Williams Companies, Inc. — Q1 2021 Form 10-Q Summary
Business Context and Reporting Period
Williams is a U.S.-focused energy infrastructure company connecting natural gas and natural gas liquids supply basins with major markets. Its reportable segments are Transmission & Gulf of Mexico, Northeast G&P, and West, with upstream operations and corporate activities reported in Other. This unaudited Form 10-Q covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $2.612 billion | $1.913 billion | +$699 million |
| Operating income | $739 million | $431 million | +$308 million |
| Net income attributable to Williams | $426 million | $(517) million | +$943 million |
| Net income available to common stockholders | $425 million | $(518) million | +$943 million |
| Diluted EPS | $0.35 | $(0.43) | +$0.78 |
| Operating cash flow | $915 million | $787 million | +$128 million |
| Capital expenditures | $260 million | $306 million | $(46) million |
| Modified EBITDA | $1.410 billion | $1.253 billion | +$157 million |
Operating margin was approximately 28.3% in Q1 2021 versus approximately 22.5% in Q1 2020. Net income attributable to Williams margin was approximately 16.3%, compared with a negative margin in the prior-year quarter. Product sales increased to $1.111 billion from $411 million, while service revenue declined modestly to $1.452 billion from $1.474 billion.
At March 31, 2021, cash and cash equivalents were $1.126 billion, compared with $142 million at December 31, 2020. Total debt, including current maturities, was approximately $23.234 billion, including $2.142 billion due within one year. The company had $4.5 billion of unused capacity under its long-term credit facility, no commercial paper outstanding, and reported total available liquidity of approximately $5.626 billion. Long-term debt due after one year was approximately $21.1 billion.
Williams issued $900 million of 2.6% senior unsecured notes due 2031 in March 2021. The company paid $498 million of common dividends during the quarter, or $0.41 per share, an increase from $0.40 per share in each quarter of 2020. Credit ratings were BBB from S&P, Baa3 from Moody’s, and BBB from Fitch.
Material Changes Versus the Prior Comparable Period
- Results benefited from the absence of the $938 million impairment of equity-method investments and the $187 million Northeast G&P goodwill impairment recorded in Q1 2020.
- Commodity margins improved by $128 million, primarily from higher realized prices and volumes, including favorable effects from severe winter weather and higher NGL prices.
- Equity earnings increased by $109 million, partly because the prior-year period included a $78 million share of an investee goodwill impairment.
- West Modified EBITDA increased to $315 million from $215 million, primarily from higher commodity margins, while service revenue declined due to lower rates and volumes.
- Northeast G&P Modified EBITDA increased to $402 million from $369 million, mainly due to higher earnings from equity-method investments and increased ownership in Blue Racer/Caiman II.
- Transmission & Gulf of Mexico Modified EBITDA decreased slightly to $660 million from $662 million, as higher Transco transportation revenue and commodity margins were offset by higher costs and lower Gulf of Mexico volumes.
- Other Modified EBITDA increased to $33 million from $7 million, reflecting recently acquired upstream operations, including approximately 2,000 operated wells acquired in Wyoming.
Guidance, Outlook, Commentary, Risks, and Unusual Items
Management expects 2021 results to benefit from Northeast G&P volume growth, completed Transco expansions, and lower planned hurricane impacts in the Gulf of Mexico. West results are expected to decline because of lower NGL transportation volumes on OPPL and certain Haynesville fee reductions. Management also expects modestly higher expenses, including operating taxes.
2021 growth capital and investment expenditures are expected to range from $1.0 billion to $1.2 billion, primarily for Transco expansions, Northeast G&P projects, and Haynesville opportunities. Management expects substantially to fund planned capital spending with cash available after dividends, while retaining flexibility to adjust spending.
The Southeastern Trail project became fully operational on January 1, 2021, increasing capacity by 296 Mdth/d. The remaining Leidy South capacity is expected to enter service as early as the fourth quarter of 2021, with total planned capacity expansion of 582 Mdth/d. Williams filed the Regional Energy Access project with FERC in March 2021; it could enter service as early as the fourth quarter of 2023, subject to regulatory approvals, and is expected to add 829 Mdth/d of capacity.
Management stated that COVID-19 had not materially affected financial condition, results, or liquidity through the reporting date. Principal risks include commodity-price and volume volatility, customer credit and bankruptcy risk, permitting and regulatory delays, capital-cost increases, project execution risk, weather and physical damage, cybersecurity, environmental and climate-related requirements, interest rates, credit-rating downgrades, and changes in producer activity.
Material contingencies include unresolved natural-gas price-index litigation for which potential exposure cannot currently be estimated and could be material, Alaska refinery contamination litigation with recorded liabilities and a possible payment of up to the judgment amount, environmental liabilities of $33 million, and ongoing environmental negotiations with the Department of Justice. The company also disclosed a pending acquisition of Sequent Energy Management and Sequent Energy Canada for a base purchase price of $110 million, subject to working-capital and other adjustments, with closing expected in the third quarter of 2021.
Important Facts for Investors to Verify
- Whether the improvement in earnings and commodity margins is sustained after the unusually favorable winter-weather and commodity-price effects in Q1 2021.
- The timing, permitting, cost, and contracted status of Leidy South, Regional Energy Access, and other planned expansion projects.
- Williams’s ability to refinance or otherwise address approximately $2.1 billion of debt maturing within one year while maintaining dividends and capital spending.
- Actual 2021 growth capital and investment spending relative to the $1.0 billion–$1.2 billion outlook and available operating cash flow after dividends.
- Potential outcomes and cash exposure from the natural-gas index litigation, Alaska contamination litigation, environmental matters, and related indemnifications.
- Final terms, regulatory approval, closing, and guarantee obligations associated with the planned Sequent acquisition.
- Exposure to lower gathering and processing volumes, fee reductions, OPPL volume declines, counterparty credit deterioration, and regulatory or permitting delays.