Hess Midstream’s proposed deal with Chevron would remove nearly 40% of its outstanding shares. That’s a number that can make an income investor sit up a little straighter. But before we start dividing everything by a smaller share count, there’s another part of the bargain: Chevron would pay lower fees to use the pipelines.
The October 6 announcement reshapes both the business and the cash supporting its distributions. I’d start with the payment shareholders actually expect to receive, then work back through the deal.
The distribution plan changes in 2027
Hess Midstream, which trades as HESM, still targets 5% annualized distribution growth per Class A share in the third and fourth quarters of 2026. For 2027, however, it expects quarterly distributions to stay at the expected fourth-quarter 2026 level.
Its December 9, 2025 guidance had targeted annual distribution growth per Class A share of at least 5% through 2028.
That makes the new plan important for anyone counting on a growing income stream. Management is forecasting a maintained payment next year, rather than another year of increases. Its October 7 investor presentation forecasts $110 million to $210 million of adjusted free cash flow after distributions in 2027.
The proposed transaction is expected to close by year-end 2026, subject to regulatory approvals and customary conditions. The 2027 outlook assumes that closing happens.
What Hess Midstream gives up and gets back
Under the agreement, Hess Midstream would pay Chevron $200 million, funded from its revolving credit facility, and reduce Bakken gathering and processing tariffs. Chevron would transfer its ownership interests in Hess Midstream and its general partner, along with gathering and storage assets in Colorado’s Denver Julesburg Basin and a 20% interest in the Saddlehorn pipeline.
Chevron’s contributed shares and operating units would be canceled, producing that nearly 40% reduction. Hess Midstream would own its general partner. So $200 million is the cash component of a broader exchange. Treating it as the entire price would overlook the lower fees Hess Midstream agrees to collect.
The Bakken oil and gas agreements would extend through 2045; water agreements would run through 2042. Cost-of-service arrangements would become fixed-fee contracts with inflation escalators capped at 3% in the Bakken. Chevron says the revised terms should reduce its Bakken unit midstream costs by approximately 50%. That’s Chevron’s cost forecast, not a forecast that Hess Midstream’s total revenue will fall by half.
There is also a minimum revenue commitment covering 80% of expected Bakken revenue attributable to Chevron through 2033. It is set three years ahead and, once established for a year, can increase but cannot decrease. That protection has a specific scope; it doesn’t guarantee 80% of companywide revenue or profits.
The accounting detail I wouldn’t skip
Management expects the transaction to increase adjusted EBITDA per share. Fewer shares help that calculation. The accounting also matters.
A footnote in the announcement says the value of the transferred assets and shares will be added to a contract liability, then recognized as revenue through 2045. The 2027 adjusted EBITDA forecast includes an estimate of that incremental revenue.
In plain English, some future reported revenue reflects value received in this transaction. Recognizing it over time doesn’t mean an equivalent new cash payment arrives each year. That’s why I wouldn’t turn the EBITDA-per-share forecast straight into a promise of more spendable cash per share.
Hess Midstream is changing its adjusted free cash flow definition after closing to deduct changes in deferred revenue, saying this better reflects cash available for distributions. This is a company-defined, non-GAAP measure, so read its deductions alongside the broader free cash flow framework.
The preliminary 2027 outlook calls for $850 million to $950 million of adjusted EBITDA and $525 million to $625 million of adjusted free cash flow, after approximately $125 million of capital spending.
For comparison, its updated 2026 adjusted free cash flow forecast is $910 million to $935 million. The companywide cash outlook is lower, even as the share count shrinks. The business mix and cash-flow definition also change, so I wouldn’t treat those ranges as a clean same-business growth comparison.
The company cannot yet provide the corresponding GAAP reconciliations, citing unfinished transaction accounting and items it cannot reasonably estimate.
Chevron’s exit doesn’t erase the debt
Chevron expects to remove Hess Midstream, including approximately $3.7 billion of debt, from its consolidated accounts. Hess Midstream expects its own year-end 2027 debt balance to remain consistent with current levels. The borrowing doesn’t disappear just because Chevron’s reporting changes.
Hess Midstream forecasts 2027 leverage of 3.75 to 4 times adjusted EBITDA, with a longer-term target of 3.5 to 3.75 times. It expects Bakken throughput to decline approximately 5% in 2027 before generally leveling off in 2028. Across both basins, however, combined oil, gas and water gathering volumes are expected to increase with the DJ assets.
On Chevron’s side, its filing estimates a $3 billion to $4 billion one-time after-tax loss at closing. Chevron explains that it cannot recognize the future Bakken cost savings as an asset. That accounting loss can coexist with management’s expectation of better future economics.
For Hess Midstream shareholders, I’d keep the distribution forecast, cash-flow definition and debt burden together when reviewing the next update. A smaller share count is useful. What I want to see is how much cash each remaining share can support after the new contracts take effect.
For general information and education, not personalized investment advice. Investing involves risk, including loss of principal.