Hess Midstream Eyes Cash Flow Surge as Major Capex Cycle Concludes

Hess Midstream Partners LP (NYSE: HESM) concluded a pivotal chapter in 2025, wrapping up major multi-year projects and setting the stage for a new era defined by substantial capital expenditure reductions and enhanced cash generation. Executives outlined a clear path where disciplined spending is projected to unlock higher free cash flow, enabling accelerated distribution growth, debt reduction, and potential additional returns to shareholders.

On the fourth-quarter 2025 earnings call, CEO Jonathan Stein and CFO Mike Chadwick acknowledged that severe winter weather in December impacted late-year volumes and will continue to weigh on early 2026 results. Despite this near-term headwind, the leadership team reaffirmed its full-year 2026 guidance and longer-term financial framework extending through 2028.

"Our system is now substantially built," stated CEO Jonathan Stein, marking a strategic inflection point. This transition translates into a projected 40% drop in capital expenditures for 2026 to approximately $150 million, with further declines expected to under $75 million annually in 2027 and 2028.

Operational metrics for the full year 2025 showcased steady performance: gas processing averaged 445 million cubic feet per day, crude terminaling handled 129,000 barrels per day, and water gathering averaged 131,000 barrels per day. The company reported full-year adjusted EBITDA of $1.238 billion, a 9% increase from 2024.

The fourth quarter, however, felt the bite of extreme weather. Net income dipped to $168 million from $176 million in Q3, while adjusted EBITDA softened to $309 million from $321 million. CFO Mike Chadwick attributed the sequential decline primarily to weather-driven volume reductions and lower interruptible third-party activity.

Financial Fortitude and Shareholder Returns Take Center Stage

With the heavy lifting of construction largely complete, the narrative shifted decisively to financial optimization. The company expects to generate adjusted free cash flow between $850 million and $900 million in 2026. After funding a targeted 5% annual distribution increase, Hess Midstream anticipates approximately $210 million in "excess" cash, earmarked for debt repayment and incremental shareholder returns.

"We are funding incremental shareholder returns from free cash flow after distributions rather than leveraged buybacks," emphasized CFO Chadwick, highlighting a conservative capital allocation approach. The company's leverage ratio is expected to naturally fall below 3x in the coming years as EBITDA grows and absolute debt levels are managed down.

Revenue visibility remains high, with about 95% of 2026 revenues protected by minimum volume commitments (MVCs). Furthermore, approximately 85% of the revenue base is derived from fixed-fee contracts with annual inflation escalators, providing a stable foundation.

Integration with Chevron Drives Efficiency

Stein highlighted the benefits of deeper integration with Chevron, its primary customer and major stakeholder. Coordinated planning has allowed Hess Midstream to optimize investments, avoiding overbuilding. He pointed to Chevron's focus on drilling longer well laterals—a technique that can deliver similar production volumes with fewer wells—as a factor that will further reduce Hess Midstream's future capital needs for well connections.

Looking ahead, management expects Q1 2026 volumes to be subdued due to persistent winter conditions but reiterated confidence in full-year volume guidance. The longer-term outlook through 2028 projects 5% annual growth in net income and adjusted EBITDA, and approximately 10% annual growth in adjusted free cash flow.

Analyst and Investor Perspectives

Sarah Chen, Energy Infrastructure Analyst at Clearwater Capital: "Hess Midstream is executing a textbook transition from a growth-oriented builder to a cash-generating utility-like entity. The guidance through 2028 provides exceptional visibility, and the commitment to returning excess cash is a direct appeal to income-focused investors in the midstream space."

Michael Rodriguez, Portfolio Manager: "The capex cliff is real and impressive. Moving from hundreds of millions in annual spend to less than $75 million fundamentally changes the equity story. This isn't just about maintaining distributions; it's about substantial growth in per-share payouts and balance sheet improvement. The weather issues are a temporary, known variable."

David Feld, Independent Shareholder: "Let's not get carried away. 'Record execution' is what they all say. We're still looking at flat EBITDA guidance for 2026, and this 'excess' cash flow they're touting is predicated on everything going perfectly. The Bakken is not immune to commodity cycles, and Chevron's optimization could just as easily mean less volume for the midstream network long-term. I'll believe the deleveraging when I see it on the balance sheet."

Rebecca Shaw, Income Strategy Fund Manager: "The predictability here is the key takeaway. High MVC coverage, inflation-linked fees, and now a predictable, declining capex profile. This allows for reliable modeling of distribution growth potential. For yield-seeking portfolios, this transition makes HESM a much more compelling hold."

Hess Midstream Partners LP, headquartered in Houston, Texas, owns, operates, and develops critical midstream infrastructure in the Williston Basin's Bakken Shale region, serving producers in North Dakota and Montana.