WILLIAMS COMPANIES, INC. annual report, FY2021

The Williams Companies, Inc. 2021 Form 10-K Summary

Business context and reporting period

Williams is a U.S. energy infrastructure company focused on natural gas gathering, processing, transmission, storage, NGL fractionation and marketing. It owns interests in more than 30,000 miles of pipelines, 29 processing facilities, seven fractionation facilities and approximately 23 million barrels of NGL storage capacity. The filing covers the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019.

Reportable segments were Transmission & Gulf of Mexico, Northeast G&P, West, Sequent and Other. Sequent was acquired on July 1, 2021; beginning January 1, 2022, the company realigned its natural gas and NGL marketing activities into a Gas & NGL Marketing Services segment.

Key financial metrics

Metric	2021	2020	Change
Total revenues	$10.627 billion	$7.719 billion	+$2.908 billion
Operating income	$2.631 billion	$2.202 billion	+$429 million
Net income	$1.562 billion	$198 million	+$1.364 billion
Net income attributable to Williams	$1.517 billion	$211 million	+$1.306 billion
Net income available to common stockholders	$1.514 billion	$208 million	+$1.306 billion
Diluted earnings per share	$1.24	$0.17	+$1.07
Net cash provided by operating activities	$3.945 billion	$3.496 billion	+$449 million
Capital expenditures	$1.239 billion	$1.239 billion	No change
Common dividends paid	$1.992 billion	$1.941 billion	+$51 million

Calculated operating margin was approximately 24.8%, versus 28.5% in 2020; the decline reflects the large increase in lower-margin product sales and marketing activity. Calculated net margin attributable to Williams was approximately 14.3%, versus 2.7% in 2020.

Modified EBITDA, a non-GAAP segment measure, was $5.494 billion, compared with $4.851 billion in 2020. Segment Modified EBITDA was $2.621 billion for Transmission & Gulf of Mexico, $1.712 billion for Northeast G&P, $1.095 billion for West, $(112) million for Sequent and $178 million for Other.

Balance sheet, debt and liquidity

Cash and cash equivalents were $1.680 billion at December 31, 2021, compared with $142 million at year-end 2020.
Total long-term debt, including current maturities, was $23.675 billion, including $2.025 billion due within one year and $21.650 billion due thereafter.
Available liquidity was $5.430 billion, consisting of $1.680 billion of cash and $3.750 billion of capacity under the revolving credit facility. No commercial paper was outstanding.
The company was in compliance with its credit facility covenants. Senior unsecured debt ratings were investment grade: BBB from S&P, Baa2 from Moody’s and BBB from Fitch, all with stable outlooks.
Working capital was negative by $423 million at year-end, including current debt maturities.

Material changes versus the prior comparable period

Net income attributable to Williams increased primarily from higher realized commodity margins, increased equity-method earnings, earnings from newly acquired upstream properties, higher Transco transportation fees and the absence of approximately $1.4 billion of 2020 pre-tax impairment charges.
Service revenue increased modestly to $6.001 billion, supported by Transco expansion projects, higher reimbursable electricity costs and higher Northeast processing and fractionation revenue. Lower West gathering volumes and lower volume-deficiency fees partially offset growth.
Product sales increased to $4.536 billion from $1.671 billion, primarily because of higher commodity prices and volumes, marketing activity and newly acquired upstream operations.
Operating and maintenance expense rose to $1.548 billion, and depreciation and amortization rose to $1.842 billion, reflecting acquired operations, new assets and revised useful lives for certain facilities.
The 2020 period included $187 million of goodwill impairment, $182 million of asset impairments and $1.046 billion of equity-method investment impairments; 2021 had no goodwill or equity-method investment impairment and only $2 million of asset impairments.
Sequent contributed a $(112) million Modified EBITDA loss for the six months owned, including a $109 million net unrealized derivative loss and inventory-related charges. Management stated that unrealized derivative volatility generally offsets changes in the economic value of the underlying transportation and storage portfolio over time.
Operating cash flow increased despite unfavorable changes in derivative assets and liabilities, aided by higher operating income, improved working capital and higher distributions from unconsolidated affiliates.

Guidance, outlook, risks and unusual items

Management expects 2022 earnings and cash-flow growth from Ohio Valley Midstream, Cardinal, Susquehanna, Haynesville, recently completed Transco expansions and upstream development. Expected offsets include the absence of favorable Winter Storm Uri marketing results and lower Bradford Supply Hub results from contract rate redetermination.
2022 growth capital and investment expenditures are expected to be $1.25 billion to $1.35 billion. Management expects to fund substantially all planned capital spending with cash available after dividends, while retaining flexibility for repurchases and other opportunities.
The Regional Energy Access Transco project is expected to enter service as early as the fourth quarter of 2024, subject to regulatory approvals, and is expected to add 829 Mdth/d of capacity.
Key risks include FERC and other regulatory actions, permitting delays or denials, environmental and climate-related regulation, opposition to pipeline projects, commodity-price volatility, producer drilling levels, customer and counterparty credit risk, operational incidents, extreme weather, cybersecurity, competition, inflation and interest rates.
The company has a $1.5 billion share repurchase authorization; no repurchases had occurred by December 31, 2021.
The quarterly dividend increased from $0.40 per share in 2020 to $0.41 per share in 2021. On February 1, 2022, the board approved a $0.425 per-share quarterly dividend.
Environmental liabilities accrued at year-end were approximately $31 million, with approximately $9 million of environmental remediation payments expected in 2022. The filing states that costs from future regulatory changes cannot currently be reasonably estimated.
Williams received a $410 million judgment against Energy Transfer on December 29, 2021, plus contractual interest and reasonable attorneys’ fees and expenses; the judgment could be appealed.
Environmental litigation, including the Alaska refinery contamination matter, natural-gas price-index litigation and ongoing EPA/DOJ leak-detection matters, remains subject to uncertainty. The filing states that certain potential losses cannot be reasonably estimated.
The financial statements and internal control over financial reporting received unqualified opinions from the independent auditor. Sequent was excluded from management’s internal-control assessment for the permitted one-year post-acquisition period.

Most important facts for investors to verify

Whether projected 2022 operating cash flow can support the $1.25 billion to $1.35 billion growth-capital program, dividends and debt maturities.
The timing, cost and regulatory status of Regional Energy Access and other Transco expansion projects.
Underlying cash earnings from Sequent after excluding mark-to-market derivative effects and purchase-accounting inventory adjustments.
Debt refinancing needs, covenant headroom and sensitivity to interest-rate increases or a credit-rating downgrade.
Exposure to producer drilling declines, contract renewals, minimum-volume commitments and customer concentration in gathering and processing operations.
Potential costs and timing of environmental, pipeline-safety, climate, permitting and litigation matters, including the Energy Transfer judgment and Alaska contamination appeal.
Whether the company’s dividend and proposed share repurchases remain consistent with leverage targets and available cash.