(Idea) Hess Midstream - A Potential Acquisition Target For Chevron
On September 18, Hess Midstream, LP (HESM) announced a reduction in its financial and operational guidance for 2025, 2026, and 2027. HESM units dropped 10% following the announcement.
Previously, HESM targeted 10% Adjusted EBITDA growth in 2026 and an additional 5% growth in 2027. Adjusted EBITDA is now expected to remain flat during this period. HESM is now guiding for flat throughput volumes in 2026 after having previously guided to growth. The reduced volume guidance results from CVX’s decision to cut the number of rigs drilling in its Bakken acreage from three to two.
The lowered guidance could be part of an effort by Chevron (CVX), HESM’s sponsor, to acquire HESM.
Background
HESM was formerly the midstream operator for Hess Corporation’s Bakken acreage before CVX acquired Hess. HESM provides gathering, processing, and long-haul transportation services for the entire 463,000 acres of the asset.
CVX now owns Hess Corp.’s 38.7% equity stake in HESM. It also owns HESM’s general partner, giving it control over HESM’s governance.
Prospective HESM unitholders should be aware that HESM is taxed as a corporation. It is subject to a 21% corporate income tax rate, state income taxes, and its distributions are taxed as corporate dividends. Consequently, its unitholders avoid the tax headaches associated with traditional MLPs.
I’m familiar with HESM as a former owner of its units. I purchased HESM for the HFI Research Energy Income Portfolio on April 29, 2021, at $23.42 per unit and sold it on February 9, 2023, at $29.36 to buy Genesis Energy (GEL) at $10.82, which remains in the portfolio.
I invested in the units because of HESM’s excellent management team, reliable operational performance, high distribution yield and growth, consistently strong return on equity, and unitholder-friendly capital allocation.
During my holding period, I carefully monitored HESM’s progress. Since then, my assessment of its management, economics, and growth potential remains unchanged.