Williams Companies, Inc. — Form 10-Q Summary
Business context and reporting period
Williams is a U.S. energy infrastructure company operating natural gas pipelines, gathering and processing, NGL fractionation and marketing, storage, and related upstream assets. Reportable segments are Transmission & Gulf of Mexico, Northeast G&P, West, Sequent, and Other. This filing covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenues | $2.475 billion | $1.933 billion | $7.370 billion | $5.627 billion |
| Operating income | $355 million | $641 million | $1.694 billion | $1.684 billion |
| Net income attributable to Williams | $165 million | $309 million | $895 million | $95 million |
| Diluted EPS | $0.13 | $0.25 | $0.73 | $0.08 |
| Operating cash flow | Not separately provided | Not separately provided | $2.806 billion | $2.382 billion |
| Capital expenditures | Not separately provided | Not separately provided | $957 million | $938 million |
Q3 operating margin was approximately 14.3%, versus 33.2% in the prior-year quarter; nine-month operating margin was approximately 23.0%, versus 29.9%. Net margin attributable to Williams was approximately 6.7% in Q3 2021 versus 16.0% in Q3 2020, and 12.1% for the first nine months versus 1.7% in the prior-year period.
- Modified EBITDA: $1.105 billion in Q3 2021 versus $1.243 billion; $3.821 billion for nine months versus $3.742 billion.
- Segment performance: Q3 Modified EBITDA increased in Transmission & Gulf of Mexico to $630 million, Northeast G&P to $442 million, West to $276 million, and Other to $38 million. Sequent contributed negative $281 million, primarily from unrealized derivative losses.
- Liquidity: Cash was $214 million at September 30, 2021. The company reported $4.5 billion of available credit-facility capacity and no commercial paper outstanding, for stated available liquidity of $4.714 billion.
- Debt: Current debt was $2.024 billion and long-term debt was $20.338 billion. Approximately $2.0 billion was due within one year and approximately $20.3 billion thereafter. Reported debt fair value, including the current portion, was $26.614 billion.
- Equity and dividends: Total equity was $13.919 billion. The company paid $1.23 per common share during the first nine months, including a $0.41 quarterly dividend in September.
Material changes versus the prior comparable period
- Revenue increased $542 million in Q3 and $1.743 billion year to date, driven primarily by higher product sales, stronger commodity prices and volumes, recently acquired upstream operations, and the Sequent acquisition.
- Operating income declined $286 million in Q3 despite higher revenue, primarily because of a $387 million unfavorable change in net commodity-derivative results, including Sequent’s $277 million unrealized derivative loss.
- Nine-month net income attributable to Williams increased $800 million, reflecting the absence of $938 million of equity-method investment impairments and $187 million of goodwill impairment recorded in 2020, along with improved commodity margins and equity earnings.
- Operating and maintenance expense increased $155 million year to date, while depreciation and amortization increased $103 million, primarily from acquired upstream assets, new Transco assets, Sequent intangible-asset amortization, and revised useful lives for certain West facilities.
- Cash from operations increased $424 million year to date. Cash increased $72 million from year-end 2020 after capital spending, dividends, debt activity, acquisitions, and equity-investment contributions.
- Williams acquired Sequent on July 1, 2021, for total consideration of $159 million. Sequent generated $54 million of product sales but a $322 million net commodity-derivative loss during the third quarter.
- The company authorized a $1.5 billion share-repurchase program on September 3, 2021; no repurchases had occurred by September 30.
Guidance, outlook, risks, contingencies, and unusual items
- Management expected 2021 growth capital and investment expenditures of $1.0 billion to $1.2 billion and intended to fund substantially all planned capital spending with cash available after dividends.
- Management expected benefits from Northeast G&P volume growth, Transco expansion projects, higher Gulf of Mexico results, strong commodity prices, and upstream properties. These benefits were expected to be partly offset by lower West volumes, certain Haynesville fee reductions, higher incentive compensation, and higher operating taxes.
- Leidy South was expected to be fully in service by year-end 2021, with total capacity expansion of 582 Mdth/d. Regional Energy Access was targeted for service as early as the fourth quarter of 2023, subject to regulatory approvals, with expected capacity expansion of 829 Mdth/d.
- Sequent’s mark-to-market accounting creates potentially significant earnings volatility because derivative gains and losses are recognized before corresponding changes in the economic value of transportation and storage positions.
- Key risks include commodity-price and volume volatility, counterparty credit exposure, regulatory and permitting delays, project execution, weather and facility damage, cybersecurity, climate-related risks, inflation and interest rates, financing constraints, and COVID-19-related economic effects.
- Material contingencies include natural-gas price-index litigation, Alaska refinery contamination litigation, environmental matters, and other indemnification obligations. The filing states that potential loss from certain unresolved gas-price-index actions cannot be reasonably estimated and could be material. Environmental liabilities accrued at September 30, 2021 totaled $32 million.
- Commitments for Sequent pipeline transportation, storage capacity, and gas supply were approximately $424 million.
- On October 8, 2021, after quarter-end, Williams issued $600 million of 2.6% senior notes due 2031 and $650 million of 3.5% senior notes due 2051. Its amended credit agreement reduced aggregate commitments to $3.75 billion, with potential increases of up to $500 million.
- Management concluded disclosure controls were effective at a reasonable assurance level. Sequent was excluded from the control assessment for the permitted one-year acquisition period, and a company-wide ERP implementation occurred on July 1, 2021.
Important facts for investors to verify
- Whether Sequent’s unrealized derivative losses reverse as the underlying storage and transportation positions are realized, and the resulting impact on reported earnings and cash flow.
- Progress toward the $1.0 billion to $1.2 billion 2021 capital-investment plan and the funding of approximately $2.0 billion of near-term debt maturities.
- Actual utilization of the $1.5 billion share-repurchase authorization and sustainability of the $0.41 quarterly dividend.
- Regulatory approvals, construction progress, and in-service timing for Leidy South and Regional Energy Access.
- Developments in gas-price-index litigation, Alaska contamination litigation, environmental proceedings, and the Energy Transfer-related litigation.
- Changes in commodity prices, producer activity, gathering volumes, counterparty exposure, credit ratings, and debt-to-EBITDA compliance.