Williams Companies, Inc. — Q3 2022 Form 10-Q Summary
Business context and reporting period
Williams is a U.S.-based natural gas infrastructure company operating through Transmission & Gulf of Mexico, Northeast G&P, West, and Gas & NGL Marketing Services. This unaudited quarterly report covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
Effective January 1, 2022, natural gas liquids and natural gas marketing activities were reorganized into Gas & NGL Marketing Services, and prior-period segment information was recast.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total revenues | $3.021 billion | $2.475 billion | $8.035 billion | $7.370 billion |
| Operating income | $820 million | $355 million | $1.946 billion | $1.694 billion |
| Net income | $621 million | $173 million | $1.420 billion | $930 million |
| Net income attributable to Williams | $600 million | $165 million | $1.380 billion | $895 million |
| Net income available to common stockholders | $599 million | $164 million | $1.378 billion | $893 million |
| Diluted EPS | $0.49 | $0.13 | $1.13 | $0.73 |
| Cash flow from operations | Not separately provided | Not separately provided | $3.670 billion | $2.806 billion |
| Capital expenditures | Not separately provided | Not separately provided | $1.447 billion | $957 million |
Q3 2022 Modified EBITDA was $1.599 billion, compared with $1.105 billion in Q3 2021. Nine-month Modified EBITDA was $4.239 billion, compared with $3.821 billion. Segment nine-month Modified EBITDA was $1.987 billion for Transmission & Gulf of Mexico, $1.332 billion for Northeast G&P, $885 million for West, $(249) million for Gas & NGL Marketing Services, and $284 million for Other.
At September 30, 2022, cash and cash equivalents were $859 million, total debt was approximately $23.407 billion, and total equity was $13.910 billion. Current liabilities exceeded current assets by approximately $579 million. The company had no commercial paper outstanding and reported $3.750 billion of unused credit-facility capacity, for total stated available liquidity of $4.609 billion.
Williams paid a regular quarterly dividend of $0.425 per share in September 2022. The company’s senior unsecured debt ratings were BBB from S&P, Baa2 from Moody’s, and BBB from Fitch, each with a stable outlook.
Material changes versus the prior comparable period
- Q3 revenue increased 22%, primarily from higher service revenues, stronger gathering volumes and rates, the Trace acquisition, and increased Transco transportation revenue following the Leidy South expansion.
- Nine-month revenue increased 9%, while net income attributable to Williams increased $485 million, or approximately 54%.
- Net gain on commodity derivatives was $16 million in Q3 2022 versus a $391 million loss in Q3 2021. For the nine-month period, the derivative loss increased to $491 million from $441 million.
- Operating and maintenance expense increased to $486 million in Q3 and $1.345 billion for nine months, driven by higher operating, power, storage, upstream, and project-related costs.
- Gas & NGL Marketing Services Modified EBITDA improved to $20 million in Q3 from $(262) million, primarily because the prior-year period included a significant unrealized derivative loss. Nine-month Modified EBITDA declined to $(249) million from $(161) million.
- The Trace acquisition closed April 29, 2022, for $972 million and contributed $99 million of revenue and $48 million of Modified EBITDA through September 30. Williams also purchased North Texas assets for approximately $424 million on August 31, 2022.
- Cash flow from operations increased $864 million year over year, but cash declined $821 million to $859 million after acquisitions, capital expenditures, debt activity, dividends, and equity-method investment contributions.
Guidance, outlook, risks, and unusual items
- Management expects 2022 results to benefit from higher commodity prices, volume growth in Haynesville and Ohio Valley Midstream, Transco expansion projects, upstream development, and the Trace acquisition. These benefits are partly offset by the absence of 2021 Winter Storm Uri gains and lower expected Bradford Supply Hub results.
- 2022 growth capital and investment expenditures are expected to be $1.25 billion to $1.35 billion, excluding approximately $1.5 billion of acquisitions and related follow-on expenditures for Trace and NorTex.
- Major proposed or ongoing projects include Regional Energy Access, Southside Reliability Enhancement, Texas to Louisiana Energy Pathway, Southeast Energy Connector, Commonwealth Energy Connector, and West Louisiana Energy Gateway. Expected in-service dates depend on regulatory approvals and project execution.
- Q3 and nine-month Gas & NGL Marketing Services results included $64 million and $76 million, respectively, of inventory lower-of-cost-or-net-realizable-value adjustments. An $11 million loss-contingency accrual was recorded in Other during Q3.
- The effective tax rate benefited from an $88 million release of valuation allowances, a $92 million state deferred-tax-rate benefit, and approximately $46 million of favorable IRS settlement adjustments.
- Commodity derivative positions generated substantial accounting volatility. At September 30, derivative liabilities exceeded derivative assets on a gross basis, and the company reported a $720 million fair value for contracts outstanding in its market-risk disclosure.
- Key risks include commodity-price and volume volatility, counterparty credit exposure, regulatory and permitting delays, inflation and interest rates, construction and supply-chain costs, weather and operational disruptions, cybersecurity, climate-related risks, litigation, environmental obligations, and potential credit-rating downgrades.
- Williams had accrued $32 million for environmental matters. The Energy Transfer litigation judgment was increased to $602 million plus additional interest, but Energy Transfer appealed. The company also remains involved in Alaska refinery contamination litigation and other legal proceedings.
Important facts for investors to verify
- Reconcile reported revenue and margin trends after the 2022 change to net presentation for certain natural gas marketing activities.
- Assess recurring operating performance excluding derivative fair-value changes, inventory adjustments, tax benefits, acquisition effects, and other unusual items.
- Evaluate leverage, upcoming debt maturities, refinancing requirements, covenant compliance, and the effect of interest-rate changes.
- Confirm the timing, approvals, contracted status, and capital requirements of the major Transco and West Louisiana projects.
- Monitor litigation, environmental accruals, regulatory proceedings, and the potential effect of the Energy Transfer appeal.
- Assess whether operating cash flow can support dividends, capital spending, acquisitions, debt service, and any share repurchases while maintaining adequate liquidity.