Q3 2024 The Williams Companies Inc Earnings Call
Speaker Change: Good day and welcome to Williams 3rd quarter 2024 earnings call. At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Danilo Juvane. Please go ahead.
Danilo Juvane: Thank you and good morning everyone. Thank you for joining us and for your interest in the Williams Company. This morning, we will release the earnings, recipes, and presentations that our President and CEO, Alan Armstrong, will kick off in a moment.
our Chief Financial Officer, Michael Dunn, our Chief Operating Officer, and Chad Zemmer, our Executive 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.
Danilo Juvane: Also included in our presentation materials are non-GAAP measures that would reconcile the generally accepted accounting principles, and these reconciliation schedules appear at the back of today's presentation materials.
So with that, I'll turn it over to Alan Armstrong.
Alan Armstrong: Great, well thanks Danilo and thank you all for joining us today. A lot of positive updates to walk through with you this morning as we delivered another record quarter of adjusted EBITDA.
Alan Armstrong: driven primarily by our natural gas transportation expansions and Gulf Coast storage acquisitions.
Alan Armstrong: In fact, our better-than-planned execution on growth projects and higher-than-expected performance on acquisitions, along with core business strength, gives us the confidence to once again raise our guidance midpoint for 2024, which John will detail in his remarks.
Alan Armstrong: The returns of our projects and acquisitions have been strong enough to overcome what has been a very challenging natural gas price environment and fairly impactful hurricane season. So very pleased to see the way our entire portfolio responded in this environment.
Alan Armstrong: In fact, a recent Wells Fargo note on midstream returns supports our view that Williams has delivered one of the best cash returns on invested capital in the sector, generating a 22.9% return for the 2018 through 2023 period, nearly double the sector median of 11.9%.
And looking here at slide two, I'll start by noting that the strong cash returns expected within the suite of our recently completed projects will lead to visible five-year EBITDA CAGR of over 7% at the midpoint of our 2025 guidance.
All without equity issuance and while improving our credit metrics during this period. Additionally, this pace of growth has been right into the headwinds of low gas prices and production curtailments this year.
Alan Armstrong: The drivers of growth for next year are clear and fully contracted. These include the following projects where the CapEx and construction risk is behind us.
Alan Armstrong: In fact, in August, we placed Transco's regional energy access into full service ahead of schedule and under budget, ensuring clean and reliable natural gas is available to serve the Northeast region for the upcoming winter heating season.
Alan Armstrong: We were also successful in placing a portion of the Southside Reliability Enhancement Project in service, as well as completing our Mountain West Uinta Basin Expansion.
Alan Armstrong: And in the deep water we've completed all of our construction for the very large well project and we are excited to see Shell begin ramping up production in December.
Alan Armstrong: And as we mentioned on our last call, there are now two new fields on our discovery system that started up in the third quarter.
Alan Armstrong: Chevron's large anchor development and Beacon's Winterfell five-well program are all fully connected and will help drive a large increase in EBITDA in 2025 as these programs also begin to ramp up.
Beyond these drivers for 2025, we already have a total of 5.3 BCF a day of contracted gas pipeline projects that will drive a high rate of growth for the next five years.
Alan Armstrong: These include the following. First, on Southeast Supply Enhancement Project, or SESI,
We filed the FERC application for its 1.6 DCF a day expansion of existing transco capacity in Virginia, North Carolina, South Carolina, Georgia, and Alabama.
Alan Armstrong: CESI is a fully contracted and will provide record EBITDA contributions from a Williams Transmission Project.
that demonstrates how valuable contracting capacity is going to continue to be in the next wave of demand growth that we are just now starting to see the benefits of.
And as we've mentioned before,
Alan Armstrong: This singular project will generate EBITDA greater than our entire Northwest Pipeline system, and in fact, by itself, CESI would be the equivalent to the 10th largest long-haul pipeline in our nation on its expected EBITDA contribution alone.
This project is a good representation of some of the amazing growth opportunities that will continue to drive growth well into the future.
Alan Armstrong: Utilities across the Mid-Atlantic and Southeast markets have come out saying they missed their growth targets for power generation and we're extremely well positioned to serve these customers with projects like CESI.
Alan Armstrong: starting at station 165 and delivering volume south as they take advantage of the new supplies coming in from Mountain Valley Pipeline.
Alan Armstrong: Moving down the list, we received our FERC Order Certificate from the Mountain West Overthrust Westbound Expansion, and that is a project that will add approximately 325,000 decatherms of fully contracted firm transportation service on this Mountain West system by the fourth quarter of 2025.
Alan Armstrong: And, we began construction on several key projects, including our Louisiana Energy Gateway gathering system, where we were pleased to receive the FERC order in late September that confirmed this system is exempt from FERC's jurisdiction, so we are full steam ahead with an expected end service date in the second half of next year.
next year.
Alan Armstrong: Construction is also well underway on TRANSCO's Commonwealth Energy Connector project in Virginia.
Alan Armstrong: And I'm pleased to announce that we've entered into binding agreements with three new expansion projects on the Northwest Pipeline recently, totaling roughly 260 million cubic feet a day of firm capacity. These are small projects, but individually, but very strong in terms of the collective returns that these projects will generate. So really nice to see the very strong signs of growth showing up now in the Intermountain region on both Northwest and on our Mountain West.
http://TheBusinessProfessor.com
Alan Armstrong: For some time now, we've talked about just how attractive the current macro environment is in supporting the long-term growth in our businesses as the line of sight to LNG exports, coal-to-gas switching, industrial reshoring, and data center demand becomes clearer and clearer.
Alan Armstrong: The recently signed precedent agreements for an expansion of the existing Dalton Lateral that will serve northern Georgia is a great example of this.
Alan Armstrong: Just like CESI, this is another project that leverages off of our existing system to provide high returns and demonstrate the path we are on to deliver many more fully contracted transmission projects that will provide attractive earnings growth beyond the end of this decade.
And finally, we recently signed commercial agreements with Lakeland Electric.
Alan Armstrong: a Florida-based utility who we will partner with in the development of a 75-megawatt solar farm.
Alan Armstrong: The project, which will be designed and built by Williams, is sited on land that's been owned by Williams for decades and that was unsuited for traditional real estate development, but it is an ideal site for solar energy production in an area that has got a tremendous amount of demand growth.
Our list of prospects
Beyond these newly contracted deals continues to grow fast and the environment for demand driven projects It's much better than the environment that has driven the twenty two point nine percent
Cash Return on Invested Capital and the over 7% CAGR of growth.
across our business. So we really want to stress that while we've had a great run here in the last five years of growth, the environment that is in front of us right now and the kind of opportunities we're seeing is much stronger than what we've seen.
Alan Armstrong: in the period that's generated these kind of opportunities. So we're really excited to be able to deliver up against the demand that is growing very rapidly in the space we're in right now.
Alan Armstrong: now. And with that, I'm going to turn it over to John to walk through the third quarter financials. John? All right. Thanks, Alan. Starting here on slide three with a summary of our year-over-year financial performance, beginning with adjusted EBITDA, we saw about a 3% year-over-year increase.
Alan Armstrong: where once again, for third quarter, in spite of low natural gas prices, our resilient business continued to grow, even as producer-customers continued significant temporary production reduction measures.
Alan Armstrong: And we also saw a greater hurricane impact for the third quarter of 2024 versus 2023.
Alan Armstrong: As we'll see on the next slide, our adjusted EBITDA growth was driven by strong growth from our large-scale natural gas transmission and storage businesses, including the favorable effects of our recent acquisitions, but also unfavorably impacted by asset sales.
Alan Armstrong: And of course, we don't include gains from asset sales in our adjusted performance metrics, adjusted EPS, adjusted EBITDA, or available funds from operations. And we did have a $127 million gain in the third quarter of 2024 from the sale of our off-stable interest and about $130 million of gains last year on the sale of the Bayou Ethane system.
Alan Armstrong: Here today our adjusted EBITDA is now up about 5% and year-over-year you see that adjusted EPS growth is lagging our adjusted EBITDA and AFFFO growth.
And that delta is due primarily to a step up in non-cash depreciation expense.
Alan Armstrong: from our recent acquisitions. But again, looking at 2025, we would see this delta in growth rates close back up as the non-cash depreciation charge flattens back out.
For third quarter, available funds from operations, AFFO growth was about 4.5% and 4% year-to-date. But looking through 2025, we see a five-year CAGR of 7%.
Also you see our 3Q dividend coverage based on AFFO was a very strong 2.22x on a dividend that grew just over 6% over prior year and 2.33x coverage year-to-date.
And our debt to adjusted EBITDA was 3.75 times in line with our expectations for 2024 before dropping back down in 2025 to guidance of 3.6 times or better.
Alan Armstrong: So before we move to the next slide and dig a little deeper into our adjusted EBITDA growth for the quarter, we'll provide an update to our financial guidance.
We are pleased to increase the midpoint of our adjusted EBITDA $125 million from the original guidance of $6.95 billion to now $7.075 billion, reflecting a new range of $7 billion to $7.15 billion.
Additionally, as we mentioned before on our prior calls this year, based on our improved 2024 adjusted EBITDA outlook and other changes, we see our key per share metrics, adjusted EPS and AFFO per share, coming in at the high end of their ranges for 2024. So we've now shifted to 2024 guidance for those metrics.
to midpoints of $1.88 and $4.35 respectively.
and we see improvement in the leverage guidance from 3.85 to 3.8 times.
Alan Armstrong: Finally, we are reaffirming our 2025 financial guidance as originally issued, but we plan to provide an update when we release our full year 2024 results in February.
So again, very pleased with the financial performance of the company for 2024 and our ability to raise guidance, even though it looks like 2024 Henry Huff natural gas prices will likely be around 15% lower than the January 1 strip prices that we set our business plan on this year.
So let's turn to the next slide and take a little closer look at those third quarter results.
Walking now from last year's 1.652 billion to this year's 1.7 billion, we start with our transmission in Gulf of Mexico businesses, which improved 76 million dollars, or just over 10 percent.
Due to the combined effects of a full quarter contribution from the Hartree-Gulf Coast Storage Acquisition, which is delivering as expected following a flawless integration effort, higher Transco revenues, including from the Regional Energy Access Project,
Alan Armstrong: Now, in the Gulf of Mexico, we saw a total hurricane-related impact of about $10 million unfavorable there, and segment growth was also unfavorably impacted, about $9 million by last year's Bayou S.A. divestiture.
The Northeast GMP business was flat versus last year and also basically flat in total against our original 2024 plan. We've seen volumetric underperformance in the dry gas systems with some offset from rate escalations on those same systems.
And we've seen growth in our rich gas systems, which has also provided a strong favorable offset.
The three few Northeast results also reflected the sale of our interest in Oxable on August 1st, 2024.
Shifting now to the West, which increased $15 million, benefiting from the DJ transactions that we completed in the fourth quarter of 2023. Second performance was also favorably impacted by higher NGL services results.
including higher overland path pipeline volumes where low natural gas prices have supported greater ethane recoveries.
Overall, waste gathering volumes were lower as a result of those temporary producer reductions primarily in the dry gas Haynesville area.
And then you see the $12 million lower marketing results, and those were in line with our business plan for the third quarter.
Our upstream joint venture operations included in our other segment were down about $23 million from last year due primarily to lower realized prices.
Alan: So again, the third quarter that was in line with our business plan, proving once again our ability to grow our business in spite of a tough natural gas pricing environment, the impacts of Gulf of Mexico storms, and portfolio asset sales. And with that, I'll turn it back to Alan.
Alan: Okay, well thanks John. So just a few closing remarks before we turn it over to your questions.
Alan: I'll start by emphasizing what a truly compelling story we've been able to share with you this morning.
Alan: Despite the low natural gas price environment we're in, we've exceeded our own financial expectations each quarter this year, and our teams continue to excel in executing large-scale expansion projects.
to serve the growing natural gas demand that is really ramping up both in this year and as we look to the future certainly.
Alan: Not only do we have a clear line of sight to a full roster of projects that are in execution, but we continue to commercialize vital, high-return projects across our footprint.
Alan: And don't forget, this is an issue that I think, you know, people are probably missing as they think about forecasts for our business right now.
Alan: that we've been able to deliver these in the face of quite a bit of production curtailment on our systems, which really does provide a loaded spring as a very strong catalyst for earnings growth as natural gas prices.
Alan: So, really, the environment we're seeing today is a very strong, long-term bullish position for natural gases. All of the demand that we're connecting on our transmission systems
Alan: will begin to pile up, but our gathering systems are really going to get a big pull through.
Alan: when that demand comes on and importantly, very little capital required on our part because a lot of it is just production curtailment.
Alan: for drilling without producers turning it into lime on existing pads. So, a pretty powerful catalyst that sits out there when we do see the call on this gas to support all the growing demand we're seeing.
Alan Juvane, Alan Armstrong, John Porter
Speaker Change: So all of this activity does underscore the accelerating demand for natural gas transmission capacity in the United States, particularly in the growing regions where we operate.
Alan: We are confident in the role our valuable natural gas infrastructure will play in meeting both today's energy demand as well as the projected growth from power generation, reshoring of energy-intensive manufacturing, and LNG exports.
Alan: As the most natural gas centric energy infrastructure provider, with access to the most prolific U.S. basins, Williams is the best position for you.
Speaker Change: to serve steadily increasing domestic needs for clean and affordable energy while also helping unlock vast U.S. reserve for the global market.
Speaker Change: In closing, we built a business that is delivering record profitability and strong financial returns in the present, but is positioned for even faster growth in the future. And with that, we'll open it up for your questions.
Speaker Change: Thank you. If you'd like to ask a question, please press star 11. If your question hasn't been answered and you'd like to remove yourself from the queue, please press star 11 again.
Speaker Change: Our first question comes from Jeremy Tonay with JPMorgan Securities. Your line is open.
Hi, good morning.
Thank you, Jeremy.
Producer, you know, conversations at this point, expectations into 2025.
Speaker Change: Could you, you know, how much of an uptick possibly could you see here if it's price supportive? And then, just wanted to put a fine point, I guess. You know, there's open space on some of your pipes. Just what type of operating leverage do you see?
Speaker Change: Yeah, I'll hit the last part of that and then ask Michael to hit the...
Michael: the question of what kind of response we could see on our gatherings.
Michael: systems. On the pipes, I would just say, you know, our systems...
for the most part, are completely...
Michael: loaded up, but the ability to expand our existent systems through
Michael: addition of interconnects between pipes like Mountain West and Northwest Pipeline, which we've got some projects that take advantage of the combination of those assets or a way that we're seeking out some additional capacity out of those systems.
Michael: and in general, obviously, a lot of these systems have the ability to be expanded at a pretty low cost and so...
Michael: A recent project that we just did this quarter adds compression in the Clay Basin area on Northwest Pipeline and gets some more very critical capacity in between the Pions and the Opala Kern River markets, which obviously is in demand these days.
Michael: And so that's just an example, pretty small amount of capital relative to the value of that project, and those are the kind of things that are occurring in the West right now.
Michael: now. Michael, I'll turn it over to you to talk about the Gathering.
operating level.
Michael: Yeah, good morning, Jeremy. There's definitely a lot of opportunity to increase production on the producer end coming into 2025, and it will certainly be somewhat price responsive. We have about four BTF per day right now that is either shut in from what was originally flowing or ducks.
Michael: or wells that have been drilled and completed but aren't flowing and have been connected to our systems. And so, that's between the Marcellus and the Ainsville.
Michael: So there's definitely an opportunity to increase gathering volumes through our systems as prices rebound and we've actually seen
Michael: Some of the curtailments come off and the producers are now flowing gas that had once been curtailed earlier this summer. So, we are encouraged by the opportunity to be able to increase the volumes pretty rapidly through our systems. Some of these is just the.
Michael: The operation of turning a valve will bring on some of these volumes very quickly, so it can respond very quickly when prices do rebound, which we expect it to do. There's going to be some demand growth next year on the power generation side. We've seen that over the last several years, year over year growth from power generation. I don't see that deciding at all.
Michael: With all the coal plants that are being taken offline still, even with this growing power demand markets that we're seeing in virtually all of our markets.
and I am encouraged by that.
Speaker Change: Got it. That's great to hear about that operating leverage there.
Speaker Change: and maybe pivoting to the industry at large, Williams has done.
some bolt-ons in recent years, nicely adding to the portfolio.
Speaker Change: We have seen broadly in the industry entity consolidation steadily continue. Just wondering how Williams thinks about industry consolidation in the future. Would entity level consolidation ever make sense? Or do you see more bolt-ons or there's not really an attractive opportunity there? Thanks.
Yeah, Jeremy, thank you. Yeah, certainly.
Speaker Change: You know that that has been a driver of growth for a lot of players in the space We've been very fortunate to have a lot of organic growth
Michael: within our mix and and obviously that's always what we're comparing when we look at any kind of acquisition and obviously we do look at acquisitions on a pretty steady basis.
Michael: But really the hurdle that we always have to overcome there is the amount of growth that we have in our base business, and frankly, that is a process of constantly updating it these days with the level of growth that's accelerating.
you know, pretty hard to keep up with, frankly.
Michael: It seems like as soon as we get one plan done, you know, it's outdated with the kind of growth we're seeing in other areas. So, that's really the, you know, I think the issue from a Williams perspective is just...
Michael: The very strong growth that we have off of our own business and to a degree that's not fully valued in our stock makes that acquisition a tough thing to do. So the good news is we have a lot of capacity
Michael: in debt capacity that we're growing as our EBITDA grows so rapidly. And that is providing for us to be able to do both on transactions on assets that we think
Michael: are kind of where the puck was going. Our acquisitions on storage, a great example of that, where we kind of got ahead of the market a little bit on where that was going. And that has turned into a very solid performance for us. And in fact, it's one of the things that.
Michael: helped us overcome the low gas price environment we've had this year. So I would just say, I think bolt-ons will continue for us and we'll be continuing to think about where the puck is going and acquisitions that will be strategic for us down the road. So that's kind of
the way I see things in our space right now.
Got it, understood. Thank you for that.
Speaker Change: Thank you. Our next question comes from Praneeth Satish with Wells Fargo. Your line is open.
Praneeth Satish: Thanks. Good morning. You know, obviously there's a lot of demand from data centers, power generation.
Speaker Change: I guess with all the increased competition for pipeline space and capacity, are you seeing upward pressure on rates as existing contracts come up for renewals?
Speaker Change: Is there an opportunity to kind of increase the rates there? And then secondly, are you seeing opportunities to shift more capacity from your cost of service or recourse rates to negotiated rates at higher rates as this competition intensifies?
Speaker Change: As as competition intensifies.
Speaker Change: Yes, it's a great question.
Speaker Change: Yeah, that's a great question. You know, the challenge on that front for us is that any capacity to exist on our system is super precious.
Speaker Change: The challenge on that front for us is that.
Speaker Change: Capacity that exists on our system is super precious.
Speaker Change: and people know that relative to the cost of new capacity and so you know we always like to tell the story that the last time we had any capacity come available the only way anybody can distinguish themselves for the existing cost of service already built capacity.
Speaker Change: And people know that relative to the cost of new capacity and so we always like to tell the story of the last time, we had any capacity come available the only way anybody can distinguish themselves for the existing cost of service already built capacity the only way anybody can distinguish themselves in the bid for that is on <unk>.
Speaker Change: The only way anybody can distinguish themselves in the bid for that is on term, and the term for that was 84 years.
Speaker Change: And the term for that was 84 years. So that's what we're seeing is a lengthening of term.
Speaker Change: So, that's what we're seeing is a lengthening of term when they become available, but we don't really have the ability to price that up if it was already in that original base capacity that was offered to our utilities, and so that gets offered out when it's available.
Speaker Change: We've become available, but we don't really have the ability to price that up if it was already in that original base capacity that was offered to our utilities and so that gets offered out.
Speaker Change: Anything does get turned back which is a very revenue that acts like a really old story and tell us like five years ago. Now. So it's not very often we do see capacity turned back because people appreciate how incredibly valuable and the money that capacity is so so I don't see unfortunately don't see a whole lot of.
And if anything does get turned back, we just...
Speaker Change: which is a very rare, I think that's a really old story, I think that was like five years ago now, so it's not very often we do see any capacity turned back because people appreciate how incredibly
Speaker Change: Kelly, Valuable, and in the money back.
capacity.
Speaker Change: So I don't see, unfortunately I don't see a whole lot of opportunity to price that up. I do think the opportunity for us is to combine...
Speaker Change: The data price setup I do see the opportunity for us is to combine.
Speaker Change: The expansions along our existing system, where we have great leverage Dalton lateral expansion is a great example of that we built that we.
Speaker Change: The expansions along our existing system where we have great leverage. Dalton lateral expansion is a great example of that.
Speaker Change: We built that, we knew that it probably could have some expansion opportunity down the road when we built that, and so we built that in a way that that expansion, and so when that expansion opportunity comes along.
Speaker Change: New that it probably could have some expansion opportunity down the road when we built that and so we built that in a way that that expansion and so when that expansion opportunity comes along very high return opportunity because of the relatively low cost to build that expansion realm.
very high return opportunity because of the relatively low cost.
Speaker Change: to build that expansion relative to the value of that new capacity. And that's the kind of things we're going to continue to see, is the low, relatively low cost expansions along our existing system, which are driving these very high returns.
Speaker Change: Relative to the value of that new capacity and that's the kind of things we're going to continue to see us.
Speaker Change: Low relatively low cost expansions, along our existing system, which are driving these very high returns.
Speaker Change: Got it that's helpful and just looking at the opportunity set in front of you.
Got it, that's helpful.
Speaker Change: And, you know, just looking at the opportunity set in front of you, it's large, seems like it gets larger each quarter, and seems like there's potentially, you know, billions of dollars of spending here on gas expansions.
Speaker Change: It's large seems like it gets larger each each quarter.
Speaker Change: And it seems like there's potentially billions of dollars of spending here on gas expansion that at good returns over the next few years.
had good returns over the next few years.
Speaker Change: How are you thinking about the potential to increase capex spending over the next few years, if you kind of sanction some of these projects and would you consider moving closer to kind of a free cash flow neutral after dividends.
Speaker Change: I guess, how are you thinking about the potential to increase CapEx spending over the next few years if you kind of sanction some of these projects and would you consider moving closer to kind of a free cash flow neutral after dividends?
Speaker Change: Stats to capture more of these opportunities.
stance to capture more of these opportunities.
Speaker Change: Yes, no I mean, the challenge is when you are doing.
Speaker Change: Yeah, no, I mean the challenge is when you're doing, you know, sub-4 multiple projects...
Speaker Change: Sub for multiple projects you just keep expanding out in capacity. So that's a very high class problem, but but in fact really not chewing up capacity when youre doing projects that have that kind of expansion, especially as these high return projects.
Speaker Change: You just keep expanding out your capacity. So that's a very high-class problem But but in fact you're really not shooting up, you know capacity when you're doing projects that have that kind of
Speaker Change: expansion, especially as these high return projects, you know, if you were having to load the ship up and you're having to wait for four years for those to come through, that'd be one thing.
Speaker Change: If you were having to load the ship up and Youre, having to wait for four years for those to come through that would be one thing, but things like the deepwater coming on now things like regional energy access are coming on now these are very high return projects and so.
Speaker Change: But things like the deep water coming on now, things like regional energy access are coming on now. These are very high return projects.
and so...
Speaker Change: We've kind of already got the train rolling there and it's pretty hard to chew up capacity when you're generating those kind of returns.
Speaker Change: It's, we've kind of already got the train rolling there, and it's pretty hard to chew up capacity when you're generating those kind of returns.
Speaker Change: on projects, and so that's really the picture for us that is a very high-class problem to have, is that we're continuing to generate so much incremental capacity with these high-return projects.
Speaker Change: On projects and so that's really the picture for us that that is.
Speaker Change: High class problem to habits that were continuing to generate so much incremental capacity with these high return projects.
Alan Juvane, Alan Armstrong, John Porter
Speaker Change: Got it thank you.
Got it. Thank you.
Speaker Change: Thank you. Our next question comes from Andrew Neel Mitra with Bank of America. Your line is open.
Speaker Change: Thank you. Our next question comes from Indra Neel Mitra with Bank of America. Your line is open.
Speaker Change: Alright, Thanks for taking my question I wanted to put it.
Speaker Change: Hi, thanks for taking my question. I wanted to put a finer point on maybe the shut-ins and delayed turn-in lines.
Speaker Change: Final point.
Speaker Change: Maybe the shut ins.
Speaker Change: Sure.
Speaker Change: <unk>.
Speaker Change: Youre, saying I think last quarter, you said between the northeast and the Haynesville. There is about two Bcf a day between the two combined I'm wondering how that's trending in the third quarter.
Speaker Change: Similar gas prices to where we are in the second quarter.
Speaker Change: Yes, we're at about four Bcf today between the Marcellus and the Haynesville about three of that in the Marcellus a bcf in the Haynesville and the shut ins in the northeast is about one third of that gas thats been shut and it's about a 50 50 mix of the haynesville or sorry. It was.
Speaker Change: We're now in the Haynesville, it's primarily ducks and delayed tills in the Haynesville, but most of the gas in the Haynesville has come back online, but in the in the northeast it's still some shut in gas up there about one third of the.
Speaker Change: Sure Tony sorry about 25%.
Speaker Change: In the northeast instead of a third that is shut in today. So seeing some of that come back online I think you saw EQT announced that they had brought all their gas back on lines that we are seeing some producers respond as prices have rebounded a bit there in the northeast.
Speaker Change: Perfect that's great detail.
Speaker Change: My second question.
Speaker Change: You, obviously want to market first and delivering market to the southeast utilities.
Speaker Change: Now you have a lot of.
Speaker Change: Peers.
Speaker Change: Proposing projects to go from essentially Louisiana.
Speaker Change: With an endpoint.
Speaker Change: Georgia.
Speaker Change: I know it's early.
Speaker Change: Early in the process of SaaS fee, but over the longer term, how do you see transco competing for.
Speaker Change: Additional southeast demand going forward, and where you have an advantage or disadvantage versus your peers and competing for some of that.
Speaker Change: Some of that lag.
Speaker Change: Yes, good question.
Speaker Change: So that project that Kinder announced recently a lot of that is effectively a bigger distribution system in Georgia and hits a lot of the southern markets in south central markets that Transco is not positioned in sort of <unk>.
Speaker Change: <unk> core trends through Atlanta.
Speaker Change: And caption and up through the northeast part of Georgia.
Speaker Change: And so a lot of the projects that we're capturing are going to be the large scale power generation projects and I think.
Speaker Change: So in that system and that expansion is positioned to deliver more distribute.
Speaker Change: Gas into the south and central parts of Georgia, as it's configured so I think from our perspective.
Speaker Change: We like where we're positioned but our big high pressure transmission system that can access.
Speaker Change: Gas out of the Appalachia is super critical and I do think that that's a bit of a station that's going to occur here is where the supply is coming from.
Speaker Change: And what better availability. So if you think about Marcellus and Utica supplies capable of serving both the mid Atlantic and southeast markets.
Speaker Change: In that area and then you think about the.
Speaker Change: Mississippi crossing project that Kinder is proposed to supply some of that system that's more.
Speaker Change: To be Haynesville based supplies and so.
Speaker Change: That's really the difference between those two projects I think certainly transco has the ability to distribute haynesville production as well but.
Speaker Change: But in terms of those two projects that was the major distinction there is kind of where the supply was sourced.
Speaker Change: Yes, I would add Alan to that.
Speaker Change: Are these projects that are being proposed coming over from the Haynesville kind of pile up a lot of gas station 85, which is actually going to be beneficial for us to expand training northward.
Speaker Change: That area as well so that will be a benefit to us to paint those projects get in <unk>.
Speaker Change: Okay perfect I appreciate the answers.
Speaker Change: Thank you our next question.
Speaker Change: Comes from Manav Gupta with UBS Your line is open.
Speaker Change: Good morning, guys. My question relates to slide 'twenty could not help but notice two more additions at the bottom Wildcat project in Delta natural expansion can we get some more details about these two new additions on the slide deck.
Speaker Change: You want to take that while the drilling while turning Dalton.
Speaker Change: What Walter.
Speaker Change: Yes. Thank you, yes, well trail project is one of the ones that Alan mentioned on the northwest pipeline system. This is <unk>.
Speaker Change: Project to move gas basically from the White River hub, which is in the Piceance area up to the old power market area in southwest Wyoming. It can also move capacity from White River hub down to the four corners area.
Speaker Change: As well as the way it's been proposed as a greenfield compressor station in northeast, Utah, which will give us a lot of opportunity to increase our deliverability and takeaway from the <unk> storage facility, which is on the mountain West system, but it has an interconnect to northwest pipeline and northwest pipeline has capacity in play.
Speaker Change: So.
Speaker Change: Great.
Speaker Change: <unk> to add connectivity to storage there and also move gas to markets in the four corners area as well as southwest Wyoming very efficient capital project. That's a greenfield compressor facility will be a <unk> application to the FERC.
Speaker Change: That process.
Speaker Change: Take between a year and a year and a half to get permits for something like that in about a year for construction ultimately for quickly file as far as the.
Speaker Change: Other projects that.
Speaker Change: We have for the knot and conversion that is a coal plant in southwest Wyoming that is partially converted to <unk>.
Speaker Change: The vast majority of our capacity is contracted on that, in fact it is take and pay contracting that we've done on that.
Alan Armstrong, John Porter
Speaker Change: and in terms of the other projects I'm not too terribly surprised if you look at the balance of where gas is going to have to come from.
Speaker Change: and particularly gas that can meet the LNG specs and low nitrogen specs that are going to be required.
Speaker Change: I'm not too terribly surprised just because of the, how much demand growth we're seeing that's going to have to come from somewhere.
Speaker Change: and it's getting, you know, it's starting to mount up pretty big, so I'm not, I'm not too terribly surprised by that, frankly. I don't know how well-contracted those other projects are. I assume they're well-contracted like ours is, but
Speaker Change: If they're not, I would be surprised, but assuming they're well-contracted, I think it's just a sign that people know that there's gaps for...
where there's incremental demand going to have to change.
Speaker Change: I'd also add that the Haynesville historically was plumbed to move gas to the east and northeast and so there's even going to be volumes that will want to move, existing volumes that will want to move south to the LNG markets.
Speaker Change: But, to Alan's first point, I mean, models, you know, not ours, but even third-party models are showing over 10 BCF a day of growth out of the Haynesville by the early 2030s to meet LNG demand. And so, you know, that's a lot of gas that's going to need to find its way to those LNG markets.
Thank you very much.
Alan Juvane, Alan Armstrong, John Porter
Speaker Change: Thanks. Second question, I'm not sure if I missed this or not, but on regional energy access, any update on where things are in seeking a temporary certificate from FERC and any next steps or timeline you're watching for from the DC circuit?
Speaker Change: Yeah, I think all the filings have been made in regard to the DC circuit actions, and we made our application for a temporary certificate as well, and so we're awaiting FERC action on that.
Speaker Change: But as of now, we're flowing gas. The pipeline is operational and all the work is complete from us.
Speaker Change: mechanical standpoint. We're just waiting for the legal action to take place and you know I would say I was pretty encouraged by the response that FERC provided in regard to our re-hearing request at the DC Circuit and it looks like FERC is very firmly standing behind their decision.
Speaker Change: And we're very confident, ultimately, that we'll have a certificate to operate REA.
Thank you.
Thank you.
Speaker Change: Our next question comes from Robert Cattelier with CIBC. Your line is open.
Speaker Change: Hey, good morning everyone. I'd like you to comment on how the significant growth profile you have ahead of you will influence the different growth policy, or do you see yourself having enough balance sheet capacity to handle what's in front of you here?
Yeah, Rob.
Rob: We certainly will have, just because, again, as I mentioned earlier, these projects are so high return that really not, and now we've kind of got to
Rob: That training started now as these big deepwater projects come on.
Rob: regional energy access, a lot of these transmission projects that we've been investing in previously and kind of primed the pump, if you will, for these high return projects. Once we're on that,
Rob: We really are not chewing up a whole lot of capacity because we're generating so much EBITDA growth.
Rob: at the same time. So no concern at all about needing to pull back the dividend at all. In fact, I would say it's probably the other way around just because we're trying to figure out exactly what we will do with the excess capacity and capital that we have available.
Ok, bye-bye.
Speaker Change: Yeah, so that has not come on our radar screen, I'll put it that way.
Okay, and then...
Speaker Change: I want to go back to the presidential administration question what might change here, you know, it's speculative obviously, but we could
Speaker Change: One of the things we could speculate about is, you know, we might be adding growth on growth, so that hints to inflation risk, arguably. So, how are you protecting yourselves and your project returns from the potential of inflation risk?
Speaker Change: Yeah, good question. You know, our gathering business, you know, we build that in automatically to the contracts, and if you think, if you look at the operating margin that we make on these projects, we, it's very high operating margin. And so the, the.
Speaker Change: real driver for the rate is the capital that we initially invest and we absolutely build in. We are very conservative when we're estimating to make sure that we either know what that inflation risk is going to be or we lock it in and the price of steel and
Speaker Change: inflationary impacts like that. So I would say the capital risk is really where our
Speaker Change: risk would be not so much our operating leverage. The other thing I would tell you is that the way that our rates work within
Speaker Change: Our pipelines, obviously, we file those rate cases every five years. So unlike a lot of competitors in the space that haven't filed a rate case in a long time because they're over-earning, we're in a position to capture that inflation adjustment in our rates.
Speaker Change: just because of the way that we're set up in the.
Speaker Change: So, really not too big of a risk to us, other than the capital side risk, and that's a matter of making sure when we set our estimates that we take that into account.
Speaker Change: Okay, last question. I'm just curious, with respect to your storage position, given how much you've done in recent years, should there be a medium to large size acquisition in the storage area? How important would that be to you from a strategic point of view?
Speaker Change: You're saying if somebody else acquired? Yeah, well if there was something for sale that had some pretty significant scale.
Speaker Change: Yeah, I mean, I think, you know, obviously it just depends on the price and how well it fits into our strategy, so we're very bullish.
Speaker Change: storage right now, but we also realize that, you know, we're kind of in a very sweet spot right now where the pricing has been such that only kind of brownfield expansions.
Speaker Change: are being supported from our perspective, but yet much higher margins.
Speaker Change: Than what we've been acquiring the assets at. So kind of in a nice spot right there. So, you know, we've been in, we've watched the storage cycles before and I think are as bullish as we are on the demand for storage.
Speaker Change: You know, we don't want to see it get overbuilt in a way that it would decrease that pricing over time either, so.
That's the thing we're keeping our eye on.
Alan Juvane, Alan Armstrong, John Porter
Speaker Change: Yeah, I think it's important to note that not all storage is created equal. If you think about, you know, what we've focused on, you know, clay basin in the
Speaker Change: in the Rockies is really, you know, an important storage asset to bridge against critical markets between West demand and East production. You know, Nortex in the Dallas-Fort Worth area and that power complex, the Gulf Coast storage transaction and our ability to integrate those assets with Transco for
Speaker Change: Both injection and deliverability. So, you know, we, we will look at storage, but.
Speaker Change: It, you know, not all storage is created equal. And so, we're constantly looking for, as Alan mentioned earlier, you know, what
Speaker Change: What might be next and what might be needed and is there something that you know fits kind of the
the fundamental setup.
Okay, thank you very much.
Speaker Change: Thank you. Our next question comes from Zach Van Everen with TPH and Company. Your line is open.
Speaker Change: Hey guys, thanks for squeezing me in. Just going back to the question around Haynesville pipelines and leg, you know with those additional projects being announced, is there still a need or a want to potentially expand leg in the future?
Speaker Change: Yeah, I would say there's definitely an opportunity to do that. As Chad talked about earlier, there's an expectation that Haynesville production would grow by 10 DCF.
Speaker Change: Over the next decade or so, or even quicker, depending upon the LNG appetite there, so I think there's definitely an opportunity to economically expand the leg project, either by additional compression or by looping a portion.
Speaker Change: of the project, so that's certainly not foreclosed by anybody that's entering the market today.
Speaker Change: Gotcha, that makes sense. Then maybe one on Transco with SESI ongoing right now. Can you remind us, is there a certain amount of time you have to wait just with respect to those customers before you announce another large project along the mainline or are you able to do that if the appetite is there?
Speaker Change: Yeah, I would just say, you know, the Dalton Lateral is a great example. That comes right off of that capacity.
Speaker Change: and it is within the path of that and so that's a great example of something that has no overlap whatsoever with the capacity that we're
Speaker Change: were building there, yet it's still along in that same region. So it, you know, I'd say
Um...
Speaker Change: I think this issue's been a little bit overblown, and perhaps, you know, from my own comments on the topic, it is an issue when you talk about permitting, it is an issue once you file, and once you're down the road on it, if you're doing something within that same work area.
Speaker Change: that would have environmental impact that is a risky proposition to add another project on top of that because they might get combined from a permitting standpoint.
and Greg the other. And so we're very
Speaker Change: sensitive to that because we have customers that are very dependent on us.
Speaker Change: delivering these projects on time, and we take that very seriously, and particularly Duke, you know, has been very clear with us about
Speaker Change: not putting any risk on the timing for that because they do need that gas so badly. So we're, you know, we're going to protect, you know, our customers' interest in that regard.
Speaker Change: and not put things at risk. But it doesn't mean you can't expand the pipeline in that area. It just means that you're doing it within the same regions of impact, like if you were to expand a loop or trying to make a loop larger than you originally called for, or expanded it into a wetland.
Speaker Change: Those are the kind of things that could drag a project and have it Combined back to another and those are the things that we're sensitive It certainly does not mean that we can't expand the pipeline While another project start an expansion of that pipeline while a project is going on
It's just not the same
worked on.
Speaker Change: Yeah, I would say the key to that though is making sure you have distinct...
Speaker Change: supply and demand customers identified, and I've got a great example where the Southside Reliability Enhancement Project and the Commonwealth Energy Connector are really in the same corridor, and we're actually installing compression.
Speaker Change: at the same site for both of those projects, but they were separate and distinct projects.
Speaker Change: FERC evaluated and analyzed them separately, but allowed us to do those projects simultaneously, if you will.
Speaker Change: Yeah, and I don't think we see any commercial opportunities that we're not going to be able to commercialize because of the concern of
Speaker Change: you know, stacking projects. I think we've done a really good job of
Speaker Change: of filling kind of the commercial activity on the first phase of CESI and
Speaker Change: You know, we don't expect to be deferring commercial opportunities because of the project. It looks like we believe that the commercial pace of the next wave of opportunities won't fit well within kind of the timeline needed to
to navigate through the permitting process.
Speaker Change: Yeah, I appreciate all the detail guys and thanks for the time.
Speaker Change: Thank you. Our next question comes from Neil Dingman with Truist. Your line is open.
Speaker Change: Yeah, hey, good morning. This is Jack Wilson. I'm for Neil. I'm just a quick question around near medium-term flexibility around transco. Are there scenarios where small data center driven pipes could relatively soon be tapped into and would this require much change to compression or other equipment?
Speaker Change: I mean, the answer to your question is yes, we have areas that we could make, you know, relatively small direct expansions.
Speaker Change: off Transco and we are looking at a few of those. So the answer is yes, we can do that very dependent on size and scale for of the facility that that we're looking at.
Speaker Change: And so that's really the, you know, if you're talking about one of the hyper scale facilities, that's a completely different setup than somebody that's looking for 180 or 200 megawatt kind of facility. So those kind of facilities we certainly can accommodate.
Alan Juvane, Alan Armstrong, John Porter
Sounds good. Thank you very much.
Speaker Change: Thank you. That's all the time we have for questions. I'd like to turn the call back over to Alan Armstrong for closing remarks.
Alan Armstrong: Okay, well, thank you all for your interest. Really appreciate the.
Speaker Change: Plugging in, we are really excited about the environment we're going into and really paying close attention to
Speaker Change: what happens here with the House as it relates to tax benefit, as well as, you know, perhaps some pretty comprehensive permitting reform that would
Speaker Change: provide for a lot of expansion of infrastructure here in the U.S. that we think would be beneficial.
Speaker Change: I'm excited about where we are today and really excited to see what the future holds for our own forecast as we see some of these changes roll out.
suit. So thank you for joining us today.
Speaker Change: Thank you for your participation. This does conclude the program and you may now disconnect. Everyone, have a great day.