Good day, ladies and gentlemen, and welcome to the Hess Midstream investor update call. My name is Kevin, and I will be your operator for today's call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised today's conference is being recorded for replay purposes. I would now like to turn the conference over to Jennifer Gordon, Vice President, Investor Relations. Please proceed.
Thank you, Kevin. Good morning, everyone, and thank you for participating in our investor call to discuss our definitive agreement with Chevron to establish Hess Midstream as an independent multi-basin midstream company. Our press release announcing the transaction was issued yesterday and appears on our website, www.hessmidstream.com. Today's conference call contains projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include those set forth in the risk factor section of Hess Midstream's filings with the SEC. Also, on today's conference call, we may discuss certain Non-GAAP financial measures. A reconciliation of the differences between these Non-GAAP financial measures and the most directly comparable Non-GAAP financial measures can be found in the press release.
With me today are Jonathan Stein, Chief Executive Officer, and Mike Chadwick, Chief Financial Officer. I will now turn the call over to Jonathan Stein.
Thank you, Jennifer. Good morning and welcome to the Hess Midstream Investor Update conference call to discuss the transaction that we announced yesterday. I am going to review the transaction and our go-forward business strategy, and then Mike will discuss the financial strategy going forward and provide initial guidance. There is also a presentation on the website to be viewed alongside our call comments. Starting with slide three of the presentation. We are excited to announce today entry into definitive agreement for a significant transformative transaction that will create a new independent multi-basin midstream company with leading positions in the Bakken and the DJ Basin. For Hess Midstream, we are now well-positioned for the long term with Chevron as an anchor customer and a solid foundation for independent growth while maintaining shareholder returns.
Looking at the elements of the transaction, Hess Midstream has agreed with Chevron to simplify our Bakken commercial agreements to support ongoing investment. This includes reducing our rates for 2027 through 2033, while extending the contracts through 2045 and replacing multiple volume-based MVCs with a single basin-wide minimum revenue commitment, or MRC, that allows for more flexibility in volume levels while continuing to provide our hallmark downside protection. The MRC will be established three years in advance, and once the MRC is established for a given year, it can only be increased and not decreased based on updated annual development plans provided by Chevron. MRCs from 2027 through 2029 have been established on a two-rig program. All of our fees will now be on a fixed-fee basis and continue to have inflation escalators.
In addition, Hess Midstream will pay Chevron $200 million at closing, which we expect to fund from our revolver. In exchange for the Bakken commercial agreement simplification and cash payment, we will be acquiring DJ Basin midstream assets from Chevron, as well as 100% of Chevron's ownership in Hess Midstream, including the general partner. The DJ Basin midstream assets include crude oil gathering and storage assets, gas and water gathering systems, 100% of the Black Diamond gathering system, and 20% of the long-haul interstate Saddlehorn pipeline. In terms of Chevron's ownership in Hess Midstream, this represents a complete exit by Chevron from Hess Midstream and will significantly reduce the total unit share count by approximately 40%, reducing total distributions and supporting transaction accretion on an adjusted EBITDA per share basis.
With the complete exit of Chevron and acquisition of the general partner, Hess Midstream will transition to a completely independent midstream company owned 100% by the public. I am excited to continue as CEO of this new independent company. We will be joining the board of directors with the initial size of the board set to seven members, including myself. The three current independent directors will remain on the board, and John P. Reddy, one of these independent directors, will become chairman of the board. We will begin the search for the remaining three directors as soon as possible, and directors will be elected by the public starting in 2028. In addition, both Hess Midstream and Chevron are aligned during this transaction through multi-year shared services agreements that support the establishment of an independent organization while allowing us to maintain safe and reliable operations. Turning to slide four.
After this transaction, we will have created an independent multi-basin midstream company that is well-positioned for growth and returns. The addition of the DJ Basin assets will significantly diversify and increase the footprint of our business, approximately tripling our crude gathering throughput and grow our gas gathering throughput by more than 30%, while also broadening our asset base with ownership participation in a long-haul crude pipeline. Our volumes are underpinned by long-term Chevron production plateaus in both the Bakken and the DJ. They will continue to be backed by strong commercial contracts with Chevron that now extend through 2045 and a 100% fee base with inflation escalators. In addition, primarily through our new MRCs in the Bakken and Chevron ship-or-pay commitments on long-haul pipelines in the DJ, approximately 70% of our revenue is downside protected.
With Chevron as our anchor customer in both the Bakken and the addition of the DJ Basin assets that include significant third parties, our third-party volumes will increase to approximately 20% of total volumes. Most importantly, leveraging the stable volume platform, we have the ability to focus on accretive growth opportunities, which we plan to prioritize as part of our go-forward capital allocation priorities. We will continue to maintain a solid financial foundation, with an expected 75% adjusted EBITDA margin and low ongoing capital requirements that support our volumes and drive sector-leading free cash flow conversion.
With this free cash flow generation, we will continue to target distribution growth of 5% per class A share on the annual basis through the fourth quarter of 2026 and expect our 2027 distribution to be maintained at that level, representing an approximate 2% annual distribution per growth rate that is fully funded by our adjusted free cash flow. Looking forward, we expect to have the ability to continue to fully fund distribution at that level, remaining free cash flow positive after distribution, and maintain leverage in the range of 3.5x- 3.75x adjusted EBITDA on a long-term basis. Turning to slide five. Following the transaction, Hess Midstream will have a sector-leading gathering platform and adjusted free cash flow conversion.
We will gather Chevron's second largest production platform, and we expect to be the largest gathering platform in the Bakken by volumes gathered, providing scale and efficiencies to compete effectively for new third-party business. We expect to maintain our sector-leading adjusted free cash flow conversion. With an established asset base and significant historical investment, we expect to have one of the lowest reinvestment rates in the sector with low ongoing required capital needs. Turning to slide six. With the addition of the DJ Basin platform, we will own the largest crude gathering system in the basin, operating a unique and irreplaceable system that gathers almost 100% of Chevron's DJ Basin oil gathering volumes. This platform provides a stable cash flow base and a growth platform to capture nearby opportunities with minimal capital investment from a dominant position.
The two gathering systems, including the Black Diamond gathering system, have approximately 400,000 bbl a day of crude gathering throughput capacity, 300 million cu ft per day of natural gas gathering capacity, and two terminals with a total of 420,000 bbl of storage capacity. These systems are competitively advantaged and have direct connectivity to every major pipeline in the DJ Basin, including Saddlehorn, White Cliffs, Grand Mesa, and Pony Express. Turning to slide seven. In addition to these gathering systems, Hess Midstream will also own a 20% equity stake in the Saddlehorn pipeline, which is the largest crude oil pipeline out of the DJ Basin, connecting Colorado to the Cushing Storage Hub in Oklahoma. The addition of long-haul pipeline ownership to Hess Midstream extends our participation in the midstream value chain and provides an additional source of stable and predictable cash flows supported by ship-or-pay commitments.
Turning to slide eight. The Bakken remains our historical base, where we have a high-quality, integrated portfolio with meaningful scale. Chevron intends to move from three to two rigs this December. For Hess Midstream, we now expect Bakken volumes to decline by approximately 5% through 2027 before plateauing in 2028. Our midstream assets remain best in class in the Bakken, with an integrated platform of 500 million cu ft per day of gas processing capacity, approximately 500,000 bbl a day of crude oil trucking capacity, approximately 700 million cu ft per day of gas gathering pipeline capacity, and approximately 300,000 bbl a day of crude oil gathering capacity. Putting it all together, this significant and transformative transaction creates a unique multi-basin midstream company with a long-term platform supported by Chevron as an anchor customer and a solid foundation for accretive growth and ongoing shareholder returns.
With that, I'll turn the call over to Mike to talk about our financial strategy and guidance.
Thanks, Jonathan. I will go over the transactions as well as our preliminary guidance. As Jonathan said, we are excited to deliver a transformative transaction to our shareholders that we expect to position Hess Midstream for strong performance in the future. Starting on slide nine. While Hess Midstream will transform into a new multi-basin company, we will also retain our hallmark downside protection, and we expect our contract terms, combined with enhanced duration, a fixed fee structure, and acreage dedications in the DJ Basin to provide long-term throughput visibility for Hess Midstream. The fee structure for all assets will continue to be fixed with inflationary protection. In the Bakken, minimum commitments have been set on a revenue basis on a two-rig program through the end of 2029.
They will continue to be set at 80% on a three-year rolling basis, and once established for any year, cannot be decreased for that year in the future. All currently in place cost-of-service contracts in the Bakken will be converted to this fixed fee structure. In the DJ Basin, Chevron has ship-or-pay commitments mainly through the Saddlehorn pipeline. Overall, post-transaction, approximately 70% of our total revenue has significant downside protection. In terms of throughput and visibility, Chevron will remain our anchor customer, and we will handle approximately 100% of Chevron's Bakken and DJ Basin crude gathering volumes. Turning to slide 10. In terms of our financial policy, we have updated our capital allocation priorities to reflect our new independent status following closing of the transaction.
First, we expect to grow our distribution at the targeted 5% rate through the fourth quarter of 2026 distribution, which will result in approximately 7% growth year-over-year in 2026, followed by approximately 2% growth in 2027. We plan to maintain the distribution at Q4 2026 levels in 2027 and expect to maintain that level while remaining free cash flow positive going forward. Second, from our larger operational base, we plan to pursue accretive growth opportunities, which includes capturing additional third-party volumes as well as potential M&A opportunities. Third, we expect to maintain our balance sheet strength and are targeting long-term leverage in the range of 3.5x- 3.75x adjusted EBITDA, which is within the boundaries of our peer set. Fourth, we will assess incremental shareholder returns, including distribution increases and/or share repurchases. Turning to slide 11.
We have issued preliminary 2027 guidance, which refers to ongoing baseline adjusted EBITDA of $900 million at the midpoint. This guidance includes an estimate of the net incremental revenue related to the contract liability associated with our new Bakken commercial agreements. We anticipate spending $125 million in the Bakken and DJ Basins, which consists of approximately $75 million in the Bakken, which includes the scheduled turnaround at Tioga Gas Plant, and $50 million in the DJ. We expect to continue to have sector-leading adjusted free cash flow conversion with a 75% gross adjusted EBITDA margin, leveraging significant historical investment in both basins and low ongoing capital needs. This strong financial basis should provide flexibility and position us well for future growth. We plan to issue updated 2027 guidance after the expected closing of the transaction at the end of the year.
An updated 2026 fiscal guidance can be found in the appendix to this presentation. Again, we are excited to deliver a transformative transaction to Hess Midstream holders and look forward to becoming a multi-basin independent midstream company with a long-term platform supported by Chevron as an anchor customer and a solid foundation for accretive growth and ongoing shareholder returns. With that, I'll hand the call back over to the operator to open the line for questions.
Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press star one one again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Ben Lund with Goldman Sachs. Your line is open.
Hey, team. Good morning, and thank you for the time. Maybe just starting on the 2027 guide, you are pointing to the midpoint of $900 million, and with the contract liability included in there. First, can you maybe help us frame up roughly how much of that $900 million is a cash versus non-cash recognition from that contract liability? Then maybe second, maybe frame up what the DJ opportunity looks like in 2027 and maybe longer term. Thank you.
Thanks, Ben. I will tackle the first part of your question, then I will hand it over to Jonathan to tackle the second part. Let me just walk you through some of that accounting on the non-cash piece. GAAP accounting rules for contract modifications like ours require that the substantial consideration for the transaction be recorded as a deferred revenue liability on the balance sheet, and that will amortize to income over the contract term, which is about 19 years to 2045. Revenue from the new Bakken fixed system reservation fees will also be treated for GAAP purposes the same way. They were negotiated as part of the same overall transaction. The net of these movements on these deferred revenue adjustments to EBITDA, they substantially offset each other such that the net impact to 2027 EBITDA, it is expected to be relatively small.
This required accounting for deferred revenue does not affect the cash we expect to receive, and we expect adjusted free cash flow to not include the impact of deferred revenue accounting adjustments. If you work back from the midpoint of our adjusted free cash flow guidance of $575 million with about $125 million of CapEx, interest costs similar to 2026 based on flat debt, and with no material cash taxes, it brings you back to the midpoint of our adjusted EBITDA guidance range. I would like to just stress that even if we removed the cash from fixed system reservation fees, our adjusted free cash flow is sufficient to fund our distribution for the foreseeable future. I hope that helps clarify how the non-cash portion of that deferred revenue adjustment finds its way into EBITDA.
We are not expecting it to have a material impact in 2027 because the way and the direction of the contracts offset each other. I will hand it over to Jonathan, though, to answer your second part of the question.
Yeah. Hey, thanks for the question. In terms of the DJ, we are super excited to be adding that to our portfolio. As I talked about in my comment, it really diversifies our platform. It is a platform that Chevron themselves has continued to grow their position over time through successive acquisitions. Like all the basins in the Chevron portfolio, they continue to improve their economics as they bring new technologies and efficiencies and things like longer laterals that drive down breakevens. So really with all those improvements, we are really looking at a long-term plateau that underpins our volumes from Chevron. At the same time, the DJ Basin itself is really well-positioned for third parties. It includes, as I mentioned in my comments, already includes significant third-party volumes that results in an increase in our total third-party volumes to about 20% of our volumes going forward.
Similar to the Bakken, where we have significant optionality there as well. The system is largely built out in terms of the asset base, so that will allow us to continue to competitively bid on third-party opportunities. Combined with, as I mentioned, the connectivity that we have to every long-haul pipeline, we expect to be strongly positioned to win new third-party businesses there.
Look, I think it is important to say that now as an independent company, the DJ itself really summarizes, I think, one of the really unique elements now of our business model going forward and really makes it a differentiated business model, which is that we have base volumes supported by Chevron as our anchor customer with low ongoing CapEx, supporting significant free cash flow generation, as Mike said, even after distributions and taking away free cash flow after distributions will fully fund our distributions going forward for really the foreseeable future. That means that we have a sponsor-level customer commitment. But at the same time now as an independent company, we have the independence to prioritize the capital allocation for growth opportunities and pursue third parties in a disciplined way.
Awesome. That is all clear. Thanks for the color there. Maybe if I can just ask one more on the distribution. You mentioned you are expecting to grow 5% annualized through the back half of this year and then holding flat through 2027. I guess I would just be curious on what has to happen for growth to resume on the distribution. Is that a certain leverage level you want to get to or a coverage ratio you look at? Or is that kind of a longer-term strategic decision to keep it flat?
Yeah. Thanks, Ben. I will tackle that. It is really driven by our new financial policy and that hierarchy of priorities. As we think through it, we are going to be sustaining that distribution at the Q4 2026 levels, and that will be funded as we say, out of adjusted free cash flow for the foreseeable future. So that is priority number one. After that, we will look to grow, and we will do that in a disciplined, accretive manner. Thirdly, we will try and maintain our balance sheet strength and focus on keeping within that target range of 3.5x- 3.75x leverage. So those are the first three priorities. Fourthly, out of any remaining adjusted free cash flow after distributions, we will look to evaluate whether we want to do shareholder returns, and that might take the form of increases to the distribution or additional buybacks.
But it will be in that order of priorities that we focus on how we allocate the surplus capital.
Okay, great. Thanks for the time. I will pass it back.
Thank you. One moment for our next question. Our next question comes from Doug Irwin with Citi. Your line is open.
Hey, team. Thanks for the question. Maybe just one follow-up on the kind of cash versus non-cash piece of the contract structure. Understand kind of your commentary around 2027, but just to be clear, I guess, can you talk to kind of how that cash versus non-cash dynamic might shift over time? Just essentially wondering if there's the potential for an inflection at some point in the future that could more materially impact the free cash flow outlook.
Yeah, thanks for the question, Doug. Yes, I think in the long term, we really look towards the adjusted free cash flow as being sufficient really to fund the distribution just on its own. There is a system fee, reservation fees in there, and they do enhance our EBITDA and cash flow. But the accounting would require that that offsets against the long-term contract nature, and that's really what we're seeing going on against in 2027, as they really do offset each other. But on the long-term basis, we're very comfortable that our adjusted free cash flow is sufficient on its own to fund distributions. Adjusted free cash flow as well, going forward, it won't include the net impact of any non-cash accounting deferred revenue adjustments that we make. We'll be taking those out. So on a cash basis, we're in a good position.
We expect to have in our midpoint of our guidance for 2027, we have about $160 million of adjusted free cash flow after distributions. So we feel comfortable that that cash position is really what is going to be able to shore up our distributions going forward.
Hey, Doug, this is Jonathan. Just as for clarity, because I know this is a question coming up. Just for clarity, the free cash flow after distribution that we have more than exceeds any fixed system reservation fees that are in our model. So on a go-forward basis, with or without those, we're able to fully fund our distribution from free cash flow for the foreseeable future.
Okay. Understood. Maybe a follow-up on leverage. If I just do some math on 2027, I'm getting right around 4x , which is maybe the high end of what you talked about. Just curious how quickly you anticipate being able to get back down to that 3.5x- 3.75x long-term target, and more generally, what's your path to getting there? Is it tied to being able to win some third-party volumes and grow EBITDA? Or is it going to be more tied to paying down debt with some excess free cash flow?
Yeah. Thanks, Doug. The key thing here as well as you observe is that the leverage increase is not due to increases in debt. Our debt level is expected to remain relatively flat to 2026, and we're going to be incrementally cash flow positive after distributions, and that will help bring down the debt level that we have going into 2027. So there is a range around the EBITDA, and there is a range around our guidance, and that's why we've gone with a pretty wide guidance range on our leverage from 2027 of 3.75x- 4x . But we expect to try and get down to the 3.5x- 3.75x in the long range, and we'll use the surplus adjusted free cash flow after distributions in order to get there. We do not anticipate leveraging up further.
But obviously all of that is subject to the appropriate and disciplined look at growth, and that may cause us to temporarily change our view on the leverage, but we would aim to nonetheless get down to the 3.5x- 3.75x long-term guidance.
This is Jonathan. Let me just add on. The case that we're presenting is really just our base case, really based on, really as we talked about Chevron as our anchor customer, as well as 20% total third-party volume. So we're not incorporating any additional upside beyond that. If we think about what we're going to be focused on really now going forward, it's really, we'll call it in the short term, but really in the short to medium term, it's really three things. First is continuing to operate at the high level of safety and efficiency that has been the hallmark of Hess Midstream, transitioning through a structured process to an independent company. Then as Mike said, and I said, discipline a pursuit of accretive growth opportunities, none of which are in our plans going forward.
As we do that, as I talked about, we have this incredible strategic footprint, both in the Bakken and DJ. We'll look for commercial opportunities as well as the opportunity for accretive asset or business acquisitions that can complement that footprint. We can even look outside our footprint. Now as an independent company, we really have the ability to pursue these opportunities in a disciplined and focused manner. Again, with Chevron though, and the Bakken and DJ as our base, there's no pressure. We're not trying to backfill any type of hole. The base that we presented is a solid base that allows us to fund our distributions from free cash flow for the foreseeable future.
We'll keep our focus on financial priorities, including, as Mike said, funding our current distribution and potential incremental shareholder returns from free cash flow while maintaining balance sheet strength. Again, like we talked about, our leverage is really that 3.75x- 4x only in 2027. Then beyond that, we expect to de-lever quickly because again, we're free cash flow positive after distribution, going forward. Again, that just really emphasized what I said earlier. There's this unique and differentiated business model. We have this base volume, that's our base plan. Chevron is the anchor customer, 20% third parties, but we have now the independence to prioritize capital allocation for growth opportunities.
Got it. If I could maybe sneak one more in as well, just on the contracts. You obviously used to give the explicit MVC levels. Just curious if there's any similar color you can give on the minimum revenue commitments. Is it as simple as just taking 80% of your 2027 implied revenue guide, and directional guidance on 2028 you can give? Should we essentially just expect these MRCs to hold flat if volumes are plateauing?
Yeah, in the past, we just had the Bakken. That was our single basin. Now as a multi-basin, and this just being a percentage, we're not going to give out the MRCs going forward. As we've talked about, we do expect plateau volumes now, a slight decline in 2027, but then plateauing after that, in terms of our volume. So that's an indicator, obviously, of our revenues as well, in terms of expectations. So, generally we expect the MRCs to be relatively flat, going forward. But then, we're not going to be giving those out. We'll give out, of course, guidance each year, and that will be supported by that. As we said, Mike really highlighted, still 70% of our revenues are downside protected. That's a combination of these MRCs in the Bakken. But then also in the DJ, Chevron has long-haul ship-or-pay commitments.
We are gathering 95% of their crude oil gathering in the DJ. That really also provides lots of protection as well as, of course, on Saddlehorn. There are own as well, ship-or-pay commitments as well.
Got it. Thanks for the time.
Thank you. One moment for our next question. Our next question comes from Jeremy Tonet with JPMorgan Securities LLC. Your line is open.
Hi. Good morning.
Good morning.
Morning.
Just wanted to come back, I guess, as we think about the forward outlook here. I know you're not providing guidance past 2027 at this point, but I guess, as we try to think about directionally speaking, do you expect things to remain flat at that point? Could there be another step-down here? I guess we're still waiting for the 2029 nominations, and so just trying to get a feel for what the future could hold here.
Sure. Well, look, we're really excited about the future. Let me just start off by saying there is no step-down. There's no cliff or anything like that expected to occur. As Mike said, and I said, the MVCs are already set through 2027 through 2029, so those are already set. As I just said, in the previous question, we expect those to be relatively flat based on a plateau production by Chevron there as well. Again, we talked about that we can really maintain, as Mike kind of walked through, the EBITDA itself doesn't have really, on a net basis, much deferred revenue. That all just kind of nets out. So our free cash flow, our EBITDA, is expected to be what you see.
If 2027 is a good indicator, certainly of a baseline as we go forward, a low ongoing capital gets it to similar free cash flow that we are able, as we've said, to be able to fully fund our distribution at that end of 2026 level for the foreseeable future. Then, as I talked about, this is just the baseline. This is just the Chevron Plateau and the DJ and the Bakken, 20% third parties. Now, with the independence that we have, we have the opportunity to continue to pursue third-party opportunities, whether those be commercially, whether those be, as I said, through accretive and disciplined pursuit of assets or businesses to complement our platform or beyond. All of that, none of that is in the plan, and we certainly have the ability to do that now.
Again, we have that unique combination of a sponsor-level commitment in terms of our volume, while at the same time have the independence to pursue additional growth, none of which is in our plan going forward. So no step down, and if anything, we're excited about the upside going forward.
Thinking about the distribution going forward, how do you think about the right level of coverage, be it DCF or free cash flow or otherwise?
Yeah, I think we expect to pay our distribution solely from the adjusted free cash flow. So we won't be taking any further leverage for that, and we expect to be able to maintain at the Q4 2026 distribution rate for the foreseeable future. Our adjusted free cash flow is supported, as Jonathan Stein says, by the 70% downside protection that we have. It'll be a function of, as we've discussed, our financial priorities, which will be first prioritizing maintaining that distribution at that level, and then seek disciplined accretive growth, maintaining a strong balance sheet, and then finally assessing whether there are further shareholder returns that we can do based on either increased distributions or buybacks, but in that order.
Got it. But no specific 1.X free cash flow coverage on the dividend or anything like that, it sounds like. Then maybe just going to leverage, I guess. How do you think about this being the right leverage level versus previously you're looking at something lower and this doesn't seem to necessarily have growth out of the gate here. So just wondering how you think about that as well.
Yeah. This is a complete reset, obviously, with a transformational transaction like this from where we were previously. As I mentioned earlier, we're not increasing leverage as a function of debt increasing. It is because of the EBITDA profile, and we expect to get down to 3.5x- 3.75x in the long term, which remains within the range for the midstream space. I think it also gives us the flexibility we need to pursue growth. We're comfortable with that in the long range, and that's where we would target it. If we are going to do growth, it will be in a disciplined manner so that it is accretive, and we aim to get back down to that 3.5x- 3.75x in a short time after that.
Yeah, I think it's important to highlight that this is just a different risk model, different profile going forward. We have a diversified basin now. We had before a 2033 contract ending, we had to figure out what to do with. Now we're extended to 2045. We continue to have downside protections, as we talked about, both directly in the Bakken, indirectly in the DJ. We have addition of now long-haul pipeline capacity or ownership as part of our providing stable cash flows there. At this point, you could say it was a really different model historically and really not even comparable. If anything, I think as people have asked us in the past, we may have been even kind of under-leveraged relative to the sector or potential.
But obviously, we maintain that level given the risk that we had, single customer, single basin, and a contract termination, if you will, and a renegotiation coming up. All of that now, all that has been de-risked, all that taken away. As Mike said, it's not a function of absolute debt level. It's really a function of resetting the business now going forward. So we're really comfortable. Again, we're going to continue to at least maintain the base distribution. But to the extent, of course, as Mike said, while maintaining balance sheet strength, that we have the ability to have incremental shareholder returns from free cash flow. Of course, those will continue to be as they've always been part of our priorities.
But moving up in the priority now with the independence that we have to be able to pursue third-party growth in whatever form that is, that's going to be our first priority. Beyond that, whatever's left over, of course, will go back to shareholders as we've always done.
Got it. Just one quick last one, if I could. Just wondering if in the process, if the committee or otherwise considered other metrics besides EBITDA per share accretion, seeing if anything else was accretive, given that the debt EBITDA was moving up in the transaction, so that impacts that metric.
Yeah, sure. Of course, the committee looked at all different types of metrics as part of this. There was a process done with our conflicts committee and their own advisors, and of course, they did a full analysis. Of course, we're only just providing EBITDA per share as an accretion metric, but of course, they looked at multiple metrics. The important point which I think really highlights, and think of EBITDA per share as just an example of that, is just a 40% reduction in the share count. That allows for significant accretion or improvement on a per-share basis. So you can do the math yourself. You can look at our free cash flow. You can look at where we are relative to 2026. That significant reduction obviously is a metric, of course, that they looked at and certainly something that we see as important.
When you look at leverage, all of that gets considered into that. So certainly, again, we look at the situation where we're at. I'm sure the committee looked at it as well, relative to where we are currently and looking forward is only just accelerating value to shareholders.
Got it. Thank you. Just the last one, there's no conversion to C corp here, right?
No, that's a good question. We're staying as an Up-C. Really, that allows us to continue to have the structure, particularly as we go into this two-year transition period with Chevron. The Up-C really provides, as a partnership, the continuity that we have with the existing structure. We don't want to be going through another potential change right at this moment, and it really supplements, if you will, our ability to have this transition in an organized way. As I said, in terms of our priorities, it's really obviously continuing to operate safe and reliably. Number two, as I mentioned, is really transitioning to an independent company and maintaining the Up-C structure really facilitates that during this process.
Doesn't limit us in any way, in terms of currently from an investor point of view, in terms of the same way that investors have always invested in us, they'll continue to do. It's an important point that from a liquidity point of view, the public shares are still the same as they were. All of this accretion comes from the reduction in Chevron shares. Then, of course, we'll continue to move people over to Hess Midstream over that two-year period in a very structured manner as we continue to have the TSA and the secondment agreement to allow us to do that in an organized way that will allow us to continue to focus on safe and reliable operations at the same time.
Got it. Thank you.
Thank you, ladies and gentlemen. This concludes today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.