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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. Many contracts pay a fee for each unit handled or for reserved capacity; others tie compensation to commodity-sale proceeds or products retained. Fee-based revenue can soften direct exposure to oil and gas prices, but it does not remove risks from falling production, lower volumes, contract terms, costs or capital needs.
What midstream companies do
Midstream is the infrastructure and services between production and end markets. A gathering line carries oil or gas from wells to a processing plant, larger pipeline or terminal. Processing plants prepare raw natural gas for sale and separate natural-gas liquids (NGLs). Pipelines and terminals move or handle products; storage and fractionation provide additional services. Some operators also stabilize crude oil and collect produced water for treatment or disposal.
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One company may own several types of assets and serve different parts of the chain. Kinetik describes gathering and processing, crude-oil services, produced-water services and pipeline transportation in its 2025 Form 10-K; ONEOK also reports multiple service and product segments in its 2025 annual report. Their disclosures illustrate possible business lines, not a contract mix shared by every midstream operator.
How midstream companies earn revenue
Gathering and compression
Gathering systems collect crude oil or natural gas from producing wells and move it to a processing plant, trunk line or other delivery point. The operator may charge for the volume gathered, compression provided, or both. Because these systems are often regional, access to producing wells and connections to downstream infrastructure can affect their usefulness and utilization.
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Treating and processing natural gas
Raw gas may need compression, dehydration or contaminant removal before sale. Processing can also separate residue gas from NGLs. An operator may charge a service fee, but the compensation can instead—or additionally—depend on the sale proceeds or products from the processed stream. The contract determines which model applies.
Commodity proceeds and product-share contracts
In a percent-of-proceeds contract, the operator sells output and remits the producer’s agreed share of the sale proceeds; the operator’s compensation is set by the agreement. In a percent-of-products contract, the operator receives an agreed share of processed products as compensation. These arrangements vary. They do not necessarily mean an operator buys and resells the entire stream, and companies may report sales on different gross or net bases.
A keep-whole contract typically lets the processor retain extracted NGLs while returning equivalent gas value or volume to the producer to compensate for the gas removed during processing. The processor’s economics then depend in part on the relationship between the value of retained liquids and the gas used or returned. Hedging may offset some price exposure, but it does not eliminate every risk.
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Pipeline operators can charge for volumes transported, reserved capacity, or both. Storage operators may earn fees for reserved capacity and related services; terminals and fractionation plants charge for handling and separating products. ONEOK’s 2025 filing describes transportation, exchange, terminal, fractionation and storage services, including firm transportation and take-or-pay structures.
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In relevant interstate natural-gas pipeline cases, rates are subject to FERC regulation. The Federal Energy Regulatory Commission explains that “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.” See FERC’s Cost-of-Service Rate Filings page. FERC jurisdiction is not a blanket rule for all midstream assets: treatment depends on the facility and service. Interstate and intrastate pipeline oversight differs, and intrastate pipelines are generally regulated by state agencies, as FERC outlines in Understanding Interstate and Intrastate Natural Gas Pipelines.
Crude oil, NGLs and produced water
Midstream operators may gather and stabilize crude oil, store it and connect it to pipelines or terminals. They may transport and fractionate NGLs, or collect produced water for treatment or disposal. These activities broaden the service mix beyond natural-gas gathering and processing; how they are paid for depends on the particular contract.
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What makes revenue more predictable—and what can still go wrong
Fee-based contracts generally link revenue to service volumes or agreed capacity charges rather than directly to commodity prices. Firm capacity reservations, cost-of-service rates and minimum-volume or minimum-dollar commitments can add predictability. A minimum commitment may require a customer to pay a shortfall if deliveries fall below a threshold, but the protection depends on the contract, the customer’s ability to pay and any exceptions or termination rights.
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- Commodity and spread risk: Proceeds-sharing, product-retention and keep-whole arrangements can change in value with commodity prices or the relative prices of residue gas and NGLs.
- Contract and customer risk: Minimum commitments depend on enforceable terms and customer credit. Kinetik’s filing notes that some customer agreements allow obligations to be suspended, reduced or terminated in specified circumstances.
- Utilization and competition: Infrastructure needs throughput to earn returns on installed capacity. Competing systems or customers building their own facilities can reduce utilization or weaken commercial terms.
- Costs and capital: These asset-heavy businesses must fund integrity management, maintenance, fuel and power, compliance and, where needed, new construction. Project economics depend on the asset, contract, costs and financing—not simply on being classified as midstream.
- Regulation: Applicable rules depend on whether a facility or service is interstate, intrastate, gathering, processing or another activity.
How to assess a company’s business model
To understand how a particular midstream company makes money, use its filings to separate service fees from commodity sales and examine the terms behind each revenue stream. Useful points of comparison include:
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- Share of revenue from fixed or volume-based fees versus commodity-linked arrangements.
- Contract duration and customer commitments, including minimum-volume terms and exceptions.
- Basin and customer concentration, throughput trends and asset utilization.
- Exposure to commodity prices and product-price spreads.
- Which assets it owns—such as gathering lines, processing plants, pipelines, storage, fractionation or terminals—and the services they provide.
- The regulatory regime applicable to each relevant facility or service.
Compare disclosures for the same reporting period and on the same basis. A company’s percentage of throughput under fee-based contracts cannot be directly compared with another company’s percentage of revenue from fees: those figures measure different things. Gross revenue can also be misleading when commodity purchases and payments to producers are recorded alongside service income.
A company example is not an industry average
For the year ended December 31, 2025, Western Midstream reported that, 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. Those are company-specific throughput figures—not an estimate of the contract mix or revenue of the midstream industry. Western Midstream’s 2025 Form 10-K.
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