Williams Reports Strong Third-Quarter Results

01 Nov Williams Reports Strong Third-Quarter Results

TULSA, Okla.–(BUSINESS WIRE)–Williams (NYSE: WMB) today announced its unaudited financial results for the three and nine months ended September 30, 2023.

Continued strength in base business delivers another quarter of solid financial results

• GAAP net income of $654 million, or $0.54 per diluted share (EPS) – up 10% vs. 3Q 2022
• Adjusted net income of $547 million, or $0.45 per diluted share (Adjusted EPS)
• Adjusted EBITDA of $1.652 billion – up $15 million from 3Q 2022
• Cash flow from operations (CFFO) of $1.234 billion
• Available funds from operations (AFFO) of $1.230 billion
• Dividend coverage ratio of 2.26x (AFFO basis)
• Increased midpoint for full-year 2023 guidance to $6.7 billion Adjusted EBITDA
• Continued improvement of balance sheet with leverage ratio of 3.45x

Steadfast project execution to drive additional business growth in 2023 and beyond; sale of non-core assets and strategic acquisitions fine-tune portfolio

• Placed in-service phase one of Transco’s Regional Energy Access expansion Oct. 21 ahead of schedule
• Signed precedent agreements on Transco’s Southeast Supply Enhancement
• Signed anchor shipper precedent agreement on MountainWest Uinta Basin expansion project
• Completed NorTex Wolf Hollow, South Mansfield and phase one of Northeast Cardinal Utica expansions
• Sold non-core Bayou Ethane system for an attractive multiple greater than 14x
• Delaware Supreme Court affirms previous rulings in long-standing suit; Energy Transfer ordered to pay $602 million plus additional interest accrued during the appeal to Williams for failed merger
• Optimizing position in DJ Basin through Rocky Mountain Midstream and Cureton Front Range LLC acquisitions
• Assuming operatorship of non-consolidated Blue Racer joint venture
• Supporting two clean hydrogen hubs announced by U.S. Department of Energy

CEO Perspective

Alan Armstrong, president and chief executive officer, made the following comments:

“Williams delivered another quarter of impressive accomplishments with Adjusted EBITDA up 9 percent year-to-date 2023, despite dramatically lower natural gas prices. We expect the strong performance to continue, providing confidence to raise our guidance midpoint by $100 million to $6.7 billion Adjusted EBITDA for 2023.

“Our teams have done an excellent job executing our large-scale expansion projects in a complex and challenging permitting environment. We placed the first phase of our latest Transco expansion project, Regional Energy Access, into service ahead of schedule, progressed on an additional 2 Bcf/d of Transco expansions for completion by year-end 2025, and executed precedent agreements on the 1.4 Bcf/d Southeast Supply Enhancement project. Our teams also successfully integrated MountainWest into our operations and are executing on more profitable growth with this asset than we had planned. Additionally, we have once again optimized our portfolio, using proceeds from the sale of non-core assets, along with expected proceeds from a recent legal judgement, to strengthen our position and capture tangible synergies in the DJ Basin.”

Armstrong added, “Williams has proven its ability to predictably grow through a variety of commodity cycles, and our natural gas strategy is more relevant than ever as demand for natural gas continues to increase, especially to serve electric power generation and LNG exports. Williams is well positioned to capture significant future growth and return value to our shareholders, while we reliably deliver the benefits of natural gas to the United States and abroad.”

GAAP Measures

Third-quarter 2023 net income increased by $55 million compared to the prior year reflecting a $130 million gain on the sale of the Bayou Ethane system and the benefit of higher service revenues driven by contributions from recent acquisitions and increased volumes and rates in the Northeast G&P segment. These improvements were partially offset by our $31 million share of a loss contingency accrual on our Aux Sable equity-method investment and lower results from our upstream business reflecting lower prices partially offset by higher production volumes, and higher operating expenses. The tax provision increased $80 million primarily due to a lower benefit associated with decreases in our estimate of the state deferred income tax rate in both periods and higher pretax income, partially offset by the absence of an unfavorable revision to a state net operating loss carryforward in 2022.

For year-to-date 2023, net income increased $749 million compared to the prior year reflecting a favorable change of $762 million in net unrealized gains/losses on commodity derivatives. Other drivers of the year-to-date increase are similar to those described for the quarterly comparison, except that improved marketing margins more than offset lower natural gas liquids (NGL) processing margins for the year-to-date period. The tax provision increased primarily due to higher pretax income and the absence of $134 million benefit associated with the release of valuation allowances on deferred income tax assets and federal income tax settlements recorded in the prior year, and a lower benefit associated with decreases in our estimate of the state deferred income tax rate in both periods. The year-to-date 2023 period also reported a loss from discontinued operations associated with an adverse legal ruling involving former refinery operations.

Cash flow from operations for the third-quarter decreased compared to the prior year primarily due to unfavorable net changes in working capital and lower distributions from certain equity method investments, partially offset by higher operating results exclusive of noncash items. Year-to-date cash flow from operations increased compared to the prior year primarily due to higher operating results exclusive of non-cash items and favorable changes in derivative margin requirements, partially offset by lower distributions from certain equity method investments.

Non-GAAP Measures

Third-quarter 2023 Adjusted EBITDA increased by $15 million over the prior year, driven by the previously described higher service revenues, partially offset by reduced upstream results, lower marketing margins, higher operating costs and lower JV proportional EBITDA. Year-to-date 2023 Adjusted EBITDA increased by $414 million over the prior year, driven by similar factors, except that marketing margins were overall improved.

Third-quarter 2023 Adjusted Net Income decreased by $45 million compared to the prior year, driven by the previously described impacts to net income, adjusted primarily to remove the effects of net unrealized gains/losses on commodity derivatives, the gain on the sale of certain Gulf coast liquids pipelines, amortization of certain assets from the Sequent acquisition, our share of Aux Sable’s loss contingency accrual, NGL linefill volatility, and favorable income tax benefits. Year-to-date Adjusted Net Income increased by $171 million over the prior year driven by the previously described impacts to year-to-date income, adjusted primarily for similar items.

Third-quarter 2023 Available Funds From Operations (AFFO) decreased slightly by $11 million compared to the prior year primarily due to lower distributions from certain equity method investments partially offset by higher operating results exclusive of noncash items. Year-to-date 2023 AFFO increased by $329 million primarily reflecting higher results from continuing operations exclusive of non-cash items partially offset by lower distributions from certain equity method investments.

Transmission & Gulf of Mexico

Third-quarter and year-to-date 2023 Modified and Adjusted EBITDA improved compared to the prior year driven by the MountainWest and NorTex Midstream acquisitions, higher service revenues, lower employee-related costs and increased benefit of allowance for equity funds used during construction. Modified EBITDA for 2023 was further impacted by the gain on the sale the Bayou Ethane system and one-time MountainWest acquisition and transition costs, while 2022 included a loss related to Eminence storage cavern abandonments and a regulatory charge associated with Transco’s deferred state income tax rate, all of which are excluded from Adjusted EBITDA.

Northeast G&P

Third-quarter and year-to-date 2023 Modified and Adjusted EBITDA reflect increased gathering rates and volumes, partially offset by lower rates at Laurel Mountain Midstream and Bradford joint ventures compared to the prior year. Modified EBITDA for 2023 also reflects our share of a loss contingency accrual at Aux Sable which is excluded from Adjusted EBITDA.

West

Third-quarter 2023 Modified and Adjusted EBITDA decreased compared to the prior year primarily reflecting lower NYMEX-based rates in the Barnett partially offset by favorable changes in realized gains on natural gas hedges. Year-to-date Modified and Adjusted EBITDA improved compared to the prior year driven by higher service revenues reflecting realized gains on natural gas hedges and higher Haynesville volumes, partially offset by lower NYMEX-based rates in the Barnett, as well increased JV EBITDA. The year-to-date period improvement also included contributions from Trace Midstream acquired in April 2022 and lower processing margins reflecting a short-term gas price spike at Opal early in the year and severe weather impacts.

Gas & NGL Marketing Services

Third-quarter 2023 Modified EBITDA improved from the prior year primarily reflecting a net favorable change in unrealized gains/losses on commodity derivatives. Year-to-date 2023 Modified EBITDA improved from the prior year primarily reflecting higher commodity marketing margins and a $791 million net favorable change in unrealized gains/losses on commodity derivatives. The unrealized gains/losses on commodity derivatives are excluded from Adjusted EBITDA.

Other

Third-quarter and year-to-date 2023 Modified and Adjusted EBITDA decreased compared to the prior year primarily reflecting lower results from our upstream business driven by lower prices, partially offset by higher production volumes. Modified EBITDA also includes net unfavorable changes in unrealized gains/losses on commodity derivatives for both the quarter and year-to-date comparative periods, which is excluded from Adjusted EBITDA.

Optimizing portfolio through non-core asset sale and re-investing in assets strategic to footprint

In the third quarter, Williams sold its Bayou Ethane system for $348 million in cash, representing a last-twelve-month multiple over 14x Adjusted EBITDA. The transaction includes long-term ethane take away agreements, locking in flow assurance for Discovery and Mobile Bay producers. The proceeds from the sale will contribute to funding Williams’ extensive portfolio of attractive growth capital investments, including transactions in Colorado’s Denver-Julesburg (“DJ”) Basin:

• Williams has agreed to acquire Cureton Front Range LLC, whose assets include gas gathering pipelines and two processing plants to serve producers across 225,000 dedicated acres.

• Williams has also agreed to purchase KKR’s 50 percent ownership interest in Rocky Mountain Midstream, resulting in 100 percent ownership of Rocky Mountain Midstream for Williams.

The acquisitions have a combined value of $1.27 billion, representing a blended multiple of approximately 7x expected 2024 Adjusted EBITDA. The combination of these two assets will further drive down purchase multiple via increased volumes on existing processing facilities, as well as downstream NGL transportation, fractionation and storage assets. The transactions are expected to close by the end of 2023, making Williams the third largest gatherer in the DJ Basin and progressing toward the company’s strategy of maintaining top positions in its areas of operation.

Business Segment Results & Form 10-Q

Williams’ operations are comprised of the following reportable segments: Transmission & Gulf of Mexico, Northeast G&P, West and Gas & NGL Marketing Services, as well as Other. For more information, see the company’s third-quarter 2023 Form 10-Q.

2023 Financial Guidance

The company increased its midpoint of guidance and now expects 2023 Adjusted EBITDA between $6.6 billion and $6.8 billion. Growth capex guidance remains the same; between $1.6 billion to $1.9 billion. Importantly, Williams anticipates a leverage ratio midpoint of 3.65x, which will allow it to retain financial flexibility. The dividend was increased by 5.3% on an annualized basis to $1.79 in 2023 from $1.70 in 2022.

Williams’ Third-Quarter 2023 Materials to be Posted Shortly; Q&A Webcast Scheduled for Tomorrow

Williams’ third-quarter 2023 earnings presentation will be posted at www.williams.com. The company’s third-quarter 2023 earnings conference call and webcast with analysts and investors is scheduled for Thursday, November 2, at 9:30 a.m. Eastern Time (8:30 a.m. Central Time). Participants who wish to join the call by phone must register using the following link: https://conferencingportals.com/event/MTgNWtxQ.

A webcast link to the conference call will be provided on Williams’ Investor Relations website. A replay of the webcast will be available on the website for at least 90 days following the event.

About Williams

As the world demands reliable, low-cost, low-carbon energy, Williams (NYSE: WMB) will be there with the best transport, storage and delivery solutions to reliably fuel the clean energy economy. Headquartered in Tulsa, Oklahoma, Williams is an industry-leading, investment grade C-Corp with operations across the natural gas value chain including gathering, processing, interstate transportation, storage, wholesale marketing and trading of natural gas and natural gas liquids. With major positions in top U.S. supply basins, Williams connects the best supplies with the growing demand for clean energy. Williams owns and operates more than 33,000 miles of pipelines system wide – including Transco, the nation’s largest volume natural gas pipeline – and handles approximately one third of the natural gas in the United States that is used every day for clean-power generation, heating and industrial use. Learn how the company is leveraging its nationwide footprint to incorporate clean hydrogen, NextGen Gas and other innovations at www.williams.com.

Contacts

MEDIA CONTACT:
media@williams.com
(800) 945-8723

INVESTOR CONTACTS:
Danilo Juvane

(918) 573-5075

Caroline Sardella

(918) 230-9992

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