Q1 2021 Williams Companies Inc Earnings Call
Net.
John.
Steve.
John.
Yes.
Yes.
[music] benefited net income.
Good day, everyone and welcome to the Williams first quarter 2021 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. Danilo Giovanni Vice President of Investor Relations.
<unk>. Please go ahead.
Thank you Amit and 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 and our Chief Financial Officer, John Chandler will speak to this morning.
Also joining us on the call today are Michael Dunn, Our Chief operating Officer Lane Wilson, Our General Counsel and Chad <unk>, our senior Vice President of corporate strategic development.
In our presentation materials, you'll 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 are non-GAAP measures that we reconciled to generally accepted accounting principles.
These reconciliation schedules appear at the back of today's presentation materials.
With that I'll turn it over to Alan Armstrong, Great well, Thanks, Danilo and thank you all for joining US today, our natural gas focused strategy continues to deliver solid financial results in this past quarter was no different.
Our base business performance was remarkably strong in the first quarter and the severe winter weather in February boosted marketing margins, but even without these weather benefit are those benefits as John will detail later, our adjusted EBITDA was up reflecting strength in our base business.
Once again, well positioned assets and reliable operations came through as we delivered another quarter of growth in almost all of our key operating metrics despite severe weather.
In fact average daily firm contracted transmission capacity average daily transported volumes average daily gathering volumes and average daily plant inlet volumes, all increased on a quarter over quarter basis.
Extreme weather experienced in the first quarter really underscores the importance of having resilient and reliable energy network. Williams also stood out on this front as no firm service was cut on any of our gas transmission systems during <unk> and in fact, our northwest pipeline hit another record peak day for throughput during the storm.
It demonstrates that are affordable and dependable natural gas will be a very critical part of the energy mix as we work to support growing economies and meet the key challenges we face around climate change both in the U S and abroad, we truly believe Williams existing infrastructure is key to Tomorrow's clean energy.
John.
I'll talk more about how we're planning for the future when we get the key focus areas, but in the meantime, John is going to go through our.
Financial results John Thanks, Alan.
Very high level summary of the quarter benefited from the impact of winter storm here and to be clear, we have collected all receivable receivables relative to that event, but even beyond the winter storm impact we saw nice increases in profitability from our northeast gathering systems and uplift in revenues on our Transco pipeline from new projects that have been put into service over the last year and higher profit.
From our NGL marketing activity in our West segment.
These positives were offset somewhat by higher bonus expense accruals, reflecting the solid year that is unfolding and lower Gulf of Mexico revenues due to some downtime issues. During the first quarter of this year and you can see the strong performance in our statistics on this page in fact, we saw improvements in all of our key financial metrics first our adjusted EBITDA for the quarter was up one <unk>.
Third $53 million or 12%, but even after excluding the impact of winter storm year, and our adjusted EBITDA was up 6%.
We will discuss EBITDA variances in more depth in a moment.
Adjusted EPS for the quarter increased 35% simply reflecting the after tax impact of the higher EBITDA.
<unk> grew for the quarter similarly to our growth in EBITDA and again <unk> is essentially cash from operations, including JV cash flows, but excluding working capital fluctuations.
If you put <unk> up against our capital investments for the quarter a $277 million.
We consider roughly $47 million of that to be maintenance capital.
And you put it up against our dividends of $498 million you can see that we generated over $250 million from excess cash for the quarter.
Also you see our dividend coverage on this page based on <unk> divided by dividend set at a very strong two seven times.
This strong cash generation and strong EBITDA for the quarter, along with continued capital discipline has helped move us towards our leverage metric goal of $4 two overtime youll.
You will see later in our guidance update in this deck, we moved our guidance now for the year from around four five times at the end of the year now to around four two times at the end of the year I'm really proud.
Out of our success on this front.
So now let's go to the next slide let's dig in a little deeper into our EBITDA results for the quarter.
Again performed very well this quarter, but before we dive into each segment. We believe it's important to isolate a few items that are not part of our core business.
First items is the net impact of winter storm Yuri on our operations in the west.
That impact produced a $55 million net benefit and included the positive impact on our marketing operations.
Net somewhat by reduced revenues at our pianist processing facility. These rates are impacted by net liquid margins.
We also had slightly lower volumes in the mid continent, Haynesville and collectively we estimate winter storm year impacted our west volumes by about 70, Mcf a day during the quarter.
In addition, we also realized a $22 million storm Yuri uplift and profit from the launch that wants that our upstream assets that we acquired from BP in February and that is on top of the $8 million from normal operations from these upstream assets. So.
So the total winter storm impact was about <unk>.
At $77 million benefit again with that benefit EBITDA was up 12% and even without the impact of winter storm year EBITDA was up 6%.
So digging into our core operations our transmission in Gulf of Mexico assets produced results that are about $9 million less from the same period last year. However.
However, new transmission pipeline projects added $29 million in incremental revenues for the quarter, including the hill will be phase II project that came into service in the second quarter of last year.
The southeastern Trail project that went into service during the fourth quarter of last year and a portion of the Leidy South project that went into service in the fourth quarter of last year.
You can see that evidenced in the growth in our firm reserve capacity, which is up 5% from the first quarter of 2020.
These revenue increases were almost entirely offset by lower Gulf of Mexico revenues due to subscription and downtime issues lower revenues from lower rates in just a few transco markets that went into effect upon closing the rate case last year and one less billing day. This year than last year, given last year was a leap year, which believe it or not is a $6 million impact on our <unk>.
Transmission revenues.
The reduced EBITDA results for this segment really have nothing to do with revenues that are largely due to higher operating expenses.
Interestingly enough are being impacted by higher bonus accruals and equity compensation accruals given that we are off to such a strong start for the year. We traditionally do not increase those accruals until later in the year.
In addition, we did see slightly higher compression expenses for this segment.
Now moving to the northeast G&P segment continues to come on strong contributing $32 million of additional EBITDA this quarter.
Collectively total northeast gathering volumes grew 920, Mcf a day or about 11% this quarter versus the first quarter of last year, while processing volumes grew 15% the.
The volume growth was predominantly at our JV in the Bradford supply hub, where we benefited from a gathering system expansion on that system in late 2019, and at our Marcellus South supply basin, where we benefited from more productive wells at larger pads.
As a result, our EBITDA from equity method investments improved by a little over $33 million.
Which also includes the benefit of additional profit from Blue racer due to our increased ownership, which we acquired in mid November last year.
Now moving to the West G&P segment, it was up $44 million compared to the prior year and remember again that this excludes the $55 million net benefit from winter storm here. So.
So all of this $44 million improvement commodity margins from our marketing activities contributed to big parts of that improvement and they were up $52 million versus the first quarter of 2020.
And again this excludes the $74 million benefit from winter storm Yuri related just only to commodities.
These increase commodity margins were the result of a few things all driven by higher NGL prices during the quarter. The first and most significant is it related to inventory in transit.
Last year, we saw prices decline and had a small loss while this year, we saw prices increasing during the quarter and realized a gain on that inventory.
The second relates to transfers of propane and other Ngls to higher netback markets, where we saw some real market differentials during the quarter and were able to take advantage of that for example, the differentials between Conway and Mont Belvieu.
Offsetting the higher commodity margins were lower profit from our JV, we did see a $5 million JV benefit from winter storm.
Yuri on our Brazos JV. So if you exclude that our JV were down about $8 million and that can be mostly attributed attributed to oppo, where one oak has pulled much of their volume and moved it to their solely owned system.
Those items, namely higher commodity margins offset by lower JV profit again, mostly explained the variance in the west otherwise lower revenues were offset by lower expenses.
Revenues were down $14 million when you exclude the negative $23 million impact tied to winter storm here on west revenues and again, mostly that was in the PR related to net liquid margins.
Volume in the less were down 250, Mcf a day or if you exclude winter storm urea about they were down about 180 Mcf a day with most of that reduction in the Haynesville and the Eagle Ford, which of course I'll remind you that in the Eagle Ford we are protected by MVC. So that doesn't have a revenue impact.
So really the biggest impact on revenues was the rate reduction in the Haynesville and a slight volume production the haynesville and I'll remind you that we traded that rate reduction in the haynesville in part for receiving the south landfill acreage from Chesapeake earlier this year.
Now again offsetting the lower revenues were lower costs, including lower at lower compression cost and no bad debt expense were during the first quarter of 2020, we did reserve for the ones that are in BC, but are now realizing those MVC as part of the settlement with South line.
I'll now turn the call back over to Alan to discuss several important investor focus areas and updates to our 2021 guidance Alan.
Thanks, John and here moving on to the key investor focus areas on slide three.
We're increasing the midpoint of our 'twenty, one EBITDA guidance range to $5 3 billion, which is up $100 million the.
The increase in our guidance goes beyond the gains realized during the winter storm.
It also reflects confidence in the strength of our base business.
Achieving this new midpoint would produce a three year CAGR of about four 5%, even while we have continued to improve our balance sheet and produce free cash flow after capex and dividends.
Regarding the balance sheet. Our deleveraging goal is now on an accelerated path as we hit the targeted four two this quarter, which obviously is earlier than we had forecasted earlier.
And we're currently on positive watch at Moody's and hope to see a credit upgrade soon.
Given the accelerated achievement of key milestones on our balance sheet, we will begin to evaluate various capital allocation alternatives.
As you know debt reduction has been our top capital priority and now we will begin to evaluate the best use of free cash flow in 'twenty two and beyond.
So next on the list here is a few thoughts about the sequent acquisition.
As we announced last night, we recently reached an agreement to purchase secret Energy management in Sequent Energy, Canada from Southern company gas for a purchase price of $50 million plus working capital at close.
And for several years, we have been evaluating the best way to enhance our marketing capabilities at Williams in a way that it could be well integrated culturally aligned and focused on driving fee based revenues across our network from several years. So this is something we've had in our strategic.
Our capabilities and something we needed to build for several years and so we're really excited to be taking this step to Phil what's been a strategic capability gap.
The addition of sequent, including its talented workforce and industry, leading platform complements the current geographic footprint of our core pipeline transportation and storage business.
For perspective, we handle 30% of the nation's natural gas, which is approximately 30 Bcf per day. This acquisition increases our natural gas transport and storage optimization capabilities.
Up to eight Bcf per day from one Bcf per day that we were doing previously.
Here within Williams, so certainly bringing it more in line for our natural gas focused businesses largest Williams.
The scale of the combined company will not only allow for optimization of our existing assets, but it will also facilitate expansion into new markets with opportunities to reach incremental gas fired power generation liquefied natural gas exports and future RMG opportunities.
In discussing with both our existing and potential LNG focused customers. We are hearing a clear need to have wellhead to water natural gas supplies that can demonstrate and document responsibly produced low carbon supplies.
We see this acquisition as a way to more effectively aggregate transport and market. These in demand supplies.
So we're really excited to welcome the sequent team to Williams later this summer and finally, we don't expect the acquisition to have any dramatic impact on our current mix of business, nor a material impact for our 'twenty, one EBITDA or capex guidance.
So now moving on to project execution here on slide three Bill we continued our pace of strong project execution in the first quarter, placing our southeastern trail project into full service in early January and making great progress now on the Transco Leidy South project to bring additional gas from Apple.
<unk> area, particularly in northeast.
The growing demand centers, along the Atlantic Seaboard by next winter.
We filed our FERC application for the regional energy access project.
Low environmental impact project being designed in a manner that is acceptable to future renewable energy sources like clean hydrogen.
Blend like clean hydrogen blending and RMC.
So in today's environment.
We're all learning more and more existing infrastructure is more important and more valuable than ever and the brownfield nature of regional energy access and Leidy, South and southeastern trails are all great examples of that.
With the largest and most flexible gas transmission system in the nation Williams conserve new demand primarily for brownfield expansions. This means maximizing the use of established transmission quarters and facilities and resulting in reduced community and environmental impact while also enabling economic growth.
And the use of lower carbon fuels in those markets.
Next onto the Gulf of Mexico opportunities here, we remain on track to executing on the four key Gulf of Mexico projects, which is quail valley more CAGR and anchored these projects are progressing very well and we look forward to these projects coming online here now over the next few years. We also have a number of other smaller.
<unk>, but those are the ones that we continue to focus your attention.
So next on the northeast G&P project execution.
Certainly some of the producers in the northeast remain in production maintenance mode.
But our project execution team is busy trying to keep up with the increased demand for processing and fractionation services for.
Growing rich gas volumes in the southwest Marcellus area.
And as we have stated before the rich gas volumes provide us with a much higher service fee and margin capture so we're thrilled to see continued expansion in that area.
And finally on sustainability here, we continue to focus on sustainable operations and I'll remind you that last year Williams became the first North American Midstream company to issue a climate commitment focusing on ready now solutions to address climate change.
And by setting a near term goal of a 56% reduction in greenhouse gas emissions by 2030 as a part of our climate commitment we are well in line with the by the administration's recently announced nationally determined contribution target of a $50 to 52% reduction by 2030, So we're really.
Sided that.
That we are actually ahead of that here and what's been said is an aggressive goal for the country.
We will continue to leverage our natural gas focused strategy.
Today's technology to focus on immediate opportunity to reduce emissions at.
At the same time natural gas and our infrastructure are enabling the next generation of clean energy technology.
There really is not another energy infrastructure system that integrates a reliable delivery network with a massive storage solution on the scale that the natural gas infrastructure across our nation does we believe our infrastructure can be a critical part of both near and long term solutions.
And on our near term efforts were focused on renewable natural gas solar energy and our footprint is ideal for bringing in renewable natural gas to markets and solar projects in our supply mix on the solar front. We've currently identified three additional projects and now have a total of <unk> <unk>.
16 solar project opportunities that should start operating beginning in 2023 on the emerging fuels fronts, such as green hydrogen and renewable natural gas.
We certainly expect that to play an increasing role in the clean energy future and both as a storage vehicles were excess renewable energy in the form of green hydrogen and as a net zero emitting form of natural gas and renewable natural gas. So we continue.
To make sure that we are on the front edges of those opportunities.
We're looking for and anticipating future innovations and technologies that we can use on our key energy networks to deliver on this next phase of the energy transition.
In fact in a partnership with the University of Wyoming. We are currently pursuing a grant from the state of Wyoming to fund the feasibility study to pursue a pilot program that would evaluate the creation of a green hydrogen of near our operations in Wyoming. The study will be presented to the Wyoming energy authority and it could be an.
<unk> step for Williams to better understand the workings of a hydrogen economy.
Certainly want to keep that.
In context for you that simply is us filing for a study there too.
To determine if we want to pursue a pilot there so.
Net is perhaps.
Something I don't want to see people getting out over our skis on here. This is.
Step and we certainly are going to make sure that we stay in front of these kind of opportunities, but we're a long ways from making any kind of big investments.
We also recently joined the clean hydrogen future coalition that was launched at the advanced clean hydrogen as a key pathway to achieving global de carbonization and use energy competitiveness and finally, we are proud to be a founding sponsor of Houston's Greentown labs, a green technology incubator to support <unk>.
I'm a tech startups.
So in closing I'll reiterate that our intense focus on our natural gas based strategy has built a business that is steady and predictable with continued moderate growth improving returns and an increasing amount of free cash flow.
Our best in class long haul pipes, Transco northwest pipeline and Gulfstream are in the right place and Wright markets and by design, our formidable gathering assets are in the low cost base and that will be called on to meet GAAP demand as it continues to growth.
Evidence on a year over year basis, the lower 48 natural gas production here force in the United States has declined and declined by 5% here in the first quarter.
At the same time Williams natural gas gathering volumes were up by 5%, indicating that our strategy of focusing on key low cost natural gas basins is working.
These gathering assets are irreplaceable and critical infrastructure within the natural gas value chain and the importance of this infrastructure was proven in our recent ability to navigate to substantial customer bankruptcies in a way that actually improve the value proposition in the warm Sutter and the Haynesville basin.
This is a crystal clear example that even in the most dire circumstances, our long term approach and careful contracting allows us to turn negative such as producer bankruptcies and the net positives for Williams.
We remain bullish on natural gas because we recognize the critical role it plays and will continue to play in both our countries in the world pursuit of a clean energy future natural gas is an important component of today's fuel mix and should be prioritized as one of the most important tools to aggressively displace more cars.
And since it fuels around the world our networks are critical to serving both domestic and global energy demand and a lower carbon.
Economically viable manner.
So with that thank you very much for joining us today and I'll open it up for your questions.
To ask a question you will need to press Star then the number one I guess I'll have Alan.
I want to draw your question first the founder has key please.
Please standby, while we compile the Q&A roster.
Your first question comes from the line of <unk> with Wells Fargo.
Thanks.
Good morning, I guess just force.
First question on regional Energy access you mentioned that it is being designed to.
Except hydrogen our RMG blending just curious what does that mean exact exactly are you taking inc. Youre doing any different steps on this project can it take more hydrogen from other pipes.
Curious if you could elaborate on those comments.
Yes, Mike good morning.
Looking at this asset and the footprint that it encompasses all of our existing right of way and talking to our customers about opportunities that they have agreed to bring renewable natural gas into that system or utilization.
Solar facilities that they're contemplating that can possibly produce hydrogen in close proximity to the pipeline and so that's really the comment that youre seeing there no exotic metals or anything of that nature in the pipeline system that will be typical of any existing pipeline system in the country to be able to accommodate hydrogen blend but.
Accommodating the ability of our customers that are participating net project to bring forward in partnership with us potentially hydrogen.
Into that pipeline system.
Great and then just turning to the northeast.
Your new boat growth processing plant expansion up and running.
Do you think it will take to fill that expansion up.
And maybe tied to that.
Where do you stand in terms of NGL volumes now versus Frac capacity in the northeast do you see the need to add any frac capacity, maybe just one more to tie on to that.
Is there any opportunity to kind of integrate the blue rates share in your other systems in the northeast to kind of give you give yourself some synergies there.
Yes. This is Michael I'll take that one again, so basically the processing capacity with virtually full today.
The production that came on line behind that processing facility.
It's very robust the pads were developed by our customers, they're primarily EQT in southwestern and very prolific.
Pad development, they had they're exceeding their expectations and so we did an offload agreement with with our customers there to make sure that we didn't impact any of their volumes in the first quarter, while we were finishing our DXP three loan growth.
Now on line and like I said earlier virtually full so we are seeing a whole processing. They are for the most part and our fractionation facility at Harrison is also approaching limits.
As expected the summer month, we will be at capacity on those facilities and so we are contemplating.
Opportunities with our Blue racer.
Ownership, there, where we can create crossover pipeline system to be able to transport some of those volumes over to them or they simply have spare capacity in that system can be utilized by directionally in the future where either one of us potentially have a capacity situation and we can offload to the other and so that's a longer term.
From a prospect project, but it's something we feel like we could have online potentially this year and it's a very low cost projects in comparison to building either a new fractionation and processing facility.
Great. Thank you.
Thank you.
Your next question comes from the line of Christine Cho with Barclays.
Thanks.
I'll start off with that.
Guidance.
Anthony adjusted first quarter to take out the storm impact from.
Some degradation in the future quarters to get to the midpoint of guidance. So just wanted to see if there's anything that we should be thinking about later in the year that would bring numbers down from here.
Guidance just from a conservative.
Yes. This is John Chandler I'll take that.
First of all I'd say there are a couple of other items in the first quarter beyond Winter Storm area. I think you should think about so let's start with the 1415, which is what we made net winter storm had a $77 million impact.
We did make I would call it outsized NGL.
Margin during the first quarter relative to some of this inventory valuation and just to put a number on that I think we made probably $30 million more than we would normally make in a quarter. So if you remember in my commentary I said, we made $52 million more in NGL marketing activity outside of winter storm year we.
We usually make $20 million to $30 million at quarter end. So if you back if you back 77 million App you back 30 million out for some outsized NGL margins and then also we did book an $11 million in BC accrual relative to warm Sutter.
Once we close on the south and properties.
We will be our own customers will be charging ourselves NBC.
Take that out as well if you take those three numbers out youre ramp year little under $1 3 billion for the quarter and if the normal if you take that transport add those items back you'll get really close to our kind of $5 three midpoint net push from I'd say, the upstream will come in a little bit stronger too.
Made out without winter storm Erie, we made $8 million on the upstream times four Thats 32 million.
We guided to around 1% of our EBITDA for the year. So theres certainly some uplift from the upstream too.
So I would say there is probably a little bit of conservatism in our number HUD debt not going to try to say there isn't to that.
I think we we obviously want to be sensitive.
If we have a tough hurricane season, or other things, but I think you've got to take those three things that youre going to get really closer guidance. Our forecast remains very strong our business performance remains really strong for the remainder of the year.
Yes, that's helpful.
I wanted to kind of touch on the purchase of sequence.
Your commentary consortia responsible gas is notable so wondering if you could talk about what exactly in California, Youre thinking here.
And natural gas marketing line of business that was much bigger pre shale and its gotten much smaller over the last decade, but with utility and other.
Thank you guys mentioned LNG customers, but with utilities coming out with net zero required in flow and maybe more volatility.
Realizing natural gas flows on a daily basis, rather than what has historically been our seasonal basis could you talk about what this might mean for our pipeline be contracting and how sequent may or may not play a role.
Yes, Chris Steve Great question.
And very thoughtful.
I would say first of all.
As I mentioned earlier, we have been for a flash cut from Gird Realty and thinking boy. This was a off some big business, we touch a lot of gas have a lot of customers that could use services.
Light gas marketing, but we have been very limited.
In our approach to that.
So the <unk> opportunity.
<unk> gave us an opportunity to buy a platform and a set of contracts and asset management contract and a great team that really knows businesses.
Fold risk extremely well and so really allowed us to fulfill our strategic GAAP.
However.
I would just say that that was out there as need before the thought of low carbon fuels and volatility in the value of volatility that just got exposed in this last quarter, even came along but I will tell you that we entered this with even greater confidence in both the need and the value associated with.
Because we do believe that the.
The benefits of capacity management.
And risk management as it relate for utilities as it relates to what happened during winter storm year.
Certainly has.
<unk> made sure the spaces is wide awake.
Relative to the risk around this issue and we think this.
<unk> has done a great job of managing that risk by the way through this and so we think there is value in managing in a new value associated with managing that kind of risk.
But we also just think just generally we have a lot of customers that could really do service and as you say, it's really kind of faded away as a capability and a lot of companies, but we think it's really going to be an important tool for us.
And being able to bring together low carbon supplies all the way from the wellhead.
And being able to document that and put that value chain together, all the way to the water and to our utilities is clearly on the list right now as a new opportunity for us from market to we certainly have the asset, but we really don't have all of those contacts with people, we talked with customers about long term capacity.
<unk> on a regular basis, we've not out regularly talking to them about how we manage the volatility in the business and so this really gives us a great opportunity to do that.
So thanks for the question and I would just say, we're it as it's become more and more evident to US that this is something we needed to add to our capabilities at some other changes that you pointed out.
Alan if I could add to that as well the upstream properties that we now own or potentially go into bankruptcy court approval.
Transaction long center.
The acreage in the <unk> other than the Haynesville acreage now gives us the ability to market that natural gas is coming from those properties and so we're going to find a way to work with our New Zealand ownership ultimately when that closes to find a way to take global supplies brand them as low carbon or net zero.
And then market those two utilities in LNG facilities as Alan mentioned.
Got it very helpful. Thank you.
Thanks Christine.
Your next question comes from the line of Jeremy Tonet with Jpmorgan.
Hi, good morning.
Good morning.
Just wanted to see I might have missed it here, but as far as the E&P acreage sale process is concerned would you be able to update us there I guess as far as timing is it still kind of July or is there anything kind of changed in your thought process there.
Yes, Jeremy Thank you for the question.
Yes, we are in the process of.
Working through and I would say, we are well into negotiations with.
<unk> is one of the <unk>, one in Haynesville and Theyre both.
Local producers with adjacent acreage and very skilled operators and.
The area.
And so.
We're moving along on that probably in the form of those transactions will be.
Situation, where we retain an interest and part of that is board credit protection as you can imagine to make sure that.
We haven't handed the keys over to that.
Until the cash has been invested to increase the drilling acreage. So you should think about that as.
Over time, those cash flow is being reinvested in the drilling.
And building up the business and then a dilution of our interest over time as that converts from upstream cash flow into midstream cat long long life midstream cash flow. So that's exactly what we're looking to accomplish and I'll tell you our team Chad <unk>, who has been leading that force.
Done a fantastic job of really coming up with win win solutions with parties.
And we're really excited about the way that's going to turn out for much I would tell you much bigger value.
To us than even it very.
Very modest conditions, much bigger value coming to us than we had ever kind of expected.
Preparing to go.
Bankruptcy processes for that so Chad I don't know if you have anything to add just some timing guidance.
We finalized those.
Transactions over the next 30 to 60 day.
We're pretty far along with.
In both scenarios and I think just to put emphasis on what Alan said I mean, those will be structures that.
Bring in a strong well capitalized operator, and the ownership structure that there'll be acquiring will be structured in a way that will require development of the asset and drive volume through our midstream and downstream.
And as Michael said, we will as part of both of those transactions have a marketing capability and the ability to aggregate supply for the benefit of our of our gathering systems are downstream pipeline systems and now with sequent are marketing and optimization capabilities. So we didn't really great outcome for us.
Partners, but I would expect to see something.
In both the farm center and Bill over the next 30 days.
Got it thanks for that and then on the topic of energy transition I was just wondering if carbon capture is on your radar. If you. If you think that the current 45 Q is sufficient to make projects economic you know specific such as processing plants, given the purity of the Seo to stream there or any.
Ralph do you see that as a possibility for for Williams here or do you see the potential for more I guess changes of support coming out of D. C that could enhance economics and make these projects more viable for Williams.
Okay.
I would tell you that you are looking at every opportunity to leverage our capabilities and infrastructure and carbon capture is one of those we do have assets.
Both pipeline and storage facilities in areas, where there may be the opportunity to aggregate significant carbon emission and <unk> and <unk>.
Provide.
Capture and storage.
It's early days much like with hydrogen I would say we are trying to set the table for us to be able to participate in those opportunities as they as they mature.
I wouldn't expect to see something material like Alan mentioned on hydrogen in Wyoming, I wouldn't expect to see something material from an investment perspective in the near term I will tell you that it's a viable opportunity, which we think it very well may be we are looking at some actual projects today, but they are long term in nature and require I would say.
A year plus interest evaluation before we even think about weighted investment might look like but we have multiple different opportunities that we're looking at across.
Growth in carbon storage.
Capturing storage.
Okay.
Great. That's very helpful. Thank you.
Yes.
Your next question comes from the line of Shneur <unk> with UBS.
Hi, good morning, everyone.
Thank you Kate.
The update on cash flow.
Okay.
Two follow up questions first.
To go back to the upstream related assets.
In terms of achieved a growth rate that youre going to be setting up or.
Any aquarius qual.
Process that you just went through.
In terms of trading.
Turning to cash.
Sure.
To.
To protect Williams Williams in the future.
And part of that.
Do you see your stock and retaining the assets on a very long term basis.
You sort of see eventually selling puts downward.
Shneur, we vaguely heard your question, you've got announced quite a bit can you. Please.
Please repeat that.
Sure.
To repeat with the upstream assets.
And the JV that youre looking to pursue at this point right now.
Are you going to be designing the midstream contracts.
To take advantage of the learnings that you had through the bankruptcy process to make sure.
That you are protected in the long term basis, and do you plan to hold the assets for a very long term.
Or is the whole period more of a medium term.
Yeah, Great question, especially with some annuity outcomes from the Delaware bankruptcy courts as it relates to gathering and whether those.
Contracts on the land or not so so we certainly.
Are doing everything we can to improve our position on those.
We've said many times before and it kind of proved out in these cases is not does not just the law or or I mean, certainly your contracts that need to be good and supportive, but importantly, it is the physical nature of the asset and being all the way back from the wellhead to gives you a lot of economic protection.
Action in that situation, having said all of that one thing that we are really depending on in these transactions is the fact that the other party is going to invest the dollars to develop the acreage and we're cutting the bargain on that basis and so to get right.
We're going to retain those interest until that until those capital dollars have been invested to prove to ourselves that that money is going to be spent and if it doesn't get spent we still own the acreage and whatever money. They spent in developing we retain an increased interest in our more developed property. So I would say, we certainly don't expect that.
No the partners that we're talking to are pretty well and.
And they both have very strong financial position so.
This case, we feel really good about situation, but.
But I would say that we've got belts and suspenders on in terms of the form of the structure that we're saying that is.
Effectively bankruptcy proof given our holding continued holdings until the $1.
Yes, I think it's important to emphasize Alan that we didn't have a meaningful contract rejection through all of the bankruptcies that occurred last year, we have been very deliberate in investing in infrastructure that is absolutely critical to the upstream assets and so both of the Haynesville and one other at the end of the day the bank.
The process really all that relevant what was relative to that our infrastructure absolutely critical without it the upstream asset.
Deliver value can't deliver volume and so we have a very strong position across our entire footprint that recruited last year not a single bank.
Bankruptcy proceeding led to a rejection of one of our contract because we had invested as critical infrastructure.
Nature that protect against that risk and then on the long term investment Alan.
Additives.
We are again very focused on structuring the transaction in a way that brings development back to high quality acreage upstream of areas, where we have existing available capacity and so we're going to see in these structures near term investment in these properties that will deliver the ownership.
From a long term perspective, primarily to our JV partner, we may have a small ownership interest that we retain from a long term perspective, but we will likely only holds the ownership interest as long as it takes to make sure the development.
Back to.
The property and drive volume through our midstream assets.
We are laser focused on that is our strategy.
Just one upstream properties forever, it's to own them in a way that drives the development that we think.
We will drive value to our midstream assets.
Well very thoughtful thank you for that and maybe just as a follow up to the sequent to acquisition.
I appreciate everything that you've already laid out with respect to and I am trying to understand the capabilities that come with the acquisition.
Or are you basically buying a team that is laser focused on capacity management and so forth.
Does it come with our the data scientists income with algorithms and technology that.
Can do something that is well beyond your current capabilities just given the fact that you have been in this business from the past.
Yes, no I would just say and I'll, let Chad I would say this is this is kind of.
The team Thats really skilled at blocking and tackling and risk control and the positions. We're taking are nothing exotic.
It is simply looking to manage basis differential managed contracts reimbursed contract through asset management agreements with utilities.
So this is.
This is a very low risk approach, but it does involve a lot of customer contact in a lot of opportunity to serve customers.
But it's basically.
Basis in time value on storage versus physical inventories so.
It's nothing exotic.
Market, leading our market, making activities engineer, we intend Malik said this earlier, we had essentially been focused on expanding our capabilities on that for the last couple of years. Our team has done a great job they've been growing their capabilities, but we grew from a very very small level to still a very small level, but it still did a lot of work from the team.
This gets us much quicker to a larger scale capability on the backs of.
More sophisticated systems they have.
We have a quality risk control process internally within Williams, they have a very high quality risk control system and so we pick up the benefit.
Although very well thought out structure from risk control accounting systems.
Trade marketing systems.
It helps move us forward that much quicker and something that we would probably spend the next four five years trying to build we get there more quickly.
I'd say in addition to that we.
We looked at a lot of different opportunities in this space.
And the reason we got so comfortable with this transaction of the southern companies has done a fantastic job.
Really keeping the screws turned down from a risk control standpoint, and really building a culture around that.
So.
This is a very well control business and we've been very impressed with with the time and effort.
Other companies has invested in making this a.
Heavily.
From a business, but state of the day.
Southern companies it doesn't have all the big long term external customers on both the upstream and the downstream the way we do.
And so this is a great fit for us I totally understand.
They are coming from in terms of their sales were up this is really an important capability for our company.
30% of the nation's natural gas.
Really complementary and I think we've got a lot to offer that theme as well in terms of new opportunities to work around our customers and assets as well offer those services. So it really isn't really.
I think attractive transaction between two companies that know each other well and has done a lot of business together and we're really excited about bringing this team.
Think about it really.
Simply we live with it.
Pipeline and storage optimization platform owned by utility.
We are in the pipeline and storage company and we will now open the pipeline and storage optimization platform. This is not speculative marketing and trading businesses.
Taking.
Understanding the pipeline and storage fundamentals.
And optimizing infrastructure and when you think about the areas. We just left an era of expansion in construction as we move into an era of.
Realizing the value of existing infrastructure a platform focused on optimization.
The existing infrastructure is going to be really valuable and so we see it as an accelerator of capabilities across our core business and we're going to be exploring a lot of different ways.
To create opportunity with.
The addition of the season.
Perfect. Thank you very much for that I appreciate the color and have a great day.
Thanks.
Your next question comes from the line of Tristan Richardson with <unk> Securities.
Hi, Good morning, guys. Just a question on capital in 2022, I think in prior calls Alan use it emphasize that once the leverage is at the long term target.
Priority further investing in the rate base and emissions reduction projects are or the initiatives are the priorities for capital allocation just wanted to get your views on that versus.
Further delevering or as you suggested in prepared comments thinking about returning cash to shareholders.
Yes.
Thank you very much.
I would just say we are.
We remain look and we will look at all those options as we enter into next year. Obviously once we've committed to capital projects. Then that option has been eliminated once you start down that road, obviously, but but we certainly up until the time that we take a look at those investment opportunities up against.
Whatever price of our stock is wherever we think that the value is but the good news is we're sitting here in 'twenty, two with a modest amount of free cash flow.
That gives us flexibility, but as we get into 'twenty two.
And then.
Take a rocket science to run the math and realize that that starts to build on it and so.
We will have quite a bit of opportunity there and I wouldn't say that we're committed to making those.
The emission reduction project happened, yet until we get down to seeing what.
Dot prices what returns look like but that is certainly one of the options and I think on the further debt reduction obviously, if we become convinced that further debt reduction would add value to our shareholders.
Wherever we could continue to pull along as well and so I would just say it's hard to predict what the markets will look like.
<unk> nine months from now, but we certainly are to the point now as we as we.
We continue to engage with the board on this discussion this is becoming a.
More prevalent topic, if you will at board meetings in terms of what.
The extra week.
Free cash flow as we get into 'twenty, two and beyond.
That's helpful. And then just a quick follow up.
Just with the activity Youre seeing on both G&P segments.
Possibly looking stronger in the second half and combined with some other northeast projects like <unk> growth.
Should we be optimistic for growth in 2022, and both of the G&P businesses, where we sit today.
Well I would say things are looking pretty favorable right now I mean look at gas prices.
NGL prices.
Here through the summer months and starting to look out into the forward markets.
Certainly the market is starting to protocol on gas in these areas whether it's.
The northeast.
The southwest PA.
Utica or the Haynesville there.
All well positioned to make pretty good margin in this kind of pricing environment that youre seeing now within almost $3 gas.
Gas price.
So.
Yes that if that continues that will drive activity.
On those assets and will drive growth so I like our setup for the balance of the year, obviously as John said, we will be.
<unk> reserved an hour.
Putting that into guidance, but that looks good and I would say obviously.
If you think about really what drives from those decisions in a lot of times. It is before market for a lot of our customers that drive expense decisions and so they will start to look at what Ford strength.
The drilling commitments they make in an area. So I would just say keep your eyes focused on kind of the forward markets for both gas and Ngls and that will be a pretty good indicator of what kind of activity, we should expect across those areas.
I appreciate it thank you Alan.
Thank you.
Your next question comes from the line of Alex <unk> with Wolfe Research.
Hey, good morning, Bill just to follow up on the sequent questions.
Just looking back on Southern's comments on it on their call. They did talk about it having.
A significant amount of balance sheet or parental guarantee support required.
As well as maybe some volatility in terms of the terms of the results. There I guess, maybe my questions are just inc.
Are you going to be any synergies that maybe the company has that might try to minimize some of the parents hill guarantees that might be required going relative to southern.
The other one is just talking about overall the volatility there on average about $40 million net income I think is what they said but is there a.
Is there maybe a sense that you might be able to kind of make that more kind of stable and predictable under the under the <unk>.
Kind of the broader platform.
Well, yes.
This is John Chandler first from the guarantees I think you need to understand.
Guarantee a lot of our subsidiaries to a big part of that number they were talking about is just simply the guarantees.
From monthly transactions, it's equally I think if you look at stake with their revenues are somewhere in the $7 billion range and if you divide that by 12, I mean, all thats happening is the.
Parents guaranteeing its subsidiary who is doing purchase transactions under the MAA or just general general marketing activities with very low risk. They have a very tight risk control process. So there is not risk from those trades. So there was a guarantee and their subsidiary just like we guaranteed one of our series.
That 4% to $500 million of guarantees so that number was a little bit flashy, but it's not anything of substance does not.
Guaranteed some risk asset hopefully that makes sense and so beyond that really the transport. These most regulated pipelines have maximum of <unk>.
90 days requirements, if you fall below and Thats, great for your Investor Day, Youll have any requirements, but if you fall below investment grade you have obligations, but the only 90 days. So that's a much smaller part of that at that guarantee so again I would just say.
5%.
Really $6 to $700 million of that guaranteed number that you may have heard southern talked about were just simple monthly or quarterly guarantees from monthly guarantees of their subsidiary with very little risk because there's really no changes to that that's just a normal course business activity.
One thing we haven't talked much about EBITDA generation.
We see a pretty consistent in their history at pretty consistent I think southern talked about this.
EBITDA generation of $20 million to $30 million from this business and we expect it to stay somewhere under or there will be an occasional market dislocation like we just saw but generally $20 million to $30 million of EBITDA generation that doesn't mean the earnings will be consistently that way we will be doing.
Adjusted adjustments to our EBITDA, where some quarters it may be quite a bit bigger some quarters.
Yes that over a year, we would average out from that $20 million to $30 million. So hopefully that answers your question, but theres not huge credit exposure for us as a company other than that.
Normal ongoing business.
Activities.
Great that was helpful. Thanks.
Our next question comes from the line of Gabriel Moreen with Mizuho.
Hey, good morning around most of my questions been asked or answered I was just curious on the additional solar projects that were identified just kind of where you think you are in the $400 billion I think bogie that you put out there during the ESG day does that how much closer to that takes it to that.
Yes.
Thanks, Chad.
We've got pretty good line of sight to what we showed in our.
Our ESG investor day, actually even more than that.
Of the 13 projects that had what we consider.
Advanced beyond the gate one.
Over half of those are now filed with.
Utility regulators in order for us.
Advance those projects, which means we've locked scope we've locked in land we have a commercial construct that we're comfortable with and those will go beyond what we call <unk>.
In the near term, which is effectively a net <unk>.
Stage, so up to 16 now projects that we have.
It's over $250 million of investment opportunity, we would expect we have a goal for it.
At least half of those projects to achieve what we're considering this year.
Im pretty confident that all of those projects will.
We need to be but the primary.
Initial gating items, making sure we've got sufficient land.
And.
That's really.
What drives the ultimate size and scope of the project and so that's what we're spending in those time line on the front end here, but I would say, we still have pretty pretty strong line of sight to the.
So that kind of scale that we identified during our Investor day.
Thanks, Chad.
Just a quick follow up I noticed the epic northeast supply enhancement.
File for an extension at the FERC is that product still being worked out.
Quarter curious kind of how that projects fits in the portfolio now if at all.
Considering the regional energy access.
Hi, Michael Yes, we had a an exploration of that certificate that was upcoming and so through just the normal course.
Western an extension of that we still have a proceeding agreement basically a contract with our customer there they have not cancelled the project at yet and.
Obviously, they are still struggling getting their other projects off the ground from a permitting standpoint.
Moving to supplement in the near term their ability to serve their customers.
<unk> usage of natural gas. So we thought it was prudent to go ahead and ask about expansion and other than that we're not working the project with the exception of having conversations with our customer at this time.
We still think there's a great need for natural gas in that market.
Bill a great opportunity to take fuel oil out of that market and improve the emissions profile of the northeast.
We are still ready to serve that market when the customer and the regulatory jurisdictions.
It will allow us to do that.
Thanks, Michael.
But we have no capital allocated to the project at this time.
Be clear.
Got it thank you.
Our final question for the day.
Comes from the line of Becca Followill with U S capital advisors.
Just following up on <unk> question, you talked at the beginning beginning to review how to allocate capital given that you've reached your leverage target or do you make that the capital allocation decisions are still comes from planned public maybe in 2022, when you finish that with you.
So actually I think it will probably just come out in force for instance, if we commit to and most I mentioned reduction projects that drive our capital budget for 'twenty two higher.
Then that's kind of where we would announce that and if we if we haven't done that then.
It would.
The two options to that would be.
Further debt reduction just naturally.
Sure.
For buybacks of shares as in other alternatives. So I think as we start to formulate our 2022 Capex budget.
And our.
Strategy sessions with the board.
Which then rotate into budget meetings towards the end of the year.
Relative when we will be making the decisions on whether that money will go to investments in new Capex for.
Those other two alternatives and I would think that by the first of the year. Then we would be in a position to say, what we would expect to do if it wasn't moving towards.
Further capital investment.
Great. Thank you that's all I had.
Thanks, Doug.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Thank you Dmitry.
Thank you have a nice day.