- Chevron (TSX:CVX) will exchange its Hess Midstream stake and DJ Basin assets for revised Bakken contracts and C$200m in cash, with midstream costs expected to be cut by about 50%
- The deal will remove roughly C$3.7bn of Hess Midstream debt from Chevron’s books and is expected to improve return on capital employed by 0.5%
- Hess Midstream will become an independent multi-basin operator, adding DJ Basin assets with significant oil, gas gathering and storage capacity in Colorado
- Chevron stock (TSX:CVX) opened trading at C$26.77
Chevron (TSX:CVX) has agreed to divest its ownership interests in Hess Midstream, along with its crude oil midstream assets in the Denver Julesburg (DJ) Basin in the United States, as part of a business transaction with Hess Midstream aimed at improving long-term profitability and capital efficiency.
Under the definitive agreements, Chevron will transfer its entire stake in Hess Midstream as well as its DJ Basin midstream assets in exchange for revised and extended Bakken midstream contracts and C$200 million in cash consideration. The company said the updated commercial arrangements are expected to reduce its unit midstream costs in the Bakken region by approximately 50%.
The agreements extend Chevron’s existing Bakken contracts through 2045 and are designed to enhance future earnings while improving return on capital employed. The revised terms include lower tariff rates for gathering and processing services from 2027 through 2033 and a shift from a cost-of-service structure to a fixed-fee model with inflation-linked escalators.
This article is a journalistic opinion piece that has been written based on independent research. It is intended to inform investors and should not be taken as a recommendation or financial advice.
As part of the transaction, Chevron will fully deconsolidate Hess Midstream from its financial statements, including approximately C$3.7 billion of Hess Midstream debt. While the move is expected to generate long-term economic benefits, Chevron anticipates recording a one-time after-tax loss of between C$3 billion and C$4 billion upon closing because accounting rules do not allow the company to recognize future Bakken cost savings as an asset.
“This transaction resets the commercial framework between our upstream and midstream assets in the Bakken and DJ Basins,” Andy Walz, Chevron’s president of downstream, midstream and chemicals, said in a news release. “It lowers our Bakken cost structure while positioning Hess Midstream to advance as an independent company.”
Despite the expected accounting charge, Chevron said the deal should increase its return on capital employed by approximately 0.5 percentage points on an absolute basis. The company added that it expects to maintain Bakken production levels through ongoing technology deployment and operational improvements developed across its global shale and tight-rock portfolio.
For Hess Midstream, the transaction marks a significant expansion that will see the company operate as an independent, multi-basin midstream operator following completion of the deal.
The acquisition includes Chevron’s crude oil and natural gas gathering and storage assets in the DJ Basin, primarily located in Weld County, Colorado. The assets feature approximately 400,000 barrels per day of oil gathering capacity, 300 million cubic feet per day of natural gas gathering capacity, and roughly 420,000 barrels of storage capacity.
The transaction also includes a 20% interest in the Saddlehorn Pipeline, a key transportation system linking the DJ Basin to the major oil storage and trading hub in Cushing, Oklahoma.
According to the companies, the DJ Basin asset portfolio includes approximately 670,000 dedicated acres supported by Chevron and other counterparties under long-term commitments extending through 2045.
The revised Bakken agreements further strengthen Hess Midstream’s revenue visibility. The contracts contain a minimum revenue commitment equal to 80% of Hess Midstream’s expected Bakken revenues from Chevron through 2033, providing a stable cash flow framework while supporting Chevron’s objective of lowering operating costs.
The deal highlights Chevron’s efforts to streamline its asset portfolio and improve capital returns while enabling Hess Midstream to broaden its geographic footprint and strengthen its position as a diversified midstream infrastructure company.
Chevron is a major producer of crude oil and natural gas; it manufactures transportation fuels, lubricants, petrochemicals and additives; and develops emerging technologies for renewable fuels, hydrogen, carbon capture and carbon offsets.
Chevron stock (TSX:CVX) opened trading 0.79% higher at C$26.77 and has risen more than 30% since this time last year.
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