Hess Midstream (HESM) Q2 FY26 earnings call: guidance and Q&A

What are the key factors that could drive full-year EBITDA to the high or low end of the guidance range, and how will OpEx and maintenance timing unfold in the second half?

The high end of EBITDA guidance depends on strong maintenance execution and favorable weather, while the low end could be impacted by weather interruptions or higher maintenance costs. OpEx phasing shifted from Q2 to Q3, with Q4 typically seeing lower OpEx and potential G&A allocation volatility.

“So the high end of the range would probably require continued strong execution of our maintenance plan and favorable weather conditions to ensure we have fewer interruptions in our operations. And on the downside, that would be the opposite.”

asked by Vrathan Reddy · answered by Michael Chadwick

Beyond the absence of Q2 headwinds, what specific factors will drive stronger third-party and overall volume growth in the second half?

Second half volume growth is primarily due to normal phasing of Chevron's drilling program, including new wells coming online and increased productivity from longer laterals. Opportunities for additional third-party gas volumes also exist and would provide upside.

“Some of that is just, as Chevron sets up its own drilling program and optimize, you can have normal phasing in terms of you have wells online, addition of course, Chevron has talked about on the laterals, increased productivity. So all of that will continue to come through in the second half of the year.”

asked by Vrathan Reddy · answered by Jonathan Stein

Can you elaborate on the efficiency gains Chevron is seeing in the basin and how that impacts Hess Midstream's production growth outlook?

Chevron's efficiencies help maintain production even at lower rig counts, underpinning Hess Midstream's guidance of approximately 200,000 oil equivalent per day. Longer laterals mean fewer wells for similar volumes, enhancing Hess Midstream's capital efficiency. Production growth per se is not expected, with future growth driven by inflation escalation and OpEx synergies.

“Chairman did mention this even at a lower rig count table to maintain production. -- that volume kind of expectation of approximately 200,000 oil equivalent per day that underpins our guidance. going forward.”

asked by John Mackay · answered by Jonathan Stein

Chevron mentioned reviewing its midstream strategy in the basin. Can Hess Midstream share any context or perspective on this?

The review is likely related to Chevron's efforts to understand and optimize Bakken production efficiencies. Hess Midstream remains focused on executing its own plan, leveraging existing investments to drive free cash flow generation and deliver results.

“Look, from our side, we're focused on execution of our plan. leveraging the sort of investment to drive free cash flow generation and really producing results like we saw in this quarter.”

asked by John Mackay · answered by Jonathan Stein

Given the 85% EBITDA margin in Q2, which is well above the 75% target, is the target becoming conservative, or is a convergence back to 75% expected?

While Q2 saw strong performance due to OpEx phasing and minor credits, the 75% margin target remains appropriate for the long term. The company will enjoy margins above 80% in the interim but does not intend to change the long-term guidance yet.

“But while we continue a pretty strong trend of excess of 80%, we're comfortable in maintaining our 75% margin target. It is what we expect on the long term.”

asked by Douglas Irwin · answered by Michael Chadwick

How is the company thinking about the mix of buybacks versus debt paydown, especially given the strong FCF outlook and less ratable buyback activity, and what is the ultimate target for leverage?

There is no change to the financial plan: excess adjusted free cash flow will be used for both debt paydown and shareholder returns. The Board evaluates the mix throughout the year. The current leverage is 3x, and it is expected to drift lower to approximately 2.5x by 2028, driven by debt reduction and increasing EBITDA, but there is no absolute debt level target.

“By 2028, we're expecting to get down in the region of about 2.5x. That's what the guidance would indicate. We don't expect to go much lower than that. But there's no absolute level of debt that we're aiming to try and achieve, but it will -- we do expect it to go lower than 3x.”

asked by Douglas Irwin · answered by Michael Chadwick