Hess Midstream LP (HESM): 5 FORCES Analysis [Nov-2025 Updated]

You're looking at Hess Midstream LP's competitive moat as of late 2025, and honestly, the picture is a study in strong foundations meeting near-term friction. While those long-term, fee-based contracts-some running through December 31, 2033-give you a revenue floor and help drive that impressive 75% Adjusted EBITDA margin, we can't ignore the pressure points. We've got high customer concentration with Chevron, and the need for about $270 million in 2025 capital expenditure means suppliers for specialized steel and services definitely have a seat at the table. Below, I break down exactly how Porter's Five Forces map out these risks and opportunities for Hess Midstream LP right now, so you can see where the real leverage lies.

Hess Midstream LP (HESM) - Porter's Five Forces: Bargaining power of suppliers

You're looking at how much control Hess Midstream LP's vendors have over its operations, which is a key part of understanding the risk profile for capital deployment. The bargaining power of suppliers is definitely influenced by Hess Midstream LP's own spending plans and the structure of the markets supplying its essential inputs.

Hess Midstream LP has adjusted its spending outlook, which directly impacts supplier leverage. The company reduced its full-year 2025 capital expenditure guidance to approximately $270 million as of November 2025, down from an earlier projection of about $300 million. This reduction came specifically because of the suspension of the Capa gas plant project and its removal from the forward plan. This project suspension means less immediate demand for certain large-scale construction services and materials, which can temporarily weaken supplier negotiating positions for that specific scope of work.

For the specialized equipment and construction services needed to maintain and expand integrated midstream assets, the market size itself gives you a sense of the supplier landscape. The Midstream Oil and Gas Equipment Market was valued at $35.27 billion in 2025. Still, supply chain issues can shift power back to vendors. For instance, tariff impacts between the U.S. and other countries are noted to directly affect the U.S. market through supply chain disruptions for critical components like pipeline valves and gas compressors, potentially leading to higher costs for energy infrastructure projects.

When we look specifically at steel and pipeline components, which are fundamental to any midstream build-out, we see a market with significant scale, but also concentration among major global players. The Large Diameter Steel Pipes Market was projected to be valued at USD 13,341.4 million in 2025. The broader global steel pipes market was estimated at USD 168.32 billion in 2025.

Here's a quick look at the scale of the steel pipe markets relevant to Hess Midstream LP's needs:

The suspension of the Capa gas plant is a clear example of how project delays can immediately alter supplier leverage. When a major project is paused, the immediate demand for fabricated steel, specialized engineering, and construction crews drops off for that specific timeline. This can shift power dynamics, especially for suppliers whose business models rely heavily on securing large, multi-year contracts for specific projects. Anyway, Hess Midstream LP is still spending, as evidenced by its Q3 2025 capital expenditures of $79.8 million.

The factors influencing supplier power for Hess Midstream LP include:

• Reduced 2025 CapEx guidance to approximately $270 million.
• Suspension of the Capa gas plant project.
• Global steel pipe market size of $168.32 billion in 2025.
• Potential for higher costs due to supply chain disruptions for critical components.
• Continued investment in gas compression and pipeline infrastructure.

Finance: draft 13-week cash view by Friday.

Hess Midstream LP (HESM) - Porter's Five Forces: Bargaining power of customers

You're looking at Hess Midstream LP (HESM) and trying to gauge how much leverage its main customer, Chevron Corporation, really has. Honestly, the structure of HESM's business model is designed to keep that power firmly in the partnership's court.

The bargaining power of customers for Hess Midstream LP is structurally low, primarily because the revenue stream is locked in by long-term, fee-based contracts. These agreements minimize exposure to commodity price volatility and volume fluctuations, which is the core defense against customer negotiation leverage.

The duration of these agreements is a major factor. You can see the commitment in the contract terms:

• Certain crude oil gathering, terminaling, storage, gas processing, and gas gathering commercial agreements have been extended through the Secondary Term, lasting until December 31, 2033.
• The initial term for one gas gathering subsystem expires on December 31, 2028, but it includes a unilateral 5-year renewal right.

This long-term visibility is key to justifying capital deployment and supporting the targeted at least 5% annual Class A distribution growth through 2027.

Minimum Volume Commitments (MVCs) act as a direct revenue floor, protecting against volume risk. These commitments provide a crucial layer of stability, especially when upstream activity shifts. For example, Hess Midstream noted that approximately 80% of revenues were protected by MVCs in 2025. Furthermore, the company expects throughput volumes to generally stay above the established MVCs. The MVCs are typically set at 80% of nominated volumes on a 3-year forward basis.

Here is a quick look at the contractual mechanisms that suppress customer power:

The immediate impact of customer activity changes is somewhat mitigated. Chevron, the main operator, announced a reduction in its Bakken rig count from four to three drilling rigs, commencing in the fourth quarter of 2025. Despite this, Hess Midstream's guidance update suggested that gas throughput volumes are still expected to grow through at least 2027, even as oil throughput volumes were expected to plateau in 2026. This resilience is supported by the fact that gas-driven revenue represents approximately 75% of total affiliate revenues (excluding pass-throughs).

To be fair, customer concentration is a risk factor, but it's one that HESM has managed through contract structure. Following the merger completion on July 18, 2025, Chevron became the direct parent of Hess and indirectly owns an approximately 37.9% interest in Hess Midstream on a consolidated basis. Chevron also owns HESM's general partner, giving it control over governance. This high concentration means that Chevron's development plans directly dictate HESM's volume outlook, but the fee-based contracts and MVCs are the contractual buffers against that single-customer dependency.

Hess Midstream LP (HESM) - Porter's Five Forces: Competitive rivalry

You're looking at the competitive landscape for Hess Midstream LP (HESM) right now, and the dynamic is shifting. The rivalry within the Bakken midstream space is always present, as HESM competes for third-party volumes against other operators in the region. Honestly, this is a mature basin, so the fight isn't just about building new capacity; it's about securing every available molecule and maintaining operational excellence. HESM accounts for more than 10% of total processed gas in the basin, which gives you a sense of its established footprint, but competition from other third-party gathering, processing, and transportation services definitely exists.

What tempers this rivalry, though, is HESM's deeply integrated asset base. These assets-oil, gas, and water handling-are strategically positioned right in the core of the Bakken and Three Forks Shale plays, primarily servicing its anchor shipper, Chevron, and third-party customers. This integration means HESM often has the most efficient path to market for its connected production, making it tough for rivals to undercut on service quality or logistics for those specific barrels and gas volumes.

The financial performance clearly backs up this strong positioning. The company's cost control is excellent, evidenced by its Adjusted EBITDA margin. While the target for 2025 was approximately 75%, the results in the third quarter of 2025 showed a Gross Adjusted EBITDA margin of 82%, which is well above that benchmark. This high margin suggests HESM is running a very lean operation relative to the revenue it captures from its fee-based contracts.

The biggest near-term factor tempering growth-focused rivalry is the shift in upstream activity. Chevron, which holds a significant stake in HESM, is reducing its Bakken rig count from four to three starting in the fourth quarter of 2025 following its acquisition of Hess Corp.. This move signals a maturing basin focus for the major, shifting the competitive dynamic away from chasing massive new production growth toward efficiency and market share defense. Consequently, HESM now projects relatively flat Adjusted EBITDA in 2026 compared to 2025.

To counter the plateauing oil volumes, HESM relies heavily on its contract structure, which significantly reduces direct, price-based rivalry for its core volumes. The Minimum Volume Commitments (MVCs) are set annually, typically at 80% of the shipper's nomination for the following three years, and these floors can only be increased, never reduced. For 2025, gas gathering volumes are guided to average between 455 to 465 MMcf per day, and management expects throughput to generally stay above these established minimums, providing a solid revenue floor even as drilling slows.

Here are some key operational and financial figures that frame the competitive environment as of late 2025:

The current operational focus reflects this reality. HESM is prioritizing gas infrastructure to capture more associated gas, which is a key way to maintain volume growth when oil drilling slows. You can see this in the capital plan, which includes expansions to handle rising gas volumes, supporting the long-term view that gas throughput will continue growing through at least 2027, even as oil volumes plateau in 2026.

The competitive response from HESM involves several strategic actions:

• Focusing capital on gas gathering and compression expansions.
• Maintaining a strong balance sheet, targeting leverage below 3x Adjusted EBITDA by year-end 2025.
• Committing to annual distribution growth of at least 5% through 2027.
• Executing share repurchases, such as the $100 million repurchase completed in Q3 2025.

The market seems to respect this defensive strength; the stock reacted positively to the Q3 2025 results, rising 2.92% in pre-market trading after the EPS beat.

Hess Midstream LP (HESM) - Porter's Five Forces: Threat of substitutes

The threat of substitutes for Hess Midstream LP's core services in the Bakken Shale is generally low, primarily due to the significant capital investment and inherent efficiency of dedicated pipeline infrastructure over other transport modes.

For natural gas gathering and processing, the pipeline network represents the most cost-effective solution at scale. Hess Midstream LP's 2025 guidance anticipated gas gathering volumes averaging between 455 to 465 million cubic feet ("MMcf") per day and gas processing volumes between 440 to 450 MMcf per day under the updated guidance. The company's existing infrastructure, including the $\sim$400 MMcf/d Tioga plant, and ongoing project capital expenditures, such as the construction of a gas processing plant with capacity of approximately 125 MMcf per day expected online in 2027, solidify the dominance of dedicated gas pipelines over alternatives like trucked transport for residue gas egress.

Truck and rail transport serve as substitutes for crude oil terminaling, but they are significantly less economical for the large volumes Hess Midstream LP handles. The 2025 guidance projected crude oil terminaling volumes to average between 130 to 140 thousand barrels ("MBbl") per day. Historically, pipeline transport has been the least expensive method, estimated at $\sim$\$5 per barrel, while shipping oil by rail has cost an average of $\sim$\$10 per barrel to \$15 per barrel. While rail offers flexibility to reach multiple destinations, long-distance transport of large volumes makes it less viable as operational costs escalate rapidly compared to the continuous, automated flow of a pipeline.

Water gathering and disposal services face few economically viable alternatives in the specific geological context of the Bakken. Hess Midstream LP expected water gathering volumes to average 120 to 130 MBbl of water per day for full year 2025, with a Minimum Volume Commitment (MVC) set at 104 MBbl/day. The produced water in the Bakken is highly saline, with median Total Dissolved Solids (TDS) reaching up to 255 g/L, which is approximately 7 times that of seawater. This high salinity makes reuse challenging, requiring intensive treatment, so over 90% of wastewater is disposed of by deep injection into disposal wells. Trucking, an alternative, is evidenced by pass-through produced water trucking and disposal costs that contributed to Q2 2025 revenues, which were \$28.0 million including these costs.

High switching costs for producers create a strong barrier to entry for rivals and further reduce the threat of substitutes. These costs are embedded in long-term commercial agreements:

• Commercial contract for one gas gathering subsystem expires December 31, 2028, with a unilateral 5-year renewal right.
• Certain crude oil gathering, terminaling, storage, gas processing, and gas gathering agreements with Hess were extended through December 31, 2033.
• Water services contracts carry a primary cost of service term of 14 years.
• Minimum Volume Commitments (MVCs) are set annually at 80% of the affiliate's nominations on a three-year rolling basis and can only be increased, never reduced, once established.

The operational scale and contracted nature of Hess Midstream LP's business are summarized below:

Hess Midstream LP (HESM) - Porter's Five Forces: Threat of new entrants

You're looking at barriers to entry in the midstream sector, and for Hess Midstream LP (HESM), those barriers are substantial, built on massive upfront spending and entrenched contractual relationships. New players can't just decide to build a competing system overnight; the economics and regulatory landscape actively discourage it.

First off, significant capital investment is required to even consider competing in the Bakken. Hess Midstream LP itself updated its full-year 2025 capital expenditure guidance to approximately $270 million, which shows the scale of ongoing investment needed just to maintain and grow an existing system. Imagine having to raise that kind of capital just to start, and that's before factoring in the time delays.

Then you hit the regulatory maze. Building new pipeline infrastructure in North Dakota involves navigating complex and time-consuming permitting processes. For example, a project might require permits from two separate branches of the Corps of Engineers under Section 404 of the Clean Water Act and Section 10 of the Rivers and Harbors Act. If the route crosses federal land, a third agency like the U.S. Forest Service gets involved, and if it involves rights-of-way under the Mineral Leasing Act, the Bureau of Land Management (BLM) is a fourth federal agency to satisfy. While North Dakota has authorized state funding mechanisms to help catalyze large projects, like the Bakken East Gas Pipeline, the underlying federal and local hurdles remain a significant time sink.

HESM's contractual moat is perhaps the strongest deterrent. The company has long-term, dedicated Minimum Volume Commitment (MVC) contracts that effectively lock up a large portion of the Bakken's production flow. These commercial agreements with Hess Corporation have initial 10-year terms and include unilateral rights for HESM to extend each for one additional 10-year term. The MVC structure itself provides downside protection, with MVCs continuing to apply at 80% of nomination on a 3-year forward basis. These existing commitments imply a significant volume base, as they supported an expected annualized throughput volume growth of approximately 10% across gas, oil, and water systems from 2023 to 2025.

Here's a quick look at how those contracts create stability that new entrants can't easily match:

New entrants also face a disadvantage against HESM's integrated, established asset base. Hess Midstream LP owns, operates, develops, and acquires a diverse set of assets primarily located across the prolific Bakken and Three Forks shale plays in the Williston Basin area. This existing infrastructure handles gathering, compressing, processing, storage, and terminaling for both Hess Corporation and third-party customers. Building a competing system that matches this level of integration and existing customer base is incredibly difficult.

The barriers to entry boil down to a few key structural elements:

• Significant upfront capital required, evidenced by 2025 CapEx guidance near $270 million.
• Complex, multi-agency federal and state permitting processes for pipelines.
• Long-term MVC contracts securing a majority of affiliate volumes.
• Established, integrated asset footprint across the core Bakken region.

If a new competitor can't secure a major anchor customer willing to commit volumes for a decade or more, the economics of a large-scale pipeline simply won't work out.