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HM

Hess Midstream LP (HESM)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 was solid operationally with broad-based volume growth and high system availability; revenue rose to $414.2M and Adjusted EBITDA to $316.0M, with gross Adjusted EBITDA margin at 82% . Versus S&P Global consensus, HESM delivered small beats on revenue ($405.1M*), Adjusted EBITDA ($308.4M*), and EPS ($0.73*), posting $414.2M, $316.0M, and $0.74, respectively .
  • Guidance mixed: 2025 Adjusted EBITDA and throughput reaffirmed, but net income lowered to $685–$735M and Adjusted FCF to $725–$775M, driven by higher expected interest expense and income taxes following repurchase transactions and ownership changes .
  • Capital returns remain a core catalyst: quarterly distribution raised to $0.7370 (+$0.0272 QoQ) and HESM completed $190M of Class B unit and $10M Class A repurchases in Q2, with an additional $100M repurchase announced on Aug 5 .
  • Credit upgrade and Chevron tie-in support sentiment: S&P upgraded senior unsecured debt to BBB- on July 24; Chevron now indirectly owns ~37.8% post-merger, while governance was strengthened with independent director approval rights for key decisions .

What Went Well and What Went Wrong

What Went Well

  • Strong execution and volumes: Throughput increased 7% in gas processing, 9% in oil terminaling, and 11% in water gathering YoY; COO: “strong operational and financial results… driven by upstream performance and high system availability” .
  • Margins and EBITDA resilience: Gross Adjusted EBITDA margin ~82% (vs. 75% target); CFO: “gross adjusted EBITDA margin… approximately 80%, above our 75% target” .
  • Capital returns and balance sheet: Dividend to $0.7370 and continued buybacks; S&P upgrade to BBB- underscores reduced credit risk .

What Went Wrong

  • Guidance haircut on net income and FCF: 2025 net income to $685–$735M (from $715–$765M) and Adjusted FCF to $725–$775M (from $735–$785M), reflecting ~$15M higher interest expense and ~$15M higher income tax expense .
  • Higher operating costs in 2H seasonality: Management flagged seasonally higher maintenance in Q3 and winter contingency in Q4, tempering near-term operating leverage .
  • Interest burden remains elevated after 2024/2025 note issuances; Q2 interest expense $55.4M vs. $49.7M prior-year quarter .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Revenues and other income ($M)$365.5 $382.0 $414.2
Pass-through revenue ($M)$23.1 $25.5 $28.0
Net income ($M)$160.3 $161.4 $179.7
Net income attributable to HESM ($M)$49.5 $71.6 $90.3
Basic EPS per Class A share$0.59 $0.65 $0.74
Adjusted EBITDA ($M)$276.5 $292.3 $316.0
Net cash from operating activities ($M)$271.6 $202.4 $276.9
Adjusted Free Cash Flow ($M)$156.4 $190.7 $193.8
Gross Adjusted EBITDA Margin (%)81% 82% 82%
Capital expenditures ($M)$72.7 $50.1 $70.0

Segment revenues ($M)

SegmentQ2 2024Q1 2025Q2 2025
Gathering$195.5 $203.6 $222.4
Processing & Storage$139.5 $147.8 $157.9
Terminaling & Export$30.5 $30.6 $33.9
Total$365.5 $382.0 $414.2

Key operating KPIs

KPIQ2 2024Q1 2025Q2 2025
Gas gathering (MMcf/d)440 431 464
Crude oil gathering (Mbopd)116 117 127
Gas processing (MMcf/d)419 424 449
Crude terminals (Mbopd)126 125 137
NGL loading (bpd)15 14 17
Water gathering (kbpd)124 126 138

Vs. S&P Global Consensus (Q2 2025)

MetricConsensus*ActualSurprise
Revenue ($M)405.1*414.2 +2.2%
Adjusted EBITDA ($M)308.4*316.0 +2.5%
EPS ($/sh)0.73*0.74 +1.4%

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious Guidance (Q1 2025)Current Guidance (Q2 2025)Change
Net income ($M)FY 2025$715 – $765 $685 – $735 Lowered (midpoint -$30M)
Adjusted EBITDA ($M)FY 2025$1,235 – $1,285 $1,235 – $1,285 Maintained
Adjusted Free Cash Flow ($M)FY 2025$735 – $785 $725 – $775 Lowered (midpoint -$10M)
Capital expenditures ($M)FY 2025$300 $300 Maintained
Throughput volumesFY 2025Gas gathering 475–485 MMcf/d; Oil gathering 120–130 Mbopd; Gas processing 455–465 MMcf/d; Terminals 130–140 Mbopd; Water 120–130 kbpd Reaffirmed same ranges (Water updated to 125–135 kbpd in Q2 table) Maintained (water range refined)
Distribution growthThrough 2027≥5% CAGR per Class A share ≥5% CAGR from higher level Maintained
Leverage targetLT~3.0x Adjusted EBITDA ~3.0x Adjusted EBITDA Maintained

Management attributed the net income and FCF reductions to higher expected interest expense (+$15M) and higher income tax expense (+$15M) after first-half repurchases/ownership changes .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24, Q1’25)Current Period (Q2’25)Trend
Capital returns (dividends/buybacks)Ongoing repurchases; dividend raised to $0.7012 for Q4’24; reiterated plan for multiple repurchases per year and ≥5% distribution growth Dividend to $0.7370; $200M Q2 repurchase completed ($190M units/$10M shares); CFO reiterates $1.25B+ flexibility through 2027 and ~$100M/quarter cadence (not fixed) Improving
Chevron merger/governanceGIP exit completed May 30; governance enhanced to require independent director approval for key decisions Chevron now indirect 37.8% owner post-merger; stable strategy with balanced governance maintained Stable/clearer
Throughput and MVC-backed growthQ1: weather impacted, but reaffirmed 2025 guidance; MVCs set through 2027 Q2: broad volume gains across systems; reaffirmed 2025 throughput; expect continued growth into H2 Improving
Gas-oil ratio (GOR) and gas growthBasin GOR expected to rise over time; gas growth outpacing oil in medium term Management again sees flattish oil and growing gas basin-wide over time Consistent
Capex projectsTwo compressor stations + CAPA gas plant progressing; ~$300M 2025 capex Same projects on track; 2025 capex unchanged at ~$300M On plan
Credit & leverageYE 2024 leverage ~3.1x; no near-term maturities S&P upgrade to BBB- (investment grade) Improving

Management Commentary

  • CEO Jonathan Stein: “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… We expect to generate greater than $1.25 billion of financial flexibility through 2027 for incremental shareholder returns” .
  • COO John Gatling: “Throughputs increased across all segments… primarily driven by outstanding upstream production performance and high midstream system availability… we’re again reaffirming our… full-year 2025 oil and gas throughput guidance” .
  • CFO Mike Chadwick: “For the third quarter of 2025, we expect net income… $175–$185 million and adjusted EBITDA… $315–$325 million, reflecting higher volumes and revenues, partially offset by seasonally higher maintenance costs” .
  • Q2 press release: “Net income… $179.7 million… Adjusted EBITDA… $316.0 million… Adjusted Free Cash Flow… $193.8 million… S&P… upgraded… to BBB-” .

Q&A Highlights

  • Chevron/Hess development plan and rig cadence: Running four rigs; development plan update expected year-end with January guidance; strategy unchanged post-merger .
  • Buyback cadence and participation: Expect multiple repurchases per year; ~$100M per quarter has been typical but not fixed; ASR mechanism now includes public shares; sufficient liquidity to execute .
  • Guidance phasing: EBITDA growth expected in H2 (~+7% vs H1 midpoint); Q3 expenses higher on maintenance; Q4 includes winter contingency and allocation cost variability .
  • Governance post-GIP: Independent director approval required for key decisions; 4th independent director to be added .
  • Basin fundamentals and GOR: Anticipate flattish oil and rising gas over time; increasing lateral lengths improve economics and inventory depth .

Estimates Context

  • HESM modestly beat consensus in Q2: revenue $414.2M vs $405.1M*, Adjusted EBITDA $316.0M vs $308.4M*, EPS $0.74 vs $0.73* .
  • Estimate revisions: With FY net income and FCF guidance trimmed for higher interest/taxes but EBITDA/throughput unchanged, we would expect minimal EBITDA estimate movement but downward revisions to FY net income/FCF and potentially higher interest expense/tax rate assumptions in models .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Defensive growth intact: Fee-based contracts with MVCs through 2027 continue to underpin visible volume and EBITDA growth; Q2 volumes and 82% gross Adjusted EBITDA margin reinforce operating leverage .
  • Return of capital remains robust: Dividend stepped above the 5% glidepath due to repurchases; buyback cadence expected to continue with $1.25B+ flexibility through 2027 .
  • Guidance trim is a mix shift, not a fundamental demand issue: EBITDA and throughput unchanged; net income/FCF lower due to higher interest/taxes post repurchases/ownership changes—less indicative of core operations .
  • Chevron sponsorship + investment-grade rating improve risk profile and optionality; governance enhancements maintain balance with independent oversight .
  • Near-term watch items: Q3 maintenance costs and Q4 winter contingency; continued execution on compressor stations and CAPA plant to sustain volume trajectory .
  • Medium-term thesis: Gas growth and longer laterals in the Bakken support sustained midstream throughput; management reiterates growth in 2026–27 and ≥5% annual distribution growth from a higher base .

Other Relevant Press Releases (Q2 2025)

  • Distribution increase to $0.7370 for Q2 2025 (+$0.0272 vs Q1) .
  • Announced $100M additional repurchase on Aug 5, including ~$30M from Chevron and $70M ASR from public holders .

Footnote: Values retrieved from S&P Global.*