Q1 2020 Earnings Call

Good day, everyone and welcome to the Williams first quarter 2020 earnings Conference call.

Today's conference is being recorded.

At this time for opening remarks, and introductions I would like to turn the call over to Mr. Brett Craig.

Investor Relations. Please go ahead.

Thanks, Simon good morning, everyone. Thank you for joining us and for your interest in the 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 for CFO John Chandler.

General Counsel Wilson, and our senior Vice President of corporate strategic development Chad Xamarin.

In our presentation materials, you'll find the disclaimer related to forward looking statement. 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.

Great. Thanks, Brad and good morning, everyone. Thanks for joining us today as we go through our first quarter 2020 financial performance.

Well the walking around this has changed dramatically some things have remained remarkably stable and we should not take for granted the sacrifices and dedication required to keep the most essential services available to us so I'd like to start by thinking the frontline employees of Williams has continued to operate are critical natural gas infrastructure.

Sure during the Corona buyers pandemic.

We often take our warm and well at homes for granted but it took great dedication extra effort and resourcefulness to keep our most basic energy needs available. During these disruptive time thankfully, we have always maintained robust plans to ensure business continuity and we've been able to successfully execute on these plans.

While staying aligned with federal and state guidelines to keep our employees healthy and say.

I'm glad to report Weve not missed a beat and this is a testament to the effort of our employees across the country.

The other big related news story that we're closely monitoring is to collapse in oil prices and the impact this is having on or upstream customers.

With that said, let's get to the business at hand, and talk about our strong one cubic 20 <unk>.

On slide one we provided a clear view of our first quarter 2020 financial performance relative to one Cume 19, and as you can see this was a really good quarter, we continue to enjoy steady growth across our key measures. Despite the impact of much lower commodity margins and deferred revenue recognition stepped down.

On the top of the table, you'll see we continued a long trend of year over year growth in cash flow from operations. Our adjusted EBITDA also increased 4%.

And while this is attractive growth this growth rate would be 8%. If you build back some of the noncash items related to step downs in deferred revenue amortization and the impact of declining prices on our carried NGL and worries.

I'll discuss the key business drivers and unique issues affecting adjusted EBITDA in more detail when the next slide but DCF was up an impressive 10% on a year over year basis and of course. All this continues to drive impressive growth in our per share metrics adjusted EBITDA and DCF.

As well.

We also were very pleased to continue growing our strong coverage ratio by 5% on top of the 5.3% dividend growth that we established earlier this year.

Our 1.78 times coverage ratio means DCF exceeded dividends paid by $376 million another strong datapoint driving our cash flow performance in the first quarter was a 45% or nearly 200 million dollar reduction in growth capital expenditures, taking all that.

These items into account the strong DCF.

Wrote in the dividend and disciplined growth capital spending Williams generated real free cash flow of $144 million. This quarter alone lot of different versions of free cash flow out there, but this is after all of our cash expenses the dividend and our grow.

Capital expenditures as well.

These financial results further reduced our debt to adjusted EBITDA ratio to 4.36 times for the first quarter. As reminder, this ratio stood at 4.8 times.

The end of 2018 and since then we have moved this important ratio nearly 75% or the way to our longer term goal of the 4.2 times leverage that we reminded you up several times.

We're pleased with this performance and we have intentionally built our business to be resilient through a variety of market cycles and that strategy is certainly helping us navigate today's choppy waters.

Our healthy dividend coverage and strong balance sheet, leading into 2020, I put us in a very stable financial position and well positioned to navigate the changes that we're experiencing across the industry.

Let's move to slide two and discuss the main business drivers of our first quarter 2020, adjusted EBITDA results.

Before we dive into the drivers.

For this quarter I want to remind you that we have transitioned our business segment disclosures to align with our internal reorganization that took effect in January our transmission in Gulf of Mexico operating area. Now includes all of our regulated natural gas transmission pipeline or Transco, northwestern Gulfstream and our deepwater.

Our Gulf of Mexico assets that deliver slide into Transco and Gulf stream, we will continue to evaluate and disclose the performance.

Of the northeast GMP in West operating areas separately, but those segments are now integrated from a senior leadership and overhead standpoint, and that change allows us to improve efficiency alignment in cost savings across all of our onshore gathering and processing business.

So now looking at the chart on slide two we compare adjusted EBITDA in the first quarter 2020 did the same period in 2019, how quickly remind you that one Q 19 represented a great period of growth for US, which was just following the Atlantic Sunrise start up and the associated northeast gathering volume growth.

He said, so a nice strong comp to compare ourselves to but before we get into discussion the key business drivers.

I also want to talk about some of the things that affected the EBITDA number that I think obscure the underlying business performance.

Versus the impact with the lower deferred revenue recognition in the Barnett and our Gulfstar deepwater platform. These are both noncash items totaling $21 million and are not reflective of the ongoing cash flow from these assets. We also saw 24 million of impact this quarter related to decreases in inventory.

Now use this was due to decline in the value of NGL line fill and write downs of NGL commodities and storage, while NGL price exposure is clearly part of our business. These charges are driven by directional movement of market prices.

And for this sort of chip charged to occur recur, we would have to see continued drop in NGL prices from the already very low prices that we mark these inventories that on March 31. So of course that this does not include the actual NGL.

That we produced and the equity sales that we had in the quarter. This was just the inventories and the repricing of inventories from our line fill our storage and our marketing teams inventory.

Another way of looking at this is to answer the question of what would the run rate be for the balance of the year with identical operations and pricing that we saw in one Q 20, the primary adjustment would be to add back to $24 million of inventory valuation write down to that.

1.262 billion for the next three quarters and this would provide us with an annual number above the midpoint of our guidance to be fair, we had very low repair and maintenance costs this quarter and where are not assuming that continues through the balance of the year, but I think this analysis highly.

Right, how pleased we were and our with our execution here in the first quarter.

So after touching on those issues lets dive into the key drivers first of all the primary drivers for the transmission in Gulf of Mexico segment was the decrease in recognize revenues on our deepwater Gulf War Golf Star platform, which was coupled with the end of fixed payments on platforms base and if we.

Reminded you of that several times that actually that fixed payments ended may of last year and so this is you'll hear a little bit about noise on this in second quarter and then we'll have a normal comp stat beyond this change on Gulfstar.

The transmission and Gulf of Mexico was up $60 million from the first quarter 2019. This was driven by Transco revenue growth from the river Bell South of market in Gateway expansion project and the northwest pipeline North Seattle.

Project.

Additionally, our first quarter 2020 results include increased EBITDA from the Transco rate case settlement and the benefit of cost saving cost savings initiatives implemented in late 2019, our operating teams. There lastly, tope total deepwater gas volumes were up 8% year.

Over year, mostly from the Norphlet pipeline and who that goal east projects that came online in the second half 2019 and net in the northeast GMP. Adjusted EBITDA. We saw we were up $58 million and this was driven by higher gathering processing and liquids handling.

In revenue.

Lot of new assets put in service in the second half of 19 that drove this and we're providing additional services to volumes that we are already gathering there.

This along with the relentless focus on cost containment and efficiency drove adjusted EBITDA growth of 23% for the northeast operating area total gathered volumes consolidated and Nonconsolidated grew by 4% with the primary contributors coming from the Marcellus out.

Oh Valley Midstream I'll remind you that Ohio Valley Midstream is north East JV that we have with the Canadian pension plan investment Board and then the supplement Susquehanna supply have also contributed to that growth.

This EBITDA and gathering volume performance resulted in this segment, realizing 52 cents per of EBITDA per gathered Mcf. So I'll remind you that the measure.

That we talked about back at our 2017 analyst day, when we laid out the.

Our long term aspirations for the area and so just to remind you that range that we talked about then was 50 to 55 cents. So we wind up now in the middle of that range.

So really really thrilled to have achieved that important measure I think that moved from as I recall I think that was around 36 37 cents back then so really impressive move by the team as we've been able to continue to increase our unit.

Lower our unit cost and continue to drive efficiency in that basin.

Of course, there's a number of factors that have drip driven.

That and and we're really excited though to have the scale that we do have now in that area and this is going to allow us continue using our low cost to drive competitive advantages and further growth in that basin.

Moving on to the West real story here, the steady business volume remains relatively flat in setting aside the noncash Barnett issue in in NGL inventory write down the west adjusted EBITDA was down about $13 million decline is mostly attributable to lower commodity margins driven by 60.

Additionally, lower NGL prices realized on our sold equity barrels during during the quarter.

So now I'm going to move on to looking at the natural gas demand picture, we talk a little bit about this on our March 25th call and I just wanted to update folks a lot of different stories out there in the markets around natural gas demand and so.

No wonder to give you the direct viewpoint, we have as Williams on.

Overall, we are seeing natural gas demand has remained strong both broadly across the market and on our systems. In fact, we're seeing evidence that natural gas is not only holding up nicely, but even exceeding recent historical norms.

And while it's hard to predict very far into the future right now we have seen demand for natural gas in the U.S., including the exports to Mexico Nbn LNG exports remaining strong it's a vastly different picture than what we're seeing in crude oil demand demand in the continental U.S. has generally been above the three years.

Oracle average and compare weeks, where natural gas we have strong demand in the power sector.

Industrial is down slightly Reds comments held in very well, despite mild weather and LNG in Mexico exports have driven demand up over the prior year averages.

One thing I do want to make sure you can see in this chart on the left is that the week over week behavior demand is seasonal impact.

The sequential declines have been we've seen in weekly demand since January our than normal behavior, we see when we move out of cold winter months and ended the shoulder months of more temperate weather before the heat of summer starts to drive electrical load due to air conditioning demand. So we only mention that we know a lot of that is very obvious.

Most people, but we've certainly seen a lot of headlines coming out talking about lower natural gas demand and if you read through the the headlines that go with that you'll notice that a lot of outages normal demand associated with weather.

Looking at the right hand side, which reflects flowed at a write off our gas transmission systems, we continue to see normal behavior with deliveries generally staying within the normal range when compared to last year and while the EBITDA generated by our regular regulated gas transmission systems is not impacted by volume fluctuate.

Patients thanks to the fully contracted capacity payments. We received we do monitor these volumes to get a sense for demand in the markets, we serve and the gathering volumes that serve those markets as well.

As we've consistently said over the last several years, our business is driven primarily by natural gas demand current and near term future demand drives revenue on our gathering and processing systems as the various sources of us production meet this demand.

And long term demand growth drives the opportunity to expand our gas transmission systems.

As more and more people see the benefits of consuming low cost abundant clean natural gas in users will continue to invest in gas consumption and the transportation capacity needs to access this reliable energy source.

We will keep monitoring demand as we plan for the rest of this year and 21 and beyond one thing. We are seeing right now is extremely low international prices for LNG European gas storage is very high right now after an even milder winter than what we expect experienced during the U.S. and while this.

Hey affect demand for U.S. gas over the summer, we see this pricing issue as cyclical and secular.

As we look further out.

We remain extremely confident and U.S. natural gas production as a low cost supply to world hungry for reliable abundant clean energy and in our business strategy to provide long term value based on that demand for natural gas.

So now, let's turn to some of the key areas. We believe investors are focused on now and how our business look through the lens of some of these risks and opportunities. We know our investors are trying to it to assess.

I'll start with the market environment, we find ourselves and now I won't dive into all of the current and extending drivers of the oil price collapse, but we'll lay out the distinctions between the drivers of low natural gas price and the drivers of low oil price low natural gas prices have existed here.

For a few years now driven by supplies growing even faster than the growing demand we have enjoyed.

The latest oil price collapse, we've seen had been primarily driven by tremendous demand destruction.

When you are in the business of moving these commodities. This distinction is everything confident in abundant clean and low cost natural gas supplies of driven consistent demand growth of 24% over the last three years and that growth in demand will continue.

On the other hand, lower demand for refined products ultimately means lower oil prices and lower volumes. So what does that mean for domestic supplies with the oil price collapse, we expect associated gas from will producing basins like the Permian backend scoop stack in Eagle Ford to decline and we expect gas.

Directed basins to gain market share.

As producers began shutting in some flowing oil production to avoid filling storage and selling their production at an unacceptable prices.

We'll see reductions and associated gas accelerate this decline will continue as the void in drilling and completions of oil wells begins to show the underlying decline in the large number of new wells supplying the market.

At the same time as I mentioned earlier, we see natural gas demand has remained strong and over the long term, we expect that strength to continue.

So what is has all been this.

Rapidly changing market environment, what does this will mean for Williams, we do expect the gas gathering we do in the oil basins to be impacted by the oil price shock, both near term shut ins and longer term the impact of lower prices for longer that will likely reduce capital available for us shell oil production.

The largest impact will be reduced will be reduced growth in the Permian in DJ basins business, including the associated NGL volumes from the DJ.

In 2019, the Permian DJ and mid continent basins, where approximately 2% of our EBITDA just to keep those declines in perspective.

The Eagle Ford is our single largest onshore shale oil facing business at 5% of our 2019 EBITDA. We recently, we renegotiated the contracts with Chesapeake our largest customer in Eagle Ford from a cost of service contract with rates that vary by year as volumes very.

To a fixed fee contracts, which has a minimum volume commitment.

This contract, which was negotiated and executed in late 2019 became effective on January one of 2020 and is it is designed to insulate us from volume fluctuations in the Eagle Ford.

It also includes language, which makes it abundantly clear that our contractual rights are linked directly to the minerals in the ground.

Our Gulf of Mexico business is driven primarily by oil economics and is not immune to oil price risk. However, it is uniquely positioned versus onshore oil business.

The deepwater business requires a very long term view given the multiyear multi billion dollar investments required by producers to bring on very large scale reserves.

The customer base is primarily international integrated oil companies or large scale independents with significant expertise in the deepwater for whom existing assets provide synergies for future investments.

With regards to future project opportunities our producer customers in the offshore business will clearly be looking at oil prices, but it will be with a long term vision for where prices will be in the next three to four years.

Williams will be impacted in the near term by some Gulf of Mexico production shut in from small producers, but we do not expect that to be a significant volume.

Also remember that producers bear significant fixed costs from an operating deepwater production most of which don't go away during the shut in so therefore, we expect offshore shut ins if they do occur to be some of the shortest duration oil production shut ins that we'll see here in the U.S.

Along with the medically lower oil and NGL prices has come well deserved concerned about our counterparty exposure with our customers. So let's focus for a moment on our customer base and the practical risk of not getting paid per the terms of our contracts.

From our perspective, it's very important to look beyond its simple credit rating breakdown and really look at the services being provided in the essential nature of the assets that we utilized to serve our customers.

We think about our counterparty exposure much differently in the GMP business than we do in the gas transmission business counterparty credit quality is extremely important in any long haul business, where there are number of.

Different ways to get gas to a wide variety of markets in gas transmission you rely heavily on the ability of your counterparty to pay you for the capacity over a very long term that the assets were designed and built for.

We watch our gas transmission counterparty exposure carefully and have built a portfolio of contract dominated by demand pool investment grade rated counterparties.

Customers, who need to have capacity available to meet their peak demand rather than customers, who are trying to find a market for their gas.

The gathering and processing business due to the universe of BMP companies.

Includes smaller less capitalized counterparties. These are very accomplished operators. These are the independent producers have led the charge and creating energy independence here in the U.S., but often with lower credit ratings or no credit ratings at all we do value high credit quality monks all our counterparties.

In closely monitor the credit quality of our portfolio GMP customers, but we also mitigate the credit risk we necessarily take on the GMP business with scale and with wellhead four well pad connectivity.

A large scale system that connects directly into producers reserves is difficult to reproduce and our customers will honor our contracts and utilize our services even when they're in financial distress. We have a strong track record of seeing the contracts for our wellhead gathering services survive a wide range corporate.

Actions were restructuring processes, even bankruptcy and by our producing customers. In fact, we see the real risk of gathering gas for financially distressed counterparties as the risks to growth rather than a risk to the revenue we earn on the flowing reserve.

Stress customer will not be able to fund sort of drilling capital necessary to grow their production and our gathering revenues. So we hear a lot of concerns out there about about bankruptcy, but I would just tell you that the real issue for US is we've got all lot of great acreage dedicated to us and what we want our.

Adequately capitalized customers being able to drill on the great debt acreage that's dedicated to us and that's the real impact that we see during this financial distress.

The picture, we have been painting through this discussion so far and through our financial performance is one of stability and predictability that stability and predictability is a bedrock on which we build a conservative financial policy and capital allocation process that drives the return value to our shareholders.

We pay a very attractive dividend based on our 40 cents quarterly dividend, which annualizes to $1.60 and yesterday afternoon's close of $19 in 13 cents that dollar 60 dividend offers an 8.4% yield.

It's very attractive yield is well covered and WB is one of the very few large infrastructure players that is also more than covering its growth capital spending as well.

We have been reining in our growth capital very tightly over the last couple of years.

As we've been working hard to improve our balance sheet.

Many of our peers have talked about significant cuts to capex budgets as they are now scrambling to cut this year and we've already travel much of this road, making significant cuts to our capital spending year over year for the past several years.

In fact, our total capital expenditures growth and maintenance in 2019 was $2.4 billion, which was 40% below the 2018 total capital expenditures of $4.2 billion and with our latest thoughts on growth and maintenance Capex here for 2020, we're now.

Now positioned to see another 40% reduction in total capital here 2020.

Our stable cash flow and disciplined capital spending have driven down our leverage maintaining a strong flexible balance sheet and investment grade credit metrics is very important to us both financially and operationally we believe in investment grade credit rating keeps our cost of debt down but also reduces the risk of the company in the I'd Echo.

The investors, both current and perspective equity investors.

And while we focus mostly on the long term positioning of the company on this slide I do want to reiterate our 2020 guidance ranges remain unchanged, but we do expect to come in at the lower end of the range for adjusted EBITDA and both are in growth and maintenance Capex as well.

Regarding adjusted EBITDA coming in towards the lower end of our guidance range, we say see that.

Being at the lower end of the range is being driven by lower than expected volume from the oil basins that we talked about earlier, primarily the DJ basin and a much lower NGL margins. We are currently experiencing we have not assumed prolong shut ins in our oil basins, nor have we assumed increase.

Dry gas drilling.

We also on the other Ham we don't assume that we will continue to enjoy the same degree of low maintenance and repair expenses that we enjoyed in the first quarter of this year.

And so as we think about.

The.

Here for 2020, the number of variables laying out there as we've talked about one.

Prolong shut ends I would tell you so far we see those as fairly minimal, but we do want to make sure you understand we're not expecting.

Wide scale or prolong shut ins in our guidance right. Now we also as we mentioned don't have the uplift that we might see in the last half of the year as well.

Moving on to Capex expectations, we've been able to reduce capex due to lower than.

Lower than budget performance on our projects and execution as well as lower producer activity, which has reduced the need for capex and lot of our gathering operations. As a result, now could see total capital spending come in below the low end of our guidance range. However, as preview.

Recently mentioned, we only had a very small amount of capital in our forecast for our Nevsky project. Since we were not going to allocate capital to the project until we receive necessary permits we remain confident that nessie will ultimately be approved and if this happens as soon as June the other reductions.

Mentioned will allow us to still be at the low end of our Capex guided train. So just to clarify that we do expect.

We would we would be still at the low end of the rain for Capex. If we are fortunate enough to get nessie moving here as soon as June.

On the other hand, if we don't we actually would come in below the current capex guidance range that we have out there.

In closing, 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 in conservative financial model makes us a resilient business that can deal with near term challenges in the market, while positioning us very well for the long term and.

The strong growth. That's ahead, so with that let's go ahead and transition to our Q and eight session and thank you again for joining us today.

Yes.

Ladies and gentlemen at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.

If you get back to withdraw your question. Please press the pound key as a reminder, we ask that you. Please limit your questions to one question and one follow up thank you.

We'll pause for just a moment to compile the Cuban a roster.

Your first question comes from the line of Jeremy Tonet with JP Morgan Your line is open.

Hi, good morning.

Thanks, Jeremy tail in the in the call. This morning, and just wanted to kind of build on some of those points. There I guess for gear producer conversations I mean, it seems like natural gas prices.

Further out in the curve continues to climb here and so I'm just wondering if you could share bit more.

What type of operating leverage you think Williams with enjoy.

Yes gas prices improve and producer activity picks up and respond to what we've seen here.

Yeah, Jeremy. Thank you, we have a wide variety of rates out there in the market.

And so Canada, obviously depends on where that volume is produce.

And so I think that's very dependent the good news is I think as we're demonstrating in the northeast we've got a very strong leverage where cost and we've been able to really keep down even as volumes have grown.

And so.

If we see a lot of that growth per in the northeast.

It's going to continue to be limited capital and limited incremental operating cost so pretty good operating leverage to that in the haynesville.

That's probably the other area that we would expect to respond.

Here in the near term and.

The operating leverage there is pretty similar we've got.

Pretty low incremental operating cost so a lot of revenue.

Got to the bottom line there so.

He said in the past the rates out there on the dry gas gathering or in the 30 to 50 cent range and so that's kind of what you can take quite a bit of that to the bottom line.

In terms against the volumes that we have if we happen to see some of that come through on.

Prost rich gas or Processable gas, which we are seeing right now occur in the West Virginia, and we're seeing volume come up pretty nicely. There, we obviously going to much higher margin on that because we're offering additional services to that so I would say that the lower.

Operating leverage that we have is in the dry gas and little bit higher operating leverage against the rich gas.

So yes.

Yes.

Helpful color, Thanks, and just wanted to kind of pivot if I could tell a regional energy access.

Seems like.

The pipes in the northeast or continue to face challenges.

Built here and just wondering what you could share with regards to how that project is developing and what opportunities.

Good morning, Jeremy This is Michael regional energy access continues to move toward a FERC filing early summer, we're still seeing fit a slowdown in the commercial execution of our final proceeding agreement that directly attributable to covert 19 in our inability to meet directly with the customers, but we are still X.

Securing those and.

We have gained momentum on that project and continue to.

And just as a reminder of the majority of those facilities are in Pennsylvania, We think Thats, why we have significant benefit and opportunity to get our project.

Permit approvals in a timely fashion.

And just as a reminder, there we only have one facility that we project to be outside of Pennsylvania.

Elector.

Driven compressor station in New Jersey, which we feel like won't have any permitting issues at all so commercial activity is still underway, but we are in the midst of preparing the.

Pre filing documents and expect to have those in purchasing of this summer.

Got it that's helpful Thats It from me. Thank you.

Thanks, Jeremy.

Your next question comes from the line of Colton Bean with Tudor Pickering Holt Your line is open.

Morning.

Alan I think you just noted that you're seeing some decent trends there across the rich gas exposure in west, Virginia, and thinking about the system more broadly can you update us and what you're seeing the across so many more NGL exposed areas and condensate, particularly.

Yes, Mike.

Yes. Good morning, Cold we are seeing some concerns early on in regard to condensate production, where the producers are we're chasing condensate earlier. This year I think if you go back and look at the southwestern call incurred a few days ago. They feel like they're not going to have any shut ins due to any condensate issues.

As for the month of May and Thats, obviously, good for us were large.

Customer, they're large customer of ours, there west Virginia. So we're pleased to see that announcement from them. There are definitely challenges in some of the other areas that Eagle Ford us or at the condensate challenges there.

We are working with our customers are buying opportunities. We've had a team working on condensate opportunities to store count the for customers and we have opportunities to be able to do that for them. If they so choose to do that.

At our at our facilities around the country. So we've given a lot of options after our customers that they want to continue to produce and those condensate volumes into our potential storage opportunities for them on the NGL side, we are seeing as much pressure on the producers from a production standpoint as you.

On the condensate.

So.

We are seeing some increase ethane prices are actually moving moving higher.

NGL prices.

Our continuing to to move stronger from where they were over the last several weeks and so we're not seeing as much pressure there that we are on the condensate.

Got it appreciate that.

Then just on a on the national grid side. So I think you commented that you think you could see approval there from North you supply as early as June So I guess in terms of key hurdles to watch.

What exactly is at that you guys are evaluating and then if we weren't to see approval by June.

Is the in service potential step change into 2022, or what sort of impacts would you expect there.

Ill take that as well so national grid concluded their public comment meetings. They went virtual on the majority of those and at a two week extension in the deadline to those concluded on May one.

And I think of resolving thing became very clear there as a net the project is the only opportunity for them to meet their long term solution.

Recall the settlement agreement that they had with state require them to provide a long term solution to the state.

By June and that long term solution had to be in service by fall of 2021.

And it's abundantly clear that nephew, the only opportunity to be able to do that.

The one thing I do want to mentioned, we watch the demand very closely across the us and we certainly wasn't very closely in the New York Metropolitan area for natural gas and leasing virtually no impact due to the over 19 situation and if you weather normalized demand up there it looks like a normal year, it's been a very warm year.

In January February and March in the northeast April was about normal and so when you weather normalized those demand picture across those four month. It looks just like a normal year for gas demand. So we see no impact there certainly wouldn't factory in too.

Any decisions that our customers would be making there and you can make the argument that may be commercial construction.

Lastly, could slow down but we.

We do think from a long term standpoint natural gas demand is going to be.

Increasing in the New York Mattresses Metropolitan area, just because of the amount of.

Conversions fuel oil is still need to occur there as well as the growth and infrastructure, that's being built in New York City.

I will also say that through this public comment process, where were prosecuting our permit we seen over 16000 positive public comments come in to note, both New York and New Jersey to support our project. There is more than 80 elected officials and community organizations. It also supports an FC project in May.

The public comments on record.

The seven deadline on the for a lesser Kaizens that we have our may 16th in New York in June 5th and New Jersey, and so Thats really the the key markers.

You should be watching out for here and.

To answer the last part of your question. If we do not get those approvals in May and June from both New York in New Jersey, well have to go back and reevaluated our customer with the expectation is there but.

We certainly could re file those permits as we've had in the past and.

At those turned around fairly quickly in New York in New Jersey choose to do so.

Yes, I appreciate that.

[music].

Your next question comes from the line of Gabe Moreen with Mizuho. Your line is open.

Good morning, everyone out if I could just ask a it seems like also producers are taking a different approach to their outlook for Nat gas prices next year and how much they've been willing to hedge the 21 strip yet can you talk on maybe again, so you've got in terms of some of the private producers whether it's in CNO in the Utica or some other producers Roger Haynesville acreage.

And how they're treating 21 them, whether there and what their outlook might be for adding rigs and I assume that might happen.

Yeah, I would say you know there's lot of people.

Still licking their wounds, a little bit from the low price environment that we've seen here in the first quarter and and.

It's not forgotten easily and I think they want to make sure that.

That theyre going to be very disciplined around the capital and align themselves to make decent returns.

And so and I'm not speaking any one producer here just to be clear.

But I do think that very low prices that they've had to endure on both gas and NGL prices in some of these locations.

Got it and really thinking hard about.

How to move forward and frankly, I think they see the fundamentals, perhaps being even stronger with that kind of cost discipline to degree that takes hold across the space, which it seems to be frankly.

That the fundamentals will drive even higher prices and so if you look this morning.

January 21 prices were up to 320 for January 21, so they may be exactly right on that in the fundamentals will continue to drive.

Those prices up so so I think there you know really going to make sure that they're not just.

Doing this to turn bit but to make really good value for their shareholders and their owners and.

And our wages are going to be patient make sure that the price really allows them to make some decent returns and frankly, that's the kind of discipline I think that will make the space healthy overtime.

Understood. Thanks, Ellen and then maybe John if I could get sort of updated thoughts from you and where you're thinking about debt markets. Now includes things have improved quite a bit since a couple of weeks ago and the update call.

I guess just your thoughts around.

Maybe taking some some of off the revolver when you put those early matures maturities on the revolver.

Yes, now those rates have significantly improved ad.

Had.

Total painful from where they were in February it at an incredibly low rate, but as we look today the rates are very attractive fourq for Williams and for Transco.

And so thats.

We'll watch the markets and we feel like there is a good opportunity, we'll certainly certainly yet.

Take take advantage of that and try to get some off of our revolver. We have we still have 1.7 billion on a revolver, but I'd say, we also have $700 million and cash. So we've got a very strong liquidity position.

Revolver again is $4.5 billion in doesn't mature until 2023, so we can be patient, but I'd just to be clear rates are attractive and our bond spreads really traded in the last couple of weeks.

Great. Thanks, Sean.

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Your next question comes from the line of Alex Kenya with Wolfe Research. Your line is open.

Thanks.

Good morning.

Just a question I guess just on Gulf of Mexico.

First I guess, just thinking about making sure that we understand how the sensitivities on volumes work. It sounds like you can you feel like from lunch freezers, there's nothing to be a big move but again just wondering if.

If volumes do move does that does that directly impact your bottom line or is there some protection and have the contracts work and the cost base basis.

And then related to that maybe if theres any impact on capital related to I guess, the whale delay, but shifts that shell and that's couple of days ago and second question. This just.

Dots on the NBP 12 permit do you use that typically for your construction activities.

Is that going to cause any any.

Applications for any planning the you quite on gathering or transmission.

Over the next few months until we get some resolution on that thanks.

Yes, I'll take the first question there broadly on the deepwater and then have Michael answer the well and WP 12 question.

On the deep water for the most part there are some.

Nvcs and some fixed payments out there, but for the most are because a lot of mbcs are so much below the actual.

Volumes that people are sitting at today, you should consider our deepwater business to be pretty well.

Driven by volume so both on the oil and gas side. So.

It's not that complicated out there in most parts.

It's payment there are places like the Norphlet in places like that that would true up on an annual basis, but you wouldn't see that quarterly basis. So.

Anyway, so newer assets like Norphlet tend to have those in the older assets. Those mbcs have we've gotten our capital back in those mbcs when those fixed payments have gone away just like Gulfstar as we mentioned the fixed payments on that.

Terminated the majority of the fixed payments terminated in may of last year, so microscopic the wells.

Thanks on whale, we actually before all of the oil price shocks occur, we'd actually placing orders for some equipment and we've got more favorable timing terms on those orders and so our capital would actually be reduced this year. It's just a timing issue for the most part though.

Do you think announcements came from the wheel customers.

Since the will customers have made their announcements we've had conversations with them. They not asked us to change course than in any fashion in regard to our current undertaking of engineering and procurement of materials to support their project, although they have announced and easily.

So right now is steady as she goes in regard to our performance.

Under our reimbursement agreement with those will customers and on the on the nationwide 12 question as you all probably well are well aware the Keystone XL pipeline in Montana.

Spend that authorization of the nationwide tool permit for that project and it's certainly something that we're all looking at across the industry. The corps of engineers as stated there not authorizing any new projects right now under the the nationwide 12, but they've not shutdown any project.

With that we know of and certainly none of ours that were being performed under the nationwide twill.

We don't think this is going to be a significant issue to Williams and for example in Pennsylvania, New Jersey.

They don't even use the nation Michael permits there is certainly not an impact at all there and anywhere that we were going to use those this year on new authorization. It was just small pad connections and our gathering systems for the most part that we can pivot to a different permitting scheme for those and to achieve our permitting goals for those.

Project and so as of now we've been project shutdown.

And every quarter Engineer's office that has jurisdiction over our permits.

In each one of those jurisdictions, we had conversations with them and they said they have no intentions of shutting down any projects that are currently underway with nationwide 12 urban.

Great. Thanks very much.

Your next question comes from the line of Tristan Richardson with Suntrust. Your line is open.

Hey, good morning, really appreciate all the commentary. This morning, just a follow up question on the northeast GMP I mean with the volumes we've seen in one Q and your commentary, perhaps suggesting even though the rich gas volumes remain resilient.

We think about though the 1.4 billion.

EBITDA number you've talked about in the past should we think of that is still relevant number in the current environment in northeast PMT.

You know I. This is Michael I'll take that.

I think we had tempering our expectations on drove there coming into this year last year Thats why you saw significant reduction in our capital.

But if you if you do a run rate on the.

The northeast I think we were 370 EBITDA this quarter and.

We would expect to see some continued.

Flat performance, if you will through the majority of the northeast PA production areas.

As everyone knows Cabot talked about going into maintenance mode flat production for the year, we're seeing some growth in.

In the Brad from still under a cost to service agreements up there.

And we do think some of the areas in in West, Virginia will be a more of a bright spot.

Coming several orders probably towards the end of the year in the next year and so I think we do have some line of sight ultimately to be able to get to that one for one point, where it might be a little bit delayed from where we were hoping but we had those expectations tempered coming into this year.

Helpful. Thank you.

Brief follow up with respect to bluestem.

With scratching their online now.

Can you see contributions from any of that capacity today or any fractionation contributions would come when bluestem comes online early next year.

Yes, so assuming that frac seven under Targas control is as.

Taking product, we will get revenue from that so it is.

As we understand and so we will get revenue from that prior coming online.

Okay helpful. Thank you guys very much.

Your next question comes from the line of Snore Schumi, Yes. Your line is open.

Hi, good morning, everyone. Thank you for instead that up.

Okay and a lot of my questions have been asked and answered, but maybe to follow up on Gabes question, a little bit here, but when the different way.

When we think about the producers normal it seems a lot of them are not really well capitalized coming into this.

Excluding Cabot, which are watches is a very important.

Customer of yours.

Are we surely that higher gas prices ensures that we get higher volumes or higher volume metric opportunity for Williams was there a chance if they sit there and just sort of take your production launches and enjoy the high prices involve accelerate capex just kind of trying to think about how we should think about it from a volume metric perspective.

In 21, just sort of given the starting place from where the producers were.

Sure. Our use are you speaking just too.

Thanks, taking my fault.

The northeast.

Yes, I would say no, but as you would think a variety of.

Producers and financial drivers out there.

Some are well hedged.

And.

And are taking advantage of the cost both variable cost structures to the amount right there right now and growing very successfully.

And not really missing a beat on the other hand, you have players for us like Chevron up there that have.

And now it's the sales process and it's been.

Pull back on their drilling operation So that's probably the.

Extremes of that.

But as I mentioned earlier I do think that.

Some producers are going to sit back and wait to see how from these prices will get they keep moving into right direction and I think their way too I think they believe that the fundamentals are on their side.

And so if you.

If you translate.

All of the negative discussion around oil and shut ins and and demand destruction.

If you believe that strongly than you have to turnaround and believe that gas is going to have the call on an in these gas directed basins and so I think thats, what youre seeing as some of them, having quite a bit of confidence in fundamentals.

And our waiting to make sure that that those fundamentals show up in the way of price before they commit to anything but but be clear. These are all.

There is not I can't point to a large producer that we deal with out there that I don't have quite a bit of respect for the way. They think about this we just have deferred motivations and drivers.

Out there in front of them, but they.

But they all I would say are always in the case of planning so they're they're not sitting back right now even though it may appear that way, they're not sitting back on their on their haunches and not planning for what looks like opportunity for growth for the future, but I think there.

We are going to pull those triggers when they're confident at these prices are something that they can lean into so so I would say what we are seeing pretty visibly there's a lot of planning for growth, but not necessarily a commitment to that growth just yet and but I think theres a lot of belief in the fundamentals that exist out there and again kind of hard to believe.

And all the carnage on the oil side and not believe the on the pool and the gas side.

Ladies and follow up on that maybe this is difficult to speculate about flights.

Some scenarios for maybe celadon.

Just given how difficult.

Capital access is right now for them that the potential to JV wouldn't do like Drillco jvs and so forth.

Equity as you can see that its potential idle for some of them.

Thinking more of that think not necessarily the northeast producers I think we'll see more of that in the Haynesville area, where theres a lot of easy acreage to go hit a lot of private companies that are even less capitalized in some cases, but they've got.

Very good not whole lot of risk involved in the development, there and certainly not a lot of risking getting the gas to the markets and so.

So I think we'll see a little more of that kind of activity like.

Well. Thank you very much appreciate the color today guys Stacey.

One thing I do want to go back to question that was asked earlier about northeast EBITDA coming in I believe the question was about 1.4 billion and I would tell you coming in earlier this year, we felt like.

Perhaps did come in under that level, just because cabot was going back to maintenance mode, and we saw chevron signaling.

They were going to slow some some of their activity down, but again remember we had really good first quarter and our volumes really good really strong and of course things are starting to look better for the northeast in the latter half of the year as well so as we look at it today, we do believe will be operating above 1.4 billion in the northeast for the year.

Your next question comes from the line of Preneed Satish with Wells Fargo. Your line is open.

Hi, Good morning, just in the Haynesville can you maybe just give us a breakdown of the customer mix. There how much is chesapeake versus privates and then in terms of potential growth in the haynesville if it does occur.

Would you expect it to come more from the pipe public or private producers in the region.

Yeah, I mean have Chad Xamarin, who has been dealing with a lot of the opportunities out there aggressive.

Sure. Thanks.

Haynesville chesty still about 70% of our volume.

Thank you thought if you look back about three years would have been much higher percentages that we've seen pretty rapid growth in third party volumes.

From primarily upright producers fine is one of those producers nailing Gussman Comstock is a producer that not private but we've been picking up additional.

Activity from and to the question earlier, we have seen those producers in the Haynesville take advantage of the of the current pricing environment and extend their their hedging.

And to add point around.

Access to capital for drilling in the Haynesville the ability to hedge out now many of these producers are hedging more than 24 months out in those haynesville wells are very much front end weighted from a value recovery perspective, and so those haynesville producers at a pretty pretty good opportunity to lock in their production.

Plans over the next couple of years, so the recovery of kind of the back end of the price curve is really created a very stabilizing effect for ongoing development in Haynesville, we actually think we'll see additional revenues as a result.

Great. Thanks, and then.

Maybe just rank order, which 50, which of your oil directed regions would get hit the hardest from potential shut ins and then.

How many quarters would you expect the the shut ins to persist or is this a one quarter to quarter for the balance in 2020.

This is Michael I'll take that from a study on a risk of say the Eagle Ford probably the highest.

Leasing our acreage area because of the condensate.

The customers are producing there, but we are protected by an MVC for example on the just be contracts. So.

Even if the volumes do decline, we do have in DC protection underlying that which we think would would be very strong.

For us from a from a protection of our revenue there in regard to that so I'd say the Eagle Ford is probably the highest the DJ is is probably one as well where theyre also seen some of the same type gravity.

Production.

There from the condensate oil they're chasing in the DJ.

So we would also have some similar shut in risks there.

Gulf of Mexico, you've got some of the smaller independents in the Gulf of Mexico, That's probably next on the list, but so far we've not seen any of the large producers in the goal shut in any production.

Great. Thank you.

Ladies and gentlemen at this time I will now turn it back over to Mr. Armstrong for closing remarks.

Okay, well. Thank you all very much for joining us this morning.

Great quarter, we're really excited to see the execution that we had in the quarter and.

We think the fundamentals are very strong for our business and the way with physician down Barnabas. So thanks again for joining smoking.

Ladies and gentlemen. This concludes today's conference call you may now disconnect.

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