The Williams Companies, Inc. — Fiscal 2022 Form 10-K Summary
Business context and reporting period
Williams is a U.S. natural gas infrastructure company operating gathering, processing, transmission, storage, NGL fractionation and marketing assets. It owns interests in or operates more than 33,000 pipeline miles, 29 natural gas processing facilities, seven NGL fractionation facilities and approximately 290.4 Bcf of natural gas storage capacity. Reported segments are Transmission & Gulf of Mexico, Northeast G&P, West, Gas & NGL Marketing Services and Other.
The filing covers the fiscal year ended December 31, 2022, with comparisons to 2021 and 2020. The source does not provide a separate fourth-quarter financial summary.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenues | $10.965 billion | $10.627 billion | +3% |
| Operating income | $3.018 billion | $2.631 billion | +15% |
| Net income attributable to Williams | $2.049 billion | $1.517 billion | +35% |
| Diluted EPS | $1.67 | $1.24 | +$0.43 |
| Net cash from operating activities | $4.889 billion | $3.945 billion | +24% |
| Capital expenditures | $2.253 billion | $1.239 billion | +82% |
| Modified EBITDA | $6.075 billion | $5.494 billion | +11% |
Operating margin was approximately 27.5%, compared with 24.7% in 2021. Net income attributable to Williams represented approximately 18.7% of revenue, compared with 14.3% in 2021. Modified EBITDA is a non-GAAP measure used by management and should not be viewed as a substitute for GAAP income.
At December 31, 2022, cash and cash equivalents were $152 million, total assets were $48.433 billion, total equity was $14.045 billion, long-term debt including the current portion was $22.554 billion, and commercial paper outstanding was $350 million. Approximately $627 million of long-term debt was due within one year. Available liquidity was $3.552 billion, consisting of cash and available capacity under the credit facility after commercial paper borrowings.
Williams generated $4.889 billion of operating cash flow, paid $2.071 billion in common dividends and paid $204 million to noncontrolling interests. The quarterly common dividend increased from $0.41 per share in 2021 to $0.425 per share in 2022. The board subsequently approved a $0.4475 per-share quarterly dividend payable in March 2023.
Material changes versus the prior comparable period
- Service revenues increased $535 million, primarily from higher gathering and processing rates, contractual escalations, volume growth, the Leidy South expansion and the Trace and NorTex acquisitions.
- Product sales were broadly stable at $4.556 billion, but the composition changed because 2022 natural gas marketing revenues were presented net of related costs following integration of the legacy and Sequent portfolios.
- Net losses on commodity derivatives increased to $387 million from $148 million, largely due to higher unrealized losses in Gas & NGL Marketing Services. These losses can be offset economically by changes in the value of underlying physical positions, although accounting recognition occurs in different periods.
- Gas & NGL Marketing Services Modified EBITDA declined to negative $40 million from positive $22 million, despite higher commodity margins, because of higher unrealized derivative losses, inventory adjustments and segment costs.
- Transmission & Gulf of Mexico Modified EBITDA increased to $2.674 billion from $2.621 billion; Northeast G&P increased to $1.796 billion from $1.712 billion; West increased to $1.211 billion from $961 million; and Other increased to $434 million from $178 million.
- Capital expenditures increased substantially, and business acquisitions used $933 million of cash. Williams acquired Trace Midstream’s Haynesville gathering assets for $972 million and NorTex assets for approximately $424 million.
- Cash declined by $1.528 billion during 2022 to $152 million, reflecting capital spending, acquisitions, debt repayments and dividends despite stronger operating cash flow.
Guidance, outlook, risks and unusual items
Management expects 2023 results to benefit from the MountainWest acquisition, Haynesville and Northeast G&P volume growth, inflation-based rate increases and a full year of Trace and NorTex contributions. These benefits are expected to be partly offset by a lower commodity-price environment.
2023 growth capital and investment expenditures are expected to range from $1.40 billion to $1.70 billion, excluding the MountainWest acquisition. Management expects to fund substantially all planned 2023 capital spending with cash available after dividends. Major projects include Transco expansions, Regional Energy Access, Southside Reliability Enhancement, Texas to Louisiana Energy Pathway, Southeast Energy Connector, Commonwealth Energy Connector and the Louisiana Energy Gateway project. Timing remains dependent on regulatory approvals, permitting, construction execution and customer commitments.
On February 14, 2023, after year-end, Williams completed the $1.08 billion cash acquisition of MountainWest and assumed $430 million of outstanding long-term debt. Purchase accounting was not complete when the filing was submitted.
- Key risks include commodity-price volatility, producer drilling and supply availability, customer and counterparty credit risk, competition, pipeline accidents, weather and climate impacts, cybersecurity incidents, environmental liabilities and regulatory changes.
- Interstate pipeline rates and expansion projects are subject to FERC regulation. Northwest Pipeline’s approved rate settlement reduces rates beginning January 1, 2023 and establishes a moratorium on certain rate proceedings before 2026.
- Williams estimated 2023 pipeline integrity costs of approximately $126 million for gas programs and $10 million for liquid programs; management expects these costs to be recoverable or prudent operating costs, subject to applicable regulatory treatment.
- Environmental liabilities accrued at year-end were approximately $40 million, with approximately $11 million of cleanup and remediation payments expected in 2023.
- The company has approximately $439 million of commitments for construction and acquisition of property, plant and equipment and approximately $546 million of marketing transportation and storage capacity commitments.
- The filing discloses an accrued liability for Alaska refinery contamination litigation and a proposed $3.75 million civil penalty and injunctive relief related to environmental compliance matters.
- Income taxes included a $92 million benefit from a lower estimated state deferred tax rate, a $70 million federal valuation allowance release and a $45 million benefit from IRS settlements.
Most important facts for investors to verify
- Reconcile reported revenue and profitability with the 2022 net presentation of legacy natural gas marketing activities and the impact of unrealized commodity derivative losses.
- Review debt maturities, covenant compliance, commercial paper reliance and liquidity after the February 2023 MountainWest acquisition.
- Assess whether the $1.40 billion to $1.70 billion 2023 growth-capital plan can be funded after dividends while maintaining investment-grade ratings.
- Evaluate execution, permitting and regulatory approval risk for the listed Transco, Haynesville and Gulf of Mexico expansion projects.
- Monitor the sustainability of gathering and processing volumes, customer drilling activity, contract renewals and minimum-volume commitments.
- Review the effect of commodity-price changes, inventory write-downs and derivative fair-value accounting on reported earnings and cash flow.
- Examine environmental, litigation, pipeline integrity, cybersecurity and climate-related contingencies, including amounts that could exceed recorded accruals.