Q4 2019 Earnings Call

Good day, everyone and welcome to de Williams companies fourth quarter and for full year 2019 earnings call. Today's conference is being recorded at this time for opening remarks, an introduction I would like turn todays call Mr., Brett grade director of Investor Relations. Please go ahead Sir.

Thanks, Gary Good morning, and thank you for your interest in Williams companies Yesterday afternoon, We released our earnings press release, and the presentation that our president and CEO, Alan Armstrong will speak to momentarily.

Joining us on the call today, our Chief operating officer, Michael done our CFO John Chandler.

General Counsel Lane, Wilson, and our senior Vice President corporate strategic development Chad Zimmer.

And our president 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 our presentation materials, our non-GAAP measures that we reconciled to generally accepted accounting principles and these reconciliation schedules appear at the back of today's presentation materials.

So with that I'll turn it over to Alan Armstrong, Okay, great. Thanks, Brett Good morning, and thanks for joining us as we discussed or fourth quarter and the full year 2019 financial performance and our key investor focus area. So let's move right into the presentation and take a look at her strong year end performance.

On slide two.

2019 was another year of strong predictable growth and solid execution. This is now the third year in a row, we have exceeded the midpoint of our guidance range on key financial metrics. This highly reliable and predictable performance is result of continuously improving execution by our operating teams on many fronts capital project.

Two shouldnt reliable onetime services for our customers safety performance environmental stewardship capital discipline in operating efficiency. All of these efforts circle around a deliberate strategy to deliver long term shareholder value by accomplishing a bottom.

First is our focus on being Viberzi basket, providing infrastructure services for natural gas as an economically and environmentally superior energy source second is to reduce direct commodity margin exposure and basis risk to focus on highly predictable fee based revenues and certainly the the reach.

Isn't that our business has become so predictable is largely focused on that one and we very much achieved what we'd hope to accomplish in terms that reduction.

And third is to de lever the balance sheet to provide flexibility and unquestioned financial stability.

These efforts drove predictable record results in 2019 across key performance metrics. The company produced record annual adjusted EBITDA of 5.02 billion and growth of 8% over the record 2018 performance of 4.64 billion.

Distributable cash flow also record grew by an impressive 15% to an amount of 3.3 billion and this financial performance was driven by continued growth in the very large volumes of natural gas the company gathers from a diversified array of both supply basins and a variety of producing customers.

While our record average daily gathering volume was 12.9 Bcf a day for the full year of 19 was a 5% growth overall and it was 15% in the northeast in fact in the fourth quarter that on that comparison, we saw volume growth of over 10% up to 13.

<unk> 0.3 Bcf per day.

And for the whole gas against the whole gas gathering portfolio and a 12% growth in the northeast GMP segment. So the company also continued to realize growth in Interstate gas transmission driven by 11% growth in the long term some contract capacity on Transco nations largest and fastest growing pipeline.

System.

Turning now to slide three I wanted to take a brief moment to acknowledge some of the key performance metrics, we are using to manage the business and to measure our continuous improvement efforts.

First of all our financial performance, along with the Companys disciplined approach to capital investment and successful efforts to monetize assets brought our leverage ratio under 4.4 times, which was significantly inside our originally guided lever it leverage ratio under 4.75 times.

So we are certainly well on our way to reaching our target of 4.2 in 2021.

Also as an enterprise we're focused on improving our return on capital employed rowsey. While it is only a snapshot and is certainly not herpich measure of long term returns measuring the year to year improvement keeps us very focused on preserving our precious capital and a 13% compound annual growth.

Growth rate on the very large capital base. The company has employed is great improvement, but we look to continue bringing arose the up with our continued strong discipline around capital investment.

Our operating margin ratio shows how much of our gross margin gets to the bottom line after operating administrative costs.

And to improve on that we have to utilize our scale to grow gross margin faster than our unit costs. We've improved this metric even in a slowing growth environment and when commodity margins and target continued improvement here through both cost management and growth.

And finally, our total recordable incident rate as a measure of our safety performance among several safety metrics we monitor.

There's been a great improvement in our total recordable incident rate over the last several years as our safety culture continues to improve in our employees line and eliminate hazards from workplace and protect the public while operating or assets.

Every employee has full stop work at the wording and they and when they recognize the safety issue and are empowered to make it right.

Our employees own this metric and are responsible for this great improvement and I'm pleased to report on that groups and.

Improvement here and in fact in 2019, our T. our IR came in at 0.55, which is well below the toughest of industry benchmarks.

And finally, all this discipline and focus as culminated to drive an impressive 25% cagar on our EPS from 17 through 19.

Never going to move on to slide four.

And your on slide four we provided a clear view of our full year in fourth quarter 2019 financial performance relative to 2018 period and as you can see we continue to enjoy steady growth across our key measures. Despite the impact of asset sales and much lower commodity margins on a full year basis.

We covered some key annual performance metrics on the previous slide but on this slide from annual perspective, I'll just point out that growth in our GAAP cash flow from operations of 12% is right in line with the adjusted EBITDA and DCF performance, we've already discussed.

And the per share metrics, both DCF per share and adjusted EPS showed equal or stronger growth with DCF per share up 14% and adjusted EPS up 25% again this year.

Another key piece of 2019 performance is the improvement in an already strong coverage ratio, our DCF exceeded our dividends by 1.79 times, where nearly $1.5 billion that this healthy and growing coverage is one of the key items the management team and board evaluated as we raised our.

Dividend here in 2020 by 5%.

Our impressive performance on leverage was the result of strong operating performance that we've already discussed but also importantly, a disciplined approach to capital investment in fact, I think this is one of the great highlights here for the year and for the quarter that are total capital both growth and maintenance came in under 2.5 billion for two three.

2019, and that was a 1.7 billion worth 40% reduction from 2018, and well below our original guidance on both growth and maintenance.

So during 2019, we saw in environmental sorry, we saw an environment shaping up that would challenge the growth plan. Some of our producer customers have laid out we quickly responded to the realities, we were seeing in the market by moderating our capital spend versus the budget. We created in late 2018 and in fact in the north.

East alone our total capital spend came in approximately $400 million under that original budget.

So against the backdrop of a much lower commodity price environment than we had in 2018 the company produce strong growth in our various earnings and operating metrics and grew dividend coverage. While also realizing over 1 billion a net proceeds for more portfolio optimization efforts and lowering leverage.

We're certainly very pleased with the performance that we saw across many of these assets for the full year. So let's move on to slide five and discuss the main business drivers of our for Q 19 over Fourq you 18 on an EBITDA basis.

And so here on slide.

Slide five now we compare fourth quarter 2019 to fourth quarter 2018, adjusted EBITDA increased.

About 7% or 8% if you adjusted the bigger transactions that affect the year over year comparison. This for Q growth came at a point in the year when GMP customers had already begun to talk about moderated growth plan in commodity price concerned our business showed growth against a tough comp where the prior year period.

Already included contribution from the Atlantic Sunrise project and the associated gathering volumes that grew dramatically in the fourth quarter of 18.

On the left side as.

Of the slide you can see net unfavorable $7 million comparability adjusted in the grey bars, which includes removing the adjusted EBITDA from the various asset transactions netted against the favorable addition of 38%.

Interest normalizing for those items, you see adjusted EBITDA growing 8%.

Now moving over to Rightsize The chart focus on the financial performance of our continuing business the Atlantic Gulf increased by 43 million or 8% from the fourth quarter of 18, driven by Transco revenue growth from the Gulf Connector and river Bell South of market expansion projects.

Additionally for fourth quarter of 19 result include the increased EBITDA from the Transco rate case settlement and lastly, while total deepwater gas volumes were up 17%. We saw a decrease in revenues due to temporary producer operational issues on our Gulfstar deepwater platform and this issue.

As to be corrected now as we've seen volumes come back very strong here again first quarter.

Also the Norphlet pipeline, which served shells deepwater asthmatic filled in the Gulf East continues to see volume increases after flowing first gas on the pipeline in the third quarter of 2019 next the northeast GMP area led the fourth quarter performance with a 19% increase driven by an increase.

Of about 970 million cubic feet per day, or 12% on higher gathering volumes and higher gathering fees that were associated with expansion projects and escalators.

That are built into those contracts.

Volume increases were led by Susquehanna supply hub in Bradford areas, which grew about 600 million cubic feet per day, but all our operated northeast franchises saw volume growth over this time period. So overall our operated assets in the northeast continue to see very strong growth across the board.

Finally, even though we enjoyed an impressive 10% increase in total gathering volumes on our remaining assets during the for fourth quarter comparison, the west EBITDA was relatively flat due primarily to $31 million decrease in revenues for our Barnett gathering business as reminder, from our third quarter results.

This decrease was associated with the end of the Barnett MDC.

Or minimum volume commitment and related step down in deferred revenue amortization.

The Barnett Mdcs expired at the end of June 2019, and once that happened the revenue recognition rate of six payments that we previously received began to began to reflect actual volumes rather than the MDC levels.

We also overcame about 13 million of lower NGL margins in the west which was a 45% decrease from the prior year quarter.

Now moving on to slide six.

Well look at the full year drivers of adjusted EBITDA, which increased about 8% or over 11%. If you adjust for the bigger transactions that affect this full year comparison once again on the left side in the grey bars. If you net these out you'll see an unfavorable $110 million comparability.

Yes that from the various asset transactions that occurred during the.

Time period.

In 2019 Atlantic Gulf increased 20% and the northeast was up 19% driven by the same factors discussed on previous slide.

The addition of a full year revenue impact to be Atlantic Sunrise project that came online in early October 2018, the west is down about 6%, reflecting much lower NGL prices.

Again, the step down in the Barnett Barnett revenue we've talked about.

Offset by growth in the Haynesville eager Eagle Ford and DJ Basin also our Conway Frac and storage business. So that's our NGL services business continues to see strong fee revenue growth on the back of NGL production, that's been coming out of both the DJ and the block in areas.

Our teams Chris execution drove the growth we've continued to show in the Atlantic Gulf in North East this year, leading to an overall, 8% growth in adjusted EBITDA. Despite the significant asset sales the much lower NGL margins and the onetime step down in the Barnett revenue recognition. So now let's move on.

On slide seven to address the key investor focus area.

So first let's set the seen a bit for 2020 as of January one 2020, our northwest pipeline business will be managed and reported with our other regulated Interstate gas transmission systems in a segment, we will call transmission in Gulf of Mexico.

Yes.

This move will streamline the management and operations of the regulated gas transmission business combined these businesses into a single reportable segment.

Providing a clearer picture of the very solid performance and predictable cash flow generation of these competitively advantaged assets. The deepwater business will remain in the segment as well and become more important to our EBITDA and Rowsey improvement as growth in the basin is coming back strong.

Moving northwest pipeline out of the West segment will position the west of the gathering processing and NGL services business, providing a full suite of midstream services to producers from wellhead gathering all the way through NGL fractionation storage and NGL logistics, especially after the bluestem.

NGL project is placed in service later this year.

And the northeast GMP segment will continue to provide all midstream services to the prolific Marcellus and Utica shales the largest source of gas production in North America. We will continue to separately report the west in northeast GMP segment, but combined management will allow us to take better advantage of our tremendous scale.

And continue to grow our operating margin in this producer facing business. So I'd like to talk for a moment about how we see the GMP business both in the near term and the longer term and how we have positioned this business.

We saw record gathering volumes in 2019 because of continued production successes by our upstream customers continued growth in natural gas demand and great execution by our teams, but over the last year robust production growth has outpaced very healthy demand growth and in fact, a man has grown significantly.

21% over the last three years, but domestic production has grown even faster.

This imbalance will be in near term headwind to volumes and EBITDA in the GMP business as current prices don't support investment and gas drilling in most cases. So producers of course are acting rationally slowing their capital investment and reducing production growth. While some producers are still forecasting growth.

Others are focused on keeping production flat and while lack of receiving recent investment from the upstream will cause declines in other production areas.

Some producer balance sheets are stressed we've already seen some bankruptcy filings all the customer bankruptcy filing is often disrupted to the normal course of business. It affects various midstream services in contracts very differently.

After a very long time this midstream business I have seen an experienced many instances producers stress and even bankruptcy.

And it's very clear to me that the most protected service by far is that of wellhead gathering wellhead gathering is absolutely essential to any reserves that are going to be produced gasket not get to market and cash flow cannot be realized if wellhead gas gathering is not available.

While counterparty credit is important the physical nature of the service is even better security.

We believe the supply demand imbalance is only a near term concern as last week storage was only a 215 bcf above the five year average.

We see continued demand growth, bringing supply in the mountains, sorry supply and demand back in balance in our long term strategy is as we've told you. Many times before is predicated on the belief that the economic and environmental benefits of natural gas will support continued long term demand growth both domestically and.

Absolutely and that U.S. domestic supply is well positioned to grow its share of global demand as well.

In the long term whatever demand is supply will grow we're declined to meet that demand and importantly, we expect low cost gas basins to continue to be the majority of supply, but that will meet this demand.

Associated gas will be important no doubt, but gas directed drilling the source of approximately 65% of today's gas supply will remain the bedrock domestic gas production. So we feel confident in the long term position of our assets and strength of our strategy, but the current price environment is reality.

That the market will navigate through here in the near term and we have built a very resilient GMP business that can succeed in a wide range of market environment. The dramatic growth we've seen over the last three years and the currently challenging price environment for producing customers. We built this business very intentionally not by.

Accident, we've been asked this a long time and we have moved away from direct commodity exposure and from reliance on marketing and basis spread for profit.

We have taken strategic action to broadly diversified sources of EBITDA. Both in the 15 different supply areas are GMP businesses served and the very wide variety of customers we contract with to provide those services. Another thing I want to point out as that continues.

Demonstrate our ability to work.

With a wide range of stakeholders.

[noise] skewed.

Is that the free cash flow produced buyer onshore GMP businesses grows dramatically when drilling activity pulls that capital spend declined significantly driving near term rosy improvement and tremendous free cash flow growth.

So as we've said before.

When we when we do see investment pull back on the drilling side, we see tremendous continued increase in free cash flow growth from the GMP business. Our west is a great example of that.

With regard to our.

2020 guidance, we are reaffirming the guidance we provided at analyst day in December.

Well the largest near term uncertainty is producer activity, we feel comfortable with our 2020 guidance, we will keep a keen focus on capital spending and cost management as the year evolves and importantly, we are expecting to fund dividends in capex with internally generated cash flow, which benefits the company as we look toward our long term.

Goal of reaching a net debt to adjusted EBITDA.

Leverage ratio of 4.2 are lower and so I just want to comment a little bit more here on the guidance.

For 2020.

First of all the volumes that we saw in the last half of the year certainly in the northeast and the rates that we enjoyed there.

Along with what we're seeing here in January and February in terms of volume as well as some pretty significant cost cuts that we made late in the fourth quarter of 2019, all compiled the continued to give us confidence on our guidance for 2020.

Despite the challenging price environment, that's out there today.

So now let's move on to discuss some of the key issues around our transmission in Gulf of Mexico business.

First we're pleased that we have filed our transco rate case settlement with FERC on December 31, we had only supporting comment from shippers to FERC since the rate settlement was filed for we're pleased to have reached a settlement that we expect to provide $76 million benefit to adjusted EBITDA in 2000.

20 versus our the last full year 2018.

Which is last time, we had.

Period with no rate case in fact, I also want to point out that successes, we are having on our portfolio of transmission expansion projects. Since September we placed riverville, South and Gateway project in service.

In service both of these were in New Jersey, and our northwest pipeline commenced service on the North Seattle lateral expansion.

These are two areas with extremely rigorous permitting processes and a politically active vocal minority opposing natural gas infrastructure in short challenging places to build gas pipeline.

Williams continues to demonstrate our ability to work with a wide range stakeholders in a constructive manner to address these regulatory political and community concerns while still getting important infrastructure expansion permitted and bill we plan to continue that track record on the over $3 billion of pipeline expansion projects that are.

Currently in execution mode.

And we are achieving key milestones on each of these projects first of all Hillabee phase two is mechanically complete and ready for in service that the southeastern Trail project has all of its federal permits and began construction in January of this year with an in service targeted by year end the lighting.

South and Gulf stream.

Gulfstream six expansion now both received favorable environmental assessments, which is a key steps in the FERC certificate process and each project remains on track for scheduled in service Lighty South by the end of 2021 and the Gulf stream phase six expansion by the end of 2022.

Our regional energy access project is looking more attractive as time goes on we have a project that will be between 800 million to 1 billion cubic feet per day. Once we've settled on the appropriate size of the project will move to complete the work to apply for FERC certificate. So we're in the final stages of.

Tightening up contracts there with our customers, but we do have a project at this point, it's a matter of the size of that project.

We also continue to feel very confident about the prospect for northeast supply enhancements completion, and we look forward to the conclusion of national grid process to assess alternatives for serving Brooklyn, and wrong Islands growing energy needs. We continue to see this project as the most reliable most environmentally beneficial and most.

Economically friendly alternative at full load the fuel oil to natural gas substitution for this project would enable and emissions reduction of.

That's equivalent to taking 500000 cars off the road so that along the savings.

To the.

Customers in the residents in those areas, we think our powerful motives for getting that project approved despite the very noisy minority around that and we certainly.

No that this is by far the best solution for the area.

Beyond these projects in execution, we continue to make good progress on our backlog of projects in development and we expect several of these to move into execution mode. This year Transco is well positioned to continue growing our contracted volumes and a well established scored or serving a large portion of the U.S. population.

The forces you see working in the market today are only increasing the competitive advantages of Transco low prices continue to incent demand in all sectors and our access to many geographies and types of demand is unmatched LNG industrial power residential commercial.

So our all growing along transco difficulties seen by Greenfield pipeline projects will also benefit Transco in the long run as Transco is uniquely positioned to meet new capacity demand by expanding along its existing rights of way which are irreplaceable.

And unmatched in terms of their proximity to demand.

Our Gulf of Mexico assets are similarly positioned against a growing market opportunity Chevron made a positive final investment decision on their anchored project in December of 19 anchor is near our discovery Keathley Canyon connector and we're excited to be finalizing the definitive agreements to provide a full.

Range of services for this very rich gas to be produced by the anchor project anchor represents continued realization of the strategy that supported the original Keathley Canyon connector investment capturing new volumes from significant nearby deepwater prospects given its proximity and our pre play.

And we will not have to invest any significant capital for this new business.

Williams will continue to pursue similar connections as other nearby prospects move towards F., I'd and first production, including the law the operated Shenandoah Yucatan, Leon and Moccasin, the Ecuador operated monument and the total tell operated north Platte the shell.

Operated well project is an even larger opportunity for us and the services. We expect to provides this dedicated field include gas transportation gas processing and importantly, the crude oil transportation as well.

Well continues to make progress on this very large scale projects and expects to make their f. I'd decision. This year and in fact in November of 19 shell awarded Singapore Sims for Marine the contract to build the well floater. In addition, Williams has executed reimbursement agreement well owners to cover.

Commitments in 2020 to keep the project on schedule for first production Williams will secure several long lead items, including the line pipe valves and fittings and the installation contract and ongoing engineering costs.

Well and anchor would represent a significant increase in the volumes. We are currently handling on a consolidated assets, but these are just to the many opportunities our deepwater assets are competitively positioned to win as producers in the area are looking to align new development with existing infrastructure to lower cost and decreased.

Came to market.

We believe our business is very well positioned to benefit from continued demand growth in natural gas over the long term and that our strong competitive position and conservative financial model makes us a resilient business that can do with the nurse near term challenges in the market, while positioning ourselves for the strong growth.

Ahead.

So with that let's go ahead and transition to our Q and eight session and thank you again for your time.

Thank you you would like to ask the question. Please signal by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again that is star one to ask an audio question, we'll pause for just a moment to allow everyone the opportunity to signal for questions.

Our first question will be from Jeremy Tonet with JP Morgan.

Hi, good morning.

Just wanted to start start off with I guess some of the strategic transactions that you guys had had done in recent years in kind of some sales and jvs and.

Was wondering if you could comment I guess on the ability to kind of captured those type of opportunities come forward here in what that kept mean for hitting kind of the four to leverage ratio that you guys are targeting there if you're able to do that I guess, it's quicker or if that doesn't come together how long do you think would take you to hit that kind of a target for two.

Yeah, Jeremy Good morning, and thank you for the question I would just say first of all were.

We're encouraged by the attraction to the kind of assets that we have which have long histories of cash flow and so that's very different than some of the other assets out there that are aren't as well position or more speculative in nature of cash flow. So we think assets.

That are stable and had a long history of cash flow are pretty important in this market today.

And so we're very encouraged by that.

I would just say.

The growth that we have in the continued cash retention that we have in the business right. Now we certainly have our eyes on that for two even without that but we look at the.

Further transaction as a way to accelerate ourselves towards that and likely well under that.

With some with any significance to the size of those transactions.

Got it thanks and.

Just wanted to see I guess with regards to producer activity and you know kind of conversations with producers today versus where they stood at the analyst day. Just wondering if you can help us think through a little bit more on how that as change has been notable or not as notable I guess I'm trying to think how that translates into guidance.

Should be thinking about the midpoint or does this kind of bring more towards the lower end of guidance or any any color you could provide there would be helpful.

Yeah, Great question, Jeremy Thanks for asking that I know, that's an issue on lot of People's mind.

First of all I would just say, obviously, we have a very diverse business and some things go south honest and some things go positive. If you think back to last year and you think about commodity price assumptions that we had versus how the year actually wound up we outperformed as in again good evidence of house.

Things can go go our way to offset other negatives at that occurred during the year. So I would just say we do have a large portfolio I also though as I mentioned in my comments.

I think this is really important for people to understand if you look for instance, a lot of concern around the northeast volumes and if you look and took the combined took the average of the third quarter and the fourth quarter you would see that if we if all we did lose repeat that.

We would come in above our guidance level for the northeast for next year and I know there's been a lot of concern about that if you took and just and just took four times the fourth quarter.

Assuming fourth quarter held for it wasn't didn't see growth any growth at all.

You'd see of we would be pretty significantly that.

That.

Guidance that we laid out for the northeast and so.

I would say combined with a couple of things one is the fact that.

Our fourth quarter did come in stronger than we were expecting for the northeast when we were laying guidance out in at Analyst day, we were working off a forecast it was actually exceeded for the fourth quarter. So we're starting off better than we start than we expected to secondly, we've seen January and February volumes now.

And so we've got pretty good confidence about where actual volumes are.

And then finally I would say we took the cost that we took out that we've worked on and planned around during 19 most of those costs in the impact of those costs actually started rolling out very late in the fourth quarter of 19. So we'll have the benefit of that working with us.

Going into 2020, so I would you say a lot of positive things.

That are occurring as well.

With some deepwater production, that's coming on a little faster than we would have expected as well and volumes actually again exceeding where we thought they would be at this point in time, we laid out analyst day. So those are the things that has given us the confidence on.

On our guidance being maintained as we sit here today.

Got it great Thats it for me thanks.

Our next question.

Dennis with credit Suisse.

Good morning, everyone.

Alan I appreciate your comments around JMP being one of the more protected components that value chain.

But I guess, we think about quantifying a potential impact.

If you just help us quantify how much of your volumes or margin could be considered maybe above market or maybe subject to renegotiation.

Pretty proactive on this front so far so not sure how much your portfolios in theory still at risk and if you're receiving any sort of inbound inquiry from customers to do a blend and extend.

No we are not.

No I think we have we've completed all negotiations that you know that anybody has entertained with us.

On issues right now, particularly with Chesapeake, we settle that in Eagle Ford and I think you'll see this year I think you'll see that some of the assumptions that were made by some of the analyst about where that was going are going to be proven very wrong about their assumptions on that.

For the Eagle Ford and I would say this I know in terms of Incenting further drilling we've been working pretty actively our commercial teams have been working very actively in places like the haynesville to incented drilling on acreage, that's that's dedicated to us but not otherwise.

Being drilled and that does require us putting an incentive rate out for new drilling, but it doesn't affect the rates of the existing business. So it's just a way to attract new drilling dollars against acreage that Chesapeake for instance, likely wouldn't get too. If we were now working transactions to help make that.

Understood and.

And then some of the comment pushback, we receive from time to time just around the growth backlog in your ability to spend I guess enough to really on those demand pull projects to drive that 5% to 7% growth and so in other words any people are struggling with maybe the scope of these projects and their ability to grow that 5 billion EBITDA base and so are there opportunities beyond the ones you list.

Maybe we're not appreciating or is GMP actually still an ongoing major contributor to growth even at these lower capex levels.

Yeah I think.

Certainly we had a great year growth this last year and.

On a on an adjustment for both asset sales and margin growth was a lot better than we would have just built into the plan in terms of volumes fee base rates last year lot of that came from a good cost control and really good execution on our projects, bringing them on a little earlier than expected but.

I would say the things that I think the market.

Tends to Miss is.

Things like the DJ basin growth that continues to come on very nicely for us to bluestem project.

Coming on for Us the deep water.

Which is really coming back I think 95% of the rigs now available for floating.

Rigs available are are in under contract now in the deepwater and so we're seeing a lot and expecting a lot coming from that area as well so.

These projects coming on Transco are pretty powerful, but thats not what we're totally dependent on growth by any stretch imagination.

Very helpful. Thanks.

Thank you. Our next question will be from Shneur Gershuni TBS.

Hi, good morning, everyone.

I was just wondering if we can revisit the guidance commentary.

It sounds to me that you're fairly confident with the midpoint of your guidance despite producers.

I mean.

Shifting over to maintenance mode at this stage right now.

You've you've talked about some of the pushes and pulls including some of the cost reductions that youve put through that.

And that if this were too.

Maintenance mode, where to maintain itself into next year are there any more level levers that you pull on the cost side and on the Capex sites.

Sort of maintain cash flow generation, where where you expected to be this year or even potentially driving higher next year.

Yeah, Yeah, we certainly have quite a bit of capital still implant and you know despite the narrative that's out there.

We still have producers that are still pushing ahead with the growing plan. Some those based on hedges that they have in some based on contracts that they have.

But we still have some pretty big obligations to keep up with that I know the market.

Is the narrative is very different than what you see but in reality right. Now we do have that capital built and because those producers are moving ahead right now with their activities as they told us they would and.

And so though and those come with obligations on their part so we have to be ready with that capital. That's in there. If if that were to change for whatever reason than that might shift that back, but I think we should be clear that we do have customers continuing to have growth and planned growth in.

In the northeast and so.

We'll wait and see obviously, but right now.

It's getting pretty late in the process for them to be pulling back from those plans that they've laid out for the year and again I think a lot of that is based on hedges that they have in place to continue to support those activities. So I don't want to get into each individual customers because that's up to them to lay out their plans.

And communicate that but we are responding to the very detailed planning processes that we worked with in the customers and we do have capital in the plan to help drive that and so we like like we had last year, if we need to turn that back quickly, we certainly would but.

But there is quite a bit of activity that's going on out there despite.

With the narrative is.

Yes.

Do you feel that you would have more flexibility on 2020.

If this were to maintain itself.

Sure you're breaking up just a little bit could do start death.

Would you have more flexibility on capital and cost structure for 2021, if this trend sort of maintain itself. Obviously late in the year to to be adjusting things for 20, but was more thinking about 2021.

You have a lot of levers that you can still pulls there if this environment maintained itself.

Yes, we certainly do and I think part of our effort to combine the west and the northeast GMP area is because we do expect to move it means that area has been growing dramatically. It sounds really easy for us to sit here at our in our offices and.

Think about the kind and talk about the growth off of spreadsheet, but the reality is the very very hard work of our employees and the teams out there trying to keep up with all that growth they've done a remarkable job on that but it does take a lot of people and it takes when you're when you're investing in the capital it puts a lot of costs.

On the operating teams as well because there's a lot of change going on that they're having to manage so so the more mature and a slower growth environment absolutely allows us to go after an increase our operating margin in an area and the caught us combining our west and our northeast from a management perspective.

It is allowing us to get after some of that.

That makes great sense and as a follow up question, there's some new FEMSA rolls out.

Just wondering if you've looked at it and whether this could kick off potentially a rate base investment cycle or.

Do you constantly replace pipe and it's really irrelevant.

These new rules.

Good morning. This is Michael I'll take that one so on our transmission systems. We've been ahead of the curve there for a long time and maintaining our commitment to keeping our assets safe and reliable and I would say with the timelines that had been laid out in the new rules. There is a theres a long runway to.

Compliance there so I think thats going to allow not on there so the industry to manage that pretty well within our maintenance capex and our normal opex and so I'm not too concerned about having that drive any additional rate cases.

Okay and then one final question Tom LNG in your comments about the needs and FC project.

If that want to come to fruition would that be considered a positive SG benefit to Williams given your comments about how many cars you take off the road.

Not sure I'm, sorry, you broke up again, which projects were you asking that question with respect to Nessie you you've given a whole argument about how many cars. It takes off the road and so forth just wondering like should we sort of think about SG is that something that would be viewed as a positive benefit.

I would certainly hope so.

But you know, it's I think theres lot of.

Uncertainty right now within the rating systems within DSG as to where we get that we would certainly pronounce that as a win because it certainly is going to impact the environment and we certainly would be taking a big part and in making that possible. So we certainly would want to talk about that I would say even perhaps.

Steven larger than that and more directly related to that would be the emissions reduction projects on transco.

That we still intend to to follow through some negotiations lingering post the rate case on that but that would be very dramatic commissions reductions and exactly the kind of thing I think the whole industry, certainly Williams and the whole industry is really capable of reducing emissions.

Adequately and if the focus got to be on actually reducing emissions and not just.

Trying to stop fossil fuels, there's a lot to be accomplished by the energy industry in terms of emissions reductions and we expect to play a big part of that.

Alright, perfect well. Thank you very much appreciate the color today guys.

Thank you. Our next question will be from Tristan Richardson from Suntrust.

Jason Your line is lives.

Please be sure you're not I mean.

Right.

Next question will be from TJ Schultz from RBC capital markets.

Great. Thanks, just first and the golf.

Got some big projects in 2023, 2024 timeframe, but you also listed off in the prepared remarks, a number of projects that may be.

More near term potentially so just any tie backs assumed in the next year or two that may be additive to EBITDA or could offset some slowing GMP growth. Thanks.

Yeah, Yeah TJ Great question first of all one of the impacts this year will be the growth in Napa Maddox and remember our norphlet pipeline that we put on.

Line last year that is.

Finally, starting to ramp up pretty dramatically as expected shells got some big plans out there on App emetic. So we're really excited about that so even though the construction work is there's nothing new on that the actual volume growth on that we expect to be pretty nice this year on top of that we tied in.

Two prospects on discovery last year.

At that we're kind of midway through the year those will contribute to discovery. This year and then finally on Gulfstar Hess.

He Sox project.

Was brought online well ahead of schedule. They did a great job executing on that project.

And really made.

For for nice returns for both themselves and of course, we make.

Nice fees on that business as well so that was well ahead of our schedule.

Our plan as well, there's also work going on by Kosmos around some of our areas with their kodiak to process well that they're working on right now so lot of activity out there and we're very fortunate to have a lot of that activity directly round or assets out there.

Okay, Great just for follow up maybe a question for John you mentioned that the analyst day the ability to.

Lower some interest costs, just what are you seeing today as the ability to lower interest costs for maturities in 2020, and 2021 that they get refinanced and.

Does your guidance assume that you.

Ah pay down any of that maturing debt with cash or or is that more dependent on asset sales.

That's more dependent on assets as our guidance assumes a refinancing but I will tell you we do have.

Billion and a half as our debt maturing in March.

Adam Adam that rate of 5.2%, we could refinance that today.

For example tenure at attenuate at 3.3%, so we like the rate environment right now I.

I will tell you, though we're holding Titan and waiting you I think it's no secret that we've said we are looking at potential or opportunities for.

Asset sales or selling interest in some of our assets and I, we don't want to get in front of that.

By paying down debt that otherwise would be paid down with a with cash received two one of those transactions, but I would tell you are our guidance and forecast didn't include asset sales.

Perfect and so so we could see interest savings just through the refinancing and obviously much more so significant savings if we actually did pay that down through the.

Asset sale.

Oh.

Operator, you still there.

Well done.

Our next question.

Tudor Pickering Holt in company.

Morning.

Alan you'd mentioned volume trends that you are seeing this far in 2020 can you give us or just frame the activity levels that you're seeing in some of those primary basins in the west and he spent a lot of time in the northeast, but just how you're seeing some of the west basins and maybe how that compares to your guidance that you went out in December.

Yeah, Mike do you want to take that sure we're seeing a really good results in the Eagle Ford right now coming in are starting the year as well as Haynesville are well ahead of where we thought they would be at this time of year little bit challenged in the Wyoming area with the whether there's been some pretty severe weather in Wyoming. This year that's challenge the wamsutter.

Area.

As can typically happen at this time of year, but overall I think we're going to see an increase.

What we anticipated so far here in the first quarter from a from what our forecast.

Got it and so it sounds like the a the Rockies segment, there hasn't been impacted as much as you would have expected from the natural gas decline.

No we're still seeing a good production coming out of the pianist for example, as Alan talked about earlier, we we have some incentive rates out there with our customer where they are continuing to drill into beyond for example in getting good results and our DJ Basin is really performing very well with our a rocky mountain midstream us.

So we're very pleased with that.

Also capturing the the in deals coming off the processing there that's going down no PPL pipeline system.

Got it that's helpful. And then just on lighty sell skin some of the moving pieces around producer plans there been any discussions with anchor shippers that would impact that Q4, 21 timing or is that solely contingent on the permitting process at this point.

No it's solely dependent upon the permitting process at this point and we got our environmental assessment earlier than anticipated so everything looks to be in good shape there.

Had no conversations at all about slowing that project down with our customers.

You said I appreciate the time thank you.

Yes.

Thank you.

Next question will be from Derek Walker from Bank of America.

Hi, good morning.

Morning.

Oh and at the Investor Day, you mentioned, a return on invested capital around 12% for for projects over the last several years.

And you look to sort of you know allocate capital to the highest returning projects.

It seems like it to you know for this year, it's a mix of northeast.

Okay transmission as Wilson deepwater, where you have some operating leverage so I guess relative to a 12% number or do you see at least in 20 or at least over the next couple of years.

Yeah, good getting above that 12% number or is this just would be a mixture and that's how should we think about that relative to the.

12% number you guys being able to cheaper last several years.

Yeah, Great question, well first of all I would remind you that our individual project returns are often.

Well in fact, they are well above that number but thats working against.

Things like deepwater declines the declines in basins like the Barnett certainly deferred revenue step down and things like that so there is there is a natural decline in some pieces of business that those returns path to offset.

And and but I would say that our current returns on projects are as good or better than what we've had in our previous mix of projects as we've tightened the capital budget.

Obviously as you tighten the capital.

You're allocating stuff out and so I would I would expect that number to continue to be.

As good or better than we've had on it on an overall.

Number across the whole portfolio.

Thanks, that's it for me.

Thank you. Our next question will be from Becca Followill with U.S. capital advisors.

Good morning, and when you talked about at the Gulf of Mexico assets are well positioned to win new business.

Can you quantify what kind of EBITDA contribution you would expect over the next several years, what potential and the capex. So she can take out there.

Yeah back at a good question a lot of the capital what will start spending some this year as we mentioned on things like well.

And so in some adverse is an anchor prospects I'm just going to give you that kind of ends of.

Spectrum here on one hand pretty significant capital required on well now because the volumes came in a lot larger than we expected to and the producers wanted plenty of flexibility in their capacity.

And so that projects and to take more capital on the other hand anchor we had laid a sled down when we built deep that Keathley Canyon connector, we had put sleds down so that we can make those connections fairly inexpensive way in the producer generally are providing that capital.

And so in that case.

And but we're not going to make return on that investment capital. So we're going to make an existing rate. So in one case I would tell you well very significant.

Revenue contributions and EBITDA contributions that that will be you know in the 10% to 15% just by itself across the whole deepwater and then.

And then things like anchor would be inside of that because it's not smaller you also as Weve also mentioned, we have ballymore, that's a very large prospect.

That project that Chevron is in there and their partners are trying to decide if it's going to be so big coupled with some other prospects. If they have an area that put a new floater in if they had to do that and we would have to invest new capital best thing for US is that they find a way to to fit that on the blind faith.

And that would be pure incremental EBITDA without any new capital. So it's still in the mix, but I can tell you based on both volume and EBITDA I would think it's very significant.

In terms of the total percentage increase in the deepwater it is going to be a very significant step up from our current EBITDA levels in there.

Alan I asked the question because it's it's hard for us to gets credit for that and evaluation. When I have no idea what's significant means in terms of EBITDA I mean, it or what the capex is to get there.

Agreed and I think I would just.

Be cautious on our part what we have laid out that consult be clear, but we have laid out is that our contracts allow us to get the existing rate.

On on our current systems, plus a 12% after tax return on any incremental capital that we spend.

So that ought to give you a pretty good read if you take the.

If you take the rate in the in the Gulf West areas. For instance, you you ought to build see pretty nice increase now obviously, we don't like to spell out exactly what our deals our with our customers. So we're not trying to be elusive as much as we are respectful of the relationships that we have with those customers.

But if you look at the volume for instance on whale and what's been quoted out there you will see it looks very much like perdido, which is what we are ready gather in the Gulf West and so.

This would be effectively a doubling of what we get in the Gulf West there today. So so it is very significant but again, we're we've we've got.

Contracts in place that that we're not going to lay out exactly what those are but if you look at total reserve additions versus our current reserves tied up that are out there you would see that were.

On both the Gulf East and the Gulf West there were coming close to doubling those connected reserves.

Thank you.

Thank you. Our next question will be from Iden El Alamein from BMO capital.

Hi, Alan Good morning, <unk>, given that we are in an environment of slow EBITDA growth. How are you thinking about managing leverage and dividend growth and at what point do you see those two converging longer term.

Okay.

Yeah, Great. Great question, certainly you know as we mentioned this year our coverage came up and so we certainly on our DCF came in quite a bit stronger than we had planned and certainly those are things that we're looking at in terms of dividend growth.

And certainly our as our debt comes down and our interest payments come down models.

See continued improvement in that as well.

So I would say you know the capital allocation question remains out there for us as we.

Look at some of these larger transactions that were going to look too, but the the dividend coverage that we have today.

Is allowing us to have excess cash and so we don't see anything.

Really changing on that front, but as we get into some of these higher growth areas as we get into 20 to 23.

That are not requiring a lot of capital that's going to build some pretty nice coverage, even further than what we have today, so not going to give you a very direct to answer on that frankly, because that's the board level decision in terms of what our growth rate on the dividend is and I would just say this.

Year. The factors that were considered were how much are DCF had grown.

And the other uses of capital that were available to us.

Got you I guess my next question is for John too because you did have some impairments during the fourth quarter and.

Details on how much that impact BDNA going forward.

Yeah. So the biggest impairment we hadn't of in the fourth quarter was on Constitution, we weren't appreciating that at this point scissors and construction so.

That will really have an impact on on a on a depreciation calcs.

Great. Thanks for that last one from me out to be sent the deal I think with all our seek them out with a little more than saying that speak I know you guys have any thoughts on some of the commentary that's all they laid out.

No I'm, sorry, we couldn't quite hear that on this this and could you try that again.

Sorry, I was mentioning that the deck with all our see came out with the report on flaring earlier this week.

It may have implications for your system in Texas. So I wanted to see what your thoughts were on what they came out with them.

[music].

Yeah. Thank you yeah, we've we've actually been pretty engaged with the Railroad Commission.

On this issue and have attended several conferences trying to come up with the right solution and so as always we think the railroad commission is going to be very constructive and and work to address the concerns that are out there I would tell you the producer community I think for the most part is being very response.

Hello.

On that issue as well and we were proud to see Chesapeake.

And there is one of the top.

Producers in terms of limited flaring and of course, we provide those services to them and so that indicates that our reliability is strong when when they're not having to flare.

That tells the our reliability is strong on our service providing them. So we're proud to see that when our customers on that list.

And so I would just say we think that.

There's going to be an effort to two boat that the regulatory level in both by producers themselves to continue to reduce flaring and we think thats important for the industry and we are very supportive of that and we'll continue to push the industry to do the right thing.

On that front.

Thank you those little questions.

Thank you. This is all the time we have for today's question. Thank you for your participation at this time I'd like turn the call back over to Alan Armstrong for closing remarks.

Great. Thank you and just would close was saying we're really pleased with the way the year ended up we had a lot of headwinds.

Asset sales commodity prices that we overcame and delivered a great year and I think thats really attributable to the the wide variety of services in businesses that we operate and we're very excited about the growth that is.

His reemerging in several areas and the opportunities that.

We are working hard to capture and so we appreciate your continued interest in the company. Thank you for joining us today.

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.