10-Q: Hess Midstream Q2 2025 Earnings Soar, Boosts Payout

Hess Midstream LP reported strong second-quarter 2025 financial results with significant revenue and net income growth, increased throughput volumes, and achieved an investment-grade credit rating.

Summary

• Net income attributable to Hess Midstream LP increased by 82.4% to $90.3 million for Q2 2025, up from $49.5 million in Q2 2024.
• Consolidated net income rose 12.1% to $179.7 million in Q2 2025, compared to $160.3 million in the prior-year quarter.
• Total revenues increased by 13.3% to $414.2 million in Q2 2025, up from $365.5 million in Q2 2024, driven by higher physical volumes and tariff rates.
• Adjusted EBITDA grew by 14.3% to $316.0 million for Q2 2025, compared to $276.5 million in Q2 2024.
• Basic earnings per Class A Share increased to $0.74 in Q2 2025 from $0.59 in Q2 2024.
• Throughput volumes saw significant increases in Q2 2025 compared to Q2 2024: gas processing up 7%, oil terminaling up 9%, and water gathering up 11%.
• The company declared a quarterly cash distribution of $0.7370 per Class A Share for Q2 2025, an increase of $0.0272 per share from Q1 2025.
• GIP sold all its limited partner interests by May 30, 2025, and Hess and Chevron completed their merger on July 18, 2025, making Chevron the indirect parent of Hess and a significant indirect owner of Hess Midstream LP.
• Public ownership of Hess Midstream LP increased from approximately 47.3% at December 31, 2024, to approximately 62.2% at June 30, 2025.
• The Partnership received an investment-grade credit rating of BBBfrom S&P Global Ratings on July 24, 2025, which is expected to relax certain debt covenants and lower interest margins on credit facilities.

Sentiment

Score: 9

Explanation: The filing indicates very strong financial and operational performance, with significant increases in revenues, net income, and Adjusted EBITDA. Key strategic achievements include an investment-grade credit rating, increased distributions, and substantial share repurchases. The completion of the Chevron-Hess merger also provides long-term stability through a strong sponsor relationship. While expenses increased, they were well-managed relative to revenue growth, leading to robust profitability.

Positives

• Net income attributable to Hess Midstream LP surged by 82.4% to $90.3 million in Q2 2025, indicating strong profitability for shareholders.
• Total revenues increased by 13.3% to $414.2 million in Q2 2025, driven by higher physical volumes and tariff rates, demonstrating robust operational performance.
• Adjusted EBITDA grew by 14.3% to $316.0 million in Q2 2025, reflecting improved operational efficiency and cash generation.
• All key throughput volumes showed strong growth in Q2 2025, with gas processing up 7%, oil terminaling up 9%, and water gathering up 11%, indicating increased utilization of assets.
• The declared quarterly cash distribution of $0.7370 per Class A Share for Q2 2025 represents a consistent increase, signaling commitment to shareholder returns.
• Achieved an investment-grade credit rating (BBBfrom S&P) on July 24, 2025, which is expected to lead to more favorable debt terms and reduced financial risk.
• Increased public ownership to 62.2% by June 30, 2025, through strategic equity offerings and share repurchases, enhancing liquidity and market presence.
• Ongoing capital expenditures are focused on expanding compression capacity and gas capture capabilities, with two new compressor stations expected in service in 2025, supporting future growth.

Negatives

• Interest expense, net, increased by $5.7 million to $55.4 million in Q2 2025, primarily due to new senior unsecured notes issued in May 2024.
• Income tax expense significantly increased by $13.1 million to $29.1 million in Q2 2025, mainly due to increased ownership of the Partnership by Hess Midstream LP following equity transactions.
• Incurred an extinguishment loss of approximately $2.0 million related to the early redemption of $800.0 million of 5.625% fixed-rate senior unsecured notes due 2026.
• General and administrative expenses increased by 55.8% to $8.1 million in Q2 2025, partly due to higher employee costs charged under omnibus and employee secondment agreements.

Risks

• Dependence on Chevron's ability to satisfy its obligations, including meeting drilling and development plans, delivering nominated volumes, and the operation of joint ventures not controlled by the company.
• Ability to generate sufficient cash flow to pay current and expected levels of distributions.
• Reductions in the volumes of crude oil, natural gas, NGLs, and produced water gathered, processed, terminaled, or stored.
• Fluctuations in the prices and demand for crude oil, natural gas, and NGLs, which indirectly influence activities and results of operations.
• Changes in global economic conditions and the effects of a global economic downturn or inflation on the business and its suppliers, customers, business partners, and lenders.
• Ability to comply with government regulations or make capital expenditures required to maintain compliance, including obtaining or maintaining permits necessary for capital projects.
• Ability to successfully identify, evaluate, and timely execute capital projects, investment opportunities, and growth strategies.
• Costs or liabilities associated with federal, state, and local environmental protection and health and safety laws, such as spills, releases, pipeline integrity, and measures to limit greenhouse gas emissions.
• Ability to comply with the terms of credit facilities, indebtedness, and other financing arrangements, which, if accelerated, may not be repayable.
• Reduced demand for midstream services, including the impact of weather or the availability of competing third-party operations.
• Potential disruption or interruption of business due to catastrophic events, such as accidents, severe weather, labor disputes, information technology failures, and cyber-attacks.
• Limitations on the ability to access debt or capital markets on acceptable terms, potentially due to weakness in the oil and gas industry or negative outcomes in commodity and financial markets.
• Liability resulting from litigation.
• Risks and uncertainties associated with Hess's completed merger and integration with Chevron, including the possibility that anticipated benefits and synergies may not be realized or may take longer than expected, and potential disruption to current plans and operations or employee retention difficulties.
• The inflation-based fee structure during the Secondary Term of commercial agreements may provide less downside risk protection compared to the initial term's fee recalculation mechanism.

Future Outlook

The company expects to continue generating substantially all revenues under fee-based commercial agreements with Hess, minimizing direct exposure to commodity price fluctuations. Volumes are generally expected to remain above minimum volume commitment (MVC) levels in 2025, 2026, and 2027. The majority of systems have entered a Secondary Term with an inflation-based fee structure (up to 3% annual increase), which may offer less downside risk protection than the prior fee recalculation model. Capital expenditures in 2025 are primarily for expanding compression capacity and gas capture capabilities, including two new compressor stations expected to be placed in service in 2025.

Management Comments

• Management highlighted that consolidated net income increased by $19.4 million and Adjusted EBITDA increased by $39.5 million for the second quarter of 2025 compared with the second quarter of 2024.
• Management noted that throughput volumes increased across all segments in Q2 2025 compared to Q2 2024, primarily due to higher production.
• Management stated that the company is pursuing strategic relationships with third-party producers and other midstream companies in the Bakken to maximize utilization rates.
• Management believes that cash generated from operations, existing cash, borrowings under the revolving credit facility, and potential debt/equity issuances will be sufficient to meet operating requirements, capital expenditures, debt service, and quarterly cash distribution requirements.

Industry Context

The company operates in the Bakken and Three Forks shale plays in the Williston Basin, a key U.S. unconventional oil and gas basin. Its fee-based midstream model provides stability by minimizing direct exposure to volatile commodity prices, relying instead on volumes produced by its primary customer, Hess (now indirectly owned by Chevron), and third parties. The focus on maximizing utilization rates and expanding infrastructure aligns with broader industry trends of optimizing existing assets and capturing associated gas to meet environmental targets and production growth.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• The company is from time to time party to various judicial and administrative proceedings in the ordinary course of business.
• As of June 30, 2025, the company did not have material accrued liabilities for legal contingencies.
• A produced water release from an underground pipeline near Ray, North Dakota, occurred on August 12, 2022, with an estimated 34,000 barrels released, impacting soils, crops, and groundwater. Remediation and monitoring are ongoing, with reserves for estimated remediation liabilities at $1.4 million as of June 30, 2025.

Related Party Transactions

• Long-term fee-based commercial agreements with subsidiaries of Hess (now indirectly Chevron) for gas gathering, crude oil gathering, gas processing and fractionation, storage, terminaling and export, and water handling services.
• Revenues attributable to Hess and its affiliates accounted for 98% of total revenues for the three and six months ended June 30, 2025 and 2024.
• Accounts receivable from affiliates (Hess and its affiliates) were $138.4 million as of June 30, 2025, representing 96% of total accounts receivable from customers.
• Charges from Hess under omnibus and employee secondment agreements totaled $30.3 million for Q2 2025 and $60.2 million for YTD Q2 2025, included in operating and maintenance expenses and general and administrative expenses.
• Unit repurchase agreements with Sponsors (Hess and GIP, then Hess) for Class B Units, totaling $100.0 million in January 2025 and $190.0 million in May 2025, and an additional $30.0 million agreed upon in August 2025.
• Distributions to noncontrolling interest (Sponsors) totaled $89.4 million for Q2 2025 and $179.2 million for YTD Q2 2025.

Stakeholder Impact

• Shareholders: Benefited from increased net income attributable to Hess Midstream LP, higher basic EPS, and an increased quarterly cash distribution. Public ownership increased, potentially improving liquidity.
• Sponsors (Hess/Chevron): GIP's exit and Chevron's merger with Hess consolidate ownership and strategic alignment, while unit repurchases provide liquidity to the Sponsors.
• Employees: Higher employee costs were noted, suggesting potential benefits or increased investment in personnel.
• Customers (Hess/Chevron & Third-Parties): Increased throughput volumes indicate strong demand for services, benefiting both the primary customer and third-party producers in the Bakken.
• Creditors: The investment-grade credit rating is expected to lead to more favorable interest rates and relaxed debt covenants, improving the company's credit profile and financial health.

Next Steps

• Two new compressor stations and associated pipeline infrastructure are expected to be placed in service in 2025.
• Final share delivery under the $70.0 million Accelerated Share Repurchase (ASR) agreement is expected in the third quarter of 2025.
• The $30.0 million Class B Unit repurchase transaction is expected to be completed on August 8, 2025.
• The initial share delivery of 1,136,627 Class A Shares under the $70.0 million ASR agreement is expected on August 8, 2025.
• The quarterly cash distribution of $0.7370 per Class A Share will be payable on August 14, 2025, to shareholders of record as of August 7, 2025.

Key Dates

Recommendation

The filing demonstrates exceptional financial and operational performance, with substantial growth in revenues, net income, and Adjusted EBITDA, coupled with increased throughput volumes across all segments. The achievement of an investment-grade credit rating significantly de-risks the company's debt profile and enhances financial flexibility. Consistent increases in cash distributions signal a strong commitment to shareholder returns. The strategic consolidation of ownership under Chevron, a major industry player, provides long-term stability and potential for continued volume growth. Despite increased expenses, the overall profitability and cash flow generation remain robust, making Hess Midstream LP a compelling investment opportunity.

Keywords

Midstream, Oil and Gas, Bakken, North Dakota, Energy Infrastructure, Gathering, Processing, Terminaling, Export, Hess Midstream, HESM, Chevron, Distributions, EBITDA, SEC Filing