital to our shareholders and has made Hess Midstream total shareholder return yield one of the highest of our midstream peers, while also maintaining one of the lowest leverage ratios. Highlighting our balance sheet strength, last week Hess Midstream senior unsecured debt was upgraded by S&P to an investment grade rating of BBB- following the close of the Chevron Hess merger. Since 2021, we have returned greater than $2 billion to shareholders through accretive repurchases and have increased our distribution per Class A share by more than 60%. To 5% targeted annual distribution growth and distribution level increases following each share repurchase transaction.
We expect to generate greater than $1.25 billion of financial flexibility through 2027 for incremental shareholder returns, including the potential for further unit and share repurchases over this period. With a consistent strategy at Hess Midstream, we are excited for the future. We have a visible trajectory of growth that underpins our unique and ongoing return of capital, then Mike will review our financial results and guidance. In the second quarter, Hess Midstream delivered record operating performance. Throughput volumes averaged 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.
Throughputs increased across all segments of our business, with gas processing and oil terminaling volumes increasing by approximately 610%, respectively, from the first quarter, primarily driven by outstanding upstream production performance and high midstream system availability. Turning to Hess Midstream guidance, we're again reaffirming our previously announced full-year 2025 oil and gas throughput guidance. In the third quarter, we expect volume growth from the second quarter across our oil and gas systems, partially offset by higher seasonal maintenance activity. Turning to Hess Midstream's capital program.
John Gatling: Our multiyear projects continue as planned. In 2025, we remain focused on the completion of two new compressor stations and associated gathering systems as well as continuing to progress the Kappa gas plant. Full-year 2025 capital expenditures remain unchanged and are expected to total approximately $300 million. In summary, we remain focused on executing our strategy of disciplined, low-risk investments to meet basin demand while maintaining reliable operations and strong financial performance. We expect our growth strategy to generate sustainable cash flow and create opportunities to return capital to our shareholders. I'll now turn the call over to Mike to review our financial results and guidance.
Mike Chadwick: Thanks, John, and good afternoon, everyone. I wanted to say first that I'm really excited to join the Hess Midstream team and look forward to meeting you in the future. Today, I'm going to review our results for the second quarter and our financial guidance, and then we will open the call for questions. For 2025, net income was $180 million compared to $161 million for the first quarter. Adjusted EBITDA for 2025 was $316 million compared to $292 million for the first quarter.
The increase in adjusted EBITDA relative to the first quarter was primarily attributable to the following: total revenues, excluding pass-through revenues, increased by approximately $30 million, primarily driven by higher throughput volumes resulting in segment revenue changes as follows. Gathering revenues increased by approximately $16 million, processing revenues increased by approximately $9 million, terminaling revenues increased by approximately $4 million, and third-party services and other income increased by approximately $1 million. Total costs and expenses, excluding depreciation and amortization, pass-through costs, and net of our proportional share of LM4 earnings, increased by approximately $6 million, primarily from higher seasonal maintenance activity and third-party processing fees. Resulted in adjusted EBITDA for 2025 of $316 million.
Our gross adjusted EBITDA margin for the second quarter was maintained at approximately 80%, above our 75% target, highlighting our continued strong operating leverage. Second-quarter capital expenditures were approximately $70 million and net interest excluding amortization of deferred finance costs, approximately $52 million, resulting in adjusted free cash flow of approximately $194 million. We had a drawn balance of $273 million on our revolving credit facility at quarter-end. In January, we announced that we are targeting annual distribution per Class A share growth of at least 5% through 2027, which is supported by our existing MVCs.
This week, we announced our second-quarter distribution that included our targeted 5% annual growth per Class A share and an additional increase utilizing the excess adjusted free cash flow available for distributions following the repurchase. Turning to guidance. For 2025, we expect net income to be approximately $175 million to $185 million and adjusted EBITDA to be approximately $315 to $325 million, reflecting higher volumes and revenues partially offset by seasonally higher maintenance costs. We also expect CapEx to increase in the third quarter consistent with seasonally higher activity levels.
For the full year 2025, we are updating net income and adjusted free cash flow guidance to include the impact of an incremental $15 million in expected interest expense mainly on higher debt balance following the repurchase transactions completed so far this year. The updated net income guidance also includes the impact of an incremental $15 million in expected income tax expense resulting from ownership changes following the previously completed secondary equity offerings and repurchase transactions. As a result, we now expect net income of $685 to $735 million. We are maintaining our adjusted EBITDA guidance range of $1,235 to $1,285 million, implying growth of approximately 707% in adjusted EBITDA at the midpoint in the second half of the year.
With total expected capital expenditures of approximately $300 million, we now expect to generate adjusted free cash flow of approximately $725 to $775 million. With distributions per Class A share targeted to grow at least 5% annually from the new higher distribution level, we expect excess adjusted free cash flow of approximately $125 million after fully funding our targeted growing distributions. We continue to have more than $1.25 billion financial flexibility through 2027 that can be used for continued execution of our return of capital framework, including potential ongoing unit and share repurchases. This concludes my remarks. We will be happy to answer any questions. And I will now turn the call over to the operator.
Operator: Thank you. Please press 11 on your telephone. And wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Jeremy Tonet from JPMorgan Securities LLC.
Praneeth Satish: Hey. Good morning. This is, Roth and Reddy on for Jeremy. I wanted to start off with the Hess deal now closed. If you guys have any insight into Chevron's view in the '26 and '27?
John Gatling: Yeah. Maybe I'll touch on it, and then Jonathan and Mike can hit it as well. But just from our perspective, we're currently running four rigs. We've seen very strong upstream performance, well delivery with our increased laterals. The midstream availability has just been phenomenal. You know, we'll continue to execute strongly and stay focused on that. And as we do every year, we'll update our development plan as we get an update with Chevron coming in as our sponsor. So that'll happen towards the end of the year, and then we'll be issuing guidance in January.
Praneeth Satish: Got it. Thank you. And then turning to capital allocation, wondering if you could talk a little bit specifically about your appetite for buybacks at current prices and with GIP sell down now complete, if we should think about any change in the magnitude of repurchases going forward?
Mike Chadwick: Yeah. So with buybacks, as we announced in January, we have about $1.25 billion financial flexibility through 2027, and we expect to do multiple repurchases a year as we've done in the past. So there's no change to that guidance. As we previously mentioned, our January repurchase that was in lieu of not having completed a repurchase in Q4 of last year. Our May repurchase of $200 million which included the public for the first time, that got us back into our cadence of about a hundred million every quarter. However, the size of that is not set in stone. But, generally, a $100 million a quarter is what we will be completing.
We have done over the last couple of years.
Jonathan Stein: And this is Jonathan. You know, as we said at the beginning, as I said in my comments, you know, overall, there's no change to our strategy in terms of our business strategy and to our financial strategy. And you saw that just this week, we issued, as Mike said, our quarterly dividend announcement on Monday night that included our distribution level increase as well as the $200 million increase following the $200 million share buyback that we did earlier. So, you know, really no change in return on capital program going forward. You mentioned GIP. Obviously, GIP out in terms of secondaries. You know, that's not something that we expect.
But in terms of return on capital, which is really always focused on that framework that continues as is.
Praneeth Satish: Makes sense. Thank you, guys.
Jonathan Stein: Thank you.
Operator: One moment for our next question. Our next question comes from the line of Samuya Jain from UBS.
Samuya Jain: Hi, good afternoon. Congrats on the quarter. I was wondering how are you guys seeing GORs trending in the near term? And along with that, what's your outlook on the Bakken heading into 3Q?
John Gatling: Yeah. So the GORs really haven't changed you know, as the basin matures over the longer term. GORs are expected to increase, which they're acting as exactly as we would expect them to. Looking at the North Dakota pipeline authority, Justin Crinstead and the team there, kinda looking at longer term basin growth in the in the gas space And it is anticipated that Bakken Gas Is Gonna Grow Over The Long Term, And We Would Expect The Pest And Chevron Bakken volumes to basically do the same trend the same way. So we're expecting oil to remain in the in the pipeline authorities forecast. They're expecting oil to remain flattish. With gas growing over the longer term.
Samuya Jain: Got it. Thank you. And then could you detail where gas processing volumes are at now over the past month? Any changes to note? We're just trying to understand the cadence, and same with oil terminaling.
John Gatling: Yeah. I think, generally speaking, we've seen an it expect to continue to see the growth through the end of the year, as our guidance has supported that. So, again, we had a very, very strong second quarter. We do continue to expect to see growth into the third and fourth quarters and finish the year at guidance. So I would say you would continue to see that growth through 2627 as the as the MVCs have kind of outlined. And, again, if there's any if there's any changes to the development plan, that'll happen, as part of our normal annual development plan process and that'll be updated in, in January.
Samuya Jain: Got it. Thank you.
John Gatling: Yeah. Thank you.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Doug Irwin from Citi.
Doug Irwin: Thanks for the question. Congrats Jonathan and Mike, on the new roles as well. I just want to start with the guidance range here. If I just take the first half of guidance, first half 25 guidance just in the aggregate, I think you're turning about $15 million above the guided midpoint here year to date. And now third quarter is pointing to a bit more growth from here. I guess is it fair to say you're turning above the annual midpoint at this point, or there may be some variances versus your initial outlook that is kind of shifted around the timing throughout the year here versus your initial second half exit patients.
John Gatling: No. Maybe I'll touch on the operational side, and I can hand it over to Mike and Jonathan. But, overall, we again, we had an extremely strong second quarter. You know, very little weather impact. Essentially, maintenance activity. You know, coming out of the first quarter, which was a bit more challenging, you know, we were really just trying to stabilize operations, and I think we were very pleased with how both the upstream performed, but also how the midstream performed.
We're gonna continue to see that growth going into the third and fourth quarters, but you know, as we transition in, we are expecting to see a little bit more maintenance in the in the second half of the year. And that'll probably be kind of in the in the later part of the year. We're still kind planning all of the all of the activity, but there's there's still there's still some room there. And we're again, I think we're we're still very comfortable with the guidance that we've got currently. Yes. Thanks, John. And I'll just tag on the back of that as we
Mike Chadwick: have seen, we're keeping our adjusted EBITDA guidance for the year, which already includes quite a lot of growth baked into the second half. You know, as Jonathan said and I said in my notes, taking the midpoint of our full year guidance, we expect about 7% higher EBITDA in the second half of the year compared to the first half. And so while revenues are expected to grow on higher volumes, as John described, you know, phasing of maintenance costs means expenses are expected to be higher in Q3, and we also retained some winter weather contingency in Q4. And while winter weather can also lower maintenance costs, Q4 also typically see some variability in our allocation costs.
So we're keeping guidance there. For the second quarter.
Doug Irwin: Okay. That's helpful. Thank you. And then maybe another on buybacks, just asking a slightly different way. It's it's obviously early on in the relationship with Chevron here. I'm just curious if he you expect them to participate in buybacks kind of similar to how Hess did Or will buybacks moving forward pretty much be entirely dependent on buying back shares from public owners? And to the extent that you are buying back more public shares, does just general liquidity of those public shares impact kind of your ability to maintain the run rate? Kind of in as smooth of a cadence as you have in the past?
Jonathan Stein: Sure. This is Jonathan. Yeah. Look. I there's no change as we had said in the past, you know, when we had secondaries and buybacks happening, simultaneously, they're really two separate objectives, while the secondaries were changing ownership levels, the buyback program is really just to return a capital program, and so you would expect over time that we'll have the same you know, participation more closer to the relative proportional levels of the public and Chevron going forward. So really no change to our approach there.
We did include, as you know, now we have the we have kind of road tested, I'll call it, or use, the ASR process last time to include the public in our buyback program. And you know, have that mechanism available for us to be able to do that going forward as well. So really no change there. And in terms of our liquidity, I think you've seen that our liquidity has, you know, continued to increase as we did all the secondary transactions and the public ownership went up.
Our, you know, our liquidity at this point and average trading volume is, you know, more than sufficient to handle our buyback program at the level we've done in the past and expect to do going forward. Great. That's all for me. Thanks, Sean.
Mike Chadwick: Thank you.
Operator: One moment for our next question. Our next question comes from the line of Praneeth Satish from Wells Fargo.
Praneeth Satish: Thanks. Good afternoon. Also, congrats Jonathan and Michael, on the new roles. Maybe can you just provide any more context around GIP's decision to exit its investment in Hess Midstream back in May? I mean, I know they were selling down their stakes, so it wasn't really a surprise. But I guess why do it in May versus maybe after the merger with Chevron?
Jonathan Stein: Sure. So, you know, as you know, we've over the past you know, three years plus, we've been executing secondaries in a very disciplined fashion, each one increasing in size generally over time, and increasingly tighter discounts. So very disciplined approach. GIP saw an opportunity, as we'd always said, The second is based on demand from investors, and then GIP would have assess that relative to their value proposition expectations, and that existed in May. And so they continued taking that opportunity. They, of course, have their own investors and timeline and really, you know, really executing relative Timing. So, really, just continuing the disciplined execution that we had in the past and the opportunity presented itself.
Praneeth Satish: some investors have viewed GIP as providing an independent, voice that kind of helped balance, the sponsor interests with those of the public. So I guess with GIP now out, how do how do you think about the new governance structure versus having that third party institutional investor at the table?
Jonathan Stein: Sure. Yeah. No. We agree that, you know, one of our differentiating strengths relative to other sponsored midstream companies has been our balanced governance. And certainly with GIP, historically, part of the board that provided some, you know, level of that. So consistent with that approach, as you saw, we updated our governance in June following the GIP's exit. And that included that certain key decisions require the approval of one independent director That includes things like leverage above a certain level, issuing equity, or major capital decision among other key strategic decisions. That mechanism is now in place.
As you know, we're adding also a fourth independent board member, but this mechanism is in place independent of the number of board members at the time or the timing of the fourth independent member joining the board. So I think it really highlights our continued belief in the value of a balanced government model that we've had historically. And then with this new mechanism in place that we will continue to have going forward.
Praneeth Satish: Got it. Thank you.
Operator: Thank you. One moment for our next question. Our next question comes from the line of John McKay from Goldman Sachs.
John McKay: Hey, everyone. Thanks for the time. I wanted to pick up a little bit more on the Chevron side. I totally understand it's early and you're you'll have your annual review of activity levels later in the year. But Hess has been talking about this kind of 200 kboe a day target for a long time. Think we've kinda thought about that as the reasonable run rate for the footprint.
Could you maybe just acknowledging that can, I guess, change, but can you maybe just remind us of how that 200 a day level was set kind of what the thought process behind it was, and then, you know, maybe from that, any read on why that might be the right level going forward?
John Gatling: Again, I think, as we think about the 200,000 barrels a day, it was really kind of hitting the over a 100,000 barrels a day of gross oil. Or of net oil and then the gas growth over time. And as we've been doing just from a overall field development pamper plan perspective is we've really been trying to optimize the upstream drilling activity with the midstream infrastructure plan. And so it's it's really about having the infrastructure in place and then keeping that infrastructure as utilized as it possibly can be.
And so where when we looked at the build over time and looked at the infrastructure development and kinda where we felt like the development the field development from a drilling perspective was happening. We felt like that 200,000 barrels a day is about the right level. So, you know, outside of the two compressor stations that we're building this year, we're you know, in the process of progressing the Capa gas plant. You know, as far as material long term infrastructure, activity, we're we're kind of at that at that level where the infrastructure is stable.
And so from our perspective, you know, we're kind of looking at this as how does the drilling activity the infrastructure system really complement each other so that you get very, very high utilization of that equipment and really optimize the system itself. So that's that's really kinda where we are and how we've we've continued to look at it. And as we continue to look longer term, we'll we'll you know, look at our development plan again, which, again, it's a it's a very integrated,
John McKay: activity between the upstream and the midstream.
John Gatling: Know, that'll happen in the fall, and then we'll be updating our longer term guidance in, January.
Jonathan Stein: This is Jonathan. You know, one thing just to highlight, John really picked it up on the end, and I think it's important to highlight this stage, which is one of the historic strengths of Hess Midstream has been the partnership that we've had between the upstream and the midstream between Hess Midstream and the upstream and Hess to be able to develop the block in the most optimal way And you know, now as we go forward with Chevron, there's no change to that partnership. There's no change to the focus on both of us. Working together to optimize the Bakken and develop it, as John described.
And as he said, you know, that the normal process will continue where we get a updated development plan, We'll figure out what's the right infrastructure required to meet that development plan going forward. And then we'll update our guidance based on that going forward. So really continuing in that strong partnership that has really been a hallmark of our relationship historically.
John McKay: That's helpful, and that's all clear. Maybe just one related one. You've seen kind of increased efficiencies on the upstream side there, just what's been the latest commentary around related inventory life?
John Gatling: Yeah. I mean, I think, you know, we're still everybody gets still hung up on rig count and well counts and all of that. And, you know, really, as we move into an extended lateral program, it really is the lateral footage drilled. And so from our perspective, the overall lateral footage that's been drilled as far as what's available to develop really remains unchanged.
And in fact, we're actually seeing a little bit of growth in that space just from the standpoint of as those extended laterals become a bigger part of the portfolio, that creates opportunities for improved economics on those wells where they may be in more challenged areas But if you're drilling a three, four mile lateral, your the economics get much better, and that unlocks some of the of the rock that may have been challenged before. So I think we're we continue to be extremely optimistic in that space, and that's something that continues to be a tailwind for us as we as we look forward, for the basin development.
John McKay: Alright. That's clear. Appreciate the time. Thank you.
Mike Chadwick: Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.