What's Happening?
Hess Midstream Partners LP (NYSE:HESM) has finalized a definitive agreement with Chevron to acquire Chevron's midstream assets in the DJ Basin. This strategic move will transform Hess Midstream into an independent, publicly owned multi-basin midstream company,
expanding its operations beyond its traditional Bakken Shale focus in North Dakota. As part of the deal, Hess Midstream will also simplify its commercial arrangements with Chevron in the Bakken. The revised Bakken contracts will reduce tariff rates from 2027 through 2033, extend contract terms until 2045, and replace multiple volume-based minimum volume commitments with a basin-wide minimum revenue commitment (MRC). Chevron will contribute its full ownership interest in Hess Midstream, including its general partner stake, which Hess Midstream will cancel, reducing its outstanding share count by nearly 40%. In exchange, Hess Midstream will pay Chevron $200 million in cash and acquire the DJ Basin assets, which include crude oil gathering and storage infrastructure, gas and water gathering systems, full ownership of the Black Diamond gathering system, and a 20% interest in the Saddlehorn interstate crude pipeline. The transaction is expected to close by the end of 2026, subject to regulatory approvals.
Why It's Important?
This transaction is significant for both Hess Midstream and Chevron, reshaping their operational and financial landscapes. For Hess Midstream, the acquisition of DJ Basin assets diversifies its geographical footprint and customer base, increasing third-party volumes to approximately 20% of its total. This expansion into a new basin, coupled with the reduction in its share count, is expected to be accretive on an Adjusted EBITDA per share basis, providing a solid foundation for future capital allocation and shareholder returns. The revised Bakken contracts, with fixed fees and inflation escalators, offer long-term revenue stability. For Chevron, the deal is projected to reduce its Bakken unit midstream costs by approximately 50%, enhancing its future earnings and return on capital employed. While Chevron anticipates a one-time after-tax loss of $3 billion to $4 billion upon closing due to accounting rules, the long-term cost savings and the deconsolidation of approximately $3.7 billion of Hess Midstream's debt from its balance sheet are expected to be beneficial. The move also allows Chevron to simplify its portfolio and focus on sustaining Bakken production through technology and operational improvements, despite a planned reduction from three drilling rigs to two in the Bakken by December 2026.
What's Next?
The transaction is slated for closure by the end of 2026, pending regulatory clearances and customary closing conditions. Following the closing, Hess Midstream will operate as an independent, multi-basin midstream company. The company has issued preliminary 2027 guidance, forecasting adjusted EBITDA of $900 million and capital spending of $125 million. It expects to maintain its distribution at the fourth-quarter 2026 level throughout 2027, aiming for approximately 2% annual growth while remaining free-cash-flow positive. Hess Midstream plans to prioritize accretive growth opportunities, balance-sheet strength, and additional shareholder returns. Public investors will gain the right to elect directors starting in 2028, and the company will search for three additional directors for its initial seven-member board. Chevron's planned reduction in Bakken activity to a two-rig development program in December 2026 will lead to an expected 5% decline in Hess Midstream's Bakken throughput volumes in 2027 before stabilizing in 2028. Updated 2027 guidance from Hess Midstream is expected after the transaction closes.
Beyond the Headlines
This deal highlights a broader trend in the energy sector where major integrated companies like Chevron are streamlining their portfolios by divesting non-core assets, while midstream companies like Hess Midstream are seeking to diversify and achieve greater independence. The shift from volume-based commitments to minimum revenue commitments in the Bakken contracts reflects an industry adaptation to fluctuating production levels and a desire for more predictable revenue streams. The significant one-time after-tax loss Chevron expects to record underscores the complex accounting implications of such large-scale asset transfers, even when the strategic rationale points to long-term financial benefits. The increased independence for Hess Midstream could foster greater agility in pursuing new growth opportunities and responding to market dynamics, potentially leading to more competitive services and infrastructure development in the midstream sector. The emphasis on fixed-fee structures with inflation escalators also indicates a move towards de-risking revenue for midstream operators in an environment of potential commodity price volatility.
