Strategic Execution and Operational Drivers
Performance attribution for the quarter was impacted by severe winter weather in January and February, partially offset by a volume recovery in March and the capture of additional third-party gas.
Management is right-sizing capital expenditures, reducing 2026 guidance by one-third to approximately $105 million due to the completion of major infrastructure and upstream efficiencies.
The shift by Chevron toward longer laterals is a primary driver of capital efficiency, as it reduces the number of required well connects while improving well economics.
Strategic positioning remains anchored by a fixed-fee contract structure and Minimum Volume Commitments (MVCs) through 2028, providing significant downside protection.
Operational leverage remains high with a gross adjusted EBITDA margin of approximately 83%, significantly exceeding the company’s 75% long-term target.
The company successfully utilized its system optionality to capture third-party volumes from other midstream providers facing operational challenges.
Outlook and Strategic Assumptions
Adjusted free cash flow guidance for 2026 was increased to $910 million–$960 million, a 20% year-over-year increase at the midpoint, driven by lower CapEx and deferred cash taxes.
Management expects a second-half EBITDA increase of approximately 8% compared to the first half, supported by volume growth as new well completions come online.
The company does not expect to pay material cash taxes until after 2028, following new IRS guidance regarding the corporate alternative minimum tax.
Strategic planning is aligned with Chevron’s target to maintain a plateau production level of approximately 200,000 barrels of oil equivalent per day in the Bakken.
Second quarter volumes are expected to be impacted by planned maintenance at the Tioga Gas Plant, estimated to reduce throughput by 5 million to 10 million cubic feet per day.
Capital Allocation and Risk Factors
Completed a $60 million share and unit repurchase in March, leading to a distribution level increase to maintain total distributed cash on a lower share count.
The company is targeting a long-term leverage range of approximately 2.5x to 3.0x debt-to-EBITDA by 2028 through natural EBITDA growth and debt repayment.
Contractual protections and governance guardrails, including independent director approval requirements, prevent unilateral contract changes by the sponsor.
The bar for inorganic M&A remains high as management prioritizes the existing high-yield business model and organic free cash flow generation.
