Midstream energy companies make money by charging producers, shippers and other customers to gather, process, transport, store and handle oil, natural gas, natural-gas liquids and produced water. Some contracts pay mainly fixed or per-volume fees; others tie compensation to commodity-sale proceeds or products retained. Fee-based revenue can reduce direct exposure to oil and gas prices, but it does not remove risks from lower throughput, contract terms, costs or capital needs.
What midstream companies do
Midstream is the link between producing wells and the businesses or consumers that buy energy products. Its assets may collect oil or gas near wells, prepare raw gas for sale, move commodities through pipelines, store them, separate natural-gas liquids, or handle produced water. One company may operate several of these services, but the assets and contract models differ by operator.
For example, Kinetik describes businesses spanning gathering and processing, crude-oil services, produced-water services and pipeline transportation. ONEOK also reports multiple service and product segments. These company filings illustrate the range of midstream activities; they do not establish a uniform industry contract mix. Kinetik’s 2025 Form 10-K; ONEOK’s 2025 annual report.
Where the revenue comes from
Gathering and compression
Gathering lines carry crude oil or natural gas from producing wells to a processing plant, larger pipeline, terminal or other delivery point. An operator may charge based on the volume gathered, compression services, or both. These systems are often regional, so the wells they serve and their connections to downstream infrastructure affect their usefulness and utilization.
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Treating and processing natural gas
Raw natural gas may need compression, dehydration or contaminant removal before sale. Processing can separate marketable residue gas from natural-gas liquids. Operators may charge fees for treating and processing, or receive compensation partly through the products or sale proceeds specified in their contracts.
Transportation, storage and handling
Pipeline operators may earn usage charges based on volumes moved, capacity-reservation charges for reserved service, or a combination. Storage facilities can charge for reserved capacity and related services; terminals charge for handling, and fractionation plants separate natural-gas liquids into components. ONEOK’s 2025 filing describes transportation, exchange, terminal, fractionation and storage services, including firm-transportation and take-or-pay structures. ONEOK’s 2025 annual report.
Crude oil, liquids and produced water
Midstream services can also include stabilizing and storing crude oil before transport, moving natural-gas liquids, and collecting produced water for treatment or disposal. These services broaden a company’s revenue sources beyond gas gathering and processing, but the exact fee and contract terms vary by asset and customer. Kinetik’s 2025 Form 10-K.
How contract structures change the economics
Fee-based contracts
A fee-based agreement pays for a service, often according to throughput or reserved capacity, rather than directly sharing the commodity’s sale price. This can reduce direct commodity-price exposure. It does not guarantee a set amount of revenue if fees depend on actual volumes and customers produce or ship less.
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Percent-of-proceeds and percent-of-products
Under a percent-of-proceeds contract, the operator sells outputs and remits the producer’s agreed share of sale proceeds; the operator’s compensation is defined by the contract and may include a retained share or fees. Under a percent-of-products contract, the operator receives an agreed share of processed products. These arrangements can expose the operator’s economics to commodity prices or product values. They do not necessarily mean the operator buys and resells the entire stream, and reported gross revenue can be misleading if commodity sales and producer remittances are both included.
Keep-whole contracts
In a typical keep-whole arrangement, the processor retains extracted natural-gas liquids and compensates the producer for the gas removed during processing, often by returning equivalent gas value or volume. The processor’s margin can therefore depend on the relationship between the value of the liquids retained and the gas used or returned. Hedging may reduce some price exposure, but it does not make every contract or business unit risk-free.
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What makes revenue steadier—and what can still go wrong
Fee-based contracts, capacity reservations, minimum-volume commitments and minimum-dollar commitments can make revenue more predictable, depending on the agreement. A minimum commitment may require a customer to make a shortfall payment if deliveries fall below a threshold. Its protection depends on the contract language, the customer’s ability to pay, enforceability and any exceptions or termination rights. Kinetik’s filing, for example, notes circumstances in which some customer agreements can allow obligations to be suspended, reduced or terminated. Kinetik’s 2025 Form 10-K.
- Volume risk: When fees depend on actual throughput, lower customer production or shipping means lower revenue. Weak commodity economics can reduce drilling or production over time even if the midstream fee itself is not indexed to commodity prices.
- Commodity and spread risk: Proceeds-sharing, product-retention and keep-whole arrangements can vary with commodity prices or the relative values of residue gas and natural-gas liquids.
- Utilization and competition: An asset needs sufficient throughput to earn returns on installed capacity. Competing systems or customers building their own facilities can put pressure on utilization and commercial terms.
- Costs and capital: Pipelines and plants require maintenance, integrity management, fuel and power, regulatory compliance and, in some cases, new construction. Project economics depend on asset costs, financing and contract terms—not simply on being a midstream business.
- Customer and contract risk: Revenue depends on counterparties honoring agreements and remaining financially able to do so.
Are midstream companies insulated from oil and gas prices?
Not completely. Fee-based arrangements generally reduce direct exposure to commodity prices, but volume can still fall if customers scale back production. Contracts that share proceeds or products can expose margins to prices and spreads. The effect depends on the operator’s particular asset base, contract mix, customers and hedging; a company’s “midstream” label alone does not establish how its earnings respond to price changes.
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Western Midstream reported that for the year ended December 31, 2025, excluding equity investments, 97% of its wellhead natural-gas volume and 100% of its crude-oil and produced-water throughput were under fee-based contracts. That is a company-specific throughput statistic, not an industry average or a percentage of revenue. Western Midstream’s 2025 Form 10-K.
When pipeline rates are regulated
Regulation depends on the facility and service. For relevant interstate natural-gas pipeline services, FERC requires rates to be “just and reasonable.” The agency explains: “Under cost-of-service ratemaking, rates are designed based on a pipeline’s cost of providing service including an opportunity for the pipeline to earn a reasonable return on its investment.” FERC, Cost-of-Service Rate Filings.
Intrastate pipelines are generally regulated by state agencies, although some services can fall under limited federal authority. FERC’s rules do not apply to every gathering line, processing plant, crude-oil pipeline or water system. FERC, Understanding Interstate and Intrastate Natural Gas Pipelines.
How to assess a midstream company’s business model
To understand how a specific operator earns money, compare like with like in its filings and use the same reporting period. Look at:
- the mix of fees tied to services or reserved capacity versus commodity-linked compensation;
- contract duration, customer commitments and any shortfall-payment terms;
- customer and producing-basin concentration;
- throughput, capacity utilization and whether volumes are growing;
- exposure to commodity prices and product spreads;
- which assets it owns, such as gathering lines, processing plants, pipelines, storage, fractionation or terminals; and
- the regulatory regime applying to each service.
Do not treat a company’s fee-based throughput percentage as comparable to another company’s fee-based revenue percentage: those figures measure different things.
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