Hess Midstream LP (HESM) stock intrinsic value fair value estimate & owner earnings analysis

Hess Midstream owns the pipelines, gas processing plants, crude oil terminals and water systems that carry Bakken oil, gas and water in North Dakota. It earns fees per barrel, per thousand cubic feet and per barrel of water, so it carries little direct commodity price risk. Substantially all revenue comes from long-term agreements with Chevron, which took over Hess, the original sponsor, when their merger closed on July 18, 2025. What the contracts give us. The commercial agreements were renewed by Hess Midstream in December 2020 through December 31, 2033 (a gas gathering subsystem for 5 more years). Chevron must supply minimum volumes equal to 80% of its nominated drilling plan on a rolling three-year basis, and pays a shortfall fee if it falls short. Fees carry an inflation escalator capped at 3% a year, but are also recalculated annually to target a set return on the capital deployed, so higher volumes do not simply flow through as higher earnings. That is why we credit no growth beyond the normal level. Earnings level. We measure owner earnings as operating cash flow, less working-capital swings, less stock compensation, less an estimate of maintenance capital spending. Growth spending is estimated from how much revenue grew and is not deducted. Because Hess Midstream is owned partly through Class B units held by its sponsors, we spread the earnings over all Class A shares plus Class B units (207.7 million at the end of 2025). On that basis owner earnings per unit were $2.66 (2021), $2.59, $2.84, $3.08 and $3.87 (2025). We use the middle figure of 2021 to 2025, $2.84, as the normal level. We start in 2021 because 2019 and 2020 carried much heavier capital spending ($306.4 million and $301.1 million) and much lower earnings per unit. 2025 grew 25% per unit, but part of that comes from lower estimated maintenance spending and a shrinking unit count from buybacks, so we do not lift the level to it in the base case. The first-year growth we assume in the base case is zero, below that recent rate, because throughput growth of 5% to 6% in 2025 depends on producers drilling more, which is not locked in. In the first half of 2026 revenue was $789.1 million against $796.2 million a year earlier, while operating cash flow rose to $531.9 million from $479.3 million and capital spending fell to $51.9 million from $108.9 million. Base case, about $20 per share. Owner earnings hold at $2.84 per unit through the contract term to the end of 2033. After 2033 nothing is contracted, but the assets serve Chevron's dedicated Bakken acreage and the agreements were extended once before, so we credit half the normal level ($1.42) for five more years and nothing after that. Bear case, about $12.60 per share. Chevron holds volumes near the 80% minimum, fee recalculations trim rates, and interest keeps rising on $3.77 billion of debt, as it did in 2025 when net interest expense reached $225.6 million from $202.2 million. Earnings run at $2.20 per unit through 2033, and nothing continues after the contracts end. Bull case, about $34.50 per share. Earnings hold at the 2025 level of $3.87 per unit through 2033, and the agreements are renewed for ten more years at 70% of that level, on the same kind of renewal option that was exercised in 2020. What we tested. The base case assumes fees do not erode. Revenue rose from $1,348.6 million in 2023 to $1,621.3 million in 2025, including $40.1 million from higher tariff rates in 2025 alone, and debt of $3.77 billion compares with adjusted EBITDA of $1,238.1 million against a 5.0 times covenant limit, so the flat path is not stretched. The main risks are dependence on one customer, the 2033 contract end, and debt: even the bear case leaves the equity with positive value after these obligations, but lower volumes would leave less cushion. The margin-of-safety price is about $11.00 per share; from that price the base-case path implies roughly a 20% yearly return if earnings match the normal level through 2033 and only half of that level continues for five years after. This is below the bear case because the business has a single customer and a fixed end date for its contracts.