The Williams Third Quarter Earnings 2023 Conference Call has begun with the Vice President of Investor Relations, Danilo Juvane, introducing the speakers and reminding participants that the call is being recorded. The President and CEO, Alan Armstrong, and the Chief Financial Officer, John Porter, will be discussing the company's recent earnings release. Other members of the Williams team are also present on the call. The presentation materials include a disclaimer about forward-looking statements and non-GAAP measures. Alan Armstrong begins by highlighting the company's strong operational execution.

The company's project execution team completed the first half of Transco's Regional Energy Access project ahead of schedule and received necessary authorizations to begin full rate revenues. Other expansion projects were also completed, including a gas transmission line for newly acquired NorTex storage system and a large expansion of the South Mansfield gathering system for GeoSouthern. The company also signed precedent agreements for the Southeast Supply Enhancement project, which will provide takeaway capacity for the fast-growing Mid-Atlantic and Southeast markets. The company plans to proceed with the permitting process for this project to meet the urgent demands of its customers.

Williams is expecting a significant increase in EBITDA from their pipeline extension project, which will have a larger impact than any previous project. They have also signed contracts for a Uinta Basin expansion on their MountainWest system. The company has successfully integrated MountainWest assets into their operations and has seen unexpected growth opportunities. They have sold their Bayou Ethane Pipeline system for a high multiple of their adjusted EBITDA and are using the proceeds to strengthen their presence in the DJ Basin through two acquisitions.

Williams has exercised their agreement with KKR in Rocky Mountain Midstream and is excited about expanding their business in the region. They have also made acquisitions worth $1.27 billion and expect to close them by the end of 2023. They have taken over operatorship of Blue Racer system and are working towards commercializing clean hydrogen.

The company has delivered strong financial performance in the third quarter of 2022, despite lower gas prices. Year-to-date, their adjusted EBITDA and EPS have increased, and gathering volumes are up. They have raised their 2023 guidance by $100 million and have consistently met or exceeded expectations for 34 consecutive quarters. The company's adherence to their strategy, commitment to improving return on capital, and strong execution have led to predictable growth through various commodity cycles. The company's base business, excluding marketing and upstream joint ventures, saw a 6% increase compared to the previous year's third quarter.

Despite a tougher year-over-year comparison due to favorable commodity prices in the third quarter of last year, the company still saw growth in total adjusted EBITDA and a 6% increase in their base business. Year-to-date, total adjusted EBITDA is up 9%, driven by the strong performance of their core infrastructure businesses. Despite a 63% decrease in natural gas prices, the company's natural gas focused strategy and assets have shown resilience. Adjusted EPS for the third quarter was up 11% year-to-date, with available funds from operations remaining flat. The company's balance sheet has also strengthened, with a decrease in debt to adjusted EBITDA. CapEx has increased due to progress on key growth projects. Based on strong financial performance, the company has raised their consolidated adjusted EBITDA guidance for the year.

The company saw a 1% overall increase and a strong 6% increase in base business EBITDA over the prior year, despite a 68% decrease in natural gas prices. The decrease in prices had a significant impact on revenues, resulting in $70 million of lower natural gas price-based gathering rates. However, the Transmission & Gulf of Mexico business improved by $83 million, with contributions from recent acquisitions. The Northeast gathering and processing business also saw a 5% increase, despite lower shoulder season natural gas pricing. This was due to a shift in production to liquids rich systems, resulting in a 22% increase in processing plant volumes and related revenues.

In the West, there was a decrease of $22 million or 7%, due to lower natural gas prices, despite strong volume growth in the Haynesville. The gas and NGL marketing business saw a decrease of $22 million due to less favorable conditions compared to last year. The upstream joint venture operations in the other segment were down $52 million, with the Haynesville operations down $36 million and the Wamsutter operations down $16 million. However, overall year-to-date, there was a 9% increase in EBITDA, despite a 63% decrease in average natural gas prices. The Transmission & Gulf of Mexico business saw a 10% increase, driven by acquisitions and increases in transmission and deepwater revenues. The Northeast G&P business also performed well with a 10% increase, primarily due to a $217 million increase in service revenues.

The company experienced a 6% increase in revenue due to higher volumes in their liquids rich areas and strong performance in their West region. However, lower natural gas prices and NGL margins had a negative impact. The gas and NGL marketing business saw a significant increase in EBITDA due to a strong first quarter. The upstream joint venture operations saw a decrease in EBITDA, primarily due to lower net realized prices. Overall, the company's adjusted EBITDA guidance has been raised to $6.6 billion to $6.8 billion.

The company has seen an increase in performance due to their base business and overcoming challenges such as a decline in natural gas prices and a difficult winter. This has led to a raise in their 2023 guidance, which aligns with positive shifts in financial metrics. Despite uncertainties such as a pending payment and recent transactions, the company expects to meet their original leverage guidance. Overall, the company remains a strong investment opportunity with a unique focus on natural gas.

The company's natural gas strategy has allowed for consistent growth and resilience over the years. Natural gas is seen as the most effective and practical alternative for reducing emissions and meeting energy needs. Williams is committed to a clean energy future and believes that natural gas will play a crucial role in supporting electrification and other government initiatives.

Alan Armstrong clarifies that the EBITDA mentioned is on the initial phase of the Southeast Supply Enhancement project and not counting on a second phase. He also mentions that the project has one of the most attractive returns they have seen for any pipeline expansion. Capacity is limited for the project.

The speaker reminds the audience of the physical capacities of their existing project and the demand for it. They mention the use of existing right of way and the avoidance of typical wetland problems in the permitting process for their expansion project. The speaker praises their team for their work on the project. The interviewer asks about downstream benefits for the DJ Basin acquisitions and the speaker defers to another team member to answer.

The speaker discusses the value of the 7x multiple and the potential for integration of assets. They mention the excess capacity of Rocky Mountain Midstream and the potential for consolidation of volumes. The speaker also addresses concerns about gas supply for Southern Utilities and mentions the options available for Haynesville producers on the Transco system.

The speaker believes that producers will not have to declare their preference for either the Haynesville or Station 85 markets, but the competition for Haynesville supplies will determine the direction of volume flows. The speaker also mentions the growing LNG market and the interest in picking up supplies from the Mountain Valley Pipeline. The macro setup for the next decade and beyond will see competition between utilities and LNG exporters for natural gas, and the Transco system is well positioned to benefit from this. The Texas to Louisiana Energy Pathway Project is expected to generate $364 million a day by 2025, but crossing the border between Texas and Louisiana may be more challenging than initially thought.

Michael Dunn, a representative from Transco, discusses the opportunities for increasing gas transportation from South Texas to the Louisiana Energy Corridor through the TLEP project, which is awaiting a permit. He mentions that there are many possibilities for expanding this pathway through looping and additional compression, but the biggest obstacle is navigating the Transco pipeline system near Houston. He also notes that FERC has lowered their requirements for smaller projects like TLEP.

The DJ acquisitions were originally going to require an environmental impact statement, which would have taken longer, but FERC allowed it to go through as an environmental assessment, which is a quicker process. Looping projects are generally less controversial and easier to get approvals for, and FERC is interested in using condemnation authority. The company has had success with looping projects in the past. Theresa Chen asks about the DJ acquisitions and the potential for lower multiples with downstream synergies.

Chad Zamarin, speaking on behalf of the company, explains that there are opportunities for portfolio optimization in the future. They are focused on leveraging their footprint and strategic positioning to make bolt-on transactions that provide better synergies. They have already made progress in this area, such as their partnership with Targa to move NGLs to Mont Belvieu. They are also looking to clean up inefficiencies within the business and will continue to look for similar opportunities. As for their marketing efforts in the fourth quarter, it is still too early to provide any updates.

The speaker discusses the potential for weather events to impact their Sequent platform, but remains cautious about over-predicting. They feel well positioned for the winter and are primarily focused on basis differentials and time differentials. They also clarify that the timeline for the Southeast Supply Enhancement agreements does not depend on the timing of the Mountain Valley Pipeline project.

Jean asks about the possibility of the project not being completed by 2027 and how that would impact supply. Williams plans for the project to come online all at once, and Chad explains that the company's base business benefits from volatility in gas prices, as their pipeline infrastructure helps mitigate basis differentials.

The company is well-positioned for growth in its base business, with plans to add additional assets and capabilities to capture volatility. They are focused on converting volatility into infrastructure solutions and believe they are set up to follow basis differentials and bring in long-term mitigation. In 2024, there may be some tailwinds from full year Mountain West and small expansions, but there could also be some hedging headwinds. The base business is expected to continue growing, but the amount of growth in the gathering business will depend on producers' response to prompt prices and the forward curve. The transmission business is focused on accelerating existing projects, such as the REA project.

The speaker believes that there are opportunities for growth in 2024, particularly in the deepwater business. They mention specific projects that will contribute to this growth, including acquisitions and expansions. However, they caution that it is too early to predict the exact impact of the producer community on this growth. The speaker also mentions the potential for NGL and LNG opportunities in the next few years.

The speaker, Alan Armstrong, is confident that Williams will see growth in their backlog due to the high demand for natural gas and the company's strategic position in the transmission business. He believes that many of the projects in their pipeline will move forward, especially with the increasing demand for gas in the Northeast. He also mentions that the alternatives for power generation in the region are limited, making their customers who took capacity on their REA line look smart.

The company has seen a high level of demand for their project in the Mid-Atlantic and Southeast regions, and they expect this demand to continue into 2025 and 2026. They are surprised by the urgency of their customers' demands and are focusing on finalizing contracts with those customers first. They plan to protect the timeline of the project as they move forward.

The company is aware that there may be other projects that come up before their pre-filing, but they are focused on moving ahead with their initial project due to customer demand. They expect to see another project come out of this and the pace of dividend growth will be in line with their AFFO growth of 5% to 7%. This is a Board-level decision and they want to avoid ignoring any potential tax liability. The 5% to 7% growth rate is achievable for the next several years, but may be affected by the law of big numbers in the future.

Jeremy Tonet from JPMorgan asks about the impact of higher rates on the company's capital allocation and return of capital hurdles. John Porter responds that there is no significant change to their returns-based approach and that the spread between their returns and cost of capital is holding up well. He also mentions their ability to make discretionary investments into their regulated rate base and achieve regulated rates of return, which sets the floor for their capital allocation decisions.

The speaker states that the company will continue to monitor their return on share buybacks and potential investments in the regulated rate base. They will also take advantage of any dislocations in the stock price to buy shares. The higher interest rates are actually beneficial for the company's business due to their gathering contracts and the impact on power generation alternatives.

The speaker responds to a question about the impact of higher rates on offshore wind and solar deployments. They mention that there is pressure in these areas and that there may be a shift in utility customers' long-term perspectives on natural gas. They also mention that there is growing demand for gas in the mid-Atlantic states, but there has not yet been a shift in the Northeast. They see themselves as a complement to renewables and have not seen a capitulation in the market yet. The speaker also notes that there are currently less than 10% intermittent resources in the eastern third of the United States.

The paragraph discusses the potential for growth in the use of alternative energy sources, such as solar and wind, in the future. It also mentions the expected increase in demand for natural gas by 2040 and the potential impact of ONEOK's expansion on the Overland Pass pipeline. The speaker believes that opening up more space on the pipeline could benefit the partnership.

The speaker is pleased with the current performance and is even more excited about the growth and potential growth in their strategy. They thank the listeners for joining the conference call and look forward to speaking with them again. The operator then concludes the call and thanks everyone for participating.

This summary was generated with AI and may contain some inaccuracies.