Business Overview / Sources of Revenue

Hess Midstream (NYSE: HESM) is a fee-based master limited partnership that owns, operates, and develops midstream infrastructure in the Bakken Shale of North Dakota[1][3][4]. The company earns revenue primarily from long-term contracts with minimum volume commitments, providing stable cash flows[5]. Its main business segments include crude oil gathering and terminaling, natural gas gathering and processing, and water services, with customers such as Hess Corporation and third-party producers[4][5]. Hess Midstream’s operations cover pipelines for gathering, processing plants, storage terminals, and transportation networks. While a detailed percentage breakdown of revenue sources is not provided in recent disclosures, the bulk of revenue comes from gathering and processing services, with additional contributions from terminaling and water services[5].

Revenue Growth Potential and Recurrence

Hess Midstream (HESM) generates a large share of recurring revenue through long-term, fee-based contracts, primarily with minimum volume commitments and pass-through costs that insulate its results from commodity price fluctuations[3][4]. In Q1 2025, recurring fee-based revenue was a key contributor to total revenue of $382 million, boosted by increased throughput volumes in gas processing, oil terminaling, and water gathering[4].

Looking forward, Hess Midstream expects at least 5% annual distribution growth per share through 2026, and the company is forecasting ongoing organic throughput volume growth across all systems for 2025 and 2026[5]. These trends, combined with Hess Corporation’s production growth and expanded third-party customer volumes, support a strong outlook for mid-to-high single-digit percentage revenue growth annually over the next five years[4][5].

Economic Moat Factors

Hess Midstream (HESM) possesses a moderate economic moat primarily rooted in high switching costs and the essential, capital-intensive nature of its infrastructure. The company operates critical gathering, processing, and storage assets in the Bakken, where duplicating pipelines or processing facilities is prohibitively expensive and logistically challenging—estimated at $2.3 million per mile for new pipeline construction and $475 million to convert facilities[5]. This creates customer stickiness and limits feasible alternatives.

Network effects are limited, but HESM benefits from long-term, fee-based contracts, particularly with its primary customer, Hess Corporation, ensuring stable revenues and reducing vulnerability to commodity price swings[1]. Brand power and economies of scale are less significant compared to unique, hard-to-replicate asset positioning. While renewable energy trends pose long-term substitution risks, HESM’s entrenched infrastructure and high entry barriers currently provide a defensible, albeit not unassailable, moat[5][1].

Leadership

Hess Midstream (HESM) is led by Chairman & CEO John Hess, who has held the role since 2019 and has been on the board for over 10 years[2][3]. John Hess is not a founder of Hess Midstream, but he is CEO of Hess Corporation, the parent company. His personal ownership stake in HESM is not specified in the available sources[2]. President and COO John Gatling has led since the company’s 2017 public listing, while Jonathan Stein, CFO since 2014, helped form the business and take it public[4][5]. The management team is experienced, with long average tenures[2].

Financial Health

Hess Midstream (HESM) is financially stable with strong free cash flow generation, reporting $190.7 million in adjusted free cash flow and a robust free cash flow margin of about 50% for Q1 2025 ($190.7 million FCF on $382 million revenue)[1][4]. However, the company has a highly leveraged balance sheet, with a debt-to-equity ratio of 696% and just $6.1 million in cash versus $3.6 billion in total debt, indicating a low cash-to-debt ratio[5]. HESM has been a net repurchaser, completing a $100 million unit buyback in January 2025[1].

Last updated Jun 13, 2025