Hess Midstream stock drops on Chevron restructuring and lower 2027 outlook

Investing.com -- Hess Midstream Partners LP (NYSE: HESM) shares plummeted 15% in Wednesday trading after the company announced a major corporate restructuring with Chevron Corp (NYSE: CVX) that will establish it as an independent, multi-basin operator while significantly reducing its forward earnings outlook. Under the definitive agreement, Hess Midstream will acquire Chevron’s Denver-Julesburg (DJ) Basin gathering and storage assets and buy out Chevron’s entire equity stake, converting the company into an independent entity with a fully elected board by 2028.

While the transaction eliminates corporate overhead, reduces total share count by nearly 40%, and expands geographical reach, the underlying terms reflect a substantial pricing concession on core Bakken operations. To secure the deal, Hess Midstream agreed to slash gathering and processing tariffs for Chevron through 2033, extending commercial agreements to 2045 while accommodating Chevron’s plan to scale back Bakken drilling from three rigs to two by late 2026.

The financial trade-off immediately weighed on investor sentiment, as revised multi-year projections pointed to a step-down in cash flow generation. Hess Midstream introduced preliminary 2027 Adjusted EBITDA guidance of $850 million to $950 million, representing a sharp drop from its updated 2026 forecast of $1.225 billion to $1.250 billion.

The lower earnings base will restrict near-term capital returns, forcing the company to pause distribution growth following the fourth quarter of 2026. Management indicated that per-share distributions in 2027 will remain flat relative to the fourth quarter 2026 payout, with plans to maintain that level going forward fully funded by projected Adjusted Free Cash Flow of $525 million to $625 million.

From a leverage standpoint, the company expects its balance sheet ratio to expand to 3.75x–4.0x Adjusted EBITDA in 2027 before gradually trending down toward a long-term target of 3.5x–3.75x. Despite the near-term cash flow compression, management emphasized that the deal establishes a resilient, multi-basin asset base anchored by minimum revenue commitments covering 80% of expected Chevron revenues in the Bakken through 2033.

For Chevron, the restructuring represents a strategic move to lower unit midstream costs in the Bakken by approximately 50%, enhancing return on capital employed despite taking an estimated $3 billion to $4 billion one-time after-tax loss. The integrated energy giant will also deconsolidate approximately $3.7 billion of Hess Midstream debt while receiving $200 million in cash alongside the long-term commercial extensions.

The transaction, which has been unanimously approved by a conflicts committee of independent directors, is expected to close by year-end 2026. Upon closing, Hess Midstream will operate under a new name, appoint a new board chair, and begin transitioning Chevron seconded employees into its permanent corporate structure.

Original Article

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