Hess Midstream Q4 2025 Earnings Call - Lower CapEx and 95% MVCs set up $850-$900M adjusted FCF in 2026

Operator: Today, ladies and gentlemen, and welcome to the fourth quarter of 2025 Hess Midstream Conference Call. My name is Gigi, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded for replay purposes. I would now like to turn the conference over to Jennifer Gordon, Vice President of Investor Relations. Please proceed.

Jennifer Gordon, Vice President of Investor Relations, Hess Midstream: Thank you, Gigi. Good morning, everyone, and thank you for participating in our fourth quarter earnings conference call. Our earnings release was issued this morning and appears on our website, www.hessmidstream.com. Today’s conference call contains projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include those set forth in the risk factors section of Hess Midstream’s filings with the SEC. Also, on today’s conference call, we may discuss certain GAAP financial measures. A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the earnings release. With me today are Jonathan Stein, Chief Executive Officer, and Mike Chadwick, Chief Financial Officer.

I’ll now turn the call over to Jonathan Stein.

Jonathan Stein, Chief Executive Officer, Hess Midstream: Thanks, Jennifer. Welcome, everyone, to our fourth quarter 2025 earnings call. Today, I will review our 2025 performance, our 2026 and long-term guidance issued in December, and then I’ll hand the call over to Mike to review our financials. In 2025, we continued our record of strong performance execution, completing our multi-year projects on time and on budget, and strategically growing our gas gathering and compression system. With the system now substantially built, our projected capital spending will be significantly lower. For 2026, we expect to spend approximately $150 million, a 40% reduction in capital spending relative to 2025. We expect our capital spend to decrease even further in 2027 and 2028 to less than $75 million per year.

This lower capital highlights our ability to leverage our historical investments to drive significant free cash flow generation that supports our unique combination of shareholder returns and balance sheet strength through a combination of targeted 5% distribution per Class A share growth through 2028, potential incremental share repurchases, and debt repayment. Now, turning to Hess Midstream results. Fourth quarter volumes were generally flat year-over-year, but down relative to the third quarter due to severe weather through the month of December. Gas processing volumes averaged 444 million cubic feet per day, crude terminaling volumes averaged 122,000 barrels of oil per day, and water gathering volumes averaged 124,000 barrels of water per day.

For full year 2025, Hess Midstream’s gas processing volumes averaged 445 million cubic feet per day, crude terminaling volumes averaged 129,000 barrels of oil per day, and water gathering volumes averaged 131,000 barrels of water per day, resulting in full year adjusted EBITDA of $1,238 million. Looking forward for the first quarter of 2026, we expect lower volumes across our systems as severe winter weather has continued through January and into the start of February, together with normal contingencies for the rest of the winter period. On a full-year basis, we are reiterating the volume guidance that we gave in December for the full year of 2026 and expect growth in volumes across our systems through the rest of the year consistent with historical seasonal volume expectations.

With revenues that are approximately 95% protected by MVCs on a full-year basis, we anticipate net income and adjusted EBITDA to be higher through the rest of 2026 relative to our first quarter guidance. Looking beyond 2026, leveraging our historical investment in infrastructure and consistent with Chevron’s optimized development program for the Bakken, we continue to expect 5% annualized net income and adjusted EBITDA growth and approximately 10% annualized adjusted free cash flow growth through 2028 that is supported by gas volume growth, contracted annual inflation tariff rate adjustments, and lower operating and capital spend.

In summary, with Adjusted EBITDA growth and a moderating capital program, we expect significant Adjusted free cash flow generation in 2026 of $850-$900 million, reflecting 12% growth over 2025 at the midpoint, followed by annualized growth of approximately 10% through 2028, which we expect to use for incremental shareholder returns and debt repayment above and beyond our 5% targeted distribution growth that can be delivered even at already set MVC levels. With that, I’ll hand the call over to Mike to review our financial performance for the fourth quarter and guidance.

Mike Chadwick, Chief Financial Officer, Hess Midstream: Thanks, Jonathan, and good morning, everyone. Today, I will summarize our financial highlights for 2025, provide details on our first quarter financial guidance, and outlook through 2028, which we issued in December. For 2025, we delivered strong results with full-year net income of approximately $685 million and adjusted EBITDA of $1,238 million. This adjusted EBITDA represents a growth of approximately 9% from 2024. For the fourth quarter, net income was $168 million compared to approximately $176 million in the third quarter. Adjusted EBITDA for the fourth quarter was $309 million compared with approximately $321 million in the third quarter. The decrease is primarily due to lower revenues caused by severe winter weather followed by a slow recovery through December, as well as lower interruptible third-party volumes and annual maintenance at LM4. Total revenues, excluding pass-through revenues, decreased by approximately $19 million, resulting in segment revenue changes as follows.

Gathering revenues decreased by approximately $11 million. Processing revenues decreased by approximately $6 million. Terminaling revenues decreased by approximately $2 million. Total cost and expenses, excluding depreciation and amortization, pass-through costs, and net of our proportional share of LM4 earnings, decreased by approximately $7 million, primarily from lower allocations under our omnibus and employee secondment agreements, lower seasonal maintenance activity, partially offset by higher processing fees, resulting in Adjusted EBITDA for the fourth quarter of $309 million. Our gross Adjusted EBITDA margin for the fourth quarter was maintained at approximately 83%, above our 75% target, highlighting our continued strong operating leverage. Fourth quarter capital expenditures were approximately $47 million, marking lower fourth quarter activity as well as the completion of our compression buildout. Net interest, excluding amortization of deferred finance costs, was approximately $54 million, resulting in adjusted free cash flow of approximately $208 million.

We had a drawn balance of $338 million on our revolving credit facility at year-end. For the first quarter of 2026, we expect net income to be approximately $150 million-$160 million, and adjusted EBITDA to be approximately $295 million-$305 million, including the impact of severe winter weather that continued through January and the potential for additional winter weather events through the quarter. We expect adjusted free cash flow in the first quarter of 2026 to increase relative to the fourth quarter of 2025 as capital expenditures in the first quarter are projected to be lower than the fourth quarter. Turning to our rates for 2026 and beyond. The majority of our systems that represent approximately 85% of our revenues are fixed fee, with rates increasing each year based on an inflation escalator capped at 3%.

For our terminaling systems, water gathering systems, and a gas gathering subsystem that represents approximately 15% of our revenues, we continue to reset our rates through our annual rate redetermination process through 2033. In general, tariff rates across most of our systems are higher in 2026 than 2025 rates. For the full year 2026, we continue to expect net income of between $650 million and $700 million and adjusted EBITDA of between $1,225 million and $1,275 million in 2026, approximately flat at the midpoint compared with 2025. As Jonathan mentioned, approximately 95% of our revenues are covered by minimum volume commitments in 2026. We continue to target a gross adjusted EBITDA margin of approximately 75% in 2026, with total expected capital expenditures of approximately $150 million.

We expect to generate adjusted free cash flow of between $850 million and $900 million and excess adjusted free cash flow of approximately $210 million after fully funding our targeted 5% annual distribution growth, which we expect to use for incremental shareholder returns and debt repayment. Looking beyond 2026, we have visible drivers, including gas volume growth, that continue to make up 75% of our revenues, inflation escalators, and lower capital spend that support the guidance we issued through 2028 that results in annualized adjusted free cash flow growth of approximately 10% through 2028 from 2026 levels, generating approximately $1 billion of financial flexibility to continue return of capital to shareholders and pay down debt. This concludes my remarks. We’ll be happy to answer any questions. I’ll now turn the call over to the operator.

Operator: Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Doug Irwin from Citi.

Doug Irwin, Analyst, Citi: Hey, good morning. Thanks for the question. I’m just trying to start maybe with the balance sheet. You’ve made a few mentions here of debt repayment maybe taking more of a priority this year. Historically, I know you’ve pointed to about 3x leverage being the optimal level for Hess. I’m just curious, is that still the right way to think about it, or are you maybe targeting a lower level today? And if so, could you maybe just provide some more commentary around maybe what drove that decision and then how that might affect capital allocation decisions here moving forward?

Mike Chadwick, Chief Financial Officer, Hess Midstream: Can I say that one, Jonathan? So we plan to use a portion of our free cash flow after distributions to pay down debt, as the guidance in December indicated. And the conservative financial strategy we’re following there is consistent with our volume profile and Chevron’s target of 200,000 barrels of oil per day plateau production in the Bakken. So we’ll still have a balanced strategy. So that includes the incremental return of capital beyond our 5% annual distribution growth and balance sheet strength. So in terms of our 3x leverage, we will expect to naturally deliver below 3x in the next few years. Our EBITDA will grow, but we won’t be increasing the absolute level of debt. So with some portion of our free cash flow after distributions being used for debt repayment, we expect to deliver below this level of 3.

As we said in our December guidance release, we’re also funding incremental shareholder returns from free cash flow after distributions rather than leveraged buybacks. And so it’s just a bit more of a conservative approach that we’re following that is in line with our profile and Chevron’s target of 200,000 barrels of oil per day plateau. Having said that, we’ve got significant free cash flow that we see being generated that’ll enable both the paydown of debt and further distributions back to shareholders. I don’t know, Jonathan, if you want to add anything there.

Jonathan Stein, Chief Executive Officer, Hess Midstream: Nope, that was great.

Doug Irwin, Analyst, Citi: Understood. Thanks for that. And then a follow-up maybe just on the third-party outlook. We’ve heard commentary from at least one big player in the Bakken talking about scaling back activity in the current crude environment. Just curious what you see as the impact to Hess there, if at all, and if you could maybe just provide a bit more commentary around what you’re hearing from third-party customers in general. And then, I guess, tying on to that, I know you mentioned the 200,000 barrels of oil equivalent day from Chevron, which they’ve kind of stood by. I guess, is there an environment where that outlook might be at risk in your view, just based on the discussions you’ve had with them?

Jonathan Stein, Chief Executive Officer, Hess Midstream: Sure. Okay. So on the third party, really no change to our outlook there. Still expecting 10% on average across oil and gas. Of course, quarter to quarter, that could have some variability. If you go back to the third quarter of last year, we had probably higher. We did have higher third parties as there was maintenance on Northern Border, and we were able to provide additional optionality for third parties to be able to additional routes, alternative routes to get to Northern Border, as well as optionality for other takeaways. So from time to time, maybe a little bit more, sometimes a little bit less. But on average, we expect to continue to see 10% third parties as part of our volumes and no change to that going forward. In terms of the 200,000, I mean, no change there.

You just heard Chevron recently, just Friday on their call, reiterating the 200,000 barrels a day target with continued optimization program. I think it’s important to highlight the guidance that we’ve given out in terms of the volume guidance and the EBITDA growth through 2028, as well as reduced capital spending that supports our free cash flow growth over this period is also consistent with that plan. No change there expected, and we’re continuing to work with Chevron to work through the optimized development program and optimize our volumes as well.

Doug Irwin, Analyst, Citi: Understood. Thanks for the time.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Jeremy Tonet from J.P. Morgan Securities LLC.

Jeremy Tonet, Analyst, J.P. Morgan Securities LLC: Hey, good morning, everyone. This is Eli on for Jeremy. Just wanted to get a sense of growth drivers further out in the forecast horizon in that 2028 timeframe. How much of the outlook is based on cost-cutting, and how does that contribute to the growth outlook? Thanks.

Jonathan Stein, Chief Executive Officer, Hess Midstream: Sure. Let me just start and say that as we look forward, as I just mentioned, the plan that we’ve given out, the guidance, which includes the EBITDA growth and net income growth as well as our free cash flow growth, is consistent with the plan that Chevron’s laid out. That growth in terms of EBITDA is really driven by we have inflation escalators, a bit of growth in gas as well. And then the free cash flow growth is also increasing even more than that as a result of the result in reduced capital as we go from our complete the infrastructure buildout and move to even a lower capital level going forward. So down to $150 million this year, 40% lower than $75 million in 2028. So those are really the drivers of the growth.

And I think it’s important as we think about this long-term and the business plan going forward for Hess Midstream, we’ve gone through a period here of transition and gone through a period here of integration with Chevron. And while many things have changed and we’ve optimized our plan together with Chevron, I think it’s also important to highlight, take a moment just to highlight the unique combination of elements that’s still a part of our plan. That includes significant free cash flow generation, leveraging the historical spend with significantly lower capital that I just talked about that’s driving that 10% free cash flow growth through 2028. We have distributions that have continued to target to grow at 5% per share annually, fully funded by free cash flow, enable to achieve that growth even at MVC levels.

And we have significant free cash flow after distributions that supports, as Mike said, both incremental shareholder returns and balance sheet strength. And all of this is consistent, as we said, with Chevron’s development plan that targets 200,000 BOE per day with continued opportunities for optimization, as well as 95% MVC revenue protection this year in 2026 and 90% MVC revenue protection in 2027. So we’ve talked a lot about changes as a result of transition, but I think it’s important to highlight that we continue to have the elements of visibility and consistency, the shareholder returns and balance sheet strength that have been and continue to be the hallmark of Hess Midstream and really a differentiator in the strategy. So when we talk about the long-term for Hess Midstream, while things have changed, it’s really a lot more of the same unique combination that has always been our hallmark.

Jeremy Tonet, Analyst, J.P. Morgan Securities LLC: Got it. That’s great color. Thanks. And then maybe just to pick up on some of the remarks you made about CapEx just there, how low could we see CapEx actually be flexed? I think you’ve given some parameters around it, but just get a sense of how low that could get. Thanks.

Jonathan Stein, Chief Executive Officer, Hess Midstream: Mike, you want to start?

Mike Chadwick, Chief Financial Officer, Hess Midstream: Yeah, sure. So in the first quarter, we’re expecting CapEx, as I said in my remarks, to be lower than the fourth quarter. We’ve guided $150 million for 2026, and $25 million of that is for completing the compression and gathering pipeline buildout. Then we’ve got about another $125 million for the gathering systems in well connects and maintenance. We’ve guided that in 2027 and 2028, we expect to be about $75 million, if not lower. This is a trend that is following the reset that we said earlier about 2026, following the rigs coming down from 4 to 3 from Chevron. It’s consistent with that plan. Jonathan, I don’t know if you want to add any further color around that.

Jonathan Stein, Chief Executive Officer, Hess Midstream: Yeah. The one thing I would just add is there’s been a lot of discussion. Obviously, as we’ve kind of gotten to the end here of our big buildout, we’ve really spent years building out our gathering and compression system. And just a couple of things to highlight. First is our ability now to go to this lower CapEx level, really leveraging their stock investment. First is a function of the partnership that we have, the tight integration that we have with Chevron, historically with Hess and now with Chevron, that allows us, that has allowed us to optimize our upstream and midstream investments so we don’t overbuild and overinvest. And the result of that is one of the best EBITDA build multiples in the sector.

The second thing I would say is that as Chevron talked about the development plan and optimizing the plan, that is also driving, of course, lower CapEx for us. One of the things, just as an example, as you heard Chevron talk about having an increasing percentage of longer laterals. If you think about that from our point of view, longer laterals not only make the wells more economic, so significantly increasing the break-even, but also in general produce essentially the same volume, but with less wells, reducing our well connect capital requirements. Also a very positive effect there. All that means that we can really continue to see this downtrend. This year, we have a little bit left to do in terms of pipeline buildout at $150 million, still 40% less than last year.

And then we’re moving down to a much lower level at that, less than $75 million on an ongoing basis as we really just have ongoing capital going forward to support the system and drive the significant free cash flow that comes out of this business model.

Jeremy Tonet, Analyst, J.P. Morgan Securities LLC: Great. Thanks for all the color. I’ll leave it there.

Operator: Thank you. One moment for our next question. Our next question comes from the line of John Mackay from Goldman Sachs and Company.

John Mackay, Analyst, Goldman Sachs: Hey, good morning, team. Thanks for the time. I think a lot of them have been answered. I want to just zoom in a little bit more on the weather piece, though. Is there any way you can kind of give us a snapshot of what you’re seeing on the ground right now? Particularly, are you seeing some of the issues we’ve seen in past years with power down, etc., or once the weather starts to improve a little bit, once the temperatures start to improve a little bit, should we start to see production coming back online? Maybe just frame it for us relative to maybe some prior years.

Jonathan Stein, Chief Executive Officer, Hess Midstream: Sure. Yeah. I don’t think this is you think back a few years ago where we had the significant power lines down across the state, and that really went on for the first half of the year. We’re really just seeing significantly extreme cold weather, some snow, but really the cold, which has an impact on our system across the board, and so particularly on the gas side. So that, I think, as we do start to see improving weather, certainly that would be helpful, and that allows more activity to occur and also just to begin the recovery in terms of getting more production online and making our system optimizing it back again. So we do still have in our, as we mentioned, contingencies in the, I’d say the weather has continued, certainly all through the month of January and a bit here into February, just getting started.

We have continued contingencies in our forecast, in our guidance for the rest of the winter. But certainly, as we come out of the winter, certainly, as we talked about, we expect to see increasing volumes seasonally as we get into the second and third quarter. I don’t know if, Mike, you want to just talk about the deepening of the rest of the year?

Mike Chadwick, Chief Financial Officer, Hess Midstream: Yeah. I think, as Jonathan said in his opening remarks, that we’re going to see the first half of the year’s volumes lower than the second half. So there’ll be a pickup in the second half of the year. One thing I’d highlight, though, is obviously, we’re at 95% coverage with our MVCs. So there’s a floor. If production were to be lower, we’ve got 95% covered with MVCs. And that translates into 2027 as well at 90% before getting to 80% in 2028. So there’s good protection for any downside. In terms of phasing, as Jonathan’s described, first quarter, we’ve been hit by the weather, and we’ll be recovering from that. Second and third quarters, typically better months, and we’ll get more production from that. And then the fourth quarter, we typically dial in some conservatism because we start getting back into winter weather again.

The OpEx, again, there as well, will have an element of reduced. That’s just phasing, seasonal phasing.

John Mackay, Analyst, Goldman Sachs: That’s great. Appreciate all the color. Super quick second one for me, just following up on Doug’s question and apologies if I miss it. But do you guys have a kind of longer-term leverage target in mind now specifically, or is it just a, "Hey, we expect to kind of put some more cash towards that over time and delever as EBITDA grows"? I’m just trying to think if you have a new target.

Mike Chadwick, Chief Financial Officer, Hess Midstream: Yeah. Yeah. I think what we’re planning to do over the next three years with our free cash flow after distributions is just use that to both strengthen the balance sheet by delevering, by paying down debt, and including that as part of our fundamental incremental shareholder returns. So it’s not a designed level that we want to get to. It’s just going to naturally occur that as EBITDA starts to build up backup, as we don’t increase the absolute level of debt, and as we include some free cash flow towards paying down debt, our 3x, our 3x leverage is naturally going to delever. But there’s no specific target we’re going to get to. One of the key things that Jonathan’s highlighted, obviously, is the free cash flow that we expect to generate over the next three years.

That’s going to be substantial in the context of being able to fund not only our growth of 5% on distributions within the MVCs, but also to pay down debt and also provide shareholder returns over the next three years, supported by our strong MVC position.

John Mackay, Analyst, Goldman Sachs: Got it. Thank you for the time. Appreciate it.

Mike Chadwick, Chief Financial Officer, Hess Midstream: Thank you.

Operator: Thank you. At this time, there are no further questions. This concludes today’s conference call. Thank you for participating. You may now disconnect.