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 systems, NGL infrastructure, offshore production-handling assets, and natural gas and NGL marketing activities. Reported segments are Transmission & Gulf of Mexico, Northeast G&P, West, Gas & NGL Marketing Services, and Other.
This unaudited quarterly report covers the three and six months ended June 30, 2023, compared primarily with the corresponding 2022 periods. Williams acquired MountainWest on February 14, 2023, for $1.08 billion in cash and assumed $430 million of MountainWest debt.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenues | $2.483 billion | $2.490 billion | $5.564 billion | $5.014 billion |
| Operating income | $870 million | $472 million | $2.230 billion | $1.126 billion |
| Net income attributable to Williams | $460 million | $400 million | $1.387 billion | $780 million |
| Net income available to common stockholders | $460 million | $400 million | $1.386 billion | $779 million |
| Diluted EPS | $0.38 | $0.33 | $1.13 | $0.64 |
| Cash flow from operations | Not separately provided | Not separately provided | $2.891 billion | $2.180 billion |
Q2 operating margin was approximately 35.0%, compared with 19.0% in Q2 2022. Six-month operating margin was approximately 40.1%, compared with 22.5% in the prior-year period. Net income attributable to Williams margin was approximately 18.5% in Q2 and 24.9% for the six-month period.
- Modified EBITDA was $1.667 billion in Q2, up from $1.247 billion, and $3.797 billion for six months, up from $2.640 billion.
- Six-month service revenue increased 10% to $3.442 billion, while product sales declined 35% to $1.438 billion, primarily reflecting lower commodity prices and volumes.
- Net commodity derivative gains were $115 million in Q2 and $621 million for six months, compared with losses of $313 million and $507 million, respectively, in the prior-year periods. These gains include substantial unrealized fair-value effects.
- Cash and cash equivalents were $551 million at June 30, 2023, compared with $152 million at December 31, 2022.
- Total debt was approximately $24.4 billion, including $2.877 billion due within one year; long-term debt after the current portion was $21.532 billion.
- Available liquidity was approximately $4.301 billion, consisting of $551 million of cash and $3.750 billion of unused credit-facility capacity. No commercial paper was outstanding at quarter-end.
- Six-month capital expenditures were $1.155 billion, and business acquisitions consumed $1.053 billion, including the MountainWest transaction.
- Williams paid $1.091 billion of common dividends and repurchased $130 million of common stock during the first six months.
Material changes versus the prior comparable period
- Six-month net income attributable to Williams increased $607 million, or 78%, primarily because of higher operating income and favorable commodity derivative results.
- Transmission & Gulf of Mexico Modified EBITDA increased to $1.446 billion from $1.349 billion, supported by MountainWest, NorTex, higher Gulf Coast production-handling volumes, and park-and-loan services. The Northwest Pipeline rate-case settlement partially offset the benefit.
- Northeast G&P Modified EBITDA increased to $985 million from $868 million, driven by higher gathering, processing, transportation, and fractionation volumes and higher rates.
- West Modified EBITDA increased to $616 million from $548 million, primarily because of favorable settled hedge results, higher equity-method investment earnings, and lower costs, partly offset by weaker commodity margins and rates.
- Gas & NGL Marketing Services Modified EBITDA increased to $635 million from a $269 million loss, primarily due to favorable unrealized derivative movements and improved natural gas marketing margins.
- Interest expense increased to $600 million for six months from $567 million because of the March 2023 debt issuance and MountainWest debt.
- The prior-year tax benefit was not repeated. The 2023 six-month tax provision was $459 million versus $73 million in 2022, when valuation allowance releases and IRS settlements benefited results.
Guidance, outlook, risks, and unusual items
- Management expects 2023 results to benefit from MountainWest, volume growth in Haynesville and Northeast G&P, inflation-based rate increases, partial Regional Energy Access service, and a full year of Trace and NorTex contributions. A lower expected commodity-price environment is a partial offset.
- 2023 growth capital and investment expenditures are expected to be $1.6 billion to $1.9 billion, excluding MountainWest. Management expects to fund substantially all planned capital spending with cash available after dividends.
- Major projects include Regional Energy Access, West Louisiana Energy Gateway, Deepwater Shenandoah, Deepwater Whale, and various Transco, Haynesville, Northeast, and Utica expansions. Timing remains subject to regulatory approvals, permitting, construction, and other execution conditions.
- In Q2, Williams recorded an $87 million after-tax loss from discontinued operations, including a $115 million pre-tax charge related to Alaska refinery contamination litigation after an Alaska Supreme Court decision. The company obtained a stay of execution while seeking U.S. Supreme Court review.
- Environmental liabilities accrued at June 30, 2023 totaled $52 million. A consent decree related to Clean Air Act leak-detection matters requires a $3.75 million civil penalty and injunctive relief.
- Williams is exposed to commodity-price volatility, derivative fair-value changes, customer and counterparty credit risk, inflation, interest rates, project delays, permitting and regulatory outcomes, weather and physical damage, cybersecurity, climate-related risks, litigation, and changes in natural gas demand and production.
- Management stated that the company expects sufficient liquidity for 2023 and was in compliance with credit-facility covenants. Senior unsecured debt ratings were investment grade with stable outlooks from S&P, Moody’s, and Fitch.
Most important facts for investors to verify
- Whether derivative gains, particularly the $621 million six-month gain, reverse as market prices and underlying transactions settle.
- The refinancing or repayment plan for approximately $2.877 billion of debt due within one year.
- Actual cash generation after dividends, capital expenditures, acquisitions, and share repurchases.
- The final purchase-price allocation and ongoing contribution of MountainWest, including the preliminary $401 million goodwill balance.
- Regulatory approvals, construction schedules, contracted economics, and cost escalation for major expansion projects.
- The ultimate cash cost and litigation outcome of the Alaska contamination matter and the status of the Energy Transfer appeal involving a $602 million judgment plus additional interest.
- Changes in natural gas, NGL, and crude oil prices, producer activity, gathering volumes, and customer credit quality.