Hess Midstream Partners (NYSE:HESM) executives said the company finished 2025 with record operational execution, completed major multiyear projects on time and on budget, and is entering a period of materially lower capital spending that management expects will drive higher free cash flow and support a combination of distribution growth, debt repayment, and potential additional shareholder returns.
On the company’s fourth-quarter 2025 earnings call, Chief Executive Officer Jonathan Stein and Chief Financial Officer Mike Chadwick also pointed to severe winter weather as a key factor affecting late-year volumes and near-term expectations for early 2026. Management reiterated guidance issued in December for 2026 and its longer-term outlook through 2028.
2025 results and fourth-quarter volumes impacted by weather
- Gas processing: 444 million cubic feet per day
- Crude terminaling: 122,000 barrels of oil per day
- Water gathering: 124,000 barrels of water per day
For full-year 2025, Hess Midstream reported average volumes of 445 million cubic feet per day for gas processing, 129,000 barrels of oil per day for crude terminaling, and 131,000 barrels of water per day for water gathering. The company reported full-year 2025 adjusted EBITDA of $1,238 million.
Chadwick said full-year 2025 net income was approximately $685 million, and that adjusted EBITDA increased about 9% from 2024. For the fourth quarter, net income was $168 million compared with approximately $176 million in the third quarter, while adjusted EBITDA was $309 million compared with approximately $321 million in the third quarter.
Chadwick attributed the quarter-to-quarter decline primarily to lower revenues driven by severe winter weather and a slow recovery through December, as well as lower interruptible third-party volumes and annual maintenance at LM4. Total revenues (excluding pass-through revenues) declined by about $19 million, including decreases of approximately $11 million in gathering, $6 million in processing, and $2 million in terminaling.
Costs and expenses (excluding depreciation and amortization, pass-through costs, and net of the company’s proportional share of LM4 earnings) decreased by about $7 million, driven by lower allocations under omnibus and employee secondment agreements and lower seasonal maintenance activity, partially offset by higher processing fees. Chadwick said the company’s gross adjusted EBITDA margin in the fourth quarter held at approximately 83%, above its 75% target, reflecting “continued strong operating leverage.”
Capital spending set to step down sharply
A central theme of the call was a sharp reduction in capital expenditures now that the company’s system is “substantially built,” according to Stein. Management said 2026 capital spending is expected to be approximately $150 million, a roughly 40% reduction versus 2025. Stein added that capital spending is expected to decline further in 2027 and 2028 to less than $75 million per year.
Chadwick said fourth-quarter capital expenditures were approximately $47 million, reflecting lower activity and completion of the company’s compression buildout. He also noted adjusted free cash flow of about $208 million in the quarter, with net interest (excluding amortization of deferred finance costs) of approximately $54 million. The company ended the year with a drawn balance of $338 million on its revolving credit facility.
In response to a question about how low capital spending could go, Chadwick said the $150 million 2026 outlook includes about $25 million to complete compression and gathering pipeline buildout, with the remainder tied to gathering system well connects and maintenance. He said the company expects 2027 and 2028 capex to be about $75 million, “if not lower,” describing the trend as consistent with Chevron’s plan, including a reduction in rigs from four to three.
Stein added that integration and coordination with Chevron has helped the company optimize midstream and upstream investments to avoid overbuilding, and he pointed to longer laterals—discussed by Chevron—as a factor that can reduce Hess Midstream’s well-connect capital needs by delivering similar volumes with fewer wells.
2026 outlook: lower early-year volumes, MVC protection and flat full-year EBITDA at midpoint
Management said it expects first-quarter 2026 volumes to be lower across the system due to continued severe winter weather in January and into early February, along with “normal contingencies” for the balance of the winter period. Stein said that while first-quarter conditions are expected to weigh on results, the company reiterated full-year 2026 volume guidance issued in December and anticipates seasonal volume growth through the rest of the year.
Chadwick provided first-quarter 2026 financial guidance calling for net income of approximately $150 million to $160 million and adjusted EBITDA of approximately $295 million to $305 million, explicitly incorporating the effects of winter weather and potential additional weather events during the quarter. He added that adjusted free cash flow in the first quarter of 2026 is expected to increase relative to the fourth quarter of 2025 because first-quarter capital spending is projected to be lower than the fourth quarter.
For full-year 2026, the company reiterated guidance for net income of $650 million to $700 million and adjusted EBITDA of $1,225 million to $1,275 million, which Chadwick described as approximately flat at the midpoint compared with 2025. Management said approximately 95% of 2026 revenues are covered by minimum volume commitments (MVCs), which Stein said provides significant revenue protection on a full-year basis.
Chadwick also said the company continues to target a gross adjusted EBITDA margin of approximately 75% in 2026 and expects to generate adjusted free cash flow of $850 million to $900 million. He added that the company expects “excess” adjusted free cash flow of approximately $210 million after funding its targeted 5% annual distribution growth, which it plans to use for incremental shareholder returns and debt repayment.
Longer-term view through 2028: free cash flow growth, distributions, and deleveraging
Looking beyond 2026, Stein reiterated the company’s longer-term framework that calls for 5% annualized net income and adjusted EBITDA growth and approximately 10% annualized adjusted free cash flow growth through 2028, supported by gas volume growth, contracted inflation-linked tariff adjustments, and lower operating and capital spending. Stein said adjusted free cash flow in 2026 is expected to be $850 million to $900 million, representing 12% growth over 2025 at the midpoint, followed by approximately 10% annualized growth through 2028.
Chadwick said the company’s guidance through 2028 implies about $1 billion of financial flexibility to continue returning capital to shareholders and paying down debt. He also outlined the company’s rate structure: systems representing about 85% of revenues are fixed-fee, with annual inflation escalators capped at 3%, while terminaling, water gathering, and a gas gathering subsystem representing about 15% of revenues reset through an annual rate redetermination process through 2033. Chadwick said tariff rates across most systems are higher in 2026 than in 2025.
During Q&A, management addressed questions about leverage and capital allocation. In response to a question about whether the company is targeting a leverage ratio below 3x, Stein said the company expects leverage to “naturally deliver below 3x in the next few years” as EBITDA grows and the company does not increase its absolute debt level, while using a portion of free cash flow after distributions for debt repayment. Chadwick added that the company is funding incremental shareholder returns from free cash flow after distributions “rather than leveraged buybacks,” describing the approach as more conservative. Both executives said there is no specific new leverage target, emphasizing instead that deleveraging should occur naturally under the current plan.
On third-party volumes, Stein said the company’s outlook is unchanged and it continues to expect third-party volumes to average about 10% across oil and gas, though quarter-to-quarter variability can occur due to maintenance and takeaway dynamics.
Management also discussed conditions in the Bakken. Stein said the company’s guidance and outlook are consistent with Chevron’s optimized development program and noted that Chevron recently reiterated a target of 200,000 barrels per day plateau production in the Bakken. When asked about weather-related operational issues, Stein said the company is seeing extreme cold rather than the type of widespread power-line impacts experienced in prior years, and that improving weather should help activity and production recovery. Chadwick added that the company expects lower volumes in the first half of the year relative to the second half, while emphasizing the protection provided by MVC coverage in 2026 and beyond.
About Hess Midstream Partners (NYSE:HESM)
Hess Midstream Partners LP, formerly traded on the New York Stock Exchange under the ticker HESM, is a midstream energy partnership that owns, operates and develops crude oil, natural gas and produced water infrastructure in the Williston Basin. The company’s assets include crude oil gathering and transportation systems, saltwater disposal wells, natural gas processing and fractionation plants, and associated pipeline and storage facilities. Its integrated network is designed to support upstream production by providing gathering, processing, storage and marketing services for hydrocarbons and produced water.
Headquartered in Houston, Texas, Hess Midstream Partners primarily serves producers operating in North Dakota and Montana’s Bakken Shale region.
