The Williams Companies, Inc. (NYSE:WMB) Q3 2023 Earnings Call Transcript

The Williams Companies, Inc. (NYSE:WMB) Q3 2023 Earnings Call Transcript November 2, 2023

Operator: Good morning, ladies and gentlemen. Welcome to The Williams Third Quarter Earnings 2023 Conference Call. At this time, all participants are in a listen-only mode and please be advised that this call is being recorded. After the speakers’ prepared remarks, there will be a question-and-answer session. Now at this time, I’ll turn things over to Mr. Danilo Juvane, Vice President, Investor Relations. Please go ahead, sir.

Danilo Juvane: Thanks, Bo, and good morning, everyone. Thank you for joining us and for your interest in The Williams Companies. Yesterday afternoon, we’ve released our earnings press release and the presentation that our President and CEO, Alan Armstrong; and our Chief Financial Officer, John Porter, will speak to this morning. Also joining us on the call are Michael Dunn, our Chief Operating Officer; Lane Wilson, our General Counsel; and Chad Zamarin, our Executive Vice President of Corporate Strategic Development. In our presentation materials, you will find a disclaimer related to forward-looking statements. This disclaimer is important and integral to our remarks and you should review it. Also included in the presentation materials are non-GAAP measures that we reconcile to generally accepted accounting principles. And these reconciliation schedules appear at the back of today’s presentation materials. So with that, I will turn it over to Alan Armstrong.

Alan Armstrong: All right. Well, thanks, Danilo, and thank you all for joining us today. As our first slide here shows Williams delivered another quarter of impressive accomplishments and starting out with our operational execution. So first of all, our project execution team completed the first half of Transco’s Regional Energy Access project, well ahead of schedule and our commercial and government affairs teams followed-up with the contracting and FERC authorization needed to place this in service and beginning full rate revenues for the initial capacity here in late October, so great efforts by our teams there and great results in a very difficult area. We expect the total project to be online in the fourth quarter of next year with the capacity to move approximately 830 million cubic feet a day of natural gas from the Northeast part of the Marcellus into the Pennsylvania, New Jersey, and Maryland markets.

We also completed several other expansion projects including a fully contracted gas transmission line that enables our newly acquired NorTex storage system to directly serve new gas-fired generation markets in that area. And in our West Gathering segment, we completed a large expansion of our South Mansfield gathering system in the Haynesville for GeoSouthern, which proud to say was the nation’s fastest growing gas producer last year. And in the Northeast, we completed the first expansion of many to come on our Cardinal gathering system for Encino’s rich gas drilling operations in the Utica condensate window. But the really big news this quarter comes in the new projects column. We recently signed precedent agreements of over 1.4 Bcf a day for the Southeast Supply Enhancement project, which provides takeaway capacity from Station 160 – from our Transco Station 165 to the fast growing Mid-Atlantic and Southeast markets.

And based on the open season results, we have even more demand to be met in the future that would result likely in a follow on project. So we are proceeding into the permitting process for this initial project due to the urgent demands to be met for this first group of customers. So in terms of impact, this will be the largest addition of EBITDA ever for a Williams pipeline extension yes, even more than our Atlantic Sunrise project and in fact, significantly more than the entire EBITDA generated from our Northwest Pipeline system. And I’ll remind you that these are 20-year contracts from the time the project starts up, which would be at least through 2047. And we recently signed anchor shipper precedent agreements for a Uinta Basin expansion on our MountainWest system.

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Q&A Session

We continue to be very pleased with the successful integration of the MountainWest assets into our operations and the opportunities we see to execute on more profitable growth with this asset than we had originally planned on. In fact, this is the second piece of substantial business that we have signed up just this year on the MountainWest Pipelines, and neither of which of these expansions, neither of these were in our pro forma for this acquisition. So really pleased with the team from MountainWest Pipeline and the leadership we have working to grow that business, but very pleasantly surprised with that acquisition today. Moving across the slide, we are acting on opportunities that we believe will further high grade our portfolio of assets.

First of all, Williams recently sold its our Bayou Ethane Pipeline system for $348 million in cash. And this represented a last 12-month multiple of over 14 times our adjusted EBITDA. The proceeds from this asset sell along with expected proceeds from a recent legal judgment will help fund an important strengthening of our hand in the DJ Basin with the following transactions. First, the acquisition of Cureton Front Range LLC, whose assets include gas gathering pipelines and two processing plants to serve producers across 225,000 dedicated acres that are just to the north of our existing KKR system. And second, the purchase of KKR is 50% ownership interest in the Rocky Mountain Midstream, which results in us now owning 100% of that. So KKR was our partner in Rocky Mountain Midstream.

They’ve been a great partner there, but it was coming time via those agreements to exercise that. So we’re really pleased to have had the relationship we had with KKR and a great partner there. But this is really an exciting expansion of our business out there that will allow us to deliver volume into our downstream assets and including taking existing gas supplies and feeding them into our Rocky Mountain Midstream, so really excited about that. These acquisitions have a combined value of $1.27 billion, and this represents a blended multiple of approximately 7 times the 2024 adjusted EBITDA. So the synergies here are very tangible to us. Again, because we can just take these existing gas volumes, feeding them to our processing, and then enjoy the downstream NGL – the coupon clipping on the downstream NGL transportation, fractionation and storage.

These are – the transactions are expected to close by the end of 2023, making Williams the third largest gather in the DJ Basin and progressing us towards the company’s strategy of maintaining top positions in the basins we serve. So, just a few other items to hit on this quarter. We finally are taking over operatorship of the Blue Racer gathering and processing system in West Virginia and Ohio later this year. This is important due to our ability to significantly lower cost and more easily capture synergies between this and our other operations in the area. And lastly, we’re continuing to advance our efforts to commercialize clean hydrogen through our support of two clean hydrogen hubs that were announced by the Department of Energy last month, one in the Pacific Northwest and one in the Appalachian region.

We’re looking forward to leveraging our operating expertise and our right of ways into the emerging hydrogen space. Looking at some of our financial highlights from the quarter. John will obviously get into more details here in a minute, but overall, we’ve delivered another quarter of strong financial performance even in the face of dramatically lower gas prices as compared to the third quarter of 2022. Year-to-date, our adjusted EBITDA is up 9%, our adjusted EPS is up 11%, and gathering volumes are up 6%, versus the first nine months of 2022. And we expect the strong performance to continue, providing us with the confidence to raise our 2023 guidance this quarter up by $100 million to $6.7 billion of adjusted EBITDA. And we are tracking in line with our 5% to 7% adjusted EBITDA annual growth rate and this quarter marks the 34th first quarter of meeting or beating the adjusted EBITDA consensus and the fifth time we have raised guidance during the same period and I’ll also point out that we haven’t got there by lowering our guidance.

In fact, we have not lowered our guidance during this entire period, and that includes through the pandemic. So in summary, our strict adherence to our strategy, our commitment to an improving return on capital employed and extraordinary execution by our team, all have continued to deliver predictable growth through a variety of commodity cycles. Importantly, this discipline also has Williams position to capture significant future growth and return this value to our shareholders. And with that, I’m going to turn things over to John to walk us through the financial metrics of the quarter.

John Porter: All right. Thanks, Alan. Starting here on Slide 4 with the summary of our year-over-year financial performance. It was a strong performance by our base business, which we define as excluding marketing and our upstream joint ventures. That base business increase was 6% over the prior year third quarter. As we’ll discuss in a moment, last year’s third quarter saw very favorable commodity prices for our marketing and upstream joint ventures, which did make for a tougher year-over-year comparison in total, but we did still grow total adjusted EBITDA, as well as that 6% increase for our base business. Year-to-date, our total adjusted EBITDA is now up 9%, driven by the growth of our core infrastructure businesses, which continue to perform very well even as natural gas prices decreased 63% for the first nine months of 2023 versus the first nine months of 2022, once again demonstrating the resiliency and strength of our natural gas focused strategy, assets and operational capabilities.

So for third quarter, adjusted EPS flipped a little bit from that very strong 2022 number, but you can see, it’s still up 11% year-to-date, continuing the strong growth we’ve had in EPS over the last many years. Available funds from operations was generally flat with last year’s strong cash flow and you see our third quarter dividend coverage based on AFFO was a very strong 2.26 times on a dividend that grew 5.3%. Our balance sheet continues to strengthen with debt to adjusted EBITDA now reaching 3.45 times versus last year’s 3.68 times. On CapEx, you see an increase primarily reflecting the progress we’re making on some of our key growth projects, including Regional Energy Access and Louisiana Energy Gateway. So based on the continued strong financial performance of the business, we now feel confident raising our consolidated adjusted EBITDA guidance to $6.6 billion to $6.8 billion, shifting the midpoint up $100 million from $6.6 billion to now $6.7 billion.