Chevron to exit Hess Midstream and DJ Basin midstream for Bakken cost cuts and $200 million cash

Chevron (CVX) said it will divest its ownership interests in Hess Midstream (HESM) and its DJ Basin crude oil midstream assets, according to the company's release. Chevron and several subsidiaries signed definitive agreements with Hess Midstream to restructure its Bakken midstream contracts and set up new DJ Basin midstream contracts. Chevron will transfer its ownership interests and general partner position in Hess Midstream, plus the DJ Basin assets, in exchange for an improved long-term commercial framework and $200 million in cash.

The main benefit is on cost. The revised agreements extend the Bakken contracts and are expected to reduce Chevron's Bakken unit midstream costs by approximately 50%, which Chevron says is accretive to return on capital employed by 0.5% on an absolute basis. Hess Midstream remains Chevron's midstream service provider under these contracts. Chevron's Andy Walz said the deal resets the commercial framework between its upstream and midstream assets and positions Hess Midstream to advance as an independent company.

The accounting is where the headline number comes from. At closing, Chevron expects to recognize a one-time after-tax loss estimated at approximately $3 billion to $4 billion, because it cannot book future Bakken midstream cost savings as an asset. Chevron expects the loss to be treated as a special item. It is a forecast tied to closing, not a loss already recorded. Chevron also expects to fully deconsolidate Hess Midstream, including approximately $3.7 billion of Hess Midstream debt.

The conflicts committee of Hess Midstream's general partner board, made up of independent directors, approved the transaction. Closing is expected by year-end 2026, subject to customary conditions and regulatory approvals.

Investors may want to watch the closing date, the final size of the loss within the guided range, and how quickly the Bakken cost reduction shows up in Chevron's results.