Williams Companies, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Williams is a U.S. energy infrastructure company operating interstate natural gas pipelines and storage, gathering and processing assets, NGL and natural gas marketing operations, and upstream assets. Reportable segments are Transmission & Gulf of Mexico, Northeast G&P, West, and Gas & NGL Marketing Services.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenues | $2.559 billion | $3.021 billion | $8.123 billion | $8.035 billion |
| Operating income | $994 million | $820 million | $3.224 billion | $1.946 billion |
| Net income | $684 million | $621 million | $2.135 billion | $1.420 billion |
| Net income attributable to Williams | $654 million | $600 million | $2.041 billion | $1.380 billion |
| EPS attributable to common stockholders | $0.54 | $0.49 | $1.67 | $1.13 |
| Cash flow from operations | Not separately provided | Not separately provided | $4.125 billion | $3.670 billion |
| Capital expenditures | Not separately provided | Not separately provided | $1.845 billion | $1.447 billion |
Operating margins were approximately 38.8% in Q3 2023 and 39.7% for the first nine months, compared with approximately 27.1% and 24.2%, respectively, in the comparable 2022 periods. Net margins were approximately 26.7% in Q3 2023 and 26.3% for the first nine months.
- Q3 Modified EBITDA was $1.774 billion, compared with $1.599 billion in Q3 2022. Nine-month Modified EBITDA was $5.571 billion, compared with $4.239 billion.
- Segment Modified EBITDA for the first nine months was $2.327 billion for Transmission & Gulf of Mexico, $1.439 billion for Northeast G&P, $931 million for West, $678 million for Gas & NGL Marketing Services, and $196 million for Other.
- Cash and cash equivalents were $2.074 billion at September 30, 2023, compared with $152 million at December 31, 2022.
- Long-term debt, including the current portion, was $25.651 billion at September 30, 2023, compared with $22.554 billion at December 31, 2022. Approximately $2.879 billion was due within one year.
- No commercial paper was outstanding. The company reported $3.750 billion of unused credit-facility capacity and total available liquidity of $5.824 billion, including cash.
- Common dividends paid during the first nine months were $1.635 billion. The quarterly dividend was increased to $0.4475 per share from $0.425 per share in 2022.
Material Changes Versus the Prior Comparable Period
- Nine-month net income attributable to Williams increased 48% to $2.041 billion, primarily reflecting higher operating income and substantially improved commodity-derivative results.
- Service revenue increased 5% in Q3 and 8% year to date, supported by MountainWest, higher gathering and processing volumes, rate escalations, and cost-of-service rate redeterminations.
- Product sales declined 43% in Q3 and 38% year to date, mainly because of lower natural gas, NGL, and other commodity prices and volumes.
- Net gains on commodity derivatives were $24 million in Q3 and $645 million year to date, compared with $16 million and a $491 million loss, respectively, in 2022. These results include significant unrealized fair-value changes and may create earnings volatility.
- Transmission & Gulf of Mexico Modified EBITDA increased to $881 million in Q3 and $2.327 billion year to date, aided by the MountainWest acquisition and a $130 million gain on the sale of Gulf Coast liquids pipelines.
- Gas & NGL Marketing Services Modified EBITDA improved to $43 million in Q3 and $678 million year to date, compared with $20 million and a $249 million loss, respectively, reflecting improved derivative results and marketing margins.
- Northeast G&P and West performance reflected higher volumes and acquisitions, but also lower commodity-based rates, lower commodity margins, and weaker results from certain equity-method investments.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects 2023 results to benefit from MountainWest, volume growth in Haynesville and Northeast G&P, inflation-based rate increases, Regional Energy Access, and a full-year contribution from Trace and NorTex assets. These benefits are partly offset by a lower expected commodity-price environment.
- 2023 growth capital and investment expenditures are expected to be $1.6 billion to $1.9 billion, excluding acquisitions. Management expects to fund substantially all planned capital spending with cash available after dividends.
- In October 2023, Williams agreed to acquire Cureton Front Range for $560 million and an additional 50% interest in RMM for $714 million. The transactions were expected to close in Q4 2023 and would expand the West segment in the DJ Basin.
- Williams completed the $1.08 billion MountainWest acquisition in February 2023, retaining $430 million of MountainWest debt. MountainWest contributed $156 million of revenue and $78 million of Modified EBITDA from acquisition through September 30, including $20 million of transition-related costs.
- The company sold certain Gulf Coast petrochemical and feedstock pipelines for $348 million and recognized a $130 million gain in Q3.
- Alaska refinery contamination litigation resulted in a $115 million pre-tax charge in Q2 2023 and an additional $1 million of pre-tax interest expense in Q3. The company filed a petition for U.S. Supreme Court review.
- The Delaware Supreme Court affirmed a $602 million judgment in Williams’s favor against Energy Transfer on October 10, 2023. Energy Transfer filed a motion for reargument on October 25; approximately $90 million of attorney fees are payable upon receipt of the judgment amount.
- Environmental liabilities accrued at September 30, 2023 totaled $51 million. The company also faces regulatory, permitting, litigation, climate, weather, cybersecurity, counterparty, commodity-price, interest-rate, inflation, and construction-cost risks.
- Management reported investment-grade ratings with stable outlooks: BBB from S&P and Fitch and Baa2 from Moody’s.
Important Facts for Investors to Verify
- Whether the large year-to-date commodity-derivative gain is realized, sustainable, or primarily noncash and subject to reversal.
- The timing, funding, and final purchase-price adjustments for the Cureton Front Range and RMM acquisitions.
- Williams’s ability to refinance or otherwise fund approximately $2.879 billion of debt due within one year while maintaining investment-grade ratings.
- The final outcome and cash impact of the Alaska refinery litigation and the timing of recovery on the Energy Transfer judgment.
- Execution, permitting, and in-service timing for Regional Energy Access, Louisiana Energy Gateway, and other expansion projects.
- Actual 2023 capital spending relative to the $1.6 billion to $1.9 billion growth-capital outlook and the effect of dividends and acquisitions on free cash flow.