The pipeline company says 2027 cash flow after distributions will be $110 million to $210 million and that it will borrow the $200 million it pays Chevron. Other midstream stocks fell about 2%.
Hess Midstream's restructuring with Chevron was pitched as a way to raise cash flow per share. The first full day of trading showed what income investors focused on instead.
Shares of the Bakken pipeline operator fell 14.4% to $33.11 by about 2:10 p.m. Eastern on Wednesday, from $38.69 on Tuesday. The Alerian MLP ETF, a basket of pipeline partnerships, was down 2.4%. Volume reached about 8.7 million shares, more than nine times Tuesday's total. The decline erased roughly $1.15 billion of market value.
The transaction
Under the agreement announced after Tuesday's close, Chevron will hand Hess Midstream all of its ownership interests, including 77,827,485 Class B units of the operating partnership and 449,000 Class A shares, and the general partner. Hess Midstream will cancel them, cutting its share count by nearly 40% at closing, and pay Chevron $200 million in cash.
In exchange, Hess Midstream lowers the tariffs Chevron pays in the Bakken for 2027 through 2033 and extends its contracts from 2033 to 2045. Cost-of-service contracts convert to fixed fees with inflation escalators. A minimum revenue commitment is set at 80% of expected Bakken revenue from Chevron through 2033. Chevron plans to cut its Bakken rig count from three to two in December, and Bakken throughput is expected to decline about 5% in 2027 before leveling off.
Chevron said it expects to record a one-time after-tax loss of about $3 billion to $4 billion when it deconsolidates Hess Midstream. The deal is expected to close by year-end, subject to regulatory approvals.
The distribution
On , Hess Midstream's chief executive said its second-quarter increase was "in line with Hess Midstream's targeted 5% growth in annual distributions per Class A share through 2028."
The new plan keeps 5% growth for the third and fourth quarters of 2026 and then holds the payout flat through 2027 at the fourth-quarter level. At an investor call on Wednesday morning, the company said future buybacks and distribution growth would be "funded only with excess Adj. FCF after base distributions."
The cash bridge
The company guides 2027 adjusted free cash flow of $525 million to $625 million and adjusted free cash flow after distributions of $110 million to $210 million. Subtracting one from the other gives about $415 million of base distributions at every point in the range. Spread across roughly 128 million shares after the cancellation, that is about $3.23 a share, or about 9.8% of Wednesday's price. Those figures are estimates derived from the company's guidance and an approximate post-closing share count.
The same arithmetic puts 2027 distribution coverage at about 1.27 to 1.51 times. The $200 million payment to Chevron will be drawn on the company's revolving credit facility, and leverage is guided to 3.75 to 4.0 times in 2027, falling to 3.5 to 3.75 times over the long term.
Timing of the drop
The stock opened at about $32.77, already down about 15%, and its low of $31.99 came in the 10:30 a.m. half-hour. The investor call began at 11 a.m., after the gap. The repricing happened at the open, before management spoke.
How investors may read it
One reading holds that the selloff overshoots. On the company's numbers, a roughly 9.8% base yield is covered more than 1.2 times, contracts run to 2045, about 70% of revenue is described by the company as protected, and third-party volumes rise to about 20% of the total. The chief executive called the deal "accretive on an Adjusted EBITDA per share basis." The stock sits about 4.7% above its 52-week low.
Another reading holds that the market repriced a growth story that ended. A target restated in July is gone after two more quarters, the surplus available for growth or buybacks is $110 million to $210 million, the cash payment is borrowed, leverage rises, and 2027 earnings include non-cash revenue tied to a contract liability. Bakken volumes are guided lower as Chevron drops a rig.
The next disclosures
The third-quarter distribution declaration is the first test of the commitment to 5% growth through year-end. A filed purchase and sale agreement, any rating-agency comment on the higher leverage and the stock's performance against pipeline peers over the coming sessions will show whether Wednesday's move holds.