Q3 2022 Williams Companies Inc Earnings Call
Good day, everyone and welcome to the Williams third quarter 2022 earnings Conference call. Today's conference is being recorded at this time for opening remarks, and introductions I would like to turn the call over to Mr. Danilo Giovanni Vice President of Investor Relations. Please go ahead.
Thanks, Gina and good morning, everyone. Thank you for joining us and for your interest in the Williams companies Yes.
Yesterday afternoon, we released our earnings press release, and the presentation that our president and CEO , Alan Armstrong and our Chief Financial Officer, John quarter will speak to this morning.
Also joining us on the call today are Michael Dunn, our Chief operating Officer Lynn Wilson, Our General Counsel, 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 that we reconciled to generally accepted accounting principles and these reconciliation schedules appear at the back of the data presentation materials, so with that I'll turn it over to Alan Armstrong.
Great. Thanks, Danilo and thank you all for joining us today.
Williams reported another great quarter, and John will walk through the details in a moment, but the punch line is that Williams delivered exceptional results in the third quarter with adjusted EBITDA up 15% compared to the same period last year driven by strong performance across all of our core businesses and our JV upstream operations.
Our natural gas strategy has proven that it can capture upside in margins and weather commodity price cycles, as we work to serve growing demand for clean secure and affordable energy.
These results really speak to the strength of our assets and our long term approach to this business.
Williams is the most natural gas centric large scale midstream company around today and there's a reason we've stuck with our natural gas focused strategy, where 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 expect strong fundamentals to drive attractive growth opportunities for Williams, including higher demand for U S. LNG exports and a faster pace of coal to gas conversion with the lion's share of these projects are residing along the Transco corridor.
Natural gas demand across various sectors continues to increase in the face of higher natural gas prices. This speaks to the continued inelastic demand for natural gas both here and abroad and the fact that domestic natural gas remains a bargain versus alternative fuels.
We continue to see strong growth in the quarterly natural gas in our quarterly natural gas gathering volumes.
And our contracted transmission capacity and we're seeing progress on important projects like our regional energy access project, the Louisiana, Entergy, Louisiana Energy Gateway and other Transco projects that are currently in execution.
And speaking of execution are attractive high return growth backlog in the Gulf of Mexico remains intact.
With the six previously announced deepwater projects set to increase EBITDA by over $300 million beginning in 'twenty five and.
And we recently began pipe lay operations on the well projects here just recently.
Our business continues to fire on all cylinders, driving our financial strength and stability and despite the current inflationary environment, we will actually see a lift in margins as many of our contracts allow for adjustments that exceed the impact of expenses.
For instance, in our G&P business.
Our contracts are built with inflation escalators that bolster our margins in the current environment and within our transmission business. We are able to recover costs, we have rate cases, which minimizes the impacts of inflation over time I'll note that northwest pipeline recently reached a settlement on its rate case, and we remain on track to file a <unk>.
<unk> rate case in 'twenty four.
The benefits of our long term approach to business also extend to the current interest rate environment and in fact, all of our debt is fixed rate John is going to provide some more detail on this in his section, but we are extremely well positioned in this current environment.
Also worth noting our business is well positioned for a recessionary environment recall that in 2020 Williams faced a host of challenges, including rapidly declining commodity prices major producer customer bankruptcies and impactful hurricanes in our Gulf of Mexico business in the face of these challenges the company.
Still exceeded the guidance, we set well before COVID-19 rest its ugly head our business today remains positioned to thrive even in the face of potential recession.
In fact, we announced that we expect to be near the high end of our previously raised guidance, putting us on track to achieve four year earnings per share CAGR of 22% and an EBITDA CAGR of 8%.
This again underscores just how well our natural gas strategy is translating into solid financial results for our shareholders.
And while we will not be providing our 'twenty three guidance until the next quarterly call. There are some drivers that you should think about for 'twenty. Three so let me go through those here first of all in the northeast G&P business.
We expect higher volume growth and higher cash flows from expansion projects that are currently underway and many of those are nearing completion.
And we do provide some details of those in the appendix.
In the West G&P segment, we expect continued contributions from the large number of the Haynesville expansion projects that are nearing completion and as well the trace midstream acquisition.
But equally important are the expected contributions from our upstream jv's, which should provide incremental volume growth in both the haynesville and in the warm center area proving that our strategy to fill up late and midstream capacity is working.
We expect modest growth in other basins as well for instance in the Eagle Ford, which has been under the radar recently.
We also see a very bright spot here and next year as we expect increased activity in the rich gas part of the basin to drive volumes well above the minimum volume commitment level for this segment of the business, which will be a welcome rebound and extend our earnings above that MVC levels.
The Eagle Ford should represent upside longer to longer term as well as new capital will likely be deployed to further develop both the acreage that is already dedicated and some on dedicated acreage that we are well positioned to serve.
In the transmission in Gulf of Mexico business.
The growth drivers here include the incremental earnings from our recent production that has been connected are along our existing deepwater asset. So this is new production thats been recently connected.
And we'll start to show up here in the fourth quarter. It does not include those projects that will start coming on towards the end of 2024.
The <unk> acquisition is also will be included in our transmission in Gulf of Mexico business and the continued expansion of our fee based services on our Interstate gas pipeline systems that continue to grow.
Within our upstream Jv's volume growth will remain the story.
In the Haynesville, we stated that we expect an ownership reversion in the first half of 'twenty, three where Williams will own 25% of the pud, but we will retain a 75% interest in the PDP <unk> want to be clear about this our interest in the existing flowing production does not get <unk>.
Deuced only our interest in the undeveloped acreage will be reduced.
We designed this structure to minimize significant volatility in earnings and to this end, we expect the haynesville to remain a source of growth and the one center, where we have a much larger acreage footprint. Our JV is just now beginning to complete wells from the 2022 drilling program and these will begin to contribute.
Volume growth next year.
We believe it is going to prove up the benefits of the continued to contiguous acreage in this basin and we're excited about the pro heart operations out there and what we're seeing from those recent drilling and completion operations.
Our primary goal of getting the volumes and cash flows up on these late in midstream assets will be more than met but the icing on the cake has been the higher than expected pricing for these producing reserves over the longer term, we see a steady increase in net cash flows as the drilling capital obligations revert more and more to the <unk>.
Operator, and the benefit of the growing volumes build our midstream cash flows ultimately we expect to find a long term owner for these upstream properties that we can rely on to further grow production, which will translate into even higher midstream cash free cash flows for Williams.
Looking beyond 2023, we believe that our projects are supportive of a 5% to 7% long term EBITDA CAGR.
The annual growth rate may fluctuate a bit given the timing of new large projects like regional energy access and our big deepwater projects coming on at the end of 'twenty foreign into 'twenty five but the bottom line is that we see a clear trajectory to continued earnings growth based on the opportunity set of our footprint.
Today.
Finally, as we think about value chain integration. We are further advancing our integrated clean energy value chain strategy, our acquisition of the Nortek storage facility and last week's approval from the FERC for Transco is Washington storage facility in Louisiana enables us to offer competitive.
Market based rates to LNG power generation and other customers in the Gulf Coast area. This will be a critical element of our wellhead to water strategy. As this component combined 110 Bcf of working gas storage and our expansive Transco network are fortified with low emission.
<unk> Haynesville production from the <unk> project.
We are also making strides in advancing our wellhead to end user strategy with our agreement with <unk> energy resources to support the marketing and delivery of certified low emissions gas that we referred to as Nextgen natural gas.
This agreement includes an independent third party certification process that verifies best practices are being followed.
To minimize emissions and produce natural gas and the most environmentally responsible manner. This is another exciting step to grow the delivery of nextgen gas to markets across the U S as well as overseas.
So with that I'll pause and turn it over to Jon to walk through the quarter and our year to date results and then we'll open it up for your questions John .
Thanks Al starting here on slide two with the summary of our year over year financial performance. Overall 2022 financial performance continues to be quite strong beginning with adjusted EBITDA, We saw a 15% year over year increase for the third quarter and a 12% increase for the first nine months of 'twenty two versus 20.
One.
As Youll see on the next couple of slides our adjusted 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 just over 37% for the quarter and 34% year to date avail.
Available funds from operations, <unk>, which is basically our cash flow from operations less working capital fluctuations in Noncontrolling interest cash flows grew in line or better than adjusted EBITDA at 15% year over year for the quarter or 18% for the nine months period.
Also you'll see our dividend coverage on this page based on <unk> was two four times for third quarter and $2 two nine times year to date.
Our debt to adjusted EBITDA metric continues to improve based on our strong growth in adjusted EBITDA and our capital investment discipline now, reaching three six to eight times versus last year's 4.04 times. So.
So now let's move to the next slide and dig a little deeper into our adjusted EBITDA results for the quarter.
Again, the third quarter built nicely on the strong start we've seen this year with 15% 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 142 $0 to this year's $1 $63 7 billion.
We start with our upstream joint venture operations that are included in our other segment, which were up $60 million since our first new production in the Haynesville came online in April of this year, we've seen a rapid ramp in volumes that will continue through the remainder of the year.
As Alan mentioned, the strategic purpose of our upstream joint ventures as to fuel growth in our core related gathering assets and Thats certainly what we see happening in 2022.
Shifting now to our core business performance, our transmission in Gulf of Mexico business improved $41 million or 6% due to improved contributions from both Transco and our Gulf of Mexico businesses Transco Transco saw higher revenues largely from the Leidy South expansion project, which came online in phases as last year.
<unk> Gulf of Mexico was significantly higher in 'twenty two due in part to a lack of hurricane related impacts that occurred in 2021.
Operating and maintenance costs were higher driven in part by higher maintenance activities, but we're tracking very close to plan through the first nine months of the year.
Our northeast G&P business increased $22 million or 5% driven by topline gathering and processing revenue growth on slightly lower volumes gathering and processing rate growth was supported by a combination of factors, including higher commodity base rates annual fee Escalations and other expansion related fee increase.
Is that more than offset the lower cost of service rates at our Bradford franchise.
Overall northeast volumes were 10, eight Bcf per day and roughly in line with our current forecast for total <unk> volumes, we continue to.
We expect an increase from this volume level for the fourth quarter.
As we've mentioned in past calls our 'twenty two plan for the northeast has always been higher EBITDA versus 2021, I'm pretty flat volume growth.
However, as Alan mentioned, we remain well positioned to resume stronger volume and EBITDA growth in the northeast in 2023, driven by several expansion and optimization projects.
Shifting now to the west which saw another impressive quarter of year over year growth up $80 million or 31% over 2021.
I should mention that $27 million of the $80 million was attributed to our trace midstream acquisition, which closed on April 29. This year.
So even without trace the west still increased $53 million or 21% 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 a 12% overall increase in volumes for the west and Thats, excluding the <unk>.
Trace acquisition.
Next we saw a $4 million or 12% increase for our gas and NGL marketing services business. This increase was despite taking a $54 million lower of cost or market adjustment to our gas and NGL inventories in September of this year generally speaking most of this adjustment which was associated with our gas and storage will result in.
Higher margins when those products are sold out of inventory late this year or early next year.
So again, another strong quarter with 15% growth in EBITDA, driven by core business performance and upside in our upstream joint venture operations, let's move to slide four and look at the year to date comparison.
Through the first nine months of 'twenty, two we've now generated 12% growth in adjusted EBITDA over 2021, three strong consecutive quarters for this year. So stepping now from last year's 415 2 billion to this year's 464 4 billion.
With the $77 million of first quarter 2021 winter storm benefits that we're showing here in gray.
And then moving to the $182 million copper contribution from our midstream operations, which were one set of related in the first quarter of 'twenty. Two and then begin to have a more significant haynesville component in the second and third quarters.
Our transmission in Gulf of Mexico business that same 4% growth year to date, driven by Transco Leidy, South expansion project and strong first quarter 'twenty two seasonal revenues and also higher Gulf of Mexico results due to less hurricane related impacts in 'twenty, two versus 21, partially offset by higher operating and maintenance costs.
The northeast G&P business is now seeing 6% growth year to date, driven by higher rates on overall flat volumes as previously discussed the.
The west has seen an impressive 27% growth year to date, driven by higher commodity base rates, but also a strong 11% overall volume growth excluding the <unk> acquisition.
Finally, our gas and NGL marketing services segment is up $32 million driven by favorable commodity margins as well as the new contributions from the sequent acquisition that closed on July one 2021.
And the year to date comparison was also unfavorably impacted by lower cost or market adjustments on inventories as discussed in the third quarter comparison, which as we discussed should result in higher margins in the future.
So an impressive $491 million or 12% increase to land us with over $4 6 billion.
Adjusted EBITDA through the first nine months of the year.
Before I turn it back over to Alan I'll offer a few thoughts for full year 2022 financial guidance as.
As we previously announced based on strong third quarter performance and expectations for the fourth quarter, we anticipate full year adjusted EBITDA will be near the high end of our previously announced guidance range of $6 one to $6 4 billion.
Which implies a strong fourth quarter, we see multiple contributors to this expected strong finish to the year, including continued growth in our upstream joint ventures, but also growth across our other business segments versus our third quarter results.
One other note regarding the third quarter, you probably noticed in our 10-Q that we did initiate share repurchases in September .
As we discussed on our second quarter call, we stand ready to take action on share repurchases when we see a pullback in our valuation and Thats, what we did in September .
Our share buyback principles center around a returns based approach considering our current equity yield plus a level of expected growth in the business we.
We are more confident than ever in the long term growth of our business and so we remain ready to purchase additional shares as an important element of our capital allocation strategy.
Net financing costs have also been topical lately with the sharp rise we've seen in borrowing costs. We've included some helpful information on our well positioned that portfolio in the appendix, but I'll briefly touch on a few key facts first off we have an entirely fixed rate debt portfolio with an average rate of $4, 7% to 8%.
And a weighted average maturity of 12 two years.
Second following our well timed August debt issuance and subsequent call of $850 million of <unk>.
<unk> thousand 23 notes recently in October we now only have $600 million of maturities in 2023.
And finally, we will continue to enjoy excellent financial flexibility with our $3 75 billion credit facility.
So again with our expectations to finish 2020 to near the high end of our adjusted EBITDA guidance. This would amount to over 13, 5% growth versus 2021, and a four year CAGR of about 8% driven by continued growth in our core business as well as contributions from our <unk> acquisition and upstream JV operations.
So with that I'll pass it back to Alan for closing remarks out okay, well, great. Thanks, Jon and I'll close by reiterating my remarks at the top of the call that quarter. After quarter. We continue to demonstrate that we have built a core business that is steady predictable growth and is resilient in the face of multiple macroeconomic.
In fact, this makes the 27th quarter in a row that we've either met or exceeded the street consensus.
A careful allocation of capital has delivered improving returns on capital employed and in fact this is a.
But 21, 7% return on invested capital as we've shown in recent presentations, we delivered a very strong balance sheet and we have a growing dividend with best in class coverage. Our long haul pipes are in the right places 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 in the world pursuit of a clean energy future.
But even more so we are also bullish on America's ability to lead on all fronts. When it comes to clean reliable and affordable energy.
The United States is positioned better than any other country to solve the energy crisis and the climate crisis, we're facing around the world.
But I'll stay in on my Soapbox again, and remind you that access to our abundant and low cost natural gas reserves here in the U S is dependent on having the appropriate infrastructure to move energy, where it is needed we're seeing and feeling today the impact of inadequate infrastructure, both here at home and especially in <unk>.
Europe with consumers bearing the brunt of these actions in the form of high energy prices high utility bills and energy driven inflation.
The good news is that we have a solution that is readily available a solution 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 to ensure delivery of natural gas is foundational to the U S. As leadership on greenhouse gas emissions reductions and energy security and Williams will proudly continue our efforts to strongly advocate for action.
<unk> energy policy solutions, and permitting reform in the days months and years ahead and with that I'll open it up for your questions.
At this time, if you'd like to ask a question simply press star followed by the number one on your telephone keypad to withdraw your question Press Star One again, our first question will come from the line of Jeremy Tonet with J P. Morgan. Please go ahead.
Hi, good morning.
Good morning, Jeremy.
Just wanted to kind of start off with the Haynesville here and this new project that you.
<unk> talked about in the slides regarding carbon capture I was just wondering if you could touch base on what moved that forward at this point with the higher 45 queues coming from IRA here.
Got it over the finish line and also I guess, how big could the scope of this project be overtime.
Yeah. Thanks, Jeremy This is Chad, yes, the DRA and the increase in <unk> 45 key credits is certainly a benefit that helped that project move forward.
The scope of that project is alongside our Louisiana Energy Gateway project as we're gathering a large volumes in the haynesville will be will be taking the sidoti that today is vented in the basin into.
Into the pipeline and will also be gathering <unk> from third parties and moving that cotwo to the southern end.
The Louisiana energy Gateway gathering projects and at that location were going to install treating facilities that will remove the cotwo and transport it to.
Sequestration side, so that it can be permanently stored underground.
We see that somewhere around the potential for 2 million tons of annual Cotwo captured and sequestered and we think that that could increase over time as.
As we continue to further develop that project. So we feel really good about it and we're focused on bringing that online alongside our are linked project, which could be in service as early as Q4 of 'twenty four.
Got it very helpful. Thank you and just wanted to pivot if I could to the producing assets in the haynesville. It seems like the ramp in production there.
Is quite strong and I think it might kind of reach what you guys were hoping for when you attain the assets getting it to a growth trajectory that failure pipes to serve that purpose there and if it's on that trajectory does that kind of make you guys think about potential timeline to divest those assets if they are delivering.
Volume utilization that you are looking for.
Yes, Jeremy I'll, just let me be clear on that first of all I think there's been a lot of confusion out there in the market on forms of those contracts. We expect production net our net interest production to continue to grow in 'twenty three.
And so we have been very pleased with Geo Southern's efforts out there they've been a great operator, and they've really been.
Hitting it out of the park so to speak in.
And their efforts in the.
Performance on wells, both on the cost side.
As well as delivery side. So we're really excited about their activities out there.
So we do just to be clear, we do expect our net interest production to continue to grow into 'twenty three.
And so the people have been talking about a decline relative to the reversion our interest in the undeveloped acreage declines, but not our interest in the existing flush production and in fact, the nice thing about that is our capital obligations really fall back really hard in 2003 after that.
Conversion occurred because we won't be continuing to have to invest so heavily in drilling operations. There so but in terms of looking for to sell the asset we certainly.
That is our long term objective and continues to be and we think the acreage is certainly proving itself up to exceed and I would tell you, though it's got a long ways to go from where it is today in terms of the total volume growth.
In that area in fact, we're really just starting to scratch the surface of that inventory.
In the area. So yes, we certainly have our eyes and ears open but no. We are not getting near the peak of the volumes out there at all and so its really playing out almost exactly like we intended except that we've had this nice big upside of pricing here in the current environment.
And the volumes. This year have been are outperforming where we thought they would be so.
So great news really can all the way around there in terms of upside.
And it's going to drive a lot of free cash flow into 'twenty three 'twenty four.
Got it and just a quick follow up on that is there a certain production level youre looking for before you would entertain divesting those assets.
No I would just say.
We've got a there's a lot more room to grow out there and what people are expecting I think I think we continue to be impressed by.
The kind of numbers that Geo southern is informing us on in terms of kind of what the total production out there thats well beyond the current production levels. So I would just say we're not we're not waiting if you will necessarily we just want to be assured that that production growth will continue.
On the pace kind of.
If we're not the owner.
And I think certainly the alignment we've had with Geo southern out there has been a productive for both of us but no. We're not we're not waiting on any particular volume number we think that the evidence is pretty clear in terms of the performance out there at this point, so we think that the.
The viability of that acreage has been pretty well proven up already just in terms of the performance southern shown already.
Got it I'll leave it there thank you.
Thanks, Jim.
Your next question will come from the line of Preneed cities with Wells Fargo. Please go ahead.
Thanks, Good morning in light of the <unk> acquisition I was just wondering if you can elaborate on the benefits of gas storage right now.
We think storage has become more valuable do you think spreads could could widen out how does this fit with with sequent and then finally do you envision building out more gas storage assets organically or doing more acquisitions in this space.
Yes, thanks for the question and first of all.
Sequent was a sizable customer there to newer tax and we were looking at their process as they were going through that too.
And realizing what they could charge for that storage and frankly, we were pretty impressed and from our perspective, what they could have charged for storage in that area and recognize that that we thought that rates could probably be driven up there just because of the value of that storage in these more volatile markets and where can take weeks.
Continue to believe that today.
The load from the.
Variability of power generation gas fired power generation as well as LNG. We think is going to continue to drive value for natural gas storage, we're certainly seeing that as a as sequent with a buyer of storage and used to be a large buyer stores, we understand that market very well and we think there's a lot of value there.
That's first thing second thing one thing that.
Commented on in my opening comments that we're excited about as well as we did get an order from the FERC last week to be able to.
Market based rates in place on our Washington gas storage, we still have a lot of work to do on that so we have to go through the process of filing those rates, but we did get a very important quarter out of FERC last week to be able to go to market base rates for our Washington gas storage and so that is a very large deal for us thats about 75.
CF a day of working gas storage and so that's that gives us about 110 Bcf a day of storage in the Gulf Coast area between nor texts and Washington gas towards so yes, we are pretty committed to this concept, we think theres a lot of value.
They're in finding ways to extract.
The real value out of our current assets and out of North, Texas, certainly going to be emission for us.
Years looking forward.
Great and just.
Switching gears, if we if I look at the financial metrics. This year. The leverages good and EBITDA is on pace to grow 13, or 14%, but on the capital return side, the dividend's only up 4% and theres been some buybacks, but it's been fairly modest. So I guess my question is is the strong performance. This year influence how you.
Capital return heading into 2023.
Well, it's a great question.
And the answer is yes. It certainly does influence how we look and we recognize we're outpacing.
Both our <unk> and our EBITDA have been outpacing our dividend growth and we certainly recognize that.
So I would just say, we're going to make sure that.
Our dividend is durable, but we also we've also said that we're going to continue to grow our dividend along with their cash flow. So two.
Great question, a board level decision that we made.
Later, this year and into next year that decisions will get made but we certainly have the coverage and cash flow growth to be able to increase the growth rate in our dividend at this point.
Thank you.
Your next question will come from the line of Chase Mulvehill with Bank of America. Please go ahead.
Hey, good morning.
I guess just.
A quick question and kind of want to follow up you mentioned a little bit of this during the prepared remarks, but just kind of looking forward to 2023 thinking about some of the puts and takes I mean, obviously when you look at 'twenty three versus 22, you've got full year of some of the M&A you did.
You've got the spring ridge gathering expansion and some northeast gathering expansion.
And then you've got some Gulf Gulf of Mexico stuff that starts up and you'll probably have some higher E&P volumes.
So I guess, just if I'm missing anything there when we think about 'twenty three growth opportunities and then kind of offsets how should we think about the offsets for 'twenty three I mean, the curve is backward dated but the curves.
Not always right, but just kind of how should we think about the offsets in 'twenty three.
Yes, great Great question I think you.
<unk> laid that out pretty well actually.
The other thing that we didn't enjoy this year that we will enjoy next year is the investments that we've been putting into the one center JV. This year as I mentioned, we have.
We're continuing the drilling program that but we are just now starting the completions effort out there and so the benefit of that those drilling capital we've been spending up there. This year will really start to play out in 'twenty three as well so that's the key issue.
As I mentioned the Eagle Ford.
We're seeing some pretty rapid development going on in the rich gas that will exceed the MVC out there so thats attractive in terms of the <unk>.
Headwinds I, certainly think pricing is consideration, but I think it's also important to realize the amount of hedges that we had on this year.
That kept us from enjoying extremely high gas prices.
This year and so I think if you look year to year, that's probably not likely going to be that big a spread but I would say we continue to look at the script. So that's probably the.
The primary.
The headwind, but from what we're seeing right now that is going to be dramatically overcome by volumes.
And in the E&P space and so so yes, we could see lower price, but our volumes I think will surprise people to the upside next year.
All makes sense.
Is it kind of I guess, maybe a somewhat related follow up.
Slide 24, you show, an 8% increase in power demand year to date.
Yes.
Obviously, you don't do too much on the power side, but could you kind of explain kind of what's happening there and how sustainable you think that that growth is in power demand as we kind of look forward.
Yes, I would just say we continue to be surprised I would say that.
As we mentioned earlier in the year, probably our biggest surprise has been the resilience of gas demand in the face of higher price.
And I think what we learned was that.
The utilities and the power generators are not really able to flip back to coal for a number of reasons. One they don't have the long term contracts a lot of those expired.
And two obviously the price of coal has come up right alongside gas and so we just did not see the flip back to coal fired generation, we would've expected at this kind of pricing environment.
Obviously, I think its what youre seeing as a result of.
The utilities and I don't think this is going to end anytime soon where as renewables come on the backup for that is going to be natural gas and its going to continue to.
Take coal fired generation out of space and.
And we're going to continue to see increases so.
Listening to the rhetoric in the market and and and.
In the media you would think that gas volumes, we are going to decline dramatically. If you saw the rfps for new services coming in our door.
Would think otherwise and so I think what.
We are seeing is continued strong demand from gas fired generation from the utilities, particularly in the mid Atlantic and the southeast. So we remain bullish not because of rhetoric, but because what we're seeing for request for long term services coming in the door.
Perfect understood I'll turn it back over thanks al.
Your next question will come from the line of Gabriel Moreen with Mizuho. Please go ahead.
Hey, good afternoon, everyone, maybe if I could ask another question about 'twenty, three and just talking about how to frame capex theres clearly some projects, finishing up some bigger ones like regional energy access some lags that are out there where maybe the spam gets spread over 'twenty three 'twenty four so I'm just wondering how to think about gross capex from.
The context.
What it was this year and some of these longer term projects.
Hi, Good morning, It's Michael Yes, I would expect as we've talked about in previous calls to see some lumpiness in our growth Capex as you've indicated we've got regional energy access that will be wrapping up construction next year. The whale project. Although we started construction on that will be ongoing as well in 2023.
So and obviously lag we'll be ramping up as well. So those are some pretty large capital outlays that we will be ramping up next year, but as we've indicated in the past, we're working real hard to keep our growth Capex in line with previous years.
So you think about where we're at this year to one two to $1 $3 billion level, that's what we're targeting.
Typical years going forward, but you will see some lumpiness when these big projects start construction.
So you can anticipate that being a 2023 story with these big projects coming on but we're still very focused on managing that growth capex to a level, that's about $1 $2 billion on average per year.
Thanks, Michael and this might be another one for you, but in the <unk> rate case.
It seems like you were achieved sort of a modernization.
Rider or there is some language about can you talk about that and whether thats going to be significant and also whether that can be a precedent for transco in the upcoming rate case.
Yes, Great question, we do have our uncontested settlement in front of the FERC right now for approval, we would expect to receive that before the end of the year, but those rates into effect next year and a great outcome by the team there achieving a emissions reduction program.
Ryder as you indicated and I would say is that certainly a good framework or pattern for us to go into the Transco rate case with that same thought process in front of us where we have a lot of compression on both northwest pipeline and the Transco system that we can replace that makes sense to replace it.
Many of these areas, where we are in non attainment or being challenged by some of the regulators like in the Pacific northwest to improve the emissions profile.
Of our units and Thats, just a great opportunity for us to make an investment in our regulated business.
And I would say.
The northwest pipeline opportunity is certainly not as great as the Transco opportunity for capital deployment, there just with the number of units that we have.
North West pipeline system versus Transco.
Horsepower on Transco was a significant order of magnitude higher than northwest, but certainly a great opportunity there and very well received by our customers on northwest pipeline.
For us to go and implement these emissions reductions.
Great and then maybe if I could squeeze just a quick last one it seems like you've got a ruling and the energy transfer litigation Theyre appealing is there any timing as far as how long that appeal may take to play out.
Yes, Brian Wilson.
We would anticipate some time alright.
<unk> second quarter early third quarter, maybe early fourth quarter, depending upon how quickly the Delaware Court moves.
Great. Thank you.
Yes 2023.
Your next question will come from the line of Brian Reynolds with UBS. Please go ahead.
Hi, good morning, everyone.
Maybe just talk a little bit about follow up on capital allocation and the growth capex with the acquisitions of trace and nor tax could you just maybe talk about what the base business kind of growth Capex run rate is going forward now.
Yeah sure. This is Michael as I indicated we think it's going to be about $1 2 billion very similar to what we see this year on average going forward, but as I.
I've talked about on previous calls, we divest of Lumpiness anticipated there with these larger projects start to ramp up construction regional energy access will be ramping up construction next year. The leg projects will also be starting construction next year and then the whale project in the Gulf of Mexico will be.
In some pretty significant construction activities as well next year, although that has started this year. So as as always it will be lumpy, but we're very focused on being efficient in regard to our growth capital. So I would expect you would see a one two to $1 $3 billion average capex on our growth side.
For the foreseeable future.
Great. Thanks, and then maybe as a follow up on some of the upstream business. You know you guys outlined some of the hedging profile that you have into 2023.
Kind of curious if you can just give an update about where you are comfortable bike hedging as a percentage of the overall volumes expected just given some weakness in recent Nat gas pricing just given some record U S. Nat gas production and some constraints on the LNG side. Thanks.
Yes, thank you well.
We do have some favorable hedges on right now for 'twenty three I think we've got around 15% or so for the year that's on right now.
And we will continue to look at that Opportunistically I would tell you that it's really nice having our sequent team.
That has joined at the hip when it comes to making those decisions and having a real vantage point on the market and.
What they're seeing as well so I would just say we will continue to be somewhat optimistic about that but.
We certainly will continue just like we did this year, we will continue to take.
Take on hedges as we see fit but I would say, we don't have any particular.
<unk> formula or a requirement for that it's simply a way of.
When we see opportunities in the market, we see things flare up in the market, we'll hedge into that.
So I would say, it's been fairly optimistic, but with no particular requirement for a minimum level of <unk>.
Hedges to be put on.
Right.
Second half 'twenty to be a good kind of parameter of where we should expect that going forward or.
I guess remains to be seen.
I'm, sorry, I didn't quite follow that last part was the 50% hedging profile that you've kind of had outlaid for the second half of 2022 is that kind of a fair estimate for 'twenty three or.
Morning.
I would just say, it's very dependent on what the markets do versus how we how we're seeing the fundamentals looking forward. The good news is we we have such a good read on both whats going on in production because we gather in 15 different basins. So we have a very good read about what's going on in production.
As well as we see a good read from the markets as well that we use that to inform our fundamentals and if we see the pricing.
Obviously.
Fair relative to the fundamentals and then we will hedge so again.
I wouldn't put a particular percentage honored as much as it is us looking at the fundamentals versus the pricing and the port markets.
May be worth mentioning that 'twenty, three we will have less.
Prove up as far as volumes in 'twenty, two we did have the growth in the haynesville that.
Outperformed our expectations, which was great but in 'twenty three we've really proven up volumes and so we've got much less volume risks coming into 'twenty three as a result of the.
The success, we've seen in 'twenty two yes, that's a really good point that some of our reluctance to hedge at the beginning of 2002 was based on us not wanting to hedge until we actually saw that production flow and given the volatility in the markets and certainly didn't want to get caught short and a swing upswing in the market. So.
Next year, we will have less of that in the Haynesville, we will have less of that volume growth risks not so much in the warms.
Great.
Super helpful. Appreciate the color and enjoy the rest of your morning, everyone. Thank you.
Your next question will come from the line of Sunil Sibal with Seaport Global. Please go ahead.
Yes, hi, good morning folks and thanks for all the Kennedy I just wanted to go back to the opening comments regarding a 5% to 7% EBITDA growth.
Is that kind of the run rate we can.
Based on your asset base now for the next.
Yes.
Yes that is correct, obviously as we mentioned we've been over achieving on that.
A bit.
Had that 5% to 7% growth rate out there for quite some time and that was assuming a one two to $1 5 billion.
<unk> capital program back when we first established that level of growth rate.
And I would just say, we've got some efficiencies coming in to like 25, where we've got some very large growth on a limited amount of capital into deepwater that gives us some very high return investments because in some cases were being reimbursed for the capital.
Or the producer is providing the capital.
Front on some of those big deepwater projects. So obviously those returns are kind of outsized there.
And we will provide better growth, but in general as Michael said, we're expecting is one two to $1 $3 billion capital and we believe that kind of investment will continue to propel a 5% to 7% growth rate.
Okay, and then thanks for that.
Then.
With regards to the Eagle Ford I think you mentioned youre seeing some exiting with a pickup there.
I was curious you know what kind of.
So the NGL prices kind of support.
Uptick in activity.
We anticipate this.
Activity uptick to kind of go into 2023 and four that out.
Yes.
I would just say that the Eagle Ford is highly economic right now.
Chesapeake has been allocating more of their capital to their gas focused areas and they have been out in the market talking about potential to to.
To sell their Eagle Ford position, but we see both on the rich gas side and on the oil side of that system. We have really two different systems, there oil driven system and a rich gas gathering system and as Alan mentioned, the rich gas gathering system has already been ramping up and activity and is now exceeding the MVC and we're seeing.
I think very strong economics behind the oil.
On the oil side of that asset as well and so we would expect that.
Youll continue to see increased active Angela side as well so that's a very highly economic assets and really its just been not the number one priority for kind of the current current producer there.
Got it thanks for that.
Our final question will come from the line of John Mackay with Goldman Sachs. Please go ahead.
Hey, everyone. Good morning, Thanks for the time I wanted to pick up on the Haynesville again, you guys are.
Obviously, adding a lot of your own volumes youre talking about adding a lot of gathering capacity over the next 12 months can you maybe just share some of your thoughts on how we're thinking about.
The takeaway out of the basin and maybe.
Impacts on your upstream business, particularly on the.
The next nine months until we have the next while until they get leg on thanks.
Sure. Thanks for the question. This is Michael again, I would say, we're very well positioned there with our gathering systems are being connected to about 90 different outlet pipelines out of the basin.
Having sequent alongside us evaluating those takeaway opportunities has been very helpful. I believe they were.
Well in front of the any anticipated constraints out there in front of the market.
And really went out and acquired some capacity out of the basin that made sure that not only are customers volumes could flow, but our partnership upstream volumes could flow as well. So we feel very comfortable about our position and getting our gas out of the basin as well as our customers' gas out of there. We've helped a lot of our customers make sure that they had on.
Opportunities to move their gas out of the base and based on what we were seeing with sequence. So we feel really good about that we're certainly working to get the lake project up and running as fast as possible.
I'll make sure that none of those constraints.
<unk> four where are customers of our partnership.
Alright, Thanks for that maybe one last one from me can you just walk us through again final steps on regional energy access.
And now we're kind of looking for a few things from the FERC, but more importantly, a couple of things on the state side, maybe just a refresh there would be helpful. Thank you.
Yes sure thing Michael once again answering this question we are awaiting the FERC <unk> certificate, we would expect to have that before the end of the year. Finally EIS was issued in July just as a reminder, that was a very favorable EIA for the project.
The other remaining outstanding permits are the air permit this is titled five modification for stage $5 five in New Jersey, we've been through the whole public comment process.
As a great opportunity for us to once again deploy our emissions reduction program here, we take off some existing compression and replace it with a much better emissions profile. So very favorably received by the state and certainly.
We saw some very positive comments there in the public comment meetings overwhelming support for that so we expect that air permit by the end of this year as well and then finally the corps of Engineers will issue a 404 permit of water quality permit we would expect that probably in the first quarter of 'twenty three but it could come.
As early as the fourth quarter here in 'twenty two we've already had our worldwide water certification from the state of Pennsylvania, that's been in hand for a number of months now and no technical issues remaining on our 404 permit just waiting for the process to play out. So those are the three outstanding things were waiting on regional energy.
Access for right now and just as a reminder, we positioned this project very well to avoid any controversial permit and certain positions that are permitted new jersey can be favorably received with the deployment of new compression there to take off some older vintage reciprocating compression.
All right that's great. Thanks for that appreciate it.
At this time I will turn the call over to Alan Armstrong for closing remarks.
Okay, well. Thank you all very much for the great questions.
I appreciate your continued interest in the company.
We're excited about.
The way the business is running right now and we're extremely well positioned for growth in 'twenty three as we discussed and we look forward to talking to you at our <unk> earnings call and laying out in more detail what 23 looks like so thanks again for joining us this morning.
Ladies and gentlemen that does conclude today's call. Thank you all for joining you may now disconnect.
Please wait the conference will begin shortly.
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