10-Q: Hess Midstream Reports Strong Q3 Growth, Boosts Payout

Hess Midstream LP announced robust third-quarter 2025 financial and operational results, including significant revenue and net income increases, higher throughput volumes, and an increased cash distribution.

Summary

• Consolidated net income for Q3 2025 rose to $175.5 million, up from $164.7 million in Q3 2024.
• Net income attributable to Hess Midstream LP increased by 66.7% to $97.7 million, or $0.75 basic earnings per Class A Share, compared to $58.6 million, or $0.63 basic EPS, in the prior-year quarter.
• Total revenues reached $420.9 million in Q3 2025, an 11.2% increase from $378.5 million in Q3 2024, driven by higher physical volumes and tariff rates.
• Adjusted EBITDA for Q3 2025 was $320.7 million, up 11.8% from $286.9 million in Q3 2024.
• Throughput volumes saw increases across all segments in Q3 2025 compared to Q3 2024: gas processing up 10% (to 462 MMcf/d), oil terminaling up 7% (to 130 MBbl/d), and water gathering up 7% (to 137 MBbl/d).
• A new compressor station with approximately 35 MMcf/d of installed capacity was completed in Q3 2025, with potential for an additional 35 MMcf/d expansion.
• The Partnership received an investment grade rating of BBBfrom S&P Global Ratings on July 24, 2025, leading to the release of certain restrictive debt covenants and improved interest rate margins on credit facilities.
• Public ownership of Hess Midstream LP increased from approximately 47.3% at December 31, 2024, to approximately 62.1% at September 30, 2025, following equity offerings and share/unit repurchases.
• A quarterly cash distribution of $0.7548 per Class A Share was declared for Q3 2025, representing an increase of $0.0178 per Class A Share from Q2 2025.

Sentiment

Score: 8

Explanation: The filing indicates strong financial performance with significant increases in revenues, net income, EPS, and Adjusted EBITDA. Operational volumes are up across all segments, and the company successfully completed a new compressor station. The achievement of an investment grade credit rating and subsequent easing of debt covenants are also very positive. The increased cash distribution further reinforces a positive outlook, despite some increases in operating and interest expenses.

Positives

• Total revenues increased by 11.2% to $420.9 million in Q3 2025, indicating strong demand for services.
• Net income attributable to Hess Midstream LP surged by 66.7% to $97.7 million, demonstrating enhanced profitability for shareholders.
• Basic earnings per Class A Share grew by 19.0% to $0.75, reflecting improved per-share performance.
• Adjusted EBITDA increased by 11.8% to $320.7 million, highlighting robust operational cash flow.
• All key throughput volumes (gas gathering, crude oil gathering, gas processing, crude oil terminaling, NGL loading, water gathering) showed significant increases, indicating strong operational activity and utilization.
• Completion of a new compressor station adds 35 MMcf/d of installed capacity, with future expansion potential, supporting growth.
• Achieving an investment grade rating (BBB-) from S&P improved debt terms, reducing restrictive covenants and lowering interest rate margins on credit facilities.
• Increased quarterly cash distribution of $0.7548 per Class A Share for Q3 2025, providing greater returns to shareholders.

Negatives

• Total operating costs and expenses increased by 10.2% to $162.0 million in Q3 2025, primarily due to higher employee costs, depreciation, and pass-through expenses.
• Interest expense, net, rose by 10.2% to $57.1 million in Q3 2025, mainly due to higher borrowings under the revolving credit facility.
• Income tax expense increased significantly by 66.7% to $31.5 million, primarily due to changes in ownership structure following equity transactions.
• A $2.0 million extinguishment loss was recognized in Q1 2025 due to the early redemption of $800.0 million of 5.625% fixed-rate senior unsecured notes due 2026.

Risks

• The company is substantially dependent on Chevron's ability to satisfy its obligations, including meeting drilling and development plans, delivering nominated volumes, and the operation of joint ventures.
• Ability to generate sufficient cash flow to pay current and expected levels of distributions is a key risk.
• Reductions in the volumes of crude oil, natural gas, NGLs, and produced water gathered, processed, terminaled, or stored could adversely affect results.
• Fluctuations in the prices and demand for crude oil, natural gas, and NGLs indirectly influence activities and results, as they affect production rates and investments by the Sponsor and third parties.
• Changes in global economic conditions, including a downturn or inflation, could impact the business and its partners.
• Compliance with government regulations, including environmental protection and health and safety, and the ability to obtain or maintain necessary permits, pose ongoing risks.
• The ability to successfully identify, evaluate, and timely execute capital projects, investment opportunities, and growth strategies is crucial.
• Costs or liabilities associated with environmental protection and climate change initiatives, such as measures to limit greenhouse gas emissions, could increase.
• Compliance with the terms of credit facilities, indebtedness, and other financing arrangements is critical, as acceleration could lead to inability to repay.
• Reduced demand for midstream services due to factors like weather or competition from third-party operations is a risk.
• Potential disruption or interruption of business due to catastrophic events, including accidents, severe weather, labor disputes, IT failures, and cyber-attacks.
• Limitations on access to debt or capital markets on acceptable terms, especially during industry weakness or market volatility, could hinder operations.
• Liability resulting from litigation could adversely affect financial condition.
• Risks associated with the integration of Hess with Chevron following the merger, including failure to realize anticipated benefits or synergies, operational challenges, employee retention issues, and management distraction.
• The inflation-based fee structure (capped at 3% annually) in the Secondary Term of commercial agreements may offer less downside risk protection compared to the initial term's fee recalculation model.

Future Outlook

The company expects all volumes to generally remain above currently established Minimum Volume Commitment (MVC) levels in 2025, 2026, and 2027. A new compressor station is anticipated to be placed in service in early 2026. The company is evaluating the impact of new accounting standard ASU 2024-03, effective for fiscal years beginning after December 15, 2026, but does not expect a material impact from ASU 2023-09 or the recently enacted One Big Beautiful Bill Act on future results or cash flows.

Management Comments

• "We believe it is remote that the outcome of known matters would have a material adverse impact on our financial condition, results of operations or cash flows." (Regarding legal proceedings)
• "We believe that cash generated from these sources will be sufficient to meet our operating requirements, our planned shortterm capital expenditures, debt service requirements, our quarterly cash distribution requirements, future internal growth projects or potential acquisitions." (Regarding liquidity)

Industry Context

Hess Midstream operates primarily in the Bakken and Three Forks shale plays within the Williston Basin of North Dakota, a key U.S. oil and gas production region. The company is actively pursuing strategic relationships with third-party producers and other midstream companies in the Bakken to maximize asset utilization. While the company's fee-based model minimizes direct commodity price exposure, fluctuations in oil and natural gas prices indirectly influence its activities by affecting production rates and investment decisions of its Sponsor (Chevron) and other third parties in the region.

Corporate Governance

Legal Proceedings

• The company has an estimated $1.4 million in reserves for remediation liabilities related to a produced water release of approximately 34,000 barrels from an underground pipeline near Ray, North Dakota, which occurred on August 12, 2022. Remediation and monitoring are ongoing.
• In the ordinary course of business, the company is party to various judicial and administrative proceedings, but believes it is remote that the outcome of known matters would have a material adverse impact on its financial condition, results of operations, or cash flows.

Related Party Transactions

• Long-term fee-based commercial agreements with Chevron subsidiaries for gas gathering, crude oil gathering, gas processing and fractionation, storage, terminaling and export, and water handling services, including Minimum Volume Commitments (MVCs).
• Omnibus and employee secondment agreements with Chevron for substantial operational and administrative services, resulting in charges of $31.3 million in Q3 2025 and $91.5 million for the nine months ended September 30, 2025.
• Gas processing agreement with Little Missouri 4 (LM4), a 50/50 joint venture with Targa Resources Corp., under which the company pays processing fees and shares profits/losses.
• Class B Unit repurchase transactions from Sponsors totaling $320.0 million during the nine months ended September 30, 2025.
• Distributions to the Sponsor for Class B Units, simultaneously with distributions to Class A shareholders.

Stakeholder Impact

• Shareholders: Benefited from increased net income attributable to Hess Midstream LP, higher basic EPS, and an increased quarterly cash distribution. Public ownership also increased.
• Sponsor (Chevron): Continues to be the primary counterparty for commercial agreements and receives distributions for its Class B Units. The merger integration risks could indirectly impact Hess Midstream.
• Employees: Services provided under employee secondment agreements with Chevron, indicating continued operational support.
• Customers: Continued provision of midstream services with expanded capacity, aiming to maximize utilization rates for Chevron and third-party producers in the Bakken.
• Creditors: Benefited from the improved investment grade credit rating, which reduced perceived risk and led to more favorable debt covenants and interest rate margins.

Next Steps

• A new compressor station is expected to be placed in service in early 2026.
• The company will continue to evaluate the impact of new accounting standard ASU 2024-03 on its consolidated financial statements.
• The declared Q3 2025 cash distribution of $0.7548 per Class A Share will be payable on November 14, 2025.

Key Dates

Recommendation

Hess Midstream LP demonstrates strong financial and operational performance, with significant year-over-year increases in revenues, net income, EPS, and Adjusted EBITDA. The consistent growth in throughput volumes across all segments indicates robust demand for its services in the Bakken. The recent achievement of an investment grade credit rating from S&P, leading to more flexible debt covenants and lower borrowing costs, is a material positive for financial health and future capital allocation. The company's commitment to returning capital to shareholders is evident in the increased quarterly cash distribution. While integration risks with Chevron exist, the fee-based model and long-term contracts provide stability. The overall trajectory suggests continued growth and shareholder value creation, making it an attractive investment.

Keywords

Midstream, Bakken, Williston Basin, Oil and Gas, Gathering, Processing, Terminaling, Storage, SEC Filing, 10-Q, Hess Midstream, Chevron, Distributions, EBITDA, Capital Expenditures, Debt, Credit Rating, Share Repurchase