Williams Companies, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Williams is a U.S.-based energy infrastructure company focused on natural gas pipelines, gathering, processing, fractionation, storage, marketing, and related upstream operations. Reportable segments are Transmission & Gulf of Mexico, Northeast G&P, West, and Other. This unaudited filing covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods.
Key Financial Metrics
| Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 |
|---|---|---|---|---|
| Total revenues | $2.283 billion | $1.781 billion | $4.895 billion | $3.694 billion |
| Operating income | $600 million | $612 million | $1.339 billion | $1.043 billion |
| Net income attributable to Williams | $304 million | $303 million | $730 million | $(214) million |
| EPS, diluted | $0.25 | $0.25 | $0.60 | $(0.18) |
| Net cash from operating activities | Not separately provided | Not separately provided | $1.972 billion | $1.930 billion |
- Q2 operating margin was approximately 26.3%; six-month operating margin was approximately 27.4%.
- Q2 net margin was approximately 13.3%; six-month net margin was approximately 14.9%.
- Modified EBITDA was $1.306 billion in Q2 and $2.716 billion for the first six months, compared with $1.246 billion and $2.499 billion, respectively, in the prior-year periods.
- Cash and cash equivalents were $1.201 billion at June 30, 2021, compared with $142 million at December 31, 2020.
- Total debt was $23.234 billion, including $2.143 billion due within one year and $21.091 billion due thereafter. The reported fair value of total debt was $27.643 billion.
- Williams had a $4.5 billion revolving credit facility, no commercial paper outstanding, and approximately $5.701 billion of available liquidity including cash.
- Capital expenditures were $685 million for the first six months, compared with $613 million in 2020. Common dividends paid were $996 million, or $0.82 per share for the first half.
Material Changes Versus the Prior Comparable Period
- Six-month net income attributable to Williams improved by $944 million, from a $214 million loss to $730 million of income.
- The improvement primarily reflected the absence of 2020 impairment charges of $938 million for equity-method investments and $187 million for goodwill, plus stronger commodity margins, higher equity earnings, and contributions from recently acquired upstream operations.
- Six-month revenue increased $1.201 billion, driven principally by a $1.162 billion increase in product sales, higher realized natural gas and NGL prices, higher marketing volumes, and acquired upstream operations. Service revenue was broadly stable, declining $8 million.
- Six-month equity earnings increased $136 million to $266 million, primarily from the absence of a 2020 investee goodwill impairment and higher volumes at certain Northeast G&P investments.
- Operating and maintenance expense increased $82 million, while depreciation and amortization increased $42 million, primarily due to acquired upstream operations, maintenance, employee costs, new Transco assets, and shorter estimated useful lives for certain West assets.
- West Modified EBITDA increased to $546 million from $468 million for the first six months, mainly from a $137 million increase in commodity margins, despite lower service revenues. Northeast G&P Modified EBITDA increased to $811 million from $739 million, and Transmission & Gulf of Mexico increased to $1.306 billion from $1.277 billion.
Guidance, Outlook, Risks, and Unusual Items
- Management expects 2021 results to benefit from Northeast G&P volume growth, Transco expansion projects, and improved Gulf of Mexico results. West results are expected to decline because of lower OPPL volumes and certain Haynesville fee reductions.
- 2021 growth capital and investment expenditures are expected to range from $1.0 billion to $1.2 billion. Management intends to fund substantially all planned capital spending with cash remaining after dividends.
- Leidy South is expected to place its remaining capacity into service as early as the fourth quarter of 2021. Regional Energy Access is targeted for service as early as the fourth quarter of 2023, subject to regulatory approvals.
- In March 2021, Williams issued $900 million of 2.6% senior unsecured notes due 2031. Management expected to early retire $500 million of 4% notes in August 2021 that were scheduled to mature in November 2021.
- Moody’s upgraded Williams from Baa3 to Baa2 in June 2021 and changed its outlook from Positive to Stable. S&P and Fitch ratings were BBB with Stable outlooks.
- Williams completed the $134 million acquisition of Sequent Energy Management and Sequent Energy Canada in July 2021. The acquisition expands gas marketing, trading, storage, and transportation capabilities; purchase accounting disclosures remained incomplete at filing.
- Williams acquired Wamsutter field properties for approximately $165 million in the first half of 2021 and agreed to contribute properties to a venture in which Williams will own a 75% undivided interest in each well’s working interest.
- COVID-19 had not materially affected financial condition, results, or liquidity through the filing date, although management continues to identify pandemic, commodity-price, demand, and financial-market risks.
- Material risks include regulatory and permitting delays, changing producer activity and volumes, commodity-price volatility, counterparty credit exposure, project cost increases, severe weather, environmental obligations, cybersecurity, climate-related risks, interest rates, refinancing needs, and potential credit-rating deterioration.
- Natural-gas price-index litigation remains unresolved. The filing states that potential exposure and related indemnification losses may be material, although a reasonable range cannot currently be estimated. Trial in the Farmland matter is scheduled for May 2022.
- Environmental liabilities accrued at June 30, 2021 totaled $31 million. The Alaska refinery contamination matter has an estimated judgment and potential future damages of $86 million, with the company pursuing an appeal.
- The Energy Transfer litigation trial occurred in May 2021, with post-trial argument scheduled for September 16, 2021. The filing does not provide a clear estimate of any potential recovery or loss.
Most Important Facts for Investors to Verify
- Whether the projected $1.0 billion to $1.2 billion of 2021 growth capital and investment spending remains on schedule and within budget.
- The timing, approvals, and contracted economics of Leidy South and Regional Energy Access.
- The company’s ability to refinance or repay approximately $2.1 billion of debt due within one year while maintaining dividends and planned capital spending.
- The sustainability of 2021 commodity-margin gains, particularly the favorable impact of severe winter weather and higher natural gas and NGL prices.
- The operating and financial effects of the Sequent acquisition and Wamsutter properties, including the completed purchase accounting.
- Developments in gas-index litigation, Alaska environmental litigation, Energy Transfer proceedings, and other indemnification obligations.
- Whether operating volume declines in the West and higher operating, maintenance, and depreciation costs offset growth in Northeast G&P and Transmission.