Hess Midstream LP (HESM) Q3 2026 earnings review
Hess Midstream cash flow rises, but 2027 dividend growth stops
Hess Midstream, which operates oil, gas and water pipelines in North Dakota, generated more cash this quarter even as volumes through its pipes declined. Revenue slipped 3% from a year ago on lower oil and gas throughput, but lower maintenance and project spending lifted free cash flow by 33% to $248 million. Chief executive Jonathan Stein highlighted cost control, though weak volumes forced the company to trim the top end of its full-year profit outlook and every volume target.
| Revenue | $410.1M -2.6% from a year ago |
|---|---|
| Adjusted EBITDA | $319.9M -0.2% from a year ago |
| Adjusted free cash flow | $247.9M +32.7% from a year ago |
| Full-year Adjusted EBITDA outlook | Cut top end $25M middle of the range: $1,237.5M |
⚖️ Verdict: ⚪ Neutral
The standing story is unchanged because a major acquisition offsets deteriorating North Dakota volumes and a paused dividend growth target. Buying DJ Basin pipeline assets by year-end will roughly triple crude gathering capacity and reduce reliance on Chevron's North Dakota drilling. The bad news: the partnership will hold its quarterly dividend flat in 2027 after the fourth quarter, ending its 5% annual growth streak.
The question now is whether cash from the new DJ Basin pipelines will outweigh higher financing costs and shrinking North Dakota volume protections. If the deal adds surplus cash, debt falls and dividend growth can resume after 2027; if North Dakota declines eat up the gain, the payout stays flat. The 2027 financial plan, due with fourth-quarter results after the deal closes, will settle it.
🐂 Bull Case
DJ Basin Deal Cuts Reliance on Chevron
Hess Midstream has relied on one producer, Chevron, in one North Dakota oil basin for nearly all of its revenue. On October 6 the pipeline operator announced a deal to buy gathering and pipeline assets in the DJ Basin, which it expects to close by the end of the year. Chief executive Jonathan Stein said the purchase will let the business "transform into a multi-basin, independent midstream company".
Management expects the new assets to reshape its daily volumes, "approximately tripling our crude gathering throughput and significantly growing our gas gathering throughput", while adding an ownership stake in a long-haul oil pipeline. That directly addresses the company's biggest standing risk: its dependence on Chevron's three-rig drilling plan in North Dakota.
What to watch: the closing of the DJ Basin purchase by year-end and the initial 2027 volume outlook. Those numbers will show how much cash the new basin adds after financing costs.
Free Cash Flow Rises as Buildout Ends
The company measures cash available for dividends using Adjusted Free Cash Flow, which is operating cash flow after interest and capital spending. That figure rose 33% from a year ago to $247.9 million because project spending dropped 73% to $21.5 million after the "completion of Hess Midstream's expansion of its gas compression capacity in January 2026".
That extra compression capacity also brings in revenue from outside producers. Sales to third-party customers rose 19% from a year ago to $16.6 million, though they dipped from $17.9 million in the second quarter as direct outside volumes stayed flat. Even with trimmed full-year earnings targets, the low capital budget keeps full-year cash flow on track for $910 million to $935 million.
What to watch: fourth-quarter capital spending, which the full-year plan puts at $42.5 million by our math. Coming in below that figure would leave more cash to pay down debt before the DJ Basin deal closes.
Surplus Cash Cuts Credit Line Debt Again
For a second straight quarter, the North Dakota operator used its cash after dividends to pay down debt rather than buy back shares. Borrowings on its revolving credit line fell by $76 million during the quarter to $180.0 million, down from $356.0 million a year ago.
That debt reduction lowered net interest expense by 6% from a year ago to $53.6 million and helped lift basic profit per Class A share to $0.77 from $0.75. Clearing the credit line gives the partnership more room on its balance sheet ahead of the year-end acquisition.
What to watch: the credit facility balance at year-end and the final financing terms for the DJ Basin acquisition. A larger debt load from the deal would raise interest costs in 2027.
🐻 Bear Case
Falling Volumes Force a Full-Year Plan Cut
"The third quarter of 2026 reflects our continued focus on managing costs while executing growth," Stein said. Yet revenue fell 2.6% from a year ago to $410.1 million because pipeline volumes dropped across the board, forcing the operator to lower every full-year volume target.
- Crude oil gathering: 107 thousand barrels per day, down 13% from a year ago
- Crude oil terminals: 117 thousand barrels per day, down 10% from a year ago
- Gas gathering: 438 million cubic feet per day, down 9% from a year ago
- Gas processing: 427 million cubic feet per day, down 8% from a year ago
Those volume drops led management to cut $25 million from the top of its full-year ranges for Net Income, Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, excluding one-offs) and Adjusted Free Cash Flow. By our math, even the lowered oil gathering plan still requires fourth-quarter volumes to jump to 142 thousand barrels per day.
What to watch: fourth-quarter crude oil gathering volumes against that 142 thousand barrel per day implied rate. Another shortfall would show that North Dakota oil production is still sliding.
Dividend Growth Pauses After Fourth Quarter
For years the partnership has promised investors at least 5% annual growth in its quarterly cash payout per Class A share. This quarter the board raised the payout to $0.7985 per share, and management plans one more 5% annualized increase in the fourth quarter.
After that, the growth streak stops. In the outlook section, the company said it expects to "maintain its quarterly distributions in 2027 consistent with the expected fourth quarter 2026 distribution amount". Holding the payout flat in 2027 preserves cash as the business absorbs the DJ Basin assets and faces lower minimum volume protections in North Dakota.
What to watch: the 2027 financial plan when the company reports fourth-quarter results. It will show how much surplus cash remains after paying the flat dividend and interest on the acquisition.
Risks this quarter didn't answer
Four standing concerns from earlier quarters received no new figures in the third-quarter earnings release.
- Minimum volume shortfall fees: the quarterly filing's contract liability note will show how much cash Chevron paid for missing delivery floors after the balance reached $25.9 million in June.
- Credit facility refinancing: the release gave no update on refinancing the revolving credit line and Term Loan A before they mature in July 2027.
- Minimum corporate tax rules: management gave no new detail on whether federal tax rules will keep cash taxes near zero through 2028.
- Winter weather risk: North Dakota storms often disrupt fourth-quarter and first-quarter oil and gas volumes, so the next two quarters carry the seasonal test.
👓 Other Themes
Lower Sponsor Charges Lifted the Operating Margin
Even though revenue declined 2.6%, operating profit rose 1.4% from a year ago to $262.4 million, lifting the operating margin by 2.5 percentage points to 64.0%. Operating and maintenance costs—the day-to-day expense of running the pipelines and plants—fell by 2.2 percentage points of revenue to 21.1%, while overhead fell 0.3 points, due to "lower charges under our omnibus and employee secondment agreements and lower maintenance expenses".
💲 Other KPIs
Revenue in the oil storage and export division grew 15.3% from a year ago and 3.4% from the second quarter. Annual inflation-linked fee increases more than offset a 10% drop in physical barrels moving through the terminals, lifting the division's operating profit to $27.9 million from $19.0 million a year ago.
Sales in the pipeline gathering business—the partnership's largest division—fell 4.2% from a year ago as both oil and gas volumes dropped, though revenue recovered 3.8% from the second quarter. Lower maintenance and employee charges trimmed segment operating expenses to $90.2 million from $95.8 million a year ago.
The public Class A share count was unchanged from the second quarter and down 1.5% from 130.3 million a year ago. The partnership paused share buybacks for a second straight quarter while directing excess cash toward paying down its credit line.
🔮 Guidance
Cut. The company trimmed $25 million off the top of the range on October 6 and kept that lower plan today, putting the middle of the range 3.2% below 2025. By our math, that leaves $152 million for the fourth quarter, down 9.5% from a year ago and below the $179.1 million earned in the third quarter.
Cut. Management lowered the top end by $25 million, reducing the middle of the range to $1,237.5 million, or roughly even with 2025. By our math, that points to $304.1 million in the fourth quarter, down 1.6% from a year ago and down from $319.9 million this quarter.
Unchanged. The full-year spending plan stays at $105 million, down from roughly $270 million guided in 2025 after gas compression projects wrapped up in January. With $62.5 million spent in the first nine months, the plan leaves $42.5 million for the fourth quarter by our math, nearly double the third quarter's $21.5 million.
Cut. The top of the range came down by $25 million alongside the earnings trim, leaving the middle of the range up 18.4% from 2025 on lower capital spending. By our math, the outlook leaves $206 million for the fourth quarter, down 0.9% from a year ago.
Cut. With full-year dividend payments still planned at $655 million, the $12.5 million drop in the middle of the free cash flow range lowered surplus cash to $265 million from $280 million.
Cut. The partnership reduced its daily gas gathering forecast by 15 million cubic feet per day across the range. After averaging 441 million cubic feet per day in the first nine months, the middle of the new plan points to 437 million cubic feet per day in the fourth quarter by our math, down 4.2% from a year ago.
Cut. Management lowered the range by 5 thousand barrels per day. Because the first nine months averaged only 106 thousand barrels per day, reaching the new 115 thousand midpoint still requires fourth-quarter volumes to jump to 142 thousand barrels per day by our math, up 19.5% from a year ago.
Cut. The range dropped by 10 million cubic feet per day. Because the first nine months already averaged 430 million cubic feet per day, the middle of the new plan points to 430 million cubic feet per day in the fourth quarter by our math, down 3.2% from a year ago.
Cut. The outlook fell by 5 thousand barrels per day. With the first nine months averaging 118 thousand barrels per day, hitting the middle of the range requires 146 thousand barrels per day in the fourth quarter by our math, up 19.7% from a year ago.
Cut. Management reduced the range by 5 thousand barrels per day. After averaging 122 thousand barrels per day through September, the middle of the plan leaves 134 thousand barrels per day for the fourth quarter by our math, up 8.1% from a year ago.
❓ Key Questions
Why pause the 5% dividend growth in 2027?
The partnership plans to hold its 2027 quarterly dividend flat with the fourth quarter of 2026 despite acquiring DJ Basin assets that triple crude gathering volumes. Investors need to know whether acquisition debt costs or lower North Dakota volume floors drove that decision.
Does the Q4 oil target include DJ Basin volumes?
Reaching the middle of the lowered full-year crude gathering plan requires 142 thousand barrels per day in the fourth quarter by our math, up from 107 thousand in the third quarter. Management has not said whether that jump assumes the DJ Basin deal closes before year-end.
How much did Chevron pay in shortfall fees?
Chevron paid $22.2 million in minimum volume shortfall fees during the first half as its oil deliveries lagged contract floors, lifting deferred revenue to $25.9 million. The third-quarter release did not disclose the September balance ahead of the quarterly filing.
How will the company finance the DJ Basin deal?
The partnership has $180 million drawn on its revolving credit line, which matures alongside its Term Loan A in July 2027. Management has not detailed the purchase price or debt package for the DJ Basin acquisition closing this year.