Q2 2020 Williams Companies Inc Earnings Call

Twentytwenty earnings Conference call.

Today's conference is being recorded.

At this time for opening remarks introductions I would like to turn the call over to Mr., Brett Craig head of Investor Relations. Please go ahead.

Thanks, Wendy good morning, everyone. Thank you for joining us and for your interest in the Williams companies yesterday afternoon, We released our earnings press release in the presentation that our president and CEO, Alan Armstrong and our Chief Financial Officer, John Chandler will speak to this morning.

Also joining us on the call today, our Michael done our Chief Operating Officer Lane Wilson, Our General Counsel and Chad Xamarin, our senior Vice President of corporate strategic development.

In our presentation materials, you will find a disclaimer related to forward looking statements. This disclaimer is important and integral to our remarks and you should review it.

Also included in 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, Brett and thank you all for joining US today, we're proud to share the results. The strong second quarter. It really is a testament to the stability and predictability of our business.

John will share in more detail Williams exceeded its internal plans.

And also expectations by the Street and show just how durable this business can be against a number of headwinds including.

Shut ins in the deepwater Gulf of Mexico for a variety of reasons, including a cobot break out on one of the plot that larger platforms that serves us a tropical storm crystal ball and a variety of price related shut ins that expanded beyond the Gulf of Mexico to places like the Eagle Ford and the condensate production in.

The Marcellus so lots of headwinds for the quarter, but really the.

Variety that we have and the durability of our business really shown through.

It's not been an easy environment for most companies to navigate and a lot of people are likely asking you to look past this quarter and focus on the remainder of the year, but for Williams is quite the contrary we want to focus on this quarter's performance because Q2 was a real opportunity for us to demonstrate the stability of our business and the.

Long term benefit from a strategy that has been built on that sound fundamentals of low cost clean natural gas. So let me turn it over to John to walk through our results and then I'll share some thoughts on the overall natural gas market and compare Williams volumes up against the broader market Stat, and then ill hit on some of the.

He investor topics before we get to QNX. So John Thanks, Alan and we'll talk slide one here for a moment. We we're obviously very pleased and frankly, we're not surprised with the result, this quarter as Alan mentioned, while the energy industry faced a very difficult environment over the last quarter, our Burke volumes and earnings really shine through and you can see this in our statistics.

The quarter.

Cash flow from operations improved by 7% year over year, and while adjusted earnings per share and adjusted EBITDA looks flat last year realized that there are few unusual items that that cloud the comparability and namely those relate to the reductions in deferred revenues and the impact of some temporary shut in the Gulf of Mexico, and those two negative items.

Were offset somewhat by the benefit of NGL prices on our inventory in the west.

If you exclude these items, our adjusted EBITDA actually was up over 3%, we will discuss EBITDA variance is more in a moment.

Distribute cash flow was down for the quarter, but importantly in the second quarter 2019, it's been a bit benefited from 85 billion dollar alternative minimum tax refund.

We expect the similar refund this year, but that will come later this year.

Factoring this outstrip our cash flow also increased 15 million or about 2% reflective of the EBITDA increase we saw this quarter.

The strong distributable cash flow generated very solid dividend coverage of 1.64 time showing that our dividend is very safe.

If you expand that for the full year stable cash flow and coverage are on track to achieve the midpoint of our original guidance range, even with our guidance of EBITDA being in the lower half of our guidance range.

This is because the lower than expected level of maintenance capital spending this year versus our original plan.

And due to the benefit of tax refunds, we expect receiving the second half of this year.

International capital discipline, and the shifting of some project spending continues to drive capital spending down and as a result, our free cash flow up until that point expansion capital spending for the quarter end year to date is about one half of what it was last year.

With expansion capital spending now expected to calm in the one to 1.2 billion range and looking at our EBITDA industrial cash flow forecast, we still predict that will produce excess free cash flow this year above all dividends and capital expenditures.

The strong cash generation and capital discipline has helped deliver on our goal to improve our leverage metrics. Our net debt divided by our last 12 months EBITDA produces a ratio of 4.31 time.

And reflects a nice improvement over the metric from the same time last year.

And finally, while not on this page we did in this quarter with $1.1 billion in cash of with 600 million will be used to retire debt that matures in November.

This cash along with our untapped $4.5 billion revolver provides significant liquidity to the company.

Now, let's go to page, two which is our adjusted EBITDA waterfalls.

And Thats, let's dig a little bit deeper about the variances of EBITDA results for the quarter again Williams performed very well, despite a pretty tough energy market.

As I mentioned, a moment ago, we believe it's important to isolate a few unusual things to make the numbers more comparable and reflective of the ongoing performance of the business.

We've identified those unusual items, which are shown on this chart as compare ability items and they totaled $42 million and they consist of three things. The first is a 32 million dollar reduction in EBITDA tied to noncash deferred revenue step down in the west around our Barnett shale franchise area and in the Gulf of Mexico around our golf lease franchise area.

As a reminder, on deferred revenue, we received significant upfront cash payment several years ago, but did not recognize revenue at that time, we have been amortizing those payments that we receive into income over the last several years and that amortization has been shrinking year over year.

The second unusual item is that related to our deepwater Gulf of Mexico shut ins that occurred during the quarter and they had a negative 24 million dollar impact our result.

The shut ins were due to.

Customer plant maintenance, which was significantly extended because of a code outbreak on a platform of one of our producers. It was also impacted due to tropical storm Cristobal and then finally it was impacted due to some price related shut ins that occurred during the second quarter.

The third unusual item that benefit.

The benefit of the rebound to the NGL prices that had a positive impact on our inventory value this quarter.

You may recall in the first quarter, we highlighted reduced commodity products due to what was a quick move down in NGL prices, causing a noncash write down of operational inventory and accounting losses on inventory sales in the first quarter.

That turned around this quarter driving a $14 million improvement in marketing results, partially recapturing some of the loss we noted in the first quarter.

It's important it's important to note that this is not building inventory perspective purposes. It's just our operational inventory primarily minefield. It's also important to note that when you look at our West result, I understand that the first quarter commodity results were understated because of this item in the second quarter results were overstated.

So this is not really a meaningful bearings for commodities year to date in comparison to last year.

We called out each of these three items because again, we feel it's important to note their impact on the current period and it allows by separating and separating those items that allows for better understanding of the ongoing performances of our business.

With that out of the way that our transmission and Gulf of Mexico assets produced results that were $28 million better than the same period last year.

A big portion of this increase came from new projects put into service on Transco, including River Bell South and Gateway projects that were brought into service late last year and the Hell be phase II project, which is brought into service this quarter.

In a desk. In addition, this quarter benefited from Transcos rate case settlement, which Didnt, which we did not reach settlement terms until the third quarter of last year and finally this quarter benefited from lower cost both savings initiative started last year and additional efforts we are making this year.

While the Gulf of Mexico was not a contributor to the growth in EBITDA this quarter volumes and revenues have already rebounded from the shut in issues experienced during the quarter and as of July 1st all affected production is back online.

Now moving to the northeast segment. It continues to come on strong contributing $44 million of additional EBITDA this quarter.

Collectively total northeast gathering volumes grew 7% in the quarter and processing volumes were up 17%.

These higher volumes growth revenue growth and of course, we are realizing more revenue per gathered mcf due to additional revenues earned from processing transportation and fractionation of gas and Ngls.

Equity method investments also drove EBITDA growth, where we benefited from higher wrapper volumes due to a gathering expansion of that system in late 2019 higher volumes from our lower amount midstream joint venture where volumes reached their highest peak in over three years in June and our Marcellus South system, where we benefited from several new wells coming online during the quarter.

Finally, the northeast also benefited from cost reduction efforts much of which began last year as well as favorable maintenance expense savings.

As a final note the northeast our adjusted EBITDA for gathered Mcf for northeast operated asset. When you include a proportion of volume for non operated asset is now 52 cents per Mcf in the second quarter of 2020 compared to 48 cents per Mcf. The same time last year, that's an 8% increase.

Now moving to the West that segment declined $32 million that was large that reduction was largely the result of special revenues realized last year that were not repeated this year.

When looking at the ongoing health of the West segment, it's really important to dig into the details of these unusual items.

Those special revenue items in the second quarter of 2019 that I mentioned for the MVC payment in the Barnett shale that ended in June of last year and the final cost of service contract true up in the mid content, which benefited the second quarter of last year and of course, neither of those repeated this year.

Beyond these items gathering revenues were down that were offset somewhat by lower cost.

Combined gathering volumes are the west declined by 1% for the quarter.

However, this was heavily influenced by some shut in volumes in may in the Eagle Ford.

If you exclude the Eagle for franchise area volumes on all of our other systems collectively were up 2%.

Now as it relates to Eagle Ford base in our gathering agreement there is protected by a minimum volume commitment and during the quarter, even though volumes were less than the Eagle Ford, we actually actually realized increased revenues from the minimum volume commitments.

Finally, lower costs also benefited segment as we keep a relentless focus on efficiency and control.

One other thing you may note in our statistics on the NGL and crude oil transportation line is a meaningful drop in volume, which comes from our overland pass pipeline.

This decline did not have an impact on our EBITDA given that a shipper on the pipeline agreed to pay us a fee and keep us hold on revenues in lieu of shipping dedicated volumes on that line.

Now moving to slide three our year to date results you can see that year to date results showed growth of nearly 2% and adjusted EBITDA driven by many of the same factors affecting the second quarter growth.

Barnett Gulfstar noncash deferred revenue step down accreted to $53 million reduction in EBITDA year over year deepwater shut ins that we just talked about in the second quarter created a negative 21 million dollar.

And in EBITDA and the net impact of commodity price fluctuations on the first and second quarter collectively created a negative $10 million headwind. So if you take those comparability items out of the next year to date adjusted EBITDA actually resulted in a 5% increase.

The west is off for many of the same reasons. We described in the second quarter. The northeast is a huge part of the growth year to date, adding $112 million EBITDA. This year over last year with overall volumes up 6% and incremental revenues being realized from processing transportation and fractionation of gas and NGL and.

Transmission in Gulf of Mexico assets are delivering growth as well with an uplift from expansion projects the rate case settlement and expense reductions and those positives are off offset somewhat by some by lower Gulf of Mexico that product again, all in all despite a tough market we're off to a really good start for the year.

Now I'll turn the call back over to Alan to review some of the key supply and demand fundamentals Alan great well, Thanks, John and now let's look at the fundamentals that continues support our business here on slide four.

As we've consistently stated our strategy depends on natural gas demand and many people assume that natural gas demand would be greatly diminished by code would 19 uninstalled economy.

Fortunately, we have not seen that play out at all in fact natural gas demand has continued to grow both broadly across the market and on our systems in particular overall lower 48 demand was up 2% from the second quarter of 2019 in fact, the only segment that did not grow.

It was industrial load and even industrial load was only down slightly about 0.6% in most of that would really early.

In the two so we've actually seen that rebound back to normal levels.

But really at that at that level, you pretty well call that flat on the power Gen side.

Loads remained strong with Twoq 220 tracking 3% higher than the 2019 to Q levels and the early numbers for the month of July here look like this healthy trend is continuing into the third quarter.

This is especially impressive if you consider that over the last 18 months over 600 projects, representing an additional 20 gigawatts of renewable power generation capacity have been installed in the U.S. and the US continues to show how powerful the combination of wind solar and gas fired generation.

And can be when we're up against meeting the dual challenge of providing low cost and reliable energy while at the same time lowering greenhouse gas emissions. So lot of conflict a lot of discussion.

A lot of political bent that goes into this issue, but at the end of the day to US is really doing a nice job of combining the benefits of renewable power with gas fired generation and we continue to see that show up in the numbers on a fact basis.

Despite a lot of.

Media and political bantering that goes around this issue, we really are seeing positive.

Improvement here in the us on both emissions and continuing to provide low cost power here in the U.S.. So we really got a lot of positive things.

On that front and we expect that continue on the residential and commercial side demand was actually up 5% and so I think that surprised a lot of people in the quarter as well and even the export market comprised primarily of LNG shipping in Mexico pipeline exports was up 11%.

On a two to two two basis.

Of course, LNG exports have diminished significantly from the first part of the year, but there are positive signs emerging in the number of cargo cancellations have begun to diminish as you get in looking at the third quarter listen, particularly in September now.

The Mexico pipeline exports have been on the rise and are expected to continue as pipeline infrastructure that preaching further down into Mexico are now complete and will soon begin to utilize supplies from the us directly by pipeline even into areas, where alpha Mira LNG was the typical supply.

Hi, there so a lot of good things going on there as Mexico continues to bring in natural gas to replace more expensive power generation in their markets.

On our own gas transmission systems volumes are up 8% in 2020 on average compared to three year average so lot of moving parts there but.

We continue to see those volumes and certainly on our.

On a two to two to two basis looking at our contracted capacity of course, and that's important to us because that is actually how we get paid.

On our transmission systems.

Now as we move on to slide five and look at to production update and really pretty simple story here on the supply side you can see the overall lower 48 wellhead production in the second quarter of 20 declined slightly versus Twoq 19, so about 0.3%.

Again pretty flat.

But williams wellhead gathering actually increased by 3.6% and that was despite the shut ins in places like the Eagle Ford in the Gulf of Mexico. So we expect this to continue to be the story and a wide variety of market conditions as the low cost supplies will be the last thought.

And the first to be called on to meet growing demand.

We have focused our GMP business with this principle in mind and we're really excited about the way our gathering and processing business is set up for the next several years here looking into the third quarter. We are seeing no exception as gathering volumes continue to grow here in July and our deepwater volumes as you heard from John have fully rebound.

And it.

I'm going to move on now two key investor.

Focus areas and so here on slide six we take a look at these key areas for our investors our business is durable because we have the right strategy the right assets and we contractor business in a conservative manners that can withstand the kind of commodity upsets that we've witnessed during the second quarter.

Yeah.

Looking first on the durability and from a commercial perspective, our premier gas transmission assets serve is critical components of the nation's natural gas grid and are driven by long term demand for capacity by the major utilities in the densely populated areas our transmission business.

As has fully contracted cash flows with no commodity or volume exposure and it is important to remember that when it comes to our pipeline business. It is the available capacity that we sell therefore, we are not dependent on throughput or volumes.

We contract with high credit quality.

Customers, primarily utilities and power producers and by the way we speak about credit.

We have continually said that we do believe credit is very important for long term long haul pipeline contracts and we have always held this out as the principle of contracting in the long haul business.

In the GMP business, we protect our cash flows by providing services that are essential to the monetization of the reserves in the ground and by owning the infrastructure back to the wellhead in most cases, we also have a diverse portfolio basins and customers within our GMP business that gives is the ability to withstand the.

Lot of change individual changes that go on amongst our producing.

Customers. Additionally, most of our contract our fixed fee and do not very with the price of the commodity or basis differential and that is why you're seeing such steady and predictable cash flows continuing despite a very difficult commodity pricing environment here in twoq.

Producer bankruptcy continues to be a hot topic in the midstream sector and of course, Chesapeake recently filed for bankruptcy I would note that despite there being a large number of long haul pipeline and processing contracts being listed by Chesapeake for rejection, none of our contracts have been slated for rejection.

And that's primarily due to the fact that we provide this essential service back to the wellhead in fact, we see opportunity in the Chesapeake bankruptcy process to strengthen our relationship and expect restructuring to give chesapeake the flexibility to navigate the fast shifting market and put these basins William served in a healthier.

Position for growth So chesapeakes got a great position in both the Bradford County, PA may as well as in the Haynesville and we are well positioned to serve the growth coming out of those basins as that dry gas gets called on.

Year over the next couple of years.

Looking on the financial side.

Let me start out by saying that despite an excessively high yield it's now over 8%. There is no reason need or intent to reduce our very well cover dividend. We grew it by 5% this year and we still expect our coverage to be 1.7 for the year.

In fact in addition to the coverage on our dividend. We also expect to more than cover our growth capital this year.

This free cash flow generation will continue to improve credit metrics and in the quarter. We saw our net debt to EBITDA actually go down to 4.31 really hard to find anyone improving their credit metrics more consistently be than we have and especially in this environment.

Turning quickly to guidance despite the turmoil in the space, we are holding guidance on the profit side and reducing it on the spending side on adjusted EBITDA, We still expect the land in the lower half of the range, but our outlook has improved since our last earnings release.

On DCF, we're still forecasting the midpoint of the original range, but as you will note through the second quarter. We're pacing ahead of the midpoint.

On growth Capex, we're reducing from the original range.

1.1 to 1.3 down to 1.0 to 1.2 billion and that of course is providing further support for additional free cash flow generation and we have de risked most of the major projects through the year.

So great performance by our project execution teams and this is one of the key drivers for the reduction.

In our Capex and with the the risk reduction were actually headed towards the lower end of even this new range. So great job by our teams out there have continued to control costs and execute on our projects in a difficult environment.

Turning to sustainability and how we think about that at Williams sustainability grounded in sensibility is nothing new here at Williams over long live operating this long live infrastructure requires focus on long term sustainability. Our continued focus on sustainability delivers immense.

Value that is well aligned with the interest of long term shareholders.

Our 2019 sustainability report was published on July 27, and this report really provides a very transparent view into the actions. We're taking the bounce the dual challenge of meeting increasing demand for energy, while reducing emissions and environmental impacts with practical and immediate.

Solutions.

More than 40, and one of the highlights that I would point to you in there that really proud of our operating teams for being so focused on is that we've reduced our reported methane emissions by 41% since 2012, so really nice job by our teams on that and.

Everybody's proud of what we're doing to continue to do our part to improve the environment.

Now turning to look at growth lots of concerns expressed about the difficult permitting environment that exist and of course for Williams. This is a double edged sword, our pipes and right of ways our position to serve some of the most densely populated areas.

And as a result, we have the ability to expand these systems at much lower cost and with much less environmental impact and Greenfield projects would present.

Of course, this gives us tremendous advantage and provides us with unique growth opportunities at returns that can offset the risk associated with this difficult permitting environment.

Looking at the quarter. Despite the unfortunate decision that came out from New York on Nessie during the quarter, we had terrific execution across the rest of our project portfolio. In fact, we're now completing the final tie ends on our 193 mile Bluestem NGL pipeline.

Spending through Kansas, and Oklahoma, and our 42 inch pipeline loop on Transco, along the Transco system for the southeastern trailed project in Virginia was completed in placed in service.

As well so great work by the teams overcoming a lot of restrictions due to coven, but really learning to work in a different way and continuing to deliver our projects on on budget and on time. We also on the GMP side, our Salem compressor station, which is in Ohio or.

Ended in the dry Utica to meet a customer's accelerated schedule need so lot of great drilling success by Encino in the dry Utica and we've been working really hard to keep up with their expansion needs out there and really great to see them being successful and our teams doing a great job keeping up with that success.

We also received FERC certificate for Lighty, South project in Pennsylvania, So really excited to see that project moving along and regional energy access continues to progress and we are dusting off the plans as well required to help serve the AC the Atlantic Coast pipeline load that remains in the in the mid Atlantic So weve.

Always been extremely well positioned to serve that load and we're now dusting off some of the original plans that we had so we think that presents an opportunity not certainly not in the near term, but over the long term presents continued growth opportunities longer transmission system.

Taking a look at the growth in our gathering and processing business.

First of all the GMP business is meeting our expectations for the year and we've got great performance out of the northeast GMP footprint, both on a volume keeping up with the volume growth out there as well as cost control by our teams out there so really great operating performance.

Our low cost basins provide predictable cash flow and continue to position us to grow and a wide range of supply and demand scenarios as I mentioned earlier, we do believe being in the very lowest cost very lows lowest cost basins and being in the right spots in those basins.

Is going to be a differentiator for us.

As we're moving into these low commodity prices both on the oil side and it's we continue to see gas demand continued to increase.

The most economic gas supplies, we think.

We'll come out of places like Susquehanna Bradford counties in northeast PA, the dry Utica, the southwest Marcellus area and the core Haynesville. Our teams continue to tie in new production and expand compressor stations like clockwork in both the northeast in the.

Haynesville. So you don't hear about a lot of those projects because they don't hit the major products radar screen, but a tremendous amount of great work going on by our teams out there are keeping up with that growth.

In the deepwater Gulf of Mexico, we haven't really in unique set of capabilities and very well positioned infrastructure and we are continuing to win a lot of new business in the Gulf.

Latest that we reported on was the log taggart tie back.

With Taggart, we now expect for expansions major expansions to come online in 22 through 24, and those projects, we estimate somewhere around $300 million of EBITDA just from those four projects.

And the majority of that will come on into 2024.

But even beyond the big sizable package that you hear about we continue to build a string of basis and now. In addition, the Taggart, we signed up to other new deepwater packages that will deliver ahead of these larger plays and in the two to the latest that weve contracted for were filled woods katmai prospect as well as.

Logs for wants.

On our discovery system, so really great work going on.

Comes out there.

So in the move to close here, we've intentionally built a business that is steady and predictable and this quarter was a chance to show just how durable this business can be against a number of headwinds our natural gas focus strategy positions us well to capitalize on continued natural gas growth our existing transmission.

Sure offers growth advantage.

As well as durability of cash flows and our low cost basins provide predictable cash flows and position us to grow in a wide range of supply and demand scenarios.

We remain bullish on natural gas demand growth because we recognize the critical role natural gas does and we'll continue to play in a clean energy economy.

Thanks to natural gas the us continues to see significant reductions in Seo do emissions.

Along with lower consumers utility bills and this has enhanced the opportunities for investment in renewable energy.

And finally I'd be remiss, if I didnt close my remarks by acknowledging the tremendous efforts of our entire work towards who continue to do their part to ensure the delivery of natural gas to America city cities and communities during the Cobot 19 pandemic.

These efforts are frequently over look by the general public who often take for granted the highly reliable and safe energy infrastructure that enables our everyday lives and jobs across our great country and I'm extremely proud of our employees for their efforts to keep our operations running smoothly, while also going the extra mile to keep them sell.

So and their co workers safe and healthy and with that I'll open it up for your questions.

At this time, if you'd like to ask a question. Please press Star then the number one on your telephone keypad.

We ask that you limit your questions to one and one follow up any may rejoin the queue for any additional questions.

Our first question comes from the line of Jeremy Tommy with Jpmorgan.

Your line is now open.

Hi, good morning.

Just wanted to start off with I guess.

Producer activity across your footprint here. It seems like natural gases has rebounded a bit and commodity prices coming up a bit here. So just wondering if you could give us a flavor what you're seeing across your GMP footprint there.

Do you think that the west could tick up again quarter over quarter that was certainly a better showing there than what we expected. So any color I guess, some producer activity across your footprint would be helpful.

Hey, Good morning, Jerry This is Michael we are seeing some activity there across all of our dry gas basins, where producer customers are.

Expecting higher prices next year, and we're seeing that the forward curve as well.

You see probably some of the comments from some of our customers that are being cautious I think with what they're saying, but they are prepared to participate in a higher price environment.

And we would expect to see that not only in the Rockies, but in the northeast.

And in the Haynesville, we've even seen some pretty decent activity in the Barnett with some workovers there and some new production coming on this firms will that had been are performing so they are anticipating and taking advantage it looks like of potential higher price environment next year.

Got it thats helpful. Thanks, and switching gears it seems like more of the utilities are kind of running test pilots with regard to hydrogen.

And granted it's probably pretty later data at this point, but just wanted to see if you had any thoughts as far as hydrogen blending it is something.

That Williams could play a role and going forward or any thoughts on this topic would be helpful. Thanks.

Jeremy Great question. Thank you we have several projects right now, where we're bringing in renewable gas from dairy operations and from.

And from waste areas and so we are working we've got a lot of a Marty online and we're continuing to work on.

Those projects and I would say those are.

We'll be obviously ahead of hydrogen in terms of coming on but we do see a lot of investment opportunity around that.

Also on the hydrogen front, certainly we heard the message loud and clear from places like New York.

About political support for.

For a de carbonization, and we think that presents a great opportunity for us at Williams to invest with our customers.

In projects like that and so we certainly are interested in doing that and think we're extremely well positioned given our distribution network into those densely populated areas. We think we're extremely well position to be able to take advantage and especially as renewable excess renewable power.

Becomes available and converting that to hydrogen as a form of energy storage.

We're extremely well positioned to take part in that and as you see.

On the.

Solar front, we're certainly.

Interested in making investments, where they make sense in and around our pipeline systems and to take advantage of.

Investments in renewable opportunities and so we're no stranger to it and teams done a great job of picking up new opportunities like that Chad to hammer and his team.

Continued to look into opportunities like that and I think that's nobody's better position for that and Williams frankly, so we look forward to.

Continuing to look into those opportunities.

That's very helpful color. Thank you.

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

Good morning.

Alan maybe just a follow up on that on the solar initiative.

How do you see that playing out over the next five years or so and what would you need to see to evaluate renewables as revenue driver versus primarily cost savings.

Yeah, I'm going to have Ted's hammered address that quarter, yes, no I think one of the great things about our position is that we don't just new renewable investments as a cost savings opportunity, we do see them as good.

Accretive investments in solar.

As one of those examples.

I think we expect to invest.

Somewhere between $2 million to $400 million over the next few years as solar projects that are immediately along our footprint now we will likely have.

Partners in those projects in order to optimize the.

The way to that that gets installed and optimize the value that Williams and capture but I would just say Alan mentioned, we're we've got a fairly good pipeline of opportunities on the solar front.

We have existing RMG projects coming into the system, we have a pretty good line of sight towards projects to add additional dairy farm.

Landfill projects to our system were not only we can invest in that that upstream opportunities, but we can build the infrastructure to bring that that renewable gas into our mainline systems and then just as a follow up on hydrogen front I think anywhere, but we see if there if there will be an opportunity.

To create value along the pipeline footprint I think no one is better positioned than Williams, when you think of our footprint up into the northwest and our footprint along the eastern seaboard up into the northeast I think we're very well positioned to capture a project opportunities that that add value and do create revenue generation opportunities and so I.

It's early days, but I would tell you that we're very focused on on that part of the business because we truly believe that natural gas is the.

As part of the the the solution for how we can invest further in renewables in the United States. So I would expect that folks continue and we'll continue to find opportunities over the next several years.

Great appreciate that a detailed there and just switching over to the capital front I think we've seen a few northeast producers reference and maintenance case for 2021, So I know great preliminary but any expectations for what WPS capital needs might look like in a flattish volume environment.

Well I would you say you know we've continued to see growth in the northeast and I need as Michael mentioned, it's largely dependent on the forward curve, but we do have a lot of producers that are looking to take advantage of that.

And so.

I would just say the growth is going to have to come from somewhere if we don't see an oil price recovery, we're going to theres going to have to be replacement of those volumes as well as to continue to meet demand, but it's pretty amazing we look at how low LNG exports are and yet our demand for the year has still grown.

And so if we were enjoying Matt Ellen typical LNG.

Demand, we would really have the outstripping right now and the Mark would be turning the other way pretty quickly I think so said another way I'm not sure I would agree that we'll see flat volumes and certainly don't see that coming out of the low price basins.

Bye.

The northeast Marcellus in Haynesville, and the dry Utica, so, but but if we did see that I would just say our capital has gotten lower and lower and lower in the northeast because our systems are very expanded right now.

We've done a great job of that we are looking at a couple of expansions as Michael mentioned that are pretty sizeable, but thats in kind of the planning horizon right now, but if we do see.

Flat.

There is not a whole lot of capital demand for the for the northeast and so just because our systems already coverings, such a wide swath of the acreage dedicated to stuff.

Great appreciate that.

Yes.

Our next question comes from the line of gave marine with Mizuho. Your line is now open.

Hey, good morning, everyone, Alan maybe I'll bite on dusting off the plans given the Cps demise can you just talked about handle future strategy. There are these.

Smaller bolt on projects as with something that would be more sizable and large capacity.

Well I would just Daimler those are obviously going to be customer driven there and.

And we certainly are well positioned to work with the customers to help.

Those growing demand with the two laterals, but both the mainline thats.

Goes through Virginia, there and with sizable capacity to deliver as well as the two laterals Cardinal line and south agenda lateral that stretch into those markets. Nobody is better positioned than we are to expand that and originally I would just say we were pretty certain.

That expansion alternatives that we had there were very low cost and the primary reason for going to HCP in that case was the benefits of having another major system in the area reliability purposes, but we think with the pressure on cost and the.

Conflict, we're confident we can maintain that reliability that we've always provided for that area, but at a much lower costs and so I would just say we're working.

Closely with customers in the area to look at their demand requirements and we've got a great relationship.

With the customers in those markets and we're going to look to tailor our solutions to fit their needs, but in terms of existing right of way the existing capacity the ability to expand those that capacity into those markets.

I think it goes without saying that nobody's better positioned than we are to help serve that and we can do it importantly, we can do it on an incremental basis and so said another way we don't have to bill all the capacity all at once we can do that over time and of course, that's a huge advantage when it comes to cost efficiency.

And return on capital.

To be able to expand those systems.

As the demand.

These forward so Michael anything you'd add to that would just say the other aspect that we have their Alan just on a bit in regard to our existing systems building them as Brasil systems as a much lower environmental footprint.

Environmental impact and we think thats something that will carry the well in regard to.

Incremental expansions that we can bring to those customers in that area.

Thanks, and then maybe if I can ask call. So it seems like ethane recovery has ticked up a bit I'm just wondering what you're seeing on their systems out there in the west where that's been.

Maybe a source of a little upside and if that continues whether that could being improved economic settled those bluestem.

Yes, we certainly are see ethane recovery continue out there and that is boosting volumes in the area. So you may see.

Oh, PPL volumes were actually down for the quarter, but that just because we had a customer that chose to take their volumes off and pay us for that volume deficiency rather than.

Rather than ship and so that said another way why the volumes were off a little bit there the revenues were not off from that.

So, but but we do see expanded opportunity.

As ethane recovery comes in we're seeing the Ford market is actually continuing to show margin.

For most the rest of the year on on ethane and so.

Given our.

Limited.

I appetite for commodity price risk, we're taking advantage that as we see that board market present itself, we're taking advantage of that.

Great. Thanks all.

Our next question comes from the line of Derek Walker with Bank of America. Your line is now open.

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Good morning, everyone. Thanks for the time.

Maybe just a couple of quick ones for me.

Yeah, I already talked about.

Addressing some of the counterparty risk and you obviously talked about Chesapeake.

Actually presenting some potential opportunities around some of the restructuring.

Thats, a going a bit in Bradford haynesville, but want to see if you can provide a little bit more color around some of the dynamics. There then no thats because we'll have some exposure in Eagle Ford.

Are you have exposure just beginning of PERC and just talk a little bit more about some of what the outcomes you might see.

Thanks.

Yes. This is Michael I guess I'd walk through the three maker basins that we have exposure with Chesapeake in Bradford, We have a cup service agreement there with them at a very low cost rate. They enjoy there. It's a cost to service agreement, it's actually working very well for both us and the customer.

I would suspect obviously any pressure there with the continued growth that we're seeing.

Haynesville a very similar situation, we expect continued growth out of the Haynesville.

We have been working with a number of customers in the haynesville to offer incentive rate there where it makes sense too.

Since some additional drilling whenever the.

The prices were lower and we think theres an opportunity to continue that.

The prices don't rebound, but right now the strip looks more favorable for that dry gas basin, there and in the Eagle Ford.

We have a substantial footprint there with Chesapeake as well as we move a lot of volume those volumes are back to where they were pre cobot situation for the most part.

And that's a based on the sub exposed to NGL prices as well as the than oil prices and as those.

Prices are expected to rebound with picked up demand, we would expect Eagle Ford to be another area that we would continue to see some growth in the future Chesapeake. So those three major basis, we have just because we don't see worry our horizon in regard to continuing to see good economics for the customer there as well as for our midstream business.

As far the incentives in the Haynesville that'll be on incremental production would that be.

Well, let's separate would that look like compared to what you're currently targeting.

That is all incremental production only we're not we're not discounting obviously any PDP volumes that we have going on our systems today.

And I would add to that where we are doing that the only place. We would agree to do that is where we don't have any capital investment. So this would just be.

Incremental drilling where there is no capital required on our part and so we love that business to have incremental flowing volumes and have that revenue grow without having to spend any welcome that capital out there and so thats a great opportunity for bus both us and the producer if prices from out there a bit then.

There won't be a need to do that and.

And we won't but if prices are low enough. That's a great way for us keep cash was building without spending capital.

Appreciate that age the follow up on the deepwater furniture hurt some numbers right I think will slide if you and based on guidance I think you're running around 450 of EBITDA deepwater.

300 expected from the four major projects.

Should we think that base EBITDA as being fairly flat or some sort of.

In fact, thats decline rate. So just trying to get a sense of that 300 million that you referenced is going to be incremental or essentially offsetting some.

And that typically.

Yes, Thats great question, I mean, obviously, the deepwater business does decline over time.

And I am not confirming the 450 here, but.

But let's assume it's in that range.

Normally you would expect line. The good news is that we've continued to be tying in so many single.

Yes hits that I referred to earlier that that tending to offset that normal decline.

Ahead of those bigger projects, so will it stay exactly flat I would say if we start counting that those projects in.

The enhance would be no we would have some decline underneath that but but so far.

The the environments really positive out there and infill that's coming from producers and around or assets is offsetting those declines and so this would be incremental.

But but that is dependent on those continue at times. So obviously, we don't have you don't have contractual protection from the declines out there I guess I would remind you of that one thing. This is John shy one thing I'd add to that too is we do have a couple of more quarters.

Deferred revenue step downs related to a big platform that was that the customer paid for several years ago that pretty much stabilizes at the end of this year next step down stop but we've got another probably ZIP code $50 million of step downs, but over the next few quarters.

Deferred revenue.

Deepwater.

Thanks.

Got it thanks, guys. Appreciate it thanks sales I still think like that's it for me.

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Our next question comes from the line of Shneur Gershuni with new via.

Your line is now open.

Hi, good morning, everyone.

Most of my questions have been asked and answered just to two clarification questions. If I may.

The first one is just with a lot of focus on the election. These days and sort of an expectation out there that that tax rates could go up.

Would you be in a position.

From a transco perspective to be able to increase rates as a result of higher tax rates or does the recent.

Settlement that you entered in to prevent that from occurring.

No I mean, we obviously as part of our rate settlement exercise, we do build in tax rates.

Now we have to wait for our next rate case, obviously to push that through through our base rates.

So, yes, clearly higher tax rates would benefit us in the form of higher rates in the future on the rates that are subject.

To our rate negotiate or two to that to the rate base now again remember on our Transco system that 50% of our right to negotiate it's obviously it would have an impact on that but certainly the right part part of a rate case in rate base is subject to a net and assumption on taxes attach rates certainly be beneficial almost.

In Holton northwest pipeline rates, because we don't have.

They.

Negotiated rate element of that northwest pipeline, so about half of Transco and nearly all of north was pipeline would benefit.

So that makes perfect sense, thanks, guys and maybe just one clarification with respect to your guidance commentary today.

If I sort of think back to when you last updated thats formally.

Second quarter was supposed to be the most challenging quarter for 2020.

Decent.

Pretty strong quarter.

Officially your guidance commentary hasn't changed but in your prepared remarks, you said that things were looking more promising so.

What I sort of see when no change to guidance and sort of implies and second like actually be worst into Q or is this just more nuance that you're just not formally changing your guidance at all because nothing has changed materially is that kind of the way to read it.

I was I was wondering who is going to raise that sure. Thank you.

[laughter].

I would you say that yes, we had we had a good quarter. We've had a good first half the year you can see our costs are extremely low I think we want to make sure that we've got room in there for things like we're going into.

More intense part of the hurricane season, and so we and we certainly plan on things like that disrupting our business.

So.

Yeah, I think I think we're extremely well position right now on guidance to outperform on that but there are always things that can go against you.

And on both the cost side as well as disruptions light.

Hurricanes or another price set back on crude oil that might cause shut ins in the deepwater or in other oil basins as well. So I would just say, we're wanting to make sure given the uncertainties in the market wanting to make sure that we've got room here for the balance of the year.

As it relates to guidance.

So to paraphrase it im element of conservatism is basically.

Got it correctly arena.

Well, yes, but I also would say that would be rare that we wouldn't have.

Some kind of hurricane impact in Threeq, two as well and question how big that is.

Obviously, and I would say I think I think it's not necessarily conservative to think that.

That we might have more pricing impact.

Rebound here, so so I think.

Yes, we have room for those kind of things you can say that if you want to claim that is conservative than I would say that factor and Shneur. This is John channel I'd, just say one other thing.

I think our teams did a fantastic job at forecasting, but I've got to tell you. This code environment. It's test looking at cost and I'm talking about our field people actually forecasting as well we've done a tremendous job at cost savings year to date I.

I have a suspicion that is going to continue its hard for our folks to forecast that with any level accuracy. I mean, we don't even know when people could come back in the office that but the kind of it and so if you think about somebody in the field try to plan for maintenance or just even hiring people. That's that's not anything.

We've been very successful cost reduction I suspect I suspect that will continue but I don't imagine thats fully back to our forecast as good as we got to do my guess.

Now that that makes perfect sense guys really appreciate the color.

And have a safe thanks.

Thanks.

Our next question comes from the line of Genie on Salisbury with Bernstein. Your line is now open.

Good morning, Warren Buffett purchase from Dominion set a marker in this space, but I'm not sure it was greatly.

Our next fair, mostly demand pull gas assets could you compare and contrast, how you see transco northwest pipeline compared to those assets, especially dominion gas such as the bulk of the purchase.

I'll take that you need I think Michael has got some.

Comments on that as well first of all.

Yes, I think it'd be hard to compare the quality of those assets up against our both in terms of growth.

And headroom in the markets in the network benefits that are systems have.

But I also would remind you that there were things like on the Cove point facility. There was a step down coming there because they were still getting paid for the gasification side of Cove point of course, we used to own that so we understand those contracts.

And so.

To not take that into consideration I think is.

Something you certainly wouldn't see the Buffett organization to do not baked that into consideration.

And so I think I think anytime you're looking at price points, you have to get pretty specific, especially when you have major contract.

Shifts like that in a business like that so micron physician, yeah, I think I'd just add on the amount of debt that.

That was taken on there was part of reflective of the multiple.

That was paid as well so I think to take that into consideration as Alan said.

I don't think Theres, a comparable system of the Transco system out there right now and that's certainly not a good marker for.

Transmission assets, especially the Transco system today.

Great. That's helpful. Thank you.

And just as a quick follow up with the completion of Mountain Valley drive increased potential firm transport opportunities on Transco seems like it's actually getting pretty close.

Yes, we certainly are rooting for MVP and and.

Provide supply at a point, where we could continue to serve market expansions and so we certainly would love to see that get completed.

Because it does bring supply right into critical point of our system that allows our network to continue to expand and sort of expansions longer system.

Great. Thanks.

Our next question comes from the line of Christian Richardson with Suntrust. Your line is now open.

Hi, Good morning, guys. Appreciate all the comments today, particularly around the update on that 2020 capital plans.

As you look out further the thing that capital towards Blue, Stan Southeastern trail, winding down and and Taggart and lighty, south and some of their noble's projects ramping up.

Is it possible you could see the 2021 capital look very similar to 2020.

Yes, I think I think it's a little bit early to call that.

For a number of reasons, but but yet we don't.

We don't see the right now that the having a whole lot of load against it.

Regional energy access.

Obviously was in little bit later in the cycle and well investment for shell, we'll probably start more seriously towards into 21 or into 22 in both of those projects would drive our capital back up to.

Backup to the one and half $2 billion range, but.

So I would you say so it will be somewhat timing dependent on those projects as to how quickly we started investing on those projects and drive that capital up further.

Thats, great Thats I'll add thank you guys very much.

That's all the time, we have for questions today, I will now turn the call back over to Mr., Alan Armstrong for closing comments.

Okay well.

Thank you all very much I do have one note that I'd like to recognize somebody here at the company is very difficult to do the typical celebrations that we do for retirement, but Ted Timmons, who has served to Williams company for over 41 years.

And is referred to as retired as the was our Chief accounting officer here at Williams for 15 years.

This is his last effort for the quarterly call in jump quarter is taking over the chief accounting officer role and they've been a great transition that's gone on their much in.

Keeping with the way Williams does business very steady hand on that.

But I certainly want to just say a huge thanks to Ted Timberland for all of his great service to the company and for these the standards of excellence that he is always established in our accounting.

Efforts here at Williams, and we're very fortunate to have his leadership here at Williams for a number of years. So Ted. Thank you very much and we wish you the very best in retirement and with that we thank you very much and we appreciate to continuing to share. The good story here at Williams have a good day.

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

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