Any changes to the third-party outlook, especially considering the Middle East conflict?

No major macro changes. Some additional third-party volume in Q1 due to other midstream providers' operational challenges, highlighting system flexibility. Still targeting 10% third-party volumes, with additional volumes being upside. “We're still targeting 10% third-party volumes, and that's incorporated into our guidance and any additional third-party volumes would be upside, not seeing anything dramatic, just a normal, like I said, third parties coming to you utilize optionality in our system.”

Has the company refined its longer-term leverage target, and how does it relate to distribution growth and buyback cadence?

No change to the return of capital approach. Plan to use a portion of free cash flow after distributions to pay down debt. Expect leverage to naturally drop from 3x as EBITDA grows, and further with debt payments. Anticipate leverage not far below 2.5x by 2028. “the math would not support us getting really done far below 2.5x leverage by 2028. So that gives you a bit of a range as to where we're expecting our leverage to sit in the longer term through 2028.”

Was the strong terminaling revenue a one-off, or is the implied rate a new go-forward?

The strong performance is partly due to implied rates from a cost-of-service contract, which adjusts annually based on OpEx, CapEx, and volumes to target a mid-teen return. Q1 was impacted by weather, so extrapolation should be cautious, but the tariff adjustment is a factor. “There is an element of implied rates in there in the terminals. And that's -- as you recall, it's a cost of service rate that gets adjusted every year for our expectation of OpEx, CapEx and any volumes that drives a targeted return on that.”

HESM

Hess Midstream (HESM) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Energy· May 4, 2026

Source: earnings call transcript

Executive summary

Hess Midstream Q1 FY26 — Capital Expenditure Reduction and Increased Free Cash Flow Guidance

Hess Midstream delivered solid Q1 FY26 results, navigating severe winter weather while executing its financial strategy. The company significantly reduced its full-year capital expenditure guidance, leading to a substantial increase in adjusted free cash flow expectations. This strong cash generation supports continued distribution growth, incremental share repurchases, and debt reduction, reinforcing its differentiated business model and shareholder returns focus.

Highlights

Increased 2026 adjusted free cash flow guidance to $910M-$960M, a 20% increase year-over-year at the midpoint.
Reduced 2026 capital expenditure guidance by 1/3 to approximately $105M due to upstream efficiencies.
Completed an accretive $60M share and unit repurchase in March.
Increased distribution by 2% (8% annualized for Class A shares), maintaining total distributed cash on a lower share count.
Gross adjusted EBITDA margin maintained at approximately 83%, above the 75% target.

Concerns

Throughput volumes were down in Q1 due to severe winter weather in January and February.
Planned maintenance at Tioga Gas Plant in Q2 is expected to reduce gas processing volumes by 5M-10M cubic feet per day.
Adjusted free cash flow in Q2 is projected to decrease relative to Q1 due to seasonally higher capital expenditures.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 Capital Expenditures	approximately $105 million high materiality	FY26	High
Full-year 2026 Adjusted Free Cash Flow	$910 million to $960 million high materiality	FY26	High
Full-year 2026 Net Income	$650 million and $700 million medium materiality	FY26	High
Full-year 2026 Adjusted EBITDA	$1.225 billion and $1.275 billion high materiality	FY26	High
Q2 2026 Net Income	$150 million to $160 million medium materiality	Q2 · FY26	High
Q2 2026 Adjusted EBITDA	$295 million to $305 million medium materiality	Q2 · FY26	High
Q2 2026 Gas Processing Volume Reduction	5 million to 10 million cubic feet per day medium materiality	Q2 · FY26	High
Annual Distribution Growth	5% annual increase high materiality	Annual	High
Third-party volumes	10% low materiality	Ongoing	High
Debt Leverage Target	not far below 2.5x high materiality	By 2028 · FY28	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Gathering Revenue decreased primarily due to lower volumes caused by severe winter weather in Q1 2026. Revenue decrease: $14 million	—	—	—	—
Processing Revenue decreased primarily due to lower volumes caused by severe winter weather in Q1 2026. Revenue decrease: $6 million	—	—	—	—
Terminaling Revenue increased due to a tariff adjustment from the cost-of-service contract and some third-party terminaling. Revenue increase: $5 million	—	—	—	—

HESM operating KPIs by quarter

HESM operating KPIs stated on its earnings calls, by fiscal quarter
KPI	This call Mar 2026 Q1 FY26	Jun 2026 Q2 FY26	Change vs prior quarter
Throughput volumes Gas processing	430M cf/d During the quarter, throughput volumes averaged 430 million cubic feet per day for gas processing, 119,000 barrels of oil per day for crude terminaling and 115,000 barrels of water per day for water gathering. Source: earnings call transcript	433M cf/d During the quarter, throughput volumes averaged 433 million cubic feet per day for gas processing, 117,000 barrels of oil per day for crude terminalling and 121,000 barrels of water per day for water gathering. Source: earnings call transcript	+0.7%
Throughput volumes Crude terminaling	119K bbl/d During the quarter, throughput volumes averaged 430 million cubic feet per day for gas processing, 119,000 barrels of oil per day for crude terminaling and 115,000 barrels of water per day for water gathering. Source: earnings call transcript	117K bbl/d During the quarter, throughput volumes averaged 433 million cubic feet per day for gas processing, 117,000 barrels of oil per day for crude terminalling and 121,000 barrels of water per day for water gathering. Source: earnings call transcript	-1.7%
Throughput volumes Water gathering	115K bbl/d During the quarter, throughput volumes averaged 430 million cubic feet per day for gas processing, 119,000 barrels of oil per day for crude terminaling and 115,000 barrels of water per day for water gathering. Source: earnings call transcript	121K bbl/d During the quarter, throughput volumes averaged 433 million cubic feet per day for gas processing, 117,000 barrels of oil per day for crude terminalling and 121,000 barrels of water per day for water gathering. Source: earnings call transcript	+5.2%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Deals & partnerships

Chevron Midstream services contract for Bakken production through the end of 2033

85% of revenues are fixed fee; cost of service rate for terminaling and water gathering adjusted annually to target a mid-teen return. Governance guardrails, including special approval by independent directors, prevent contractual changes before 2033.

Capital programs

Second of 2 new compressor stations completed

Safely brought online in Q1 2026 after completion in Q4 2025.

Greenfield high-pressure gathering pipeline infrastructure underway

Start: 2025

Started in 2025 and expected to be completed in 2026, contributing to seasonally higher capital spend in Q2 and Q3.

Risks & headwinds

Severe winter weather impact on Q1 volumes and revenues Q1 2026

Throughput volumes down; Total revenues decreased by approximately $15 million; Adjusted EBITDA decreased by $9 million

Mitigation:Recovery in March; volumes expected to grow through the rest of the year.

Planned maintenance at Tioga Gas Plant Q2 2026

Expected to reduce gas processing volumes by 5 million to 10 million cubic feet per day

Mitigation:Second half volumes expected to be higher than first half, helping to drive higher EBITDA.

What to watch in Q2 FY26

Gas Processing Volumes

Q2 2026 (impact), H2 2026 (recovery/growth)

Current 430 MMcf/d (Q1 2026)

Target Recovery from Q2 maintenance impact, growth through year

Why it matters

Verifying volume recovery post-maintenance and overall growth trajectory is key to meeting full-year guidance.

Consistent with our annual guidance, we continue to expect volumes to grow through the rest of the year, excluding the impact of planned maintenance at TGP in the second quarter that is expected to reduce volumes by 5 million to 10 million cubic feet per day for the quarter.

Find out whether HESM delivers this. Inve re-checks your case every morning.

Q&A highlights

What drives the CapEx reduction and what are the read-throughs for well activity and growth into 2027?

The CapEx reduction is due to nearing the end of infrastructure build-out and upstream efficiencies like longer laterals reducing well connect CapEx. It's a rightsizing, not a strategic change, and supports significant free cash flow generation.

“the kind of downsizing, if you will, of our guidance this year from $150 million to approximately $100 million is really rightsizing our CapEx to account for things like upstream efficiencies like longer laterals, which as I discussed, can have the effect of reducing well connect CapEx for us.”

asked by Jeremy Tonet · answered by Jonathan Stein

2 min read 6 chapters

Detailed narrative

Operational Performance and Winter Weather Impact

Hess Midstream reported solid operational performance in Q1 FY26, achieving guidance despite severe winter weather in January and February. Throughput volumes for gas processing averaged 430 MMcf/d, crude terminaling 119,000 bbl/d, and water gathering 115,000 bbl/d. These volumes were down compared to Q4 2025 due to the weather, but partially recovered in March.

The company expects volumes to grow through the rest of the year, excluding a planned Q2 maintenance impact at the Tioga Gas Plant.

Capital Expenditure Reduction and Efficiency

The company significantly reduced its 2026 capital expenditure guidance by one-third to approximately $105 million, down from a previous estimate of $150 million. This reduction is primarily attributed to upstream efficiencies, such as Chevron's move to longer laterals, which decreases Hess Midstream's well connect CapEx requirements.

Q1 CapEx was $10 million, seasonally lower due to weather, with higher spend expected in Q2 and Q3 to complete greenfield pipeline infrastructure.

Increased Free Cash Flow and Shareholder Returns

As a direct result of the CapEx reduction and deferral of cash taxes, Hess Midstream increased its 2026 adjusted free cash flow guidance to $910 million to $960 million, representing a 20% year-over-year increase at the midpoint. This strong cash generation supports a targeted 5% annual distribution growth, incremental share repurchases (including a $60 million repurchase in March), and debt repayment.

The company generated $237 million in adjusted free cash flow in Q1, up 14% from Q4 2025.

Financial Strategy and Balance Sheet Strength

Hess Midstream maintains a conservative financial strategy, aiming for a stronger balance sheet. While not setting a specific leverage target, management expects debt leverage to naturally decrease from the current 3x as EBITDA grows without increasing absolute debt, and further with debt payments from excess free cash flow.

They anticipate leverage to be not far below 2.5x by 2028, underpinned by MVCs through 2028 and aiming for $1 billion of free cash flow after distributions.

Terminaling Revenue Dynamics and Contract Structure

Terminaling revenues saw a strong performance in Q1, attributed to a tariff adjustment based on a cost-of-service contract that rebalances annually. This contract structure, which includes 85% fixed-fee revenues, provides visibility and consistency through 2033. The contract aims to return a specific mid-teen return and includes governance guardrails, such as the need for special approval by independent directors, to prevent unilateral changes by Chevron.

Third-Party Volume Outlook

Hess Midstream continues to target 10% third-party volumes, which is incorporated into its guidance. The company noted some additional third-party volume in Q1 due to other midstream providers utilizing its system during operational challenges, highlighting system flexibility and potential upside. No major macro changes were noted to impact the third-party outlook.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.