Chevron to offload certain midstream assets in exchange for amended Bakken midstream terms

Chevron announced this week that it is shaking up its midstream operations. Several of the company’s subsidiaries have entered into a series of agreements with Hess Midstream to restructure the terms of Chevron’s Bakken midstream contracts and establish new Denver-Julesburg (DJ) Basin midstream contracts. In exchange for amended commercial terms and $200mn in cash, Chevron will transfer its ownership interests and general partner position in Hess Midstream, as well as its DJ Basin crude midstream assets, to Hess Midstream.

Chevron said in an October 6 announcement that the revised agreements extend the Bakken contracts and are expected to reduce its Bakken unit midstream costs by around 50%.

As a result of the transaction, Chevron will fully deconsolidate Hess Midstream, including roughly $3.7bn of Hess Midstream's debt. The supermajor said expects this transaction to be accretive to return on capital employed by 0.5% on an absolute basis while generating long-term future economic value through a lower cost structure and improved earnings.

The deal is anticipated to close by the end of 2026. At this point, Chevron expects to recognise a one-time after-tax loss estimated at around $3-4bn. It attributed this to the fact that it would be unable to recognise future Bakken midstream cost savings as an asset.

“This transaction resets the commercial framework between our upstream and midstream assets in the Bakken and DJ Basins,” stated Chevron’s president of downstream, midstream and chemicals, Andy Walz. “It lowers our Bakken cost structure while positioning Hess Midstream to advance as an independent company.”

The overhaul comes as Chevron continues to optimise its portfolio following its acquisition of Hess last year, including Hess Midstream.

In its own announcement, Hess Midstream said the transaction would establish it as an independent, multi-basin midstream company. Following the closing of the deal, Hess Midstream will own 100% of the Hess Midstream General Partner.

“Hess Midstream will be strongly positioned to deliver growth and returns as an independent, multi-basin midstream company with leading positions in the Bakken and DJ Basins and contracts in place through 2045,” stated Hess Midstream’s CEO, Jonathan Stein.

The DJ Basin assets that will be taken over by Hess Midstream are located primarily in Colorado’s Weld County. They include roughly 400,000 barrels per day (bpd) of oil gathering capacity, 300mn cubic foot (8.5mn cubic metres) per day of gas gathering capacity and 420,000 barrels of storage capacity. The assets also include a 20% stake in the Saddlehorn pipeline. The assets are supported by around 670,000 dedicated acres (2,711 square km), anchored by agreements with Chevron until 2045 as well as what Hess Midstream described as a “diverse set of investment grade counterparties”.

Following its integration of these assets, Hess Midstream expects to be among the largest midstream companies in the DJ Basin in terms of volumes gathered.