Q1 2022 Williams Companies Inc Earnings Call

Good day, everyone and welcome to the Williams first quarter 2022 earnings Conference call. Today's conference is being recorded at this time for opening remarks, and introduction I would like.

Like to turn the call over to Mr. Daniela Giovanni Vice President of Investor Relations and ESG. These go ahead.

Thanks, Sarah 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 Chief.

Chief Financial Officer, John quarter 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.

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've 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.

Thanks Danilo.

Natural gas focused strategy continues to deliver steady predictable growth in this past quarter was certainly no exception.

In fact, we posted yet another quarter of record EBITDA driven by growth across all four of our core business segments as well as our upstream JV operations.

We continue to set new records for contracted transmission capacity and expect this record breaking performance to continue for many years to come as we execute on the six unique transmission expansion projects totaling one nine Bcf per day.

And our G&P business remains strong with modest growth during the quarter expected to ramp up over the balance of the year.

We continue to further advance our clean energy strategy through tightly aligned deals announced this quarter, including our acquisition of the <unk> midstream assets in the fast growing Haynesville region, which just closed this past Friday and through our partnership with context labs that I'll detail more when we get to our key investor focus areas.

Overall, we expect strong natural gas market fundamentals and steadfast project execution to drive additional growth for our business in 'twenty two and as a result, we are raising our financial guidance with expectations of another remarkable year of growth importantly, the midpoint of this new guidance is beyond.

On the top of our previous range.

So an impressive start to the year with a number of clear catalyst for growth for the balance of the year and into 'twenty, three and now I'll turn it over to John to go through the results.

For the quarter and our raised guidance John Thanks, Alan starting here on slide one with a summary of our year over year financial performance. Overall 22 is off to a strong start we've seen 7% growth in EBITDA or 13%. If you adjust last year to remove the favorable effects of last year's severe winter weather, including <unk>.

Storm Yuri.

And as we'll see on the next slide our core natural gas focused transmission and gathering and processing businesses have fueled this EBITDAR growth. Although we have also enjoyed continued strength in our upstream and marketing businesses are.

Our adjusted EPS increased 17% continuing the strong trend of double digit growth we've seen now for many years.

Available funds from operations <unk> grew a bit more than EBITDA, continuing the trend of strong growth in this measure up 16% year over year.

As a reminder, <unk> is cash from operations, including JV cash flows, but excluding working capital fluctuations.

If you compare <unk> to our capital investments of $316 million and our dividends of 518 million you see that we generated over $350 million in excess cash for the quarter.

So you see our dividend coverage on this page based on <unk> continues to be very strong at two three times.

Our debt to adjusted EBITDA metric continues to improve based on our strong growth in EBITDA and cash generation and our capital investment discipline.

You see a nearly four tenths or 9% improvement in this measure in only a year.

So now let's move to the next slide and dig a little deeper into our EBITDA results for the quarter.

Again, another strong start this year with 7% growth, reflecting the combined effect of the performance of our core business and upside in our upstream operations.

Walking now from last year's 141 5 billion to this year's 151 1 billion, we start by isolating those favorable effects from last year's severe severe winter weather, which were $77 million and are shown here and Greg.

Maybe just a quick opening comment regarding expense trends since inflation has been such a big topic lately. We've actually continued to see very stops see very solid cost control in our business. You may have noticed the $34 million increase in operating and maintenance expense on the face of our income statement, but this is really driven by a combination of.

Higher reimbursable expenses that are offset in other fee revenue new lease payments that were just the planned part of Transco Leidy, South expansion project and finally operating expenses associated with our new upstream operations.

And related to the $31 million increase in SG&A on the face of the income statement you should know that this is pretty much entirely related to the addition of the sequent business that also includes their bonus accrual and also an $8 million credit reserve related to a small customer bankruptcy.

Moving next to our upstream operations on the waterfall chart here included in our other segment upstream operations were up $56 million, excluding the $22 million of winter weather benefits from last year.

Importantly, our first new Haynesville production only began in April so really no contribution in this $54 million yet from Haynesville. So the full amount of the growth is attributable to our warm set of properties and its a bit of an apples to oranges comparison at that as a reminder, last year, we owned 100% of the acreage we acquired from BP.

Only for February and March but in the first quarter of this year, we owned 75% of the warm setter upstream JV, which now includes the combined BP Southland and CRO heart acreage.

Shifting now to our core business performance, our transmission in Gulf of Mexico business improved $37 million or 6%, primarily at Transco and largely from the Leidy South expansion project, which came online in phases last year.

Overall, our average daily transmission volumes for Transco increased over 6% versus the prior year as we once again saw record winter natural gas demand.

Now Transco revenues are driven by reserve capacity not actual throughput.

Continued growth in actual throughput it does highlight the criticality of Transco service.

We also saw higher margins in our Gulf of Mexico business.

Our northeast G&P business increased $16 million or 4% driven by topline gathering and processing revenue growth on slightly lower volumes.

E&P rate growth was supported by a combination of factors, including higher commodity based rate annual escalations and other expansion related fee increases that more than offset lower cost of service rates at our Bradford franchise.

The slightly lower year over year northeast volumes in the first quarter were anticipated in our initial guidance and we expect a continued quarterly increase for the remainder of the year compared to the first quarter of 'twenty two levels.

We continue to expect a gradual increase in overall northeast volumes throughout the remainder of the year, but ultimately our plan for the northeast in 'twenty two continues to see higher EBITDA versus 'twenty, one I'm pretty flat volumes.

However, we are well positioned to resume stronger volume and EBITDA growth in the northeast and 23, driven by several expansion and optimization projects underway that Alan will discuss in more detail.

Shifting now to the west, which saw an impressive $35 million or 17% improvement over 'twenty one.

In the West we continue to see upside from a commodity price exposed rates in the Barnett piceance in haynesville as well as substantially higher volumes in the Haynesville that drove an 11% overall increase in volumes for the west.

In the West we see a strong quarter over quarter growth trajectory throughout the rest of the year and especially in the second half of the year driven primarily by strong drilling activity in the Haynesville.

Next you see a $30 million increase in our gas and NGL marketing services business, which includes both our legacy gas and NGL marketing business as well as sequence.

This improvement was primarily caused by the addition of sequent in July of last year. Overall. This segment produced $65 million of EBITDA. As a reminder, the first quarter of each year is typically when sequent creates the majority of its EBITDA and this was a strong performance for the team.

While we expect to see $50 million to $70 million of annual adjusted EBITDA contribution for this combined segment sequence plus our legacy marketing business.

This year, we've gotten off to a stronger start than expected and with the strong commodity price expectation for 'twenty, two we expect to exceed the $50 million to $70 million range.

So again, another strong start to the year with 7% growth in EBITDA of over $1 5 billion drew.

Driven by core business performance and upside in our upstream and marketing operations.

Let's move to slide three to look at our latest financial guidance thoughts for full year 'twenty two.

We are pleased to share a substantial improvement in our 'twenty two financial guidance versus what we provided in February of this year.

I won't go through each of these metrics, but we'll offer some commentary on the most pivotal numbers let's.

Let's start with adjusted EBITDA, where our midpoint is increasing $250 million moving from $5 8 billion to 6.05 billion with the tightened range of plus or minus $150 million versus the original plus or minus $200 million.

This substantial raise an EBITDA guidance is grounded in our confidence in the continued growth in our core business before considering the <unk> acquisition.

Specifically, we expect steady quarterly EBITDA and our transmission in Gulf of Mexico business through the remainder of the year, but continued quarterly EBITDA and volume growth from our west and northeast segments with some level of acceleration through the second half of the year.

Additionally for the remainder of 'twenty, two we expect a growing contribution from the <unk> acquisition, which closed last week as it moves towards the targeted approximately six times acquisition multiple based on its 23 EBITDA.

And finally with respect to our upstream operations. We are encouraged by the results we've seen thus far in 'twenty, two and remain confident in the fourth quarter exit rates, we quoted at our analyst day.

Shifting down the page now to growth Capex Youll note, a $1 billion increase in guidance from a combination of the $950 million trace acquisition value and other trace related capex.

Note that we've closed the <unk> acquisition using a combination of cash on hand, and other sources of liquidity, including our revolver and commercial paper.

You see that our debt to adjusted EBITDA remains steady at three eight times, reflecting the balancing of our increased EBITDA with our increased growth capex for trades.

The remainder of the guidance items either changed in relation to the change in EBITDA that I just discussed will remain unchanged as in the case of maintenance Capex.

So again, a substantial increase in EBITDA guidance of $250 million at the midpoint driven by continued growth in our core business as well as contributions from trace acquisition and sustained expectations for our upstream JV operations, So with that I'll pass it back to Alan to review, our key investor focus areas.

Sure.

Okay, well, thanks, John I'm going to move on now to the key investor focus areas here on slide four.

Our natural gas focused strategy continues to play out.

With strong fundamentals that are driving incremental growth opportunities particular, Lee as we continue to see increasing demand for U S. LNG exports, along the Transco corridor as well we have seen domestic demand for power and industrial sectors continued to grow despite much higher natural gas prices.

Immediately it has been somewhat surprising to us how in elastic this demand has remained.

The challenge ahead to meet the stubborn and growing demand isn't higher cost to supply. It is simply that we need more U S infrastructure to connect some of the world's lowest cost supplies to this burgeoning demand.

I will point out that Transco delivered a record breaking $17 $1 5 million Deca thumbs on January 3rd and while extreme winter weather, usually coincides with these peak day deliveries. This volume record was due to growing demands in the Transco markets.

And we expect this natural growth in demand to continue as we continue to see loads within our existing footprint.

Our GNP business continues to thrive in the current environment, allowing us to capture the upside benefit of pricing and inflation adjusters in a rate that had been sitting on their floors for many years.

And we continue to execute our upstream JV strategy by realizing in the near term benefits of its commodity price exposure, while setting the stage for continued use of our late and midstream capacity in the longer term as these volumes grow.

And now I'm going to move on to our financial strength and stability.

And as detailed earlier by John we increased our guidance midpoint to $6 5 billion driven by the following.

First of all strong base business performance with volumes in the northeast G&P business expected to rebound for the balance of the year and of course this along with the higher rates that we're seeing in some of our consolidated assets has got us set up for a very strong performance for the balance of the year.

Strong performance of our gas and NGL marketing business in first quarter and the growing volumes in our upstream JV, which are enjoying higher than planned pricing is another driver and finally incremental volume and earnings from the <unk> acquisition as we've mentioned earlier with our recent updated.

Guidance, we expect to achieve a four year EBITDA CAGR now of 7% and an impressive EPS CAGR of 19% at our midpoint.

On the whole our business continued to fire on all cylinders, driving our financial strength and stability.

And the picture actually just keeps improving as we have been well positioned to capture the upside in this environment.

Looking now at our exposure to growth.

Given the current strength of natural gas fundamentals in the U S and abroad, we see a significant runway of growth opportunities for Williams.

First of all we now have one nine Bcf per day of high return Transco projects that have now moved into execution.

This has been raised since our analyst day too due to recently secured customer commitments to advance the Texas, Louisiana Energy pathway project, which moved out of the development bucket into execution and this project connects low cost South, Texas gas supplies with LNG markets in Louisiana.

Second in the Gulf of Mexico, We secured another customer agreement at Salamanca further building on growth momentum in the deepwater Gulf of Mexico, which continues to deliver more and more opportunities in response to these higher oil prices.

In the northeast we've reached agreements with our producing customers for significant gathering expansions in both the rich Utica and the rich Marcellus and we know for significant expansion projects under execution that will drive growth showing up later this year and into 2023.

And our strategic bolt on acquisition.

Of assets from trades midstream closed last week and this now positions Williams is the second largest gas gather in the fast growing haynesville.

This is consistent with our long held strategy to seek a number one or number two position in the key basins in which we operate with our haynesville gas gathering capacity now above four Bcf per day, we continue to crisply execute on our wellhead to water strategy. In fact were close to commercializing the Louisiana Entergy.

<unk> project.

And given significant interest biased various shippers, we do expect to announce a final investment decision on that project soon.

Our growth prospects don't stop with these projects. However, we see more opportunities on the horizon, even as we navigate an evolving regulatory environment in.

Importantly, we saw the FERC respond to concerns from both industry and legislators in a constructive manner. This past quarter and we are optimistic that regulators recognize the need for reliable permitting process to support natural gas infrastructure.

<unk> key legislative leaders have renewed their focus on streamlining permitting in our country to ensure we've got the necessary midstream infrastructure to support our country's LNG build outflows.

And finally, let's look at the developments related to our new energy ventures.

Obviously as we think about de carbonization, there are a lot of opportunities to invest in energy innovation and new technologies.

As part of our strategy to accelerate the next generation energy marketplace. Williams has established a corporate venture capital fund that is set up in a way to support direct investments in startups that leverage Williams assets for de Carbonization solutions as well as limited partnership funds that specifically invest in <unk>.

Low carbon technologies.

A great example of how we're utilizing this VC fund is our recently announced partnership with context labs on a technology solution to support the gathering marketing and transportation of responsibly sourced natural gas from wellhead to end user and by leveraging the context labs technology, we will enable supply.

High end delivery decisions that can net the cleanest energy sources to meet real time energy needs across the country.

Also supporting our work in this space, we just announced a collaboration with Cheniere energy to implement a QE MRV pilot that will further the development of advanced monitoring technologies to enhance clean energy supply and delivery for Williams and its customers.

Lots of exciting things happening in this space and all positioned around supporting and enhancing our natural gas focused strategy.

So in closing I'll reiterate that our intense focus on our natural gas focused strategy has built a business that is steady and predictable with continued growth improving returns and free cash flow.

Our best in class long haul pipes are in the right place serving the very best markets and by design, our formidable gathering assets are in the low cost basins that will be called on to meet gas demand as it continues to grow these gathering assets are irreplaceable and critical infrastructure within the natural gas value chain.

And our seafood platform that extends across the natural gas pipeline and storage industry is providing infrastructure optimization services that create value for Williams and our customers, while mitigating downside risk.

You've heard me say it before but we remain bullish on natural gas because we recognize the critical role. It plays and will continue to play in both of our countries and the world pursuit of a clean energy future.

Natural gas is an important component of today's fuel mix and should be prior work ties as one of the most important tools to aggressively displaced more carbon intensive fuels around the world.

Our networks are critical to serving both domestic and global energy demand and a lower carbon and economically viable manner and finally.

As we look overseas to the energy crisis in Europe , and its ripple effects on energy security and the importance of affordable and reliable energy supplies on a global scale has now taken center stage.

Williams is excited about the important role we will play in meeting the dual challenge of delivering increasing amounts of reliable affordable energy, while also continuing to decrease greenhouse gas emissions around the world.

Utilizing our critical infrastructure that is connected to the best natural gas basins in the U S to increasingly serve LNG export facilities and growing U S demand for clean affordable energy is a great place for our organization to start and with that I'll open it up for your questions.

Operator.

Please open it up.

Q&A line.

Thank you we will now begin the question and answer session. You'll ask a question you will need to press star one on your telephone to withdraw your question press the pound key please limit yourself to one question and one follow up.

Please standby, while we compile the Q&A roster.

Your first question comes from the line of Brian <unk> of UBS. Your line is now open.

Hi, good morning, everyone.

Can you talk on the EBIT guidance for a little bit was curious if you could just provide a little bit more colors to upside and downside of the EBIT range.

Let's first look at apples to apples comparison, it seems like commodity exposure is really the main driver of the guidance. In addition to the Chase acquisition and I was just wondering if you had anything to add to that in addition to Mike if theyre on the volumetric assumption changes to the guidance update thanks.

Yes actually.

The drivers are kind of.

Primarily as we study the drivers are absolutely our base business.

If you look at first quarter volumes in the northeast and you consider the rebound that we're seeing from very active drilling operations a lot of that will hit in the third and fourth quarter, just due to infrastructure issues, but on our part but.

That that is the primary driver is just seeing a nice rebound in the northeast actually were I would say, we are being pretty modest in our expectations of pricing.

And in fact, if you look at this quarter Haynesville really didn't even produce this quarter.

Other than the base levels than producing at and certainly didn't contribute to EBITDA. So the upside that we have is really just from.

Volumetric exposure with a pretty modest assumption on pricing.

For the balance of the year so.

Really the drivers the primary driver for growth is first our base business.

And second the E&P in the Haynesville and that that ramp up that is going very well at this point, but did not contribute in the first quarter and then finally is the trace acquisition in that order in terms of the value.

Great appreciate that color and then maybe as a follow up on just the evolving regulatory environment. It appears that there are some near term tailwind to support natural gas and LNG infrastructure permitting.

Great.

You can comment on this evolving environment and curious if Williams is considering adding new transco growth projects for both approval. The docket that may not have been pursued at the end of last year. The beginning of this year. Thanks.

Well I would just say first of all we have a long long list within that six projects that are under execution.

And we are encouraged in our discussion with the FERC and their clear desire to see good projects that reduce emissions in the markets. They serve.

And so I would say, we're very fortunate to have a number of projects that actually reduce emissions in.

In the markets they serve and so we certainly are seeing support out of the FERC and and obviously they've been moving projects through pretty quickly on the increment I would say nothing's really changed that much for us its just kind of a steady feet right now of continued <unk>.

<unk> from customers.

Customers in Rfps that we're responding to and working with customers on so I will say that I think on the one hand, you kind of have this.

Popular notion that that gas demand is not increasing.

And on the other hand, the reality is it is increasing and we're certainly seeing that through rfps coming from our various customers on the demand side. So.

We're pretty excited about the way the future is shaping up on that front and we do think particularly at the FERC level that they are being supportive particularly of projects that we can demonstrate reduce emissions in the markets, we serve and we have.

<unk> track record of working with the FERC in a constructive manner and we expect that to continue.

Your next question comes from the line of Chase Mulvehill from Bank of America. Your line is now open.

Hey, Good morning, I guess first question is just really.

The lag it sounds like you guys are getting closed.

Matt.

Could you talk about I guess how much.

Contracting that you still have left that you need to accomplish and how much capacity that you expect to be in maybe the total cost there as well.

<unk>.

I've got a follow up after that.

Sure Hey, this is Chad.

So leg.

At full capacity of one eight Bcf a day on a project we have over half of that.

Contracted today, we would expect to.

To achieve a sufficient level of commercial contracts over the next couple of months to that project we see.

Pretty significant need for volumes that are growing in the haynesville to get to Gulf coast markets and so we feel pretty good about that getting done Michael is going to talk about the capital.

Yes.

The capital cost estimates are are really pretty much in line with the other projects that we've been executing.

On the large diameter type activities, we're not ready to disclose the actual capital investment opportunity there but.

Suffice to say that the returns are very nice.

And the fact that we also have options also pipe right now really tells US that we are locking in on what we think the cost will be just because of the volatility of steel prices right now are pretty uncertain.

And that's been going on for quite some time now and we were able to acquire some options on some surplus fight from canceled projects.

Why that toward the leg projects. So we feel good about the material cost right now that we have the budget and certainly feel pretty good about the capital cost that will take to construct it based on what we know today yet important to <unk>.

Just remember that when we executed on the <unk> acquisition quantum did.

We announced the quantum will be an equity partner in the project, so that will reduce our capital load a bit and it could be that we bring in an additional equity partner in the project. So we will I think de.

De risk a portion of the capital, but get the benefit of creating that full value chain from truly wellhead to water across our infrastructure and we'll work with our partners on the project to optimize the entire value chain.

Okay, Alright, perfect a quick follow up is just terrific.

That strategy of wellhead to water.

We do get questions from investors about midstream.

If they would ever consider.

LNG export facilities, obviously, we've got one of your.

Peers out there.

Obviously, considering this so I guess my question to you is would you ever consider building an LNG export facility.

Yeah, I'll start and let al and follow up I'd say for the Haynesville strategy to wellhead to water. There is a pretty good existing footprint of LNG export facilities that were focused on connecting to.

Are the largest infrastructure provider to the LNG terminals across the entire footprint so for.

For the near term our focus is on making sure that our customers can access those LNG terminals and also we can connect our customers to the very best markets.

Those are domestic or internationally, so I think our strategy.

Building that whole value chain is not dependent upon us building and operating LNG terminals and so our strategy today is to serve as a reliable supplier to LNG export terminals and then increasingly provide access to our customers to those LNG markets.

I don't know.

Yes.

So that very well Chad I think obviously, there's a lot of project debt that's utilized in that space today that gets those down to some pretty low cash on cash returns.

That we think is a great great way to make sure there's plenty of capacity to get out.

We determined that there wasn't going to be plenty of capacity to get out and we might consider that but as it sits today. It looks like there's plenty of new capacity that is trying to get bill and at low cost.

And fairly low returns given given the project financing is being applied to those projects. So so we see better places that we can put our capital to use better today.

And there and so that keeps us focused on the areas. We have very strong competitive advantages as Jeff pointed out.

Alright, I appreciate the color I'll turn it back over thanks al.

Thank you.

Your next question comes from the line of Brent <unk> from Wells Fargo. Your line is now open.

Thanks, Good morning.

Staying on the Haynesville there is a lot of midstream companies now that are evaluating takeaway projects, including you guys. I guess my question is how competitive is it to secure contracts for new pipeline. I know you have a head start on leg because of the trade deal, but do you think you can generate the same return on leg as you would on Transco projects, just just trying to get a sense of.

Competitiveness.

Yes, that's a great question I would say generally probably not just because our returns on transco or have gotten to be very much higher than the normal projects and thanks to the to the.

Efforts of the environmental opposition of making pipeline permitting so difficult in the areas that we operate it's allowed us much higher returns in that space than would normally be allowed so yes, it's definitely more competitive we liked it because we've got follow on business upstream and downstream with Transco. So it makes that kind of.

Total incremental return on those projects attractive, but it is not as high as kind of.

Bolt on expansions that we'd see on Transco today, just because of our strong competitive position in those areas.

Got it.

And then maybe if you could just give us an update on producer activity in the northeast sounds like Youre positive given.

Given the gathering expansions, you've announced but they see the potential for a more meaningful volume increase in 2023, and then maybe tied to that where do you stand in terms of NGL volumes versus frac capacity.

See the need to expand frac capacity at any point over the coming years.

Good morning. This is Michael I'll take the northeast question.

We saw in the first quarter this year really a convergence of several things that impacted volumes.

In the northeast really across the entire basin and a lot of that was driven by production increases that occurred occurred in the fourth quarter of 'twenty, one where a lot of producers accelerated their well pad connections early in order to hit great exit rates for the end of 2021, which was great for our system and we saw a lot of people.

On our systems in 2021, but that obviously hurt 22 performance in the first quarter with all of that early execution and then the decline that occurred from those new wells. So we saw that and we saw really significant winter weather in the northeast this year something that we haven't seen in several years.

At this magnitude and that did impact a lot of the production from the producer freeze offs and not only just on our systems and the producers on our systems, but the production that was gathered by others that would be brought to our processing facilities. We also saw some impact there. So we did see some inlet plant volume declines because of that.

Yes.

And then finally, we had a producer that had some well pads that came online that had significant levels of condensate, which is good for them.

Duction standpoint, but it overwhelmed their facilities and so they weren't able to bring those volumes to us until they rectify that situation and so that's been fixed but that did impact some significant volumes from that producer in the quarter. So we had several big items that impacted that and develop that we expect an acceleration of volume coming on between now and the.

End of the year and we have talked about volumes in the northeast being somewhat flat. This year from some of the producers talking about being in maintenance mode, but we do see 2023 shaping up pretty well with the four expansions that we have underway across all of the dry and rich basins in the northeast.

And just to be clear when we say when we're talking about flat volumes that we're seeing flat to 'twenty one.

So it would be a growth point from where we are here in the first quarter for sure.

Got it thank you.

Your next question comes from the line of debris all Marine from Mizuho. Your line is now open.

Hey, good morning, everyone with some of the gathering contracts now it sounds like you're being off some minimums.

From a commodity price standpoint, I'm wondering if there is a possibility forgetting.

Enterprise rise rule of thumb for sensitivity to Nat gas prices overall and I'm also just curious.

What gas price forecast are you seeing in your guidance now.

Yes, Gabe thanks for the question I don't think I.

I don't think we've released that sensitivity on price.

We have said the contracts that we have there are around our Laurel mountain midstream.

Business with EQT and the Marcellus has that feature as well as the Barnett gathering contract with total.

With total in the Barnett shale. So those are the kind of the two primary areas of exposure to those there's a lot of areas with smaller ones, but but in terms of any significance those with vigor.

But we have not provided that in terms of the pricing. That's in there I would just tell you it's.

We're not counting on.

The kind of current pricing that we have obviously for the balance of the year.

And.

So we're being I would say a bit conservative about what we expect for the balance of the year, because we do think given the kind of growth that we're seeing in both the haynesville and thats gearing up in the Marcellus and Utica that we're exposed to we can't very well on one hand see the kind of growth that we see coming on there and expect.

Prices to remain at these levels and so I would say that.

Those two things have to be considered jointly and we do so.

Thanks, Alan and then maybe if I can just ask one follow up on the Haynesville.

After hopefully.

In the not too distant future just how youre feeling about your current footprint there relative to kind of where you want to be clear. There are some other assets I think that are out there on the market. So maybe if you could just kind of speak to that as your balance sheet call and giving you more room here.

Some more offense.

Yes, I would just say, we're as usual, we're going to be patient and picky and.

And we've done that and its served us well.

In the case of trace we kind of caught that it from a timing standpoint, I think we've caught that had a great timing and we had unique considerations that we had to offer quantum and rock lift there both in terms of access to the LNG markets.

Our.

<unk> and Transco systems as well as.

Any interest in Legg for quantum which was valuable to them. So we'll continue to look for those kind of unique opportunities.

As they pop up where we've got significant value that we can add between us and the buyer. So wouldn't say, we're not going to look at everything because probably will but.

They will remain fairly patient and picky about how we choose our points of growth.

Thanks Al.

Your next question comes from the line of Jeremy Tonet from Jpmorgan Securities. Your line is now open.

Hi, good morning.

Hey, good morning, Jeremy.

Just wanted to touch on Appalachia, a bit more and I guess the production outlook, there and given how egress constraints impacts production. Just wondering now that you have Mariner East online you have the shell Cracker comes.

<unk> here.

With higher I guess egress or demand for Ngls are you starting to see any more pivot towards liquids rich areas or is it really focused still on dry gas more given the higher prices just wondering.

How are your conversations with producers are going now and when do you think how do you think that shifts.

Good growth materialize this year or next year do you think it seems like its may Jeremy It's Michael we are seeing.

Growth expectations, increasing for 'twenty three in both sides of the rich and the dry.

Got an expansion in northeast underway that comes online in 2023, unlocking additional volumes through our gathering systems.

And the other expansions that we spoke of ore really done in the rich areas. So were working with Encino booths.

The upstream producer that bought the acreage from Chesapeake years ago, They have access to both rich and dry in the Cardinal gathering systems that we have.

They can balance those rig both between the dry and the rich so they have the benefit of being in close proximity there and so they're just taking advantage of capacity when it becomes available and we have some interconnect that we're increasing capacity on as well to put additional volumes into Texas Eastern and Rover from those systems and so.

Those will come online this year, but that just unlocks more capability to move gas out of the system and then obviously to take advantage of latent capacity that is available on those interstate pipeline. So.

So I would say, we're seeing a pretty pretty exciting growth coming in 2003 from definitely the rich side with the support of NGL and condensate prices that are tied to <unk> and.

And right now we're seeing our processing complex in the in the OEM system is full where we had some impacts as I said earlier from the winter weather with production being able to get into those systems.

We are back to full now and we're working on our interconnect between our OEM system and the Blue racer system. So that we can utilize latent capacity there when it's available and vice versa ultimately.

And so that will certainly unlock some additional opportunities there to continue to grow those rich volumes.

Got it thanks for that and just wanted to touch on higher Nat gas prices, a little bit more if I could.

And whether these higher prices impacts your thoughts on monetizing <unk> Haynesville E&P assets, given given the strong price and gas here and at the same time higher prices more.

More volatility leading to wider basis differentials do you see this kind of maybe driving more upside.

Under the sequent operations.

In the near term given this backdrop.

Yes.

<unk> question, Jeremy and I will tell you I've been really impressed with the way our commercial teams have been working together on sequence, so I'm going to answer the back.

At the end of your question first.

Really if you think about <unk> and the way that they run the business of optimization being in a basin that is starting to get crowded from a transport standpoint, and starting to have volatility in the basis and allows us to capture an aggregate supplies into then turning that into an infrastructure solution.

It is exactly what we bought sequence for and Thats turning in to be a pretty powerful tool for us and probably a while I certainly expect over time for us to get there have been very impressed how quickly the teams have come together to materialize some opportunities on that front, so really excited about that and.

I think not just the.

Nice performance that we got out of sequence here in the first quarter, but as well.

Just seeing strategically what it's doing for us in terms of intelligence in the basins and dealing with volatility in basin.

As markets grow.

And optimization.

Capacity becomes critical as you get up near the limits.

Of the basins capacity to export.

That allows us then to aggregate those supplies that need optimization, and then that of course gives us.

<unk> as it relates to infrastructure solutions for that so really.

That has gone.

According According to plan and then some I would say.

On the question of monetization of the E&P business remember that.

First on the warm stutter, our primary goal in the real value there is for us build getting those volumes built up.

And so the the structure that we have today, there with Crow heart, which has since them too.

And very powerful incentive to dramatically grow volumes, and then that cash margin of that kind of regardless of pricing environment that cash margin that flows back to us through the midstream asset is exactly what we're looking for which is obviously a much more durable solution then depending on high price.

<unk> here.

The current environment, so that strategy remains intact and we.

We remain very focused on getting the volumes built up in that basin before we would think about the next step of monetization, which may very well come there on the Haynesville side.

Somewhat similar except that in that structure.

And develop not the existing producing reserves, but the undeveloped acreage does transfer over as that as the development is done by Geo Southern and they are just doing incredible job I want to give them a lot of credit here on the the way they've been managing as an operator.

Out there on the drilling operations and we're really excited to see.

What that's going to mean for us both in terms of responding to this very strong pricing environment, we have on gas into here in the near term, but as well the volumes and the cash margin that we'll get from the downstream assets in the longer term. So both of those are going.

Extremely well.

But the Haynesville, obviously is going to be a much more near term catalyst for growth just given the.

<unk> to very quickly attack that and drill out the acreage there in the haynesville, but some of that some of that value will be transferred in the undeveloped acreage is not in the producing acreage, but in the undeveloped acreage will will transfer over to.

Geo southern overtime anything to add to that Jed just that at the pace. They are currently there are three rigs that Gino southern is running in the haynesville on our position at that pace, we would see that reversion of interest on the undeveloped occur sometime in early 2023, so it's kind of self fulfilling in the haynesville so that'll happen.

Charlie.

Got it I'll leave it there thank you.

Thank you Sir our next question comes from the line of Michael Lasser.

From Goldman Sachs. Your line is now open Hey, guys. Thank you for taking my question, one modeling, one and one kind of siting and permitting longer term one just on the modeling one can you remind us I want to make sure I caught this correctly what was the sequent contribution in the first quarter and what do you expect for the full year.

Yes.

Yes.

We're speaking to a run rate in our overall combined marketing business of sequent in our legacy NGL and gas marketing of $50 million to $70 million for for on a normal run rate. What we said, though is that the $65 million at that segment produced in the first quarter given the strong start that we've seen in the price.

Look for the rest of 'twenty two means that we'll likely exceed that range for 'twenty, two but 50% to 70 is what we're targeting is sort of a normal run rate for our overall marketing business, which is now combined sequent and our legacy gas and NGL business.

Got it and then on the permitting front I know that there is lots of discussion in D. C about.

Doing things that can make development of gas infrastructure assets easier over time.

But we just saw the administration in the last couple of weeks revised some of the NIPA related requirements for gas infrastructure, which strikes me that would actually make it a little more onerous in the siting and permitting process and we just saw yesterday a challenge to a license amendment for a Louisiana LNG.

Project that already has any I'm.

Just curious kind of when you're thinking longer term what do you think the messages that are coming out.

Across the board or in terms of either from policymakers environmental groups or others in terms of desire, but more importantly, the process for siting and permitting gas infrastructure.

Yeah, Michael Great question sung.

Something obviously, we study a lot and I would just say first of all that is not a well oiled machine, we're talking about there and I am not sure sometimes.

Right hand knows what's left hand is doing.

In that regard and certainly the FERC <unk> got some very clear instruction from the energy and natural resources Committee. So.

I think that was very helpful. In terms of getting the FERC lined out the CE Que act.

Activity that you spoke about was certainly a step backwards, but frankly.

Really the previous.

The Trump administration set on <unk> was helpful, but it really hasn't had that much impact yet on NEPA, but it definitely was a step backwards I wonder if that was a little better communication.

Within the administration I kind of wonder if that would've come out given the need for.

And the desire for natural gas infrastructure to get permitted but it certainly was.

Step in the wrong direction, I don't really have a comment yet on.

The Ias.

And re licensing issue that you mentioned I'm not familiar enough with that provide comment on that so anyway I would just say.

Yes, we think there is a desire from the administration and certainly from some of the key.

Senate committees to streamline permitting but I'm not sure that everybody's moving in lock step with that amongst the various agencies, just yet, but I'm very hopeful given the direction that the FERC responded too I'm very hopeful that we'll see that with other agencies as well.

Got it and when you're referring to the FERC just color on the changes to the policy statement, making a draft and taking comments et cetera, or something else along those lines.

I would say a couple of things there I mean, yes, certainly that's positive, but as well we saw a lot of of.

Certificates get issues that are in need for some time, there pretty quickly as well post the hearing that the Senate Committee held and so we thought that was very constructive and frankly, our discussion with the various commissioners indicate that they really are serious about.

Trying to get good projects that that have the ability to reduce emissions and are being done and permitted responsibly.

Including very intense stakeholder engagement.

They're serious about getting those permitted and we think thats a very positive sign.

Got it. Thank you Allen much appreciate it guys.

Thank you.

Your next question comes from the line of Jean Salisbury from Bernstein. Your line is now open.

Good morning, and how close do you think the Haynesville is turning out of capacity today do you think that it will actually run out and Youll see play out before the next wave of projects come on beginning the Gulf I know it's late.

Maybe next year.

Yes. This is Chad.

Good question I think that the Haynesville. It does have takeaway capacity that we see providing relief through probably the next couple of years I would just note, though that the traditional haynesville capacity wasn't necessarily built to the markets that need the gap today. So it's not the most efficient path.

We're getting gas to the growing markets, which is why our Louisiana <unk> Gateway project. We think makes a lot of sense. We are targeting that project can move directly from the haynesville south to growing LNG and industrial markets along the Gulf Coast. So we do see capacity that will allow the haynesville growth.

To continue over the next couple of years, but we see a need for projects to come online in the 2023 2024, sorry, 2004 time timeframe.

Great that makes a lot of sense, and then sort of related follow up on Rob.

Do you see kind of getting tight on gas takeaway from all of the major tier one gas basins and are you starting to see any increase in interest or planned activity from the so called tier two basins like the Barnett or they can set the current gas strip.

Jean Ann This is Michael we are.

Capacity.

We've got a lot of capacity available out of the Rockies. For example, so I would say youll see some uptick in activity out of the Rockies to move gas out of there with those pipes that were built historically to move that Rockies gas.

So there is definitely opportunity to continue to increase from those basins that you'd call them tier two.

And we have a large footprint there certainly in the Rockies. So we're pretty optimistic about that we're seeing some drilling activity in the Barnett as well, but most of that is keeping production flat to slightly growing on our systems. There are a lot of that has been drilled out.

More tough environment to drill in with mostly being urban there, but we are seeing some activity that's very pleasing to us with the rate structure that we have there in the Barnett.

So I think where you see producers with takeaway capability and available you're going to see some increased activity at these prices continue as they have been.

Great. That's helpful. Thank you.

Your next question comes from the line of Cynthia from Seaport Global Your line is now open.

Yes, hi, good morning folks and thanks, all looked at it in the call.

I just wanted to go back to the venture capital Fund, which was mentioned before.

Clean energy and <unk>.

Monitoring I was curious if you could talk about that.

Investment opportunity in there in terms of the size.

The threshold on returns on that.

Sure I would just say we are.

We're being pretty modest.

Those investments.

We have a pretty tight screening process.

In that regard and we're not putting large amounts of capital to work right now on that but it is an important capital because we do think that that will long term be a differentiator and we've been very clear with ourselves that we want to think about where the puck is going in that regard and we do think that reducing methane.

Missions and overall greenhouse gas emissions from our natural gas value chain is absolutely essential for natural gas to be the powerful tool and be considered the most powerful tool at reducing.

Impacting positively climate change. So so we are dead serious about making sure that on the QM RV front.

And our ability to in an unassailable way certify responsibly sourced gas, we think thats going to be very important in the long run.

And so that's not super expensive, because it's not big capital, but we are certainly.

Engaging our organization in making sure that that we don't sit around and wait for <unk>.

Really good solutions to be developed we think theres a lot of efforts going on on that front, but we think at the end of the day those are going to have to be really strong unassailable solutions that that people can trust and whether they're in mgo or their gas producer.

That it can be trusted and so we're very focused on that and we want to be there.

They are on the frontlines of that but it is not that is not big capital that we're investing in that space right now in terms of the return component.

The areas that we are investing.

More sizeable amounts of capital like in our solar business, we are targeting.

Getting mid teens returns on those projects, obviously that is not available in the merchant space around renewables today, we're well aware of that but given the fact that we've got our own load to serve there and we've got a lot of the essential facilities already in place.

That reduced the capital load on that that's what drives the higher returns. There. So Chad has got anything to add yes, I would just add that on the venture capital front, we have been I think smart in investing alongside proven.

Venture capital investors, that's not our core business and so we've made some small investments in.

Couple of existing funds on the context labs investment, we're actually investing alongside Boone Pickens energy partners. They are the large investor in that platform, which again, we really like a highly credible investor and our relatively small minority investments. So does allow us to have significant impact.

How that technology will get developed and deployed and we want to make sure that we can help bring to market. The very best de Carbonization solutions and so I think the strategy of finding.

Promising technologies partnering with invest investment platforms that understand these markets and know how to put money to work and then having our seat at the table to influence the direction of the technology. So that it achieved the goals that we're all trying to achieve and so that's how we're we're approaching.

The investment strategy.

Got it thanks for that and just one follow up I think you mentioned about the gas prices.

I was curious.

The production that you have exposure to.

So, let's say the window of 2022 for 2023.

Sure.

John Yes.

So so so Neil thank you for the question as we as we discussed at Analyst day are our upstream hedging program, we have been pretty much focused on supporting our original street guidance and the underlying capital investments that we're making in those upstream businesses.

And so as such we have continued to expand the hedges that will protect the planned upstream gross margin and those have been at favorable prices versus the original guidance a couple of points, though because a good portion of our production volumes is really dependent on future production.

We generally don't hedge more than about 70% of our expected exposure for the year.

Also in this environment with the strong current pricing that we're seeing we do expect that operators will push for volumes beyond what those original plans were but until we see those volumes really materialized, we don't intend to hedge more than really 70% of those originally expected volumes.

We do as we've already discussed we do have significant contracts with direct exposure to prices is well above our floor, it, especially as the Barnett and in the Marcellus. So those contracts also provide us with exposure to gas prices beyond the upstream jbs.

Okay.

That's all I had.

Your next question comes from the line of Alex Kania from Wolfe. Your line is now open.

Great. Thanks, maybe just a follow up from earlier discussions on policy, but.

From the administration, you've talked about the agencies, but also do you think that theres a chance that we may be able to see some sort of.

Kind of legislative kind of work being done that maybe kind of is kind of.

I was sort of an all of the above sort of strategy coupling clean energy incentives with.

Kind of more focus on.

Natural gas and then maybe on a related question on policy are you seeing kind of the department of Commerce review on solar could be impacting your I guess, the $100 million or so of placeholder that you've got for solar this year or kind of whether it's impacting any thoughts for for future years.

Yeah, I'll take the first part of that and I'll hand, the solar question off the chair.

First of all I would just say on the policy question normally my immediate response to that would be boys that crowd.

Crowded field of issues.

It would be hard to get any movement on energy policy, but.

Senator Manchin has been.

Very well seeded and very well positioned to drive these solutions in and he has been putting forward some thoughts on it.

Energy policy.

Very thankful for that because I think.

The timing is right to get some attention to that and to actually come up with an energy policy.

People.

I think all of US would question, whether we've actually had an energy policy or not.

So I think.

The timing is right for that.

And and I think getting some clarification on that would really benefit our country.

And hopefully set legislation in place that.

Putting aside some of the ways that we continue to stand in their own way as the country using our natural gas resource as both a powerful economic driver for for Us, which I think in the next year or so we're going to wish we had.

As well as.

Powerful geopolitical tool, obviously, and so I think the timing is right and I think we've got really good.

Advocate for that.

Senator Manchin. So I would just say, we're very hopeful on that front and I will turn the solar question over to Chad.

I would just say that we are watching proposed tariffs to watching the discussions regarding incentive structures for solar but I would remind you that our solar program is primarily focused on installing solar in facilities, where we utilize power that in many cases.

More expensive than.

Standalone solar that we can install and so.

The economics of our investments are primarily driven by our ability to install solar projects that frankly compete even without incentives and almost irrespective of.

Some of the cost pressures that we're seeing so as it relates to the $100 million that we've talked about for this year I'd say not so much affected by the policy issues, but I will say that we have said, we're keeping a close eye on supply chain issues. We are under no time demand to install our <unk>.

Solar facilities.

By a date certain and so we are going to make sure that we.

<unk> time those projects appropriately we don't we don't get caught.

Subject to higher prices than we need to pay for materials because of kind of supply constraint issues and so.

We're keeping a close eye on on the supply chain side of things, which has a much bigger impact we think at least for the projects that are currently underway then.

And kind of the policy issues that we're keeping an eye on.

Great. Thank you.

And I would like turn the call over to your President and CEO .

Mr. Roth. Please go ahead.

Thank you very much and appreciate everybody.

Tuning in today and appreciate the great questions I, just want to reiterate here on the back end that the drivers for the growth for the balance of the year are.

Really powerful and really across our base business, the Marcellus and the Utica as we discuss obviously the haynesville growth is power.

Powerful and I think people are starting to see strong evidence of that.

The deepwater business, we've got a couple of really nice tie in projects. This year that will add to value towards the end of this year and one sided later this year as our drilling operations pickup out there towards the very end of this year, we will see volumes in the one side of that of course will be driving the base business.

As well out there and then finally as I mentioned earlier the Haynesville.

We really haven't even seen the power of that yet on the E&P side. So first quarter was definitely not driven by that because thats really a balance of the year and into 'twenty three some really attractive earnings coming out of that area as well so.

A lot of <unk>.

<unk> quarter, but a whole lot of firepower last year to drive growth for balance of the year and into 'twenty, three and with that I. Thank you for your attention today and look forward to talking to you soon.

And ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.

Okay.

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