Chevron will give up its Hess Midstream stake for cheaper Bakken contracts and expects a $3 billion to $4 billion loss

Chevron is giving up control of the North Dakota pipeline and processing business it inherited when it bought Hess last year, trading its stake in Hess Midstream for a much smaller bill on the oil and gas it moves out of the Bakken.

Under agreements announced after U.S. markets closed on Tuesday, Chevron will hand Hess Midstream all of its shares and partnership units, its general partner interest and its crude oil and gas gathering and storage assets in Colorado's DJ Basin. In return, Hess Midstream will pay $200 million in cash and cut the fees Chevron pays to gather and process its Bakken crude and gas. Chevron estimates the new terms will lower its Bakken unit midstream costs by about 50%.

The deal carries a large accounting hit. Chevron expects to book a one-time after-tax loss of about $3 billion to $4 billion when the transaction closes, which it will treat as a special item, because it cannot record the future cost savings as an asset. It will also stop consolidating Hess Midstream, taking about $3.7 billion of that company's debt off its books. The companies expect to close by the end of 2026, subject to customary closing conditions; Chevron also cited regulatory approvals.

What Chevron gets

Chevron has controlled Hess Midstream since July 18, 2025, when its purchase of Hess closed. That made it both the controlling owner and, through fee-based contracts, the source of substantially all of Hess Midstream's revenue. The amended Bakken contracts lower tariffs from 2027 through 2033 and extend agreements that were due to expire in 2033 out to 2045. Contracts priced on a cost-of-service basis will switch to fixed fees with inflation escalators.

"It lowers our Bakken cost structure while positioning Hess Midstream to advance as an independent company," said Andy Walz, Chevron's president of downstream, midstream and chemicals. Chevron said the deal should lift its return on capital employed by about half a percentage point and that it expects to sustain Bakken production through technology and operating improvements. Hess Midstream's release said Chevron is expected to cut its Bakken drilling rigs from three to two in December.

What Hess Midstream holders get

For Hess Midstream's public shareholders, the result is a company with far fewer shares and no controlling sponsor. Chevron's 77.8 million partnership units and 449,000 Class A shares will be canceled, which Hess Midstream says will reduce its outstanding shares by nearly 40%. Using the share counts in Hess Midstream's latest quarterly report, Chevron's holdings come to about 38% of the company, by TickerGrove's calculation.

Hess Midstream also picks up Chevron's DJ Basin system in Weld County, Colorado: about 400,000 barrels a day of oil gathering capacity, 300 million cubic feet a day of gas gathering capacity, 420,000 barrels of storage and a 20% stake in the Saddlehorn pipeline to the Cushing, Okla., storage hub, anchored by Chevron agreements through 2045. In the Bakken, Chevron will commit to minimum payments equal to 80% of Hess Midstream's expected Bakken revenue from Chevron through 2033. Each year's minimum is set three years ahead and can only go up once it is fixed.

The trade-off is lower earnings. Hess Midstream expects adjusted earnings before interest, taxes, depreciation and amortization of $850 million to $950 million in 2027, assuming the deal closes by year-end, compared with $1.225 billion to $1.25 billion it now expects for 2026. It also trimmed the top of this year's range, which stood at $1.275 billion in August, and lowered its 2026 volume forecasts. It expects Bakken throughput to fall about 5% in 2027 and then generally level off. Chief Executive Jonathan Stein said the deal should still add to that profit measure on a per-share basis.

Payouts are set to keep growing at an annualized 5% per share in the third and fourth quarters of this year, then hold at the fourth-quarter level through 2027, funded from adjusted free cash flow the company puts at $525 million to $625 million next year. It expects 2027 leverage of 3.75 to 4 times that earnings measure and year-end 2027 debt in line with current levels. It carried $3.68 billion of debt at June 30.

A new board and a new name

At closing, all Chevron-affiliated directors will leave the board of Hess Midstream's general partner. Stein will join the board, independent director John Reddy is expected to become chair, and shareholders will gain the right to elect directors starting in 2028. The company will keep its Houston headquarters and choose a new name before the deal closes. Chevron will keep seconding employees and providing some services for a two-year transition. The board and a conflicts committee of independent directors approved the terms.

Pressure on the old contracts

Questions about the Bakken contracts had been building. Last Friday, JPMorgan cut Hess Midstream to underweight with a $39 price target, citing step-downs in minimum volume commitments, the risk of a lower reset in 2029 tied to Chevron's drilling plans and the 2033 expiration, Investing.com reported. The bank listed a renegotiation that reduced rates and extended terms as one possible outcome.

Neither stock moved much in after-hours trading. Chevron was unchanged at $207.58 as of 7:47 p.m. ET, and Hess Midstream was down about 1% at $38.29 as of 7:24 p.m. ET in light volume, according to cnbc.com market data, after closing up 0.7% at $38.69. Hess Midstream plans to discuss the deal on a webcast at 11 a.m. ET on Wednesday.