Q2 2022 Williams Companies Inc Earnings Call

Good day, everyone and welcome to the Williams second quarter 2022 earnings conference call.

Today's conference is being recorded at.

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 and ESG. Please go ahead.

Thanks, Joanne 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.

Key financial Lobster, John Porter, who will speak to this morning.

Also joining us on the call 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 on non-GAAP measures are reconciled to generally accepted accounting principles and these reconciliation schedules appear at the back of today's presentation materials.

With that I'll turn it over to Alan Armstrong.

Great. Thanks, Danilo and thank you all for joining us today, while we're here today to talk about another quarter of steady predictable growth. Thanks to our long term commitment to our natural gas focused strategy and continued crisp execution against that strategy.

We saw strong earnings growth in our core businesses and our upstream operations and the health of our business and who is also demonstrated by equally strong gathering and transportation volumes. During the quarter. Importantly, we expect continued earnings growth in our core GMP in gas transmission businesses as our teams are delivering great execution on our.

Expansion projects.

We're also staying laser focused on doing what's right to ensure sustainable operational performance. We're pleased to share our progress in our 2021 sustainability report that was published just last week.

I hope you'll take some time to read the report as it really is a testament to the hard work of our entire organization and their passion for doing things the right way.

I'll highlight a few things from the report and our key Investor focus areas segment, but for now let me turn things over to John for a review of our second quarter and our year to date result, John .

Thanks, Alan starting here on slide one with a summary of our year over year financial performance. Overall 2022 financial performance continues to be quite strong beginning with EBITDA, we saw a 14% year over year increase for the second quarter and a 10% increase for the first half of 'twenty two versus the first half of 'twenty one.

As you'll see on the next couple of slides our EBITDA growth has been led by our core large scale natural gas transmission and gathering and processing businesses complemented nicely by growth in our upstream joint ventures, our adjusted EPS increased 48% for the quarter and 29% year to date.

Available funds from operations <unk> grew more than EBITDA, continuing the trend of strong growth in this measure up 23% year over year for the quarter or 19% year to date.

Also you see our dividend coverage on this page based on <unk> was $2, one nine times for second quarter and slightly better at two to four times year to date.

Our debt to adjusted EBITDA metric continues to improve based on our strong growth in EBITDA and our capital investment discipline now, reaching 382 times versus last year's 413 times. So now let's move to the next slide and dig a little deeper into our EBITDA results for the quarter.

Again, the second quarter built nicely on the strong start we've seen this year with 14% growth, reflecting the combined effect of the performance of our core business and upside from our upstream joint ventures walking now from last year's $1 $31 7 billion to this year's 196 billion.

We start with our upstream joint venture operations included in our other segment, which were up $66 million.

I will point out that we've added a new page to our analyst package for this segment and in that supplemental information. We've included our net upstream sales volumes, which were just under 200 million cubic feet a day for the Haynesville and one set of properties for the second quarter of 'twenty two.

Since our first new production in the Haynesville came online in April of this year, we've seen a ramp at a rapid ramp in volumes that will continue through the remainder of the year.

Shifting now to our core business performance, our transmission in Gulf of Mexico business improved $4 million primarily.

Primarily a transco and largely from the Leidy South expansion project, which came online in phases last year.

Operating and maintenance costs were higher driven in part by an acceleration of maintenance work during the second quarter of this year.

Overall transmission in Gulf of Mexico is $652 million of adjusted EBITDA, which just over our business plan for this segment for the second quarter.

Our northeast G&P business increased $41 million or 10% driven by topline gathering and processing revenue growth on slightly higher volumes GNP.

GMP rate growth was supported by a combination of factors, including higher commodity base rate annual fee Escalations and other expansion related fee increases that more than offset the lower cost of service rates that we have in our Bradford franchise.

We saw an expected sequential increase in northeast volumes for the second quarter of 2022 versus the first quarter and we expect continued quarterly increases for volumes for the remainder of the year.

But ultimately our plan for the northeast in 'twenty two continues to see higher EBITDA versus 2021, I'm pretty flat volume growth.

However, we remain well positioned to resume stronger volume and EBITDA growth in the northeast in 2023, driven by several expansion and optimization projects underway that Alan will discuss in more detail.

Shifting now to the west, which saw an impressive $73 million or 33% improvement over 2021, and I'll mention that $20 million of that $73 million was attributed to our trade midstream acquisition, which closed on April 29.

So even without trace the west still increased $53 million or 24% in the west we continue to see upside from our commodity price exposed rates, especially in the Barnett in haynesville as well as substantially higher volumes in the Haynesville that drove an 11% overall increase in volumes for the west excluding.

The <unk> acquisition.

Also in the West we see a strong quarter over quarter volume growth traject trajectory throughout the second half of the year driven primarily by the Haynesville.

Next we saw a slight decrease for our gas and NGL marketing services business as it was expected in our business plan and as a reminder, the first quarter of each year is typically when this segment will create the majority of its EBITDA.

Overall, our marketing services business is extremely well positioned to take advantage of the recent natural gas price and location volatility we've seen in July and so we expect them to exceed the high end of the $50 million to $70 million annual adjusted EBITDA contribution we discussed last quarter.

So again, another strong quarter with 14% growth in EBITDA, driven by core business performance and upside in our upstream joint venture operation, Let's move to slide three and take a look at the year to date comparison.

So through the first six months of 2022, we've now generated 10% growth in adjusted EBITDA over 'twenty, one or 13%. If you exclude the unusual first quarter 2021 winter storm benefits. So.

So thats two strong quarters to start the year stepping now from last year's two $732 billion to this year's just over 3 billion and.

You start with the $77 million of those first quarter 'twenty, one winter storm benefits, which we've isolated here in gray and then moving to the $122 million contribution from our upstream operations, which again were one set of related in the first quarter of 'twenty. Two and then began to have a more significant haynesville component in.

The second quarter as discussed on slide two.

Our transmission in Gulf of Mexico business has seen 3% growth year to date, driven by Transco Leidy, South expansion project and strong first quarter 'twenty two seasonal revenues with again, some acceleration of maintenance cost into the second quarter of 'twenty two.

The northeast G&P business is now seeing 7% growth year to date, driven by higher rates on overall flat volumes as discussed on the previous slide.

The west sustained an impressive 25% growth year to date, driven by higher commodity base rate, but also strong 11% overall volume growth excluding the <unk> acquisition.

Finally, our gas and NGL marketing services segment is up $28 million driven by favorable commodity margins as well as the new contributions from the sequent acquisition that closed on July one of last year.

So an impressive $275 million or 10% increase to land us with just over $3 billion of adjusted EBITDA through the first six months of the year and we expect things to improve from here for the remainder of the year. So let's turn the page and take a look at our current thoughts for full year 2022 financial guidance.

We are once again pleased to share a substantial improvement in our 2022 financial guidance, making this the second increase since our initial guidance 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. So let's start with adjusted EBITDA, where our midpoint is increasing another two <unk>.

<unk> million dollars from our last guidance increase moving from $6 5 billion to $6 two 5 billion.

This second substantial raise and EBITDA guidance is grounded in our continued confidence in the growth of our core business and represents a nearly 8% increase from our initial guidance given in February .

As we look to the second half of the year, we expect higher EBITDA than the first half for all of our segments, except perhaps the marketing business and with an overall pickup in sequential EBITDA growth for the fourth quarter over the third quarter.

Although its less certain our gas and NGL marketing business could also match or exceed their first half performance. During the last six months of the year, which has been unusual for this business their storage and transportation assets and trading capabilities are very well suited for the volatility we are seeing in this natural gas markets.

Continuing on with the other segments, we expect transmission in Gulf of Mexico should finish the year strong with fourth quarter numbers more like their first quarter numbers.

And we continue to expect growing quarterly EBITDA and volumes from our west and northeast segments with some level of acceleration through the latter part of the year.

With respect to our upstream operations. We are encouraged by the results we've seen thus far in 2022 in the appendix Youll see that we are guiding to fourth quarter 22, gross production of approximately $250 million cubic feet per day for the warm center operation and we've increased our expectations for haynesville to an estimate.

Fourth quarter 22, gross production rate of about 400 million cubic feet per day.

Our appendix slides also provide information about the specific hedges, we currently place against our forecasted net production volumes.

No change to our Capex assumptions from our previous guidance update in May on our first quarter earnings call, which had increased from the February guidance only to reflect the <unk> acquisition capital spending.

You see that our debt to adjusted EBITDA is now expected to be about three six times at midpoint.

The remainder of the guidance items either changed in relation to the change in EBITDA just discussed ore remained unchanged.

So again, a second substantial increase in EBITDA guidance, representing an almost 8% increase in our mid point from our initial guidance provided in February of this year driven by continued growth in our core business as well as contributions from our trace acquisition.

And improved expectations for our upstream JV operations.

So with that I'll pass it back to Alan to review, our key investor focus areas Alan.

Well, thanks, John I'm going to move on here to on slide five two the key investor focus areas.

So I know this may sound, a little bit like a broken record, but on this first bullet, but without a doubt we are the most natural gas centric of the large scale midstream companies and there's a reason we've stuck with our natural gas focused strategy for as long as we have.

Not only is this strategy delivering in the current environment, but the signals coming from the market show that it is going to continue to deliver substantial growth for the long term as well we continue to see strong fundamentals driving a great pipeline of growth opportunities, particularly increasing demand for U S LNG exports and power generation.

Along the Transco corridor.

Accordingly, we continue to see strong demand for our services domestically as well evidenced by a three day peak summer delivery that we achieved on the Transco pipeline in early July this year as we continue to see weather driven demand for cooling so really seeing a lot of big pools youre seeing some.

<unk> basis differentials setting up in.

In these areas, where we've got some strong peak demands during the heat wave that the southeast experience.

And notably we continue to see these record levels of demand for natural gas, even with the Freeport LNG facility being out.

So we see these as good indicators of the long term health of our business, but I'll remind you that business on our Transco system is actually driven by contracted capacity and not the actual transported volumes, but obviously when we see peaks like that our customers are seeing those as well and know that the <unk>.

Demand on our system is and the growth in demand on our system is needed in the contracts come with that.

This demand growth continues to increase in the face of higher natural gas prices, which speaks to the continued inelastic demand for natural gas both here and abroad and the fact that natural gas remains a bargain versus alternative fuels.

Our GNP business also 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 fluids for many years and recently volumes on our systems have finally begun to respond to the higher prices that we've seen in the gas space.

So moving on to financial strength and stability.

As John just detailed we increased our guidance mid point beyond the high end of the previous range for the second time this year to $6 25 billion and this was driven by the following items first of all strong base business performance with volumes in the northeast G&P business expected to rebound for the balance of the year.

Increased volume outlook for our upstream JV is especially in the Haynesville.

The benefit of higher commodity prices in our upstream jv's and finally commodity volatility and strong pool for power generation that are currently driving our gas and NGL marketing business upside.

With our recent updated guidance, we expect to achieve a five year EBITDA CAGR of 7% and an impressive EPS CAGR of 22% at the midpoint of this recent guidance.

Our business continues to fire on all cylinders, giving are driving our financial strength and stability and despite the current inflationary environment, we have significant contract protection to minimize financial impacts from inflation to our business.

Also worth noting our business is well positioned given the strong fundamentals today and we don't expect much to change should a recession come to fruition.

As you May recall in 2020 Williams exceeded our pre COVID-19 guidance for that year, despite facing challenges like keep producer bankruptcies.

Declining commodity prices and major hurricanes in the deepwater Gulf of Mexico.

So now looking over at our position of growth.

We recently announced that we reached a final investment decision on our Louisiana Energy Gateway project, a one eight bcf per day gathering system that will help us advance our wellhead to water strategy, while also positioning our customers with access to favorable pricing markets along transco.

Within our transmission business. The Gulfstream phase four expansion is in service more than three months early and I'm also pleased to announce that Williams has reached a rate case settlement in principle on our northwest pipeline system.

And this provides a win win outcome for both ourselves and our long term term customers on the system.

So we continue to execute as well on an attractive high return backlog of growth projects, including six projects now in the deepwater Gulf of Mexico.

Five transco projects totaling one nine Bcf a day.

Four expansion projects in our northeast G&P business that will really unlock some high margin business for us in that area and four in the Haynesville, which continues to grow at a pace well beyond our initial expectations.

And as well on the on the Transco projects just last week. The FERC issued the final EIF on our regional energy access project expanding takeaway from the northeast PA area, which obviously helps us as well on our gathering systems up there and the volumes up there and serving growth in the new <unk>.

<unk> area as well so really excited to see the progress with the FERC on bringing that project to fruition.

And as well in the Haynesville just another note here.

We are really seeing that paying a lot of long term dividends not just not just because of the growth in the business, but because.

The <unk> acquisition, along with the lag project is going to allow us to bring integrated services.

And bring and connect into key markets for our customers. So the better markets. Those customers are connected to the better margins and the more activity in drilling we see up there and in fact, we're seeing significant well outperformance in our upstream Jay JV operations with Geo Southern which continue to improve our upstream.

Margins.

And as well a recall that the reasoning behind our upstream JV was to drive utilization of latent midstream capacity and this is exactly what's happening in the Haynesville right now and we expect the same capture midstream value in the warm center as our JV drilling program ramps in the coming months there as well.

So now moving on a sustainable strategy.

Ill cover a few updates here for you on what's been going on our sustainable strategy first of all as I mentioned at the top of the call. We published our 2021 sustainability report last week as well as we filed our carbon emissions disclosure with the carbon disclosure project.

As both of these reports detail we are continuing to successfully leverage our natural gas focused strategy and today's technology to deliver an immediate opportunities to reduce emissions. In fact, we have reduced our companywide scope, one and two emissions by 47% since 2005 and more.

On our way to meeting our 2030 goal of a 56% reduction below again below these 2005 levels.

I'm certainly proud of the progress that we've made to date and they will continue to make as our 2022 all employee annual incentive program. Now includes a total methane emissions reduction of 5% from our three year average, which personally connect every employee to our long term commitment to <unk>.

<unk> reliable and environment environmentally friendly operations of.

Of course, our efforts go beyond what we see is the right here right now opportunities. We're also focusing on enabling the next generation of clean energy technologies.

I mentioned, our leg project, a few minutes ago, which is a key component of our low carbon wellhead to water strategy.

And this project is actually very integrated and supports our partnerships with context labs, Encino, environmental and sat Lantus, whose technology solutions will be integrated into the project and will enable the measurement of end to end verifiable and transparent emissions data to demonstrate.

Straight to low carbon benefits of produced and delivered Haynesville natural gas.

We are really happy with the progress we're making on this project in the Haynesville and having recently completed implementation of the onsite monitoring and certification capabilities and our systems up there. So really a lot of things coming together for us in the Haynesville in terms of great growth in the area as well as us.

Demonstrating some of the new technology that we intend to deploy for that area.

We're also advancing our wellhead to burner tip strategy in the northeast with anchor customers to be announced later this year in that area. So lots of tangible solutions, we will be delivering in this space.

And all of these are positioned around supporting and enhancing our strong natural gas focused strategy.

So let me move on to a closing here.

I'll reiterate that we have built a business that is steady and predictable with continued growth improving our returns and free cash flows are best in class long haul pipes are in the right place serving the right markets are formidable gathering assets are in the low cost basins that will be called on to meet gas demand.

As it continues to grow for decades and.

Our sequent platform is providing infrastructure optimization services that create value for Williams, and our customers, while mitigating downside risk in these volatile and fast growing markets.

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

But I'll go a step further here to say that we're also bullish on America's ability to lead on all fronts. When it comes to clean reliable and affordable energy.

United States is positioned better than any other country to solve the energy crisis and the climate crisis that we're facing around the world.

But access to our abundant and low cost natural gas reserves is dependent on having the appropriate infrastructure to move energy where it is needed.

The efforts to build out all forms of key infrastructure have been blocked by obstruction is who don't offer practical and sustainable solutions to serve these growing energy demands the impact of inadequate infrastructure are now finally front and center with consumers bearing the brunt of these actions in the form of high energy <unk>.

Rice's higher utility bills, and energy driven inflation, both here and around the world.

The good news is that this is exactly the kind of catalyst that it takes to bring public awareness to these matters and the European prices is even highlighting the matter further.

That is why we are strongly advocating for actionable energy policy solutions and permitting reform that will support global emissions reductions keep energy costs affordable and grow our nation's competitiveness.

Enabling the efficient unobstructed build out of our nation's energy infrastructure is foundational to the U S. As leadership on greenhouse gas emissions and energy security and.

And we believe that support is building out for just doing that so with that I'll open it up for your questions.

At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question. Please press star one again.

First question comes from Chase Mulvehill from Bank of America. Please go ahead. Your line is open.

Hey, good morning.

So I guess first thing I just wanted to.

To ask is really about the permitting legislation that's being proposed Bob mentioned.

I guess question specific for you guys is are there any projects that maybe you took off the board previously that could come back if this legislation actually passes.

And then as a <unk>.

Follow up to that if this legislation does get past could you maybe talk about the puts and takes as we think about gas being sourced between the Permian Marcellus and Haynesville Amit This does get passed.

Yes. Thank you great question.

Well first of all the actual language for that.

Bose Bill is not out so it's kind of hard to comment on but I would say that we've we've been working hard on our government affairs, Ron and really the whole executive team and trying to influence the policy in the legislation that would come out on that so we're hopeful that that will be very meaningful and if it does.

I would think that it would try to address the situation, where we've had states abusing the 401 water quality certificate blot projects and that certainly would open up some opportunities for us as we've had some projects blocked on that basis.

So I would say we are optimistic but.

What can happen in the world of politics.

Where does not really certain exactly how that bill will come out at this point, but relative to the haynesville the Permian and the Marcellus certainly the Marcellus has been that basin that has been most impacted by a lack of energy policy in a limited amount of Memphis structure. So.

By far the lowest cost basin in that we have here in the U S from a gas supply standpoint, and by far the largest and has the most potential for the long term so the.

The Haynesville has certainly been chugging hard and doing a lot recently to grow and meet that gap.

And obviously the Permian has.

Decades of low cost gas as well, but but really if we're going to get up on plane and be a large exporter of natural gas, we're going to need the Marcellus through the long term because that is where a lot of our very low cost reserves are here in the U S and so I would say to the degree that there is significant permitting.

<unk> form without a doubt the most impacted basin by that will be the Marcellus.

Because things like dilute in Louisiana for instance.

That infrastructure a lot of that is be expanded within the state.

And is it up against some of those same challenges and certainly more supportive politics in those areas. So we're very hopeful we think we think the Marcellus and Utica, both would benefit significantly from the kind of permitting reform that we're looking for.

Alright, it makes sense I appreciate that Alan as a quick follow up.

Northeast G&P volumes were a tad light and <unk>.

I, just I guess kind of.

I'm wondering if there's anything specific going on there and then also in the press release, you talked about advancing multiple gas gathering projects in the northeast. So maybe could you talk about the timing of kind of bringing some of those gas gas gathering projects alone.

Whether this is kind of targeting more rich gas areas.

Yes, we do have some pretty exciting projects I'll, let Michael Dunn talk about some of those that will unlock some of that capacity in theory sure. Thanks Allen our gathering volumes were up slightly in the second quarter compared to last year, yet that's really meeting our expectations. Most of our producers are in maintenance.

Load, there and expecting some growth to occur in 'twenty three but also in the latter half of 'twenty two.

As we've been talking about in the previous call. We would expect to see some volume increases that are coming online before the end of the year. So stay tuned we do expect to see some additional volumes coming our way in regard to our expansion projects. We do have a number that we've outlined in the presentation materials that are going on in.

The northeast some into north EPA area.

But all in Thats targeting dry gas there the northeast VA area that one would come online in the second half of 'twenty three and we've got several in the in the rich gas areas in southwest PA, West, Virginia, Ohio areas and the bulk of those will come online in 2003 as well as outlined in the material, but we do.

We have an interconnect that were working between our west Virginia processing areas and the Blue racer system that would come online this year and that would add lots of additional processing capacity access for our West Virginia properties, where we are currently at capacity in West Virginia on processing and so it would help alleviate some of that.

Strength, there by moving that volume over to the Blue racer system that will be online within the next several months.

We will unlock some additional opportunity there, but all in all the bulk of the expansion will come online in 2003, and our producers are gearing up for that.

Okay Alrighty helpful color I'll turn it back over.

Thank you.

Our next question comes from Mark Sollecito from Barclays. Please go ahead. Your line is open.

Hi, good morning, So maybe just to start on the upward guidance revision could you frame up the puts and takes at the upper and lower end of the revised range any kind of tying on to that.

The unhedged portion of remaining 2022 production volumes at your pricing assumptions around Henry hub changed at all from your analyst day or if the current strip holds would that be upside.

Yes.

Im going to provide a whole lot of detail on that just because.

Becomes an endless thread to pull on from a pricing standpoint, but I would just say that there is upside at the current strip there is upside in our against our mid point and that would push us up closer to the.

The high end of the range. If we were to see the current strip hold on on natural gas not not we don't update our oil side. So much there is a little bit of impact both Ngls and oil that obviously would be down a little bit.

From previous expectations.

Got it I appreciate the color there and then costs generally ticked up on a sequential basis, particularly in the northeast and transmission segments.

Wondering if you could give a little more color around the drivers there was that just a factor of timing or general cost inflation that youre seeing or were there any discrete factors that we should think that we should be thinking about as we think about the trajectory through the remainder of the year.

Sure. This is Michael I'll take that so in the transmission Gulf of Mexico business. We did see some cost increases there in <unk> was primarily driven by maintenance activities.

We accelerated into the second quarter, we did anticipate some significant volume demands on the Transco system.

And seeing that expectation out there we did accelerate some work to get that out of the way for the summer.

Air conditioning loads on the power generation side, and so we accelerated that work. We also had some unforeseen integrity work that we undertook in the second quarter and we obviously didn't anticipate that impacted our expenses. There I would just say in rounding that out, though we did exceed our EBITDA.

Our expectations and our plan for the transmission Gulf of Mexico business in the quarter eight year to date. So those those expenses didn't impact our planned numbers and our expectations there and in the northeast very similar story there we're just.

Working on the various maintenance overhauls and things of that nature in the second quarter sow costs are up slightly there some of that driven by.

Activity that we expect it to do in the second quarter really nothing unforeseen there against our budget, So I would say.

Got it I appreciate the time.

Our next question comes from Jean Ann Salisbury from Bernstein. Please go ahead. Your line is open.

Hi, Good morning, It seems like mountain Valley pipeline could actually happen.

Davidson.

But it may actually happen this time.

Would that starting up have any material impact on your EBITDA.

Yes, it would there is quite a bit of gas supply.

Back in the gathering systems upstream of that so recall that EQT bought out chevron's acreage, which is a lot around our west Virginia assets. So some of our high margin business in that area from from that original dedication from Chevron, which actually came originally from Atlas.

And so.

So some pretty nice pull on our gathering systems and as well on a longer term basis.

That would enable us to be able to continue to provide.

Lower call less capital investment.

And expansions on our Transco system with bringing supplies into that area, which are becoming more and more demand. So yes, we would see mountain valley pipeline is very positive to us in the immediate term around increased gathering flows on our system and processing and fractionation.

But as well provide.

Lower cost lower capital expansion opportunities on Transco that of course allows us to make higher returns and better margin on our transco business. So.

We're certainly pulling for mountain valley pipeline to get built.

Great very clear. Thank you and then how large of an operational impact if any could this EPA turbine emissions will create for Williams and can you give some color on how you see the way forward from here.

Yes, Jeanine I'll take that this is Michael we don't anticipate that having any impact on our business.

The.

The requirements to go out and do the testing is underway and we're seeing the results such that it will have no impact on our business.

Great. That's all for me thank you.

Thanks to you.

Our next question comes from Seth <unk> from Wells Fargo. Please go ahead. Your line is open.

Hi, good morning, so leverage is down to three six this year and EBITDA is growing at a double digit rate. So I'm just wondering with the strong backdrop. How you think about capital return for the balance of the year and into 2020, 'twenty three and it feels like you've raised guidance twice. This year. So maybe you have.

Some more flexibility to return capital sort of curious on your thoughts.

Thanks, Bernie This is John Porter, I will take that yes, so relative to capital allocation I might just sort of restate, our current priorities and guidelines remain unchanged with the focus on our balance sheet strength and our growing dividend with very strong coverage, our strategic organic investments, including investments in modernizing our regulated asset.

And making disciplined new energy investments now.

Now beyond these priorities priorities, we maintain excellent financial flexibility to manage debt refinancing through the volatile capital markets, we've been seeing lately.

Pursuing bolt on transactions that can add scale to our core natural gas based strategy like like the trace acquisition or to pursue stock repurchases and I might just say a little more on the stock repurchases since I know, it's an important topic out there.

You'll recall, we've previously discussed initiating share repurchases based on reaching an undisclosed spread between our equity yield and our tenured debt costs. Now obviously since then we've seen significant increases in our 10 year debt cost, which.

<unk>, which really would have made it increasingly unlikely that share repurchases would be triggered so we did recently revisit those principles.

And we're not only considering the current equity yield now, but we're also considering our level of expected growth in the business given the solid growth we've seen in the business now for many many years.

The effect of this change will provide us more flexibility to be opportunistic around share repurchases should we see a significant pullback from current valuation levels and this might be the case, if a recession gained strength and energy macro conditions were to deteriorate and.

Now, we have more confidence than ever in our ability to perform very well even through a severe recession and we feel like our performance in 2020 during the heart of the pandemic really proved this to be true to our current share buyback principles will allow us to act opportunistically, if we see a valuation dislocation and by the way the strong free cash.

Flows coming off of our upstream JV would be a great source of capital to affect share repurchases under under these circumstances. So I hope that provides an overview on the capital allocation question I think relative to the leverage.

In particular, the three six that we're guiding to now is obviously well below the $4 to metric, which we believe is more of the ceiling for maintaining our strong triple B credit ratings. We do continue to believe a triple B credit rating remains optimal for our business and we're also mindful that our current metrics are benefiting from a pretty.

Strong commodity price backdrop, but in any case, we are pleased with the financial flexibility. We have had under the present circumstances and excited about our future prospects really no matter, where the synergy cycle goes next.

Got it. Thanks, Thanks for that and then switching gears can you talk about what youre seeing in the Eagle Ford I think drilling activity has been picking up and I know you have some MVC is there do you think volumes could move above MVC is at some point in the coming years or do you think they'll kind of stay below MVC. Thanks.

Yes, I would say just just to add to that one contract.

With Chesapeake, we obviously have other customers out there and we're picking up new business out there as a result of some of that returned activity. So we're excited to see that but relative to the one contract that has an NBC is in it.

Okay.

There is ways to go I would just say to get over and above the NBC out there.

Take pretty active responses from the producers, but we are excited to see the activity. We are picking up business from other producers out there as well as helping us out.

Got it thanks.

Our next question comes from Regina.

Devin from Jpmorgan. Please go ahead.

Hi, Paul It's high return on it.

Okay.

Good morning, everyone.

Hey, Jeremy.

Hey, Thanks, I just wanted to come back to the inflation reduction act a little bit if I could.

I just wanted to see I guess.

What are some of the things you're watching there that could positively influence your business specifically as it relates to the tax credits if some of those do come to fruition, how that might that impact your view of Ccs hydrogen or other.

Yes, let me have <unk>.

<unk> 's Ameren address that sure yes. Thanks.

I'd say, we have announced potential projects in the <unk> Arena, we're very active in.

Exploring the hydrogen potential.

We've been public in discussing the fact that we're participating in for potential hydrogen hubs that were a part of the infrastructure Act funding through Doa was part of the infrastructure Act and so we've been actively pursuing multiple opportunities to prove out those those areas.

Proposed tax credits would be supportive of our strategy.

Certainly the 45 Q credits would be very supportive of our <unk> project in the Haynesville, which would be a project that would be built alongside our our leg system that would decarbonize that project and production in the Haynesville. So we're very excited to see that move forward and hydrogen still got got it.

A long ways to go.

Credits that we think are being discussed are primarily in support of green hydrogen and we've got great opportunities across our footprint to complement our infrastructure with green hydrogen production, but.

Also seeing Ccs credits and the hydrogen credits.

Together would be the most impactful for supporting kind of our natural gas production of iron. So we're encouraged those as we spoke.

Previous earnings calls those credits are in line with our expectations and we would see projects that would move forward.

Based on those credits.

<unk>.

I would say stay tuned.

Got it that's helpful and just wanted to pivot towards the Haynesville what about here.

Give some good color I'm wondering if you could provide a little bit more with regards to trace performance versus expectations and specifically incremental expansion projects. There just wondering how you see.

The cadence of Haynesville growth on your systems and how long is the runway.

Hi, Jeremy This is Michael trades is performing as we expected. So so far so good we've integrated the team there very well.

And really taking hold of what.

Culture is here at Williams, so very pleased with what we're seeing there so far on the rest of the Haynesville. We are seeing some great improvement year over year in regard to our gathering volumes. There. So we're very pleased with that and across a greater array of different producer customers. We do have a number of expansions underway.

The north part of the system.

Some of that will come online later this fall, but we also have some in our in our south Mansfield system that we.

We are anticipating bringing on as well so a lot of activity and associated expansion opportunity.

A number of different producers there, both public and private and we've outlined that in the presentation materials, but.

These expansions are pretty reasonable cost as well from a capital investment standpoint, just because of the backbone nature of the systems. We have built out there we've talked about geo southern driving a lot of new capacity through our systems that we had already built out a long time ago, and we're seeing the benefits of that now with these.

Low capital investment opportunities that are driving very significant volume growth out of the haynesville.

Got it that's helpful I'll leave it there thanks.

Our next question comes from Brian <unk> from UBS. Please go ahead. Your line is open.

Hi, good morning, everyone.

First question really wanted to just follow up on some of the capital allocation commentary previously I appreciate the color.

But as a follow up you talked about the spread between the equity yield and credit and just kind of curious just given Williams is headed towards.

Sub three five leverage just wondering if there's a point where Williams will consider suboptimal leverage is another consideration in terms of the capital allocation framework and case Williams does not see that potential equity pullback alluded too. Thanks.

Yes.

We are really just focused in on maintaining our triple B credit ratings has really been optimal for the business in and we've got to stay mindful of the amount of tailwind that is coming from the very strong commodity prices right. Now. So we're taking a long term view of the business cycles and the commodity price cycles.

Continuing to think about leverage what leverage target makes the most sense, but really we're focused on the strong triple b credit ratings and being durable through through many different business cycle iterations and as well as having dry powder along the way to four for bolt on.

Transactions that might really help our natural gas scale.

Great I appreciate the color and then as a follow up appreciate the commentary on tax credits of Navy to talk a little bit more about the corporate minimum tax proposals any.

Any initial comments that you could have on the impacts to Williams and then.

As it relates to Nols I know there is a difference between.

Books, and what you guys and tax so any initial takes on potential impacts to Williams there. Thanks.

Yes, Thanks, Brian Yes, My response will be pretty general given that we're still tracking the continued development of the legislation and a lot of the more important specifics, we'll probably be a result of work getting done by the IRS or the Treasury Department down the road, but based on what we know today, we would offer the following comments.

Under the current tax code, we resumed paying some cash taxes in 'twenty, five but with a more significant step up in 26. So this policy change would really just mean that we start paying cash taxes and 23. However, this appears to just be a timing issue and not a permanent increase in taxes in other words, we would be able to.

Claim a credit for the book minimum taxes paid against our future regular corporate tax.

From a valuation perspective, it's pretty immaterial versus the status quo scenario in other words. The impact is really just the equivalent of advancing the government are fairly immaterial noninterest bearing loan that might grow for three to four years and then start to decline as we utilize the credit against our regular taxes, which again.

More significant in the 2026 timeframe.

Additionally, as Chad mentioned, we would also be able to use green energy credits against the book minimum tax, but not until those projects are placed into service.

As you know Williams is enjoying a lot of financial strength and flexibility right now with our 229 times dividend coverage. So we feel like we remain very well positioned to absorb the impact of this minimum book tax.

Which in our case again, it's just essentially in advance to the government of the taxes that were likely coming due in a few years.

Anyway, and one last comment we don't expect the book minimum tax to affect our regulated rate base assets either.

Great I really appreciate the color and have a great rest of your day everyone.

Thanks, Brett.

Our next question comes from Gabriel Moreen from Mizuho. Please go ahead. Your line is open.

Hi, everyone.

Couple of ones I, just wanted to maybe ask about the backlog and the projects and development slide it's shifted a little bit since one Q. It seems like maybe some projects have dropped off from from LNG, but also been added to the industrial backlog.

Just wondering if theres any larger reads there from that as far as either competition or just demand for more infrastructure.

Yes.

Yes Gabe.

I'm looking at Michael here to see if you had any insight on that.

I don't know what would've dropped off are there other than maybe we pulled the LNG the leg project off and move that into execution. So that probably occurred is that the only thing because that was slated as an LNG project.

That <unk>.

Move, but other than that I would tell you that.

We just continue to be impressed with the amount of.

Demand for increased services on our Transco system, particularly in kind of traditional parts of our market.

As well as a lot of opportunities for serving LNG and Gulf but.

But I don't.

I don't think theres been any shift in our business other than Legg project getting pulled from pipeline into execution.

Yes.

Thanks, Alan and then.

I know, it's not a huge driver for Williams, but clearly.

Full time in the Conway NGL markets over the last couple of weeks I was wondering if you can just maybe speak how your assets are positioned there and whether there's been any I guess upside to Williams given some of the stuff.

Yes.

Yes, well gave this Michael.

I think we will see some lift some opportunity there.

<unk>.

For the benefit of both ourselves and the third party there one issue, but right now we are working.

And to make sure we can accommodate volumes indoor systems, but it looks like it will be.

We're able to accomplish that.

Certainly healthy industry out in that regard.

There will be some upside to Williams for the.

Business that will take on there.

Great. Thanks, Michael.

Our next question comes from Michael Lapides from Goldman Sachs. Please go ahead. Your line is open.

Hey, guys. Thank you for taking my question.

Can I add to up the first one.

<unk> gotten a lot of questions today on capital allocation, just curious you've made a lot of progress in moving forward with some new projects congrats on.

Regional energy access <unk> by the way.

Congrats on leg as well just curious how youre thinking about growth Capex for next year and the year after and I know youre not going to give the actual number but just directionally.

You've got a lot of projects in the Hopper should we think that growth capex in the coming year. So it's a little bit above kind of where where youre expecting this year to date.

Yes, Michael.

Not really I mean, a lot of thats been in forecast and a lot of that money has been being spent already so for instance, things like well a lot of that money.

We spent already on the pipe a lot of the prefab or commodity was very expensive deepwater specialty project products that we use for the interconnection is a lot of that money was spent.

<unk>.

Portion of that project will start this year and thats already in that capital budget. So I would say while it may appear that way. There is actually if you look at the timing of some of the spend on these projects, it's actually pretty level iced over the period. So.

Not really seeing any big increase.

Beyond kind of the normal run rate right now on capital. So excited about projects I would tell you. The one thing we didn't mention.

Maybe another and I think it's it's very very unique to Williams is our ability to turn the dial up and down on modernization capital and emission reduction work on the Transco system and so that's that.

It is an attractive alternative that we have that's pretty unique.

And so when it comes to capital allocation questions that that's an interesting.

A dial that we have in and obviously.

Share buybacks or anything else really has to compete with those returns.

On investing in updating our regulated transmission system. So.

So thats, probably a variable that sits out there over the longer term, but here for the next couple of years I think our capital will be pretty ratable to where we.

Been seeing that barring and I'm accepting obviously things like <unk>, the <unk> acquisition kind of Poland. The trace acquisition off of that and thinking about it from a growth capital for organic development.

And then one follow up and this is.

A little bit granular and I apologize, but just curious when you're thinking about share.

Gas production assets, and the way et cetera, and in the Haynesville just curious.

Do you have kind of like a hedging philosophy, when it stick to where the company and the board <unk> take two meaning how much of like next year do you want to have hedge going into the year relative to your production levels.

Yes, no not really good question I would say that when we see opportunity.

And we see market volatility that perhaps prices up we tend to take advantage of that but.

We're not we're not really having to obviously, we're not needing to hedge for cash.

For security of cash flows so it's really a value proposition.

Question and when we think that.

There is.

Good upside in capturing some of those hedges or we think it's.

Where the market is.

Overheated, a little bit from time to time, we'll try to pick that up so.

Not really any.

Clear corporate policy on that other than to be opportunistic when we see opportunities in the market that we think are a good value for the cash flows.

Got it. Thank you Alan appreciate it to add to that that in the <unk>, we want to be careful to not have a.

A situation, where we have a physical flow issue due to freeze offs.

So it will be pretty careful in Wyoming as well as to what we hedge up there going into the winter months, yeah. Good point. Thanks.

Got it. Thank you guys much appreciate it.

Our next question comes from Craig Shere from Tuohy Brothers. Please go ahead. Your line is open.

Good morning, Thanks for taking the questions.

First John mentioned perspective or accretive bolt on opportunities.

In terms of potential uses of free cash flow.

Apply on where you still see low hanging fruit there.

Specifically with opportunities in the northeast G&P as well as across the west.

Yes, as far as strategic bolt on acquisitions.

Acquisitions that expand natural gas scale northeast in Haynesville, and I know Chad do you want to.

Talk about the landscape that you're seeing there, yes, I'd just say that we remain very disciplined when it comes to bolt on transactions. We are always looking for places, where we can leverage our footprint our scale and.

We do see.

Bolt on transaction opportunities in the northeast.

Continued consolidation in the haynesville and in virtually across kind of our footprint, including some potential opportunities that.

Would complement our transmission and storage businesses. So we will continue to evaluate those but I would say I think youll see more of the same where we've been very disciplined in making sure that anything we do has.

Real synergies and Leverages, our strengths and so we.

We continue to feel like there may be opportunities.

Thank you for that.

The increased guidance was was not unexpected but.

I think a little more than.

The street was anticipating some of that clearly driven by some volumes that are looking very attractive and you. All mentioned are ramping into the end of the year.

So if I just annualize the implied second half I.

Yes, very close to a $6 5 billion EBITDA run rate.

But the streets under six four and volumes are ramping I mean, I realize there's issues.

Modest pricing year over year.

But would it be fair to say that you all are pretty comfortable that youre looking good relative to street expectations heading into next year.

Yes, Craig I think I think you described that actually very well, we do have continued growth into next year, but I would say that thats offset by kind of the current strip obviously in terms of pricing on the E&P space, but we do have growth in that as well. So yes. We are we are positioned.

For an attractive <unk> 23.

But obviously, we don't have guidance out there and and.

And that will be somewhat dependent on how power prices actually have realized next.

Next year on the E&P business, but certainly a lot of volume growth, becoming on the E&P business through the balance of the year that will extend itself into 'twenty three and the gathering volumes in the northeast are going to be very durable and the growth that we're seeing in the Haynesville will continue so a lot of.

Very positive tailwind I would say right now for the balance of 'twenty, two as well as setting up for and a very attractive <unk> 23.

And then even as we get into 'twenty, four and 'twenty five a lot of the transmission projects that we're executing on right now and the deepwater Gulf of Mexico really pile on.

Two what's a great base of growth. So we're pretty I would say, we're pretty bullish right now about the way. The next three years are stacking up in terms of very visible growth across the business right now.

Thank you.

Our last question comes from Neal Dingmann Suntrust Securities. Please go ahead. Your line is open.

Good morning, Thanks for taking my boss call Alan you you've touched a lot about this but I was hoping maybe a little more details on that specifically in Europe .

Thoughts on maybe spending or specifically you talked about.

Bit of an update on your Capex Guide I'm, just wondering you've talked around that a little bit today in the prepared Q&A I'm just wondering any more color you can give on that updated guidance.

Yes.

<unk> through 'twenty, two or beyond 'twenty, two on Capex, yes, more for beyond again I cut it obviously.

We're doing this year and so more as expectations.

You've got a lot of exciting projects. So I'm just trying to get an idea of maybe sort of organic versus these other projects and as you said more and more on that.

Sort of beyond.

Yeah, Okay, sorry, if I understand your question a little better now well I would just say kind of as you lay out kind of the.

The puts and takes right now.

A lot of money being spent right now in the deepwater Gulf of Mexico, as I mentioned, particularly on the whale prospect and for the balance of the year that'll kind of wane off.

As we get into 'twenty, three as well a lot of expansion projects in our gathering and processing areas that will also start to wane off as we get into 'twenty, three and those will be somewhat replaced by executing on some of our transmission projects and that.

Group of five that we're executing on right now we're at one nine Bcf a day of new capacity. So that's kind of how I would stack that up is deepwater.

And and gathering and processing driving that quite a bit through the balance of this year and into the first part of next year and then that starts to be replaced with execution around our transmission projects. So I think that's a good setup I would say and.

And we continue to see these demand pools.

On the gathering systems, while while we're not building that growth in right now certainly potential for some of that to continue but again pretty efficient capital investment projects in our gathering systems relative to the growth as Michael pointed out earlier.

Great Great and then lastly, just a quick follow up.

You have seen and continue to see some great commodity price upside.

Those upstream JV severe and so I'm just wondering could you help me a bit.

I don't know if you can frame this a little bit, but what type of price sensitivity do you have it appears to me that prices are going.

Stay high or maybe even go higher so I'm just trying to get a sense of the sensitivity around some of those upstream JV.

Sure Mike.

Yes.

Yes, I think it's a little bit of a moving target we have given some good volume information in the appendix of the presentation those volumes are ramping.

Pretty quickly quarter by quarter right now and we'll continue to do so into 'twenty. Three so we'll continue to try to provide clarity around the volumes.

Also kind of laid out what hedges, we put against those so it's a bit of a moving target and it will change each quarter is as our net production volumes continued to increase and as the overall hedge portfolio changes, but we're going to continue to provide that information in the appendix every quarter. So that you can keep up with how that's changing.

Yes.

Very good that's helpful. Thanks, guys.

We have no further questions I'd like to turn the call back over to Alan Armstrong for closing remarks.

Okay, well. Thank you all very much thanks for the great questions.

Another really terrific quarter and great set up for both the balance of the year and into 'twenty. Three so really excited about where we're positioned today.

And.

And really hopeful that some of the permitting issues are going to be dealt with in light of a lot of concern over the energy crisis that has that is beginning to be felt here even in the U S. And so we think thats going to bring some attention to needed permitting reform and we intend to be front and center.

And trying to make that good for both our country and for Williams as well so.

Thank you for joining us today and have a great day.

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

Please wait the conference will begin shortly.

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