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spk04: Good day, everyone, and welcome to the Williams First Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Danilo Giovanni, Vice President of Investor Relations. Please go ahead.
spk07: Thank you, Amitris, and good morning, everyone. Thank you for joining us and for your interest in the Williams Company.
spk06: Yesterday afternoon, we released the earnings press release and the presentation that our President and CEO, Alan Armstrong, and our Chief Financial Officer, John Chandler, will speak to this morning.
spk07: Also joining us on the call today are Michael Dunn, our Chief Operating Officer, Lane Wolfson, our General Counsel, and Chas Dameron, our Senior Vice President of Corporate Strategic Development. In our presentation materials, you'll find a disclaimer related to forward-looking statements.
spk06: This disclaimer is important and integral to our remarks, and you should review it. Also included in the presentation materials are non-GAAP measures that will reconcile the general acceptance accounting principles. And these reconciliation schedules appear at the back of today's presentation materials.
spk07: So with that, I'll turn it over to Alan Armstrong. Great. Well, thanks, Danilo, and thank you all for joining us today. Our natural gas focus strategy continues to deliver solid financial results, and this past quarter was no different. Our base business performance was remarkably strong in the first quarter, and the severe winter weather in February boosted marketing margins. But even without those benefits, as John will detail later, our adjusted EBITDA was up, reflecting strength in our base business. Once again, well-positioned assets and reliable operations came through as we delivered another quarter of growth in almost all of our key operating metrics, despite severe weather. In fact, average daily firm contracted transmission capacity, average daily transported volumes, average daily gathering volumes, and average daily plant inlet volumes all increased on a quarter-over-quarter basis. Extreme weather experience in the first quarter really underscores the importance of having a resilient and reliable energy network. Williams also stood out on this front as no firm service was cut on any of our gas transmission systems during URI, and in fact, our Northwest Pipeline hit another record peak day for throughput during the storm. It demonstrates that affordable and dependable natural gas will be a very critical part of the energy mix as we work to support growing economies and meet the key challenges we face around climate change, both in the U.S. and abroad. We truly believe Williams' existing infrastructure is key to tomorrow's clean energy economy. I'll talk more about how we're planning for the future when we get to the key focus areas, but in the meantime, John is going to go through our financial results. John? Thanks, Alan. At a very high-level summary, the quarter benefited from the impact of winter storm URI, and to be clear, we have collected all receivables relative to that event. But even beyond the winter storm impact, we saw nice increases in profitability from our northeast gathering systems, an uplift in revenues on our Transco pipeline from new projects that have been put into service over the last year, and higher profits from our NGL marketing activity in our west segment. These positives were offset somewhat by higher bonus expense accruals, reflecting the solid year that is unfolding, and lower Gulf of Mexico revenues due to some downtime issues during the first quarter of this year. And you can see the strong performance in our statistics on this page. In fact, we saw improvements in all of our key financial metrics. First, our adjusted EBITDA for the quarter was up $153 million, or 12%. But even after excluding the impact of winter storm URI, our adjusted EBITDA was up 6%. We will discuss EBITDA variances in more depth in a moment. Adjusted EPS for the quarter increased 35%, simply reflecting the after-tax impact of the higher EBITDA. AFFO grew for the quarter similarly to our growth in EBITDA. And again, AFFO is essentially cash from operations, including JV cash flows, but excluding working capital fluctuations. If you put AFFO up against our capital investments for the quarter of $277 million, of which we consider roughly $47 million of that to be maintenance capital, and you put it up against our dividends of $498 million, you can see that we generated over $250 million in excess cash for the quarter. Also, you see our dividend coverage on this page based on AFFO divided by dividends sets at a very strong 2.07 times. This strong cash generation and strong EBITDA for the quarter, along with continued capital discipline, has helped move us towards our leverage metric goal of 4.20 times. You'll see later in our guidance update in this deck, we've moved our guidance now for the year from around 4.25 times at the end of the year now to around 4.20 times at the end of the year. I'm really proud of our success on this front. So now let's go to the next slide. Let's dig in a little deeper into our EBITDA results for the quarter. Again, we have performed very well this quarter. But before we dive into each segment, we believe it's important to isolate a few items that are not part of our core business. The first item is the net impact of Winter Storm URI on our operations in the West. That impact produced a $55 million net benefit and included the positive impact on our marketing operations offset somewhat by reduced revenues at our peon's processing facility, whose rates are impacted by net liquid margins. We also had slightly lower volumes in the mid-continent at Haynesville, and collectively we estimate winter storm URI impacted our west volumes by about 70 MCF a day during the quarter. In addition, we also realized a $22 million storm year uplift in profits from the Wompsetter upstream assets that we acquired from BP in February, and that is on top of the $8 million from normal operations from these upstream assets. So the total winter storm impact was a $77 million benefit. Again, with that benefit, EBITDA was up 12%, and even without the impact of winter storm year, EBITDA was up 6%. So digging into our core operations, our transmission and Gulf of Mexico assets produced results that are about $9 million less than the same period last year. However, new transmission pipeline projects added $29 million in incremental revenues for the quarter, including the Hillaby Phase II project that came into service in the second quarter of last year, the Southeastern Trails project that went into service during the fourth quarter of last year, and a portion of the Lighting South project that went into service in the fourth quarter of last year. you can see the evidence in the growth in our firm reserve capacity, which is up 5% from the first quarter of 2020. These revenue increases were almost entirely offset by lower Gulf of Mexico revenues due to some protection and downtime issues, lower revenues from lower rates in just a few transco markets that went into effect upon closing the rate case last year, and one less billing day this year than last year, given last year was a leap year, which, believe it or not, has a $6 million impact on our transmission revenues. So the reduced EBITDA results for this segment really have nothing to do with revenues and are largely due to higher operating expenses, which, interestingly enough, are being impacted by higher bonus accruals and equity compensation accruals, given that we are off to such a strong start for the year. We traditionally do not increase those accruals until later in the year. In addition, we did see slightly higher compression expenses for this segment. Now moving to the Northeast, the GMP segment continues to come on strong, contributing $32 million of additional EBITDA this quarter. Collectively, total Northeast gathering volumes grew 920 MCF a day, or about 11% this quarter versus the first quarter of last year, while processing volumes grew 15%. The volume growth was predominantly at our JVs and the Bradford supply hub, where we benefited from a gathering system expansion on that system in late 2019. and at our Michelle South supply basin, where we benefited from more productive wells and larger pads. As a result, our EBITDA from equity method investments improved by a little over $33 million, which also includes the benefit of additional profits from Blue Racer due to our increased ownership, which we acquired in mid-November last year. Now moving to the West GMP segment, it was up $44 million compared to the prior year. And remember, again, that this excludes the $55 million net benefit from Winter Storm URIE. So of this $44 million improvement, commodity margins from our marketing activities contributed a big part to that improvement, and they were up $52 million versus the first quarter of 2020. And again, this excludes the $74 million benefit from Winter Storm URI related just only to commodities. These increased commodity margins were the result of a few things, all driven by higher NCL prices during the quarter. The first and most significant is related to inventory and transit. Last year, we saw prices decline and had a small loss, while this year we saw prices increasing during the quarter and realized a gain on that inventory. The second relates to transfers of propane and other ENGLs to higher net back markets, where we saw some real market differentials during the quarter and were able to take advantage of that. For example, the differentials between Conway and Mount Bellevue. Offsetting the higher commodity margins were lower profits from our JVs. We did see a $5 million JV benefit from Winter Storm URI on our Broadbush JV. So if you exclude that, our JVs were down about $8 million, and that can be mostly attributed to OPPL, where One Oak has pulled much of their volume and moved it to their solely owned system. Those items, namely higher commodity margins offset by lower JV profits, again, mostly explain the variance in the West. Otherwise, lower revenues were offset by lower expenses. Revenues were down $14 million when you exclude a negative $23 million impact tied to winter storm URI on west revenues. And again, mostly that was in the peon related to net liquid margins. Volumes in the west were down 250 MCF a day, or if you exclude winter storm URI, they were down about 180 MCF a day, with most of that reduction in the Hainesville and the Eagleford, which of course, I'll remind you, in the Eagleford, we are protected by NBC, so that doesn't have a revenue impact. So really the biggest impact on revenues was the rate reduction in the Haynesville and a slight volume reduction in the Haynesville. And I'll remind you that we traded that rate reduction in the Haynesville in part for receiving the South Mansfield acreage from Chesapeake earlier this year. Now, again, offsetting the lower revenues were lower costs, including lower compression costs and no bad debt expense, where during the first quarter of 2020, we did reserve for the Wompsetter MVC, but are now realizing those MVCs as part of the settlement with Southland. now turn the call back over to alan to discuss several important investor focus areas and updates to our 2021 guidance alan okay well thanks john and here moving on to the key investor focus areas on slide three we're increasing the midpoint of our 21 ebitda guidance range to 5.3 billion which is up 100 million dollars The increase in our guidance goes beyond the gains realized during the winter storm, as it also reflects confidence in the strength of our base business. Achieving this new midpoint would produce a three-year CAGR of about 4.5%, even while we have continued to improve our balance sheet and produce free cash flow after capex and dividends. Regarding the balance sheet, our leveraging goal is now on an accelerated path as we've hit the target of 4.2 this quarter, which obviously is earlier than we had forecasted earlier. And we're currently on positive watch at Moody's and hope to see a credit upgrade soon. Given the accelerated achievement of key milestones on our balance sheet, we will begin to evaluate various capital allocation alternatives, As you know, debt reduction has been our top capital priority, and now we will begin to evaluate the best use of pre-cash flow in 22 and beyond. So next on the list here is a few thoughts about the sequent acquisition. As we announced last night, we recently reached an agreement to purchase Sequent Energy Management and Sequent Energy Canada from Southern Company Gas for a purchase price of $50 million plus working capital at close price. And for several years, we have been evaluating the best way to enhance our marketing capabilities at Williams in a way that it could be well integrated, culturally aligned, and focused on driving fee-based revenues across our network for several years. So this is something we've had in our strategic capabilities and something we needed to build for several years, and so we're really excited to be taking this step to fill what's been a strategic capability gap. The addition of Sequent, including its talented workforce and industry-leading platform, complements the current geographic footprint of our core pipeline transportation and storage business. For perspective, we handle 30% of the nation's natural gas, which is approximately 30 BCFs per day. This acquisition increases our natural gas transport and storage optimization capabilities up to eight BCF per day from one BCF per day that we were doing previously here within Williams. So certainly bringing it more in line for a natural gas-focused business as large as Williams. The scale of the combined company will not only allow for optimization of our existing assets, but it will also facilitate expansions into new markets with opportunities to reach incremental gas-fired power generation, liquefied natural gas exports, and future RNG opportunities. In discussion with both our existing and potential LNG-focused customers, we are hearing a clear need to have wellhead-to-water natural gas supplies that can demonstrate and document responsibly produced low-carbon supplies. we see this acquisition as a way to more effectively aggregate, transport, and market these in-demand supplies. So we're really excited to welcome the Sequent team to Williams later this summer. And finally, we don't expect the acquisition to have any dramatic impact on our current mix of business nor material impact for our 21 EBITDA or CAPEX guidance. So now moving on to project execution here on slide three still. We continued our pace of strong project execution in the first quarter, placing our southeastern trail project into full service in early January and making great progress now on the Transco Lighting South project to bring additional gas from the Appalachian area, particularly northeast PA, to growing demand centers along the Atlantic seaboard by next winter. We filed our FERC application for the Regional Energy Access Project, a low environmental impact project being designed in a manner that is acceptable to future renewable energy sources like clean hydrogen blending and RNG. So in today's environment, as we're all learning more and more, existing infrastructure is more important and more valuable than ever, and the brownfield nature of regional energy access and Light East-South and southeastern trails are all great examples of that. With the largest and most flexible gas transmission system in the nation, Williams can serve new demand primarily through brownfield expansions. This means maximizing the use of established transmission corridors and facilities and resulting in reduced community and environmental impact while also enabling economic growth and the use of lower carbon fuels in those markets. Next on to the Gulf of Mexico opportunities here, we remain on track to executing on the four key Gulf of Mexico projects, which is Quail, Ballymore, Taggart, and Anchor. These projects are progressing very well, and we look forward to these projects coming online here now over the next few years. We also have a number of other smaller projects, but those are the ones that we continue to focus your attention on. So next on the Northeast G&P project execution, certainly some of the producers in the Northeast remain in production maintenance mode, but our project execution team is busy trying to keep up with the increased demand for processing and fractionation services for the growing rich gas volumes in the southwest Marcellus area. And as we've stated before, the rich gas volumes provide us with a much higher service fee and margin capture, so we're thrilled to see continued expansion in that area. And finally, on sustainability here, we continue to focus on sustainable operations, and I'll remind you that last year Williams became the first North American midstream company to issue a climate commitment focusing on ready-now solutions to address climate change. And by setting a near-term goal of a 56% reduction in greenhouse gas emissions by 2030, as a part of our climate commitment, we are well in line with the Biden administration's recently announced nationally determined contribution target of a 50% to 52% reduction by 2030. So we're really excited that we are actually ahead of that here in what's been set as an aggressive goal for the country. We will continue to leverage our natural gas-focused strategy and today's technology to focus on immediate opportunity to reduce emissions. At the same time, natural gas and our infrastructure are enabling the next generation of clean energy technology. You know, there really is not another energy infrastructure system that integrates a reliable delivery network with a massive storage solution on the scale that the natural gas infrastructure across our nation does. We believe our infrastructure can be a critical part of both near and long-term solutions. In our near-term efforts, we're focused on renewable natural gas, solar energy, and our footprint is ideal for bringing in renewable natural gas to markets and solar projects in a supply mix. On the solar front, we've currently identified three additional projects and now have a total of 16 solar project opportunities that should start operating beginning in 2023. On the emerging fuels front, such as green hydrogen and renewable natural gas, we certainly expect that to play an increasing role in the clean energy future. and both as a storage vehicle for excess renewable energy in the form of green hydrogen and as a net zero emitting form of natural gas in the renewable natural gas. So we continue to make sure that we are on the front edges of those opportunities. We are looking forward and anticipating future innovations and technologies that we can use on our key energy networks to deliver on this next phase of the energy transition. In fact, in a partnership with the University of Wyoming, we are currently pursuing a grant from the state of Wyoming to fund a feasibility study to pursue a pilot program that would evaluate the creation of a green hydrogen hub near our operations in Wyoming. The study will be presented to the Wyoming Energy Authority, and it could be an initial step for Williams to better understand the working of the hydrogen economy. I certainly want to keep that in context for you. That simply is us filing for a study there to determine if we want to pursue a pilot there. So that is perhaps something I don't want to see people getting out over our skis on here. This is a step, and we certainly are going to make sure that we stay in front of these kind of opportunities. but we're a long way from making any kind of big investment decisions on that. We also recently joined the Clean Hydrogen Future Coalition that was launched to advance clean hydrogen as a key pathway to achieving global decarbonization and U.S. energy competitiveness. And finally, we are proud to be a founding sponsor of Houston's Greentown Labs, a green technology incubator to support climate tech startups. So in closing, I'll reiterate that our intense focus on our natural gas-based strategy has built a business that is steady and predictable with continued moderate growth, improving returns, and an increasing amount of free cash flows. Our best-in-class long-haul pipes, Transco, Northwest Pipeline, and Gulf Springs are in the right place in right markets. And by design, our formidable gathering assets are in the low-cost basins that will be called on to meet gas demand as it continues to grow. As evidence, on a year-over-year basis, the lower 48 natural gas production here, of course, in the United States, has declined by 5% here in the first quarter. At the same time, Williams natural gas gathering volumes were up by 5%, indicating that our strategy of focusing on key low-cost natural gas basins is working. These gathering assets are irreplaceable and critical infrastructure within the natural gas value chain, and the importance of this infrastructure was proven in our recent ability to navigate two substantial customer bankruptcies in a way that actually improved the value proposition in the Walmsdutter and the Haynesville basins. This is a crystal clear example that even in the most dire of circumstances, our long-term approach and careful contracting allows us to turn negatives such as producer bankruptcies into net positives for Williams. We remain bullish on natural gas because we recognize the critical role it plays and will continue to play in both our country's and the world's pursuit of a clean energy future. Natural gas is an important component of today's fuel mix and should be prioritized as one of the most important tools to aggressively displace more carbon-intensive fuels around the world. Our networks are critical to serving both domestic and global energy demand in a lower carbon and economically viable manner. So with that, I thank you very much for joining us today, and I'll open it up for your questions.
spk04: To ask a question, you will need to press star, then the number one on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Puneet Satish with Wells Fargo.
spk07: Thanks. Good morning. I guess just this question on regional energy access. You mentioned that it's being designed to accept hydrogen or RNG blending. Just curious, what does that mean exactly?
spk06: Are you doing any different steps on this project? Can it take more hydrogen and other pipes? Just curious to get elaborate on those comments.
spk07: Yeah, Mike, please take that. Yeah, good morning. We are, you know, looking at this asset and the footprint that it encompasses on our existing right-of-way and talking to our customers about opportunities that they have to either bring renewable natural gas into that pipeline system or utilization of solar facilities that they're contemplating that can possibly produce hydrogen in close proximity to the pipeline. And so that's really the comment that you're seeing there. It's no exotic metals or anything of that nature in the pipeline system. It will be typical of any be able to accommodate a hydrogen blend, but it's accommodating the ability of our customers that are participating in that project to bring forward, in partnership with us, potentially hydrogen sources into that pipeline system. Great.
spk06: And then just turning to the Northeast, you've got your new boat growth processing plant expansion up and running. to fill that expansion up? And maybe tied to that, where do you stand in terms of NGL volumes now versus frac capacity in the Northeast? Do you see the need to add any frac capacity? Maybe just one more to tie onto that. Is there any opportunity to kind of integrate the Blue Racer and your other systems in the Northeast to kind of give yourself some synergies there?
spk07: Yeah, this is Michael. I'll take that one again. So basically, the processing capacity is virtually full today. The production that came online behind that processing facility was very robust. The paths were developed by our customers there, primarily EQT and Southwestern, and very prolific path development they had there, exceeding their expectations. And so we did an offload agreement with our customers there to make sure that we didn't impact any of their volumes in the first quarter. While we were finishing our TXP3, it would grow. That's now online and, like I said earlier, virtually full. So we are seeing full processing there for the most part. And our fractionation facility at Harrison is also approaching limits of capacity. And I suspect through the summer months, we will be at capacity on those facilities. And so we are contemplating opportunities with our blue racers. ownership there where we can create crossover pipeline systems to be able to transport some of those volumes over to them where they potentially have spare capacity. And that system can be utilized bidirectionally in the future where either one of us potentially have a capacity situation and we can offload to the other. And so that's a longer term prospect project, but it's something we feel like we could have online potentially this year. And it's a very low cost project in comparison to building either a new fractionation or processing facility. Great. Thank you. Thank you.
spk04: Your next question comes from the line of Christine Cho with Barclays.
spk02: Thanks. I'd like to start off with the guidance. If we adjust first quarter to take out the storm impact, it would imply some degradation in the future quarters to get to the midpoint of guidance. So just wanted to see if there's anything that we should be thinking about later in the year that would bring numbers down from here, or is the guidance just somewhat conservative?
spk05: Yeah, this is John Chandler. I'll take that. First of all, I'd say there are a couple other items in the first quarter beyond winter stormy area I think you should think about. Let's start with the 1.415, which is what we made.
spk07: Winter storm had a $77 million impact. We did make, I would call it, outsized MGL margins during the first quarter relative to some of this inventory valuation. And just to put a number on that, you know, I think, you know, we made probably $30 million more than we would normally make in a quarter. So if you remember in my commentary, I said we made $52 million more in NGO marketing activity outside of Winter Storm URI. We usually make $20 to $30 million a quarter. And so, you know, if you back $77 million out, you back $30 million out for some outsized NGO margins. And then also we did book an $11 million MVC accrual relative to WAMSUTTERS. that once we close in the Southland properties, we'll be our own customer and we'll be charging ourselves an MVC. You take that out as well. If you take those three numbers out, you're a little under $1.3 billion for the quarter. And if you take that times four, add those items back, you'll get really close to our kind of 5.3 midpoint. Now, of course, you might say, the upstream will come in a little bit stronger too you know we made out without winter storm murray we made eight million on the upstream times four that's 32 million and you know we guided to around a percent of our ebitda for the year so there's certainly some uplift on the upstream too so i would say there's probably a little bit of conservatism in our number i'm not going to try to say there isn't to that but you know i think we we obviously want to be sensitive to you know, if we have a tough hurricane season or other things. But I think you've got to take those three things out. You're going to get really close to guidance. So our forecast remains very strong. Our business performance remains really strong for the remainder of the year.
spk02: Got it. Yes, that's helpful. And then I wanted to kind of touch on the purchase of sequins. Your commentary to sources responsible for gas is notable. I'm wondering if you could talk about what this exactly entails, what you're thinking here. Natural gas marketing was a business that was much bigger pre-shale, and it's gotten much smaller over the last decade. I know that you guys mentioned LNG customers, but with utilities coming out with net zero requirements as well, and maybe more volatility to materialize in natural gas flows on a daily basis rather than what has historically been a seasonal basis. Could you talk about what this might mean for pipeline re-contracting and how sequent may or may not play a role?
spk07: Yeah, Christine, great question and very thoughtful. I would just say, first of all, We, as I mentioned earlier, we have been, for the last couple of years, really, been thinking, boy, this is an awfully big business. We touch a lot of gas. We have a lot of customers that could use services like gas marketing, but we have been very limited in our approach to that. And so the sequent opportunity – basically gave us an opportunity to buy a platform and a set of contracts and asset management contracts and a great team that really knows this business and has controlled risk extremely well. And so really allowed us to fulfill a strategic gap. However, so I would just say that was out there as a need before the thought of low-carbon fuels and the volatility and the value of volatility that just got exposed in this last quarter even came along. But I will tell you that we entered this with even greater confidence in both the need and the value associated with because we do believe that the benefits of capacity management and risk management as it relates to utilities, as it relates to what happened during winter storm Uri, certainly has made sure the space is wide awake relative to the risk around this issue. And we think the team at Sequin has done a great job of managing that risk, by the way, through this. And so we think there is value in managing in a new value associated with managing that kind of risk. But we also just think just generally we have a lot of customers that could really use the service. And as you say, it's really kind of faded away as a capability in a lot of companies. But we think it's really going to be an important tool for us. and being able to bring together low-carbon supplies all the way from the wellhead and being able to document that and put that value chain together all the way to the water and to our utilities is clearly on the list right now as a new opportunity for us to market to. We certainly have the assets, but we really don't have all of those contacts with people. We talk to customers about long-term capacity on a regular basis. We're not out regularly talking to them about how we manage the volatility in their business. And so this really gives us a great opportunity to do that and look forward. So thanks for the question. And I would just say it's become more and more evident to us that this is something we needed to add to our capabilities as some of the changes that you pointed out have occurred. Alan, if I could add to that as well, the upstream properties that we now own or potentially will own once the bankruptcy court approves the Southland transaction in the Wamsutter, the BP acreage in the Wamsutter and the Haynesville acreage now gives us the ability to market that natural gas coming from those properties. And so we're going to find a way to work with our new sequence. Ownership, ultimately, when that closes to find a way to take those supplies, brand them as low carbon or net zero, and then market those to the utilities and LNG facilities, as Alan mentioned.
spk02: Got it. Very helpful. Thank you.
spk07: Thanks, Christine.
spk04: Our next question comes from the line of Jeremy Tonnet with J.P. Morgan. Hi.
spk08: Good morning. Morning. Just wanted to see, I might have missed it here, but as far as the E&P acreage sale process is concerned, would you be able to update us there, I guess, as far as timing? Is it still kind of July, or is anything kind of changing your thought process there?
spk07: Yeah, Jeremy, thank you for the question. Yeah, we are in the process of working through, and I would say we're well into negotiations with two different parties, one in the Walmsutter and one in Hainesville, and they're both local producers with adjacent acreage and very skilled operators in the area. And so we're moving along on that. And probably the form of those transactions will be a situation where we retain an interest, and part of that is for credit protection, as you can imagine, to make sure that we haven't handed the keys over to that until the cash has been invested to increase the drilling acreage. So you should think about that as over time, those cash flows being reinvested in the drilling and building up of the business and then a dilution of our interest over time as that converts from upstream cash flows into midstream, long-life midstream cash flows. So that's exactly what we're looking to accomplish. And I'll tell you, our team and Chad Zamarin, who's been leading that for us, has just done a fantastic job of really coming up with win-win solutions with parties. And we're really excited about the way that's going to turn out. I would tell you, much bigger value to us than even at very modest conditions, much bigger value coming to us than we had ever kind of expected when we were preparing in the bankruptcy processes for that. So, Chad, I don't know if you have anything to add to that. Just on timing, I would expect that we finalize those transactions over the next 30 to 60 days. We're pretty far along in both scenarios. And I think you just put an emphasis on what Alan said. Those will be structures that bring in a strong, well-capitalized operator, And the ownership structure that they'll be acquiring will be structured in a way that will require development of the asset and drive volumes to our midstream and downstream efforts. And as Michael said, we will, as part of both of those transactions, have a marketing capability and the ability to aggregate supply for the benefit of our gathering systems, our downstream pipeline systems, and now with Sequent, our marketing and optimization capability. So we think a really great outcome for us and but I would expect to see something in both the LOM Center and ANGEL over the next 30 to 60 days.
spk08: Got it. Thanks for that. And then on the topic of energy transition, I was just wondering if carbon capture is on your radar. If you think that the current 45Q is sufficient to make projects economic, you know, specifically such as on processing plants, given the purity of the CO2 stream there, or anywhere else. Do you see that as a possibility for Williams here, or do you see the potential for more, I guess, changes of support coming out of D.C. that could enhance economics and make these projects more viable for Williams?
spk07: Yeah, I would tell you that we are looking at every opportunity to leverage our capability and infrastructure, and carbon capture is one of those. We do have assets and resources both pipeline and storage facilities in areas where there may be the opportunity to aggregate significant carbon emissions and provide capture and storage. It's early days, much like with hydrogen. I would say we're trying to set the table for us to be able to participate in those opportunities as they mature. I wouldn't expect to see something material, and now I mentioned on hydrogen in Wyoming, I wouldn't expect to see something material from an investment perspective in the near term, but I will tell you that if it's a viable opportunity, which we think it very well may be, we are looking at some actual projects today, but they are long-term in nature and require, I'd say, a year plus of just evaluation before we even think about what an investment might look like, but we have multiple different opportunities that we're looking at across across the carbon storage, catchment storage opportunity set.
spk08: Great. That's very helpful. Thank you.
spk04: Your next question comes from the line of Shinur Ghoshadi with UBS.
spk06: Hi. Good morning, everyone.
spk08: Yeah, Alan, thank you for the update on capital allocation. I have two follow-up questions.
spk07: First, just to go back to the upstream-related assets, in terms of the GDP structure that you're going to be setting up, are you seeing any of the learnings from the equity process that you just went through in terms of structuring, gathering contracts with these new assets? sort of protect Williams in the future?
spk05: And part of that, you know, do you see yourself retaining the assets on a very long-term basis, or do you sort of see eventually selling the assets down the road?
spk07: So, no, we vaguely heard your question. You cut it out quite a bit. Can you please repeat that? Sure. Just to repeat, so with the upstream assets and the JVs that you're looking to pursue at this point right now, are you going to be designing the midstream contracts to take advantage of the learnings that you have through the bankruptcy process to make sure that you're protected in the long-term basis?
spk08: And do you plan to hold the assets for a very long term, or is the whole period more of a medium term?
spk07: Yeah, great question, especially with some of the outcomes from the Delaware bankruptcy courts as it relates to gathering and whether those contracts run with the land or not. So we certainly... are doing everything we can to improve our position on those. You know, as we've said many times before, and it kind of proved out in these cases, it's not just the law or, I mean, certainly your contracts need to be good and supportive, but importantly, it is the physical nature of the asset and being all the way back to the wellhead that gives you a lot of economic protection in that situation. Having said all that, The one thing that we are really depending on in these transactions is the fact that the other party is going to invest the dollars to develop the acreage, and we're cutting the bargain on that basis. And so to get right to the point, we're going to retain those interests until those capital dollars have been invested to prove to ourselves that that money is going to be spent. If it doesn't get spent, we still own the acreage and whatever money they spent in developing it. we retain an increased interest in a more developed property. So, you know, I would say we certainly don't expect that, and we know the partners that we're talking to here pretty well, and they both are in very strong financial positions. So in this case, we feel really good about the situation, but I would say that we've got belts and suspenders on in terms of the form of the structure that we're staying – that is – if effectively bankruptcy proof given our continued holdings until the dollars have been invested to develop the acreage. Yeah, I think it's important to emphasize that we didn't have a meaningful contract rejection through all of the bankruptcies that occurred last year. We have been very deliberate in investing in infrastructure that is absolutely critical to the upstream asset. So both in Hainesville and Wamsutter, at the end of the day, the bankruptcy process really wasn't all that What was relevant was that our infrastructure is absolutely critical, and without it, the upstream asset can't deliver value, can't deliver volume. And so we have a very strong position across our entire footprint. I think we proved it last year. Not a single bankruptcy proceeding led to a rejection of one of our contracts because we've invested in critical infrastructure that just by its nature protects against that risk. And then on the long term, investment, Alan may want to add to this, we are again very focused on structuring these transactions in a way that brings development back to high quality acreage upstream of areas where we have existing available midstream capacity. And so we're going to see in these structures a near-term investment in these properties that will deliver the ownership from a long-term perspective primarily to our JV partner. We may have a small ownership interest that we retain from a long-term perspective, but we will likely only hold the ownership interest as long as it takes to make sure the development gets back into the property and drives the volume to our midstream assets. So we are laser-focused on that as our strategy, not to just own upstream properties forever. It's to own them in a way that drives the development that we think will drive value to our midstream assets. Very thoughtful. Thank you for that. And maybe just as a follow-up to the sequent acquisition, I appreciate everything that you've already laid out with respect to today. I'm trying to understand the capabilities that come with the acquisition.
spk08: Are you basically buying a team that is laser-focused on capacity management and so forth, or are they data scientists and come with algorithms and technology that can do something that is well beyond your current capabilities, just given the fact that you've been in this business in the past.
spk07: Yeah, no, I would just say, and I'll let Chad, I would say this is kind of a team that's really skilled at blocking and tackling and risk control, and the positions they're taking are nothing exotic. It is simply looking to manage risk. basis differential, manage contracts, reimburse contracts through asset management agreements with utilities. So this is a very low-risk approach, but it does involve a lot of customer contact and a lot of opportunity to serve customers in space. But it's basically basis and time value on storage versus physical inventory. So It's nothing exotic and market-leading or market-making kind of activities. Engineer, we, and Mal said this earlier, we had intentionally been focused on expanding our capabilities on that for the last couple of years, and our team has done a great job. They've been growing their capabilities, but we grew from a very, very small level to still a very small level, but it's still been a lot of work on the team. This gets us much quicker to a larger scale capability on the back of more sophisticated systems. We have a quality risk control process internally within Williams. they have a very high quality, you know, risk control system. And so we pick up the benefits of a very well thought out structure from risk control, accounting systems, trade, you know, marketing systems. We just, it helps move us forward that much quicker and something that we would have probably spent the next four or five years trying to build. We get there more quickly. Yeah. And I would just say, in addition to that, you know, we, we looked at a lot of different opportunities in this space and, The reason we got so comfortable with this transaction is Southern Companies has done a fantastic job of really keeping the screws turned down from a risk control standpoint and really building a culture around that. And so this is a very well-controlled business, and we've been very impressed with the time and effort that Southern Companies has invested in making this a heavily controlled, But at the end of the day, you know, Southern Companies doesn't have all the big long-term external customers on both the upstream and the downstream the way we do. And so this is a great fit for us. I totally understand, you know, where they're coming from in terms of their sales. But for us, this is really an important capability for a company that handles 30% of the nation's natural gas, really complimentary. And I think we've got a lot to offer that team as well. in terms of new opportunities to work around our customers and assets as well and offer those services. So this is a really, I think, attractive transaction between two companies that know each other well and have done a lot of business together, and we're really excited about bringing this team here. Yeah, I think about it really simply. I mean, it was a pipeline and storage optimization platform owned by a utility. You know, we are a pipeline and storage company, and we're now on the pipeline and storage optimization platform. This is not speculative marketing and trading. This is taking, understanding pipeline and storage fundamentals and optimizing infrastructure. And when you think about the era that we've just left, an era of expansion and construction, we move into an era of realizing the value of existing infrastructure, a platform focused on optimization of the existing infrastructure is going to be really valuable. And so we see it as an accelerator of capability across our core business, and we're going to be exploring a lot of different ways, I think, to create opportunity with the addition of the SQL team.
spk08: Perfect. Thank you very much for that. Appreciate the color, and have a great day. Thanks.
spk04: Our next question comes from the line of Tristan Richardson with Truist Securities.
spk05: Hi, good morning, guys. Just a question on capital in 2022. I think in prior calls, Alan, you emphasized that once the leverage is at the long-term target, priorities like further investing in the rate base and emissions reduction projects are the initiatives or the priorities for capital allocation. Just wanted to get your views on that versus further de-levering or, as you suggested in prepared comments, thinking about returning cash to shareholders.
spk07: Yeah, thank you very much. You know, I would just say we are – We remain and will look at all those options as we enter into next year. Obviously, once we've committed to capital projects, then that option has been eliminated once you start down that road, obviously. But we certainly, up until the time that we take a look at those investment opportunities up against wherever the price of our stock is, wherever we think the best value is, But, you know, the good news is we're sitting here in 22 with a modest amount of free cash flow that gives us flexibility. But as we get into 22, you know, it doesn't take rocket science to run math and realize that that starts to build on us. And so we will have quite a bit of opportunity there. And I wouldn't say that we're committed to making those emission reduction projects happen yet until we get down to seeing what, you know, stock price is, what returns look like. But that is certainly one of the options. And I think on the further debt reduction, obviously, if we become convinced that further debt reduction would add value to our shareholders, then that's a lever we could continue to pull on as well. And so I would just say, you know, it's hard to predict what the markets will look like nine months from now, but we certainly are to the point now as we continue to engage the board on this discussion, this is becoming a more prevalent topic, if you will, at board meetings in terms of what's the best use of the expert free cash flow as we get into 22 and beyond.
spk05: That's helpful. And then just a quick follow-up. Just with the activity you're seeing on both GMP segments, you know, possibly looking stronger in the second half and combined with some of the Northeast projects like Oak Grove, should we be optimistic for growth in 2022 in both of the GMP businesses where we sit today?
spk07: Well, I would say things are looking pretty favorable right now. I mean, you look at gas prices, NGL prices, you know, here through the summer months and starting to look out into the Ford markets, certainly the market is starting to put a call on gas. And these areas, whether it's the northeast PA, the southwest PA, the Utica or the Haynesville, you know, they're all well positioned to make pretty good margin in this kind of pricing environment that you're seeing now with an almost $3, you know, summer gas price. So, yes, if that continues, that will drive activity there. on those assets and will drive growth. So I like our setup for the balance of the year. Obviously, as John said, we're being reserved in how we're putting that into guidance, but that looks good. And I would say, obviously, if you think about really what drives some of those decisions, a lot of times it is the forward market for a lot of our customers that drives those decisions. And so they will start to look at what the forward strip looks like and start to lay in hedges. And that's going to drive the activity, frankly, in terms of how many drilling commitments they make in an area. So I would just say keep your eyes focused on kind of the forward markets for both gas and NGLs, and that will be a pretty good indicator of what kind of activity we should expect across those areas.
spk05: Appreciate it. Thank you, Alan. Thank you.
spk04: Our next question goes from the line of Alex Kenai with Wolf Research.
spk06: hi good morning um maybe just to follow up on the on the sequence questions um just looking back on southern's comments on it on their call um they did talk about it having you know a significant amount of balance sheet or parental guarantee or support required um as well as maybe some volatility in terms of the terms of the results there i guess maybe my questions are just are there going to be any synergies that maybe the company has that might try to minimize some of the parental guarantees that might be required maybe relative to southern And the other one is just talking about overall, you know, the volatility there, you know, on average about maybe $40 million of net income, I think is what they said. But is there maybe a sense that you may be able to kind of make that more kind of stable and predictable under the, you know, kind of the broader platform that you have? Well, yeah, no, this is John Chandler.
spk05: You know, first of all, the guarantees, I think you need to understand, you know, we guarantee a lot of our subsidiaries, too.
spk07: And a big part of that number they were talking about is just simply the guarantees that, they make for monthly transactions at Sequin. I think if you look at Sequin, their revenues are somewhere in the $7 billion range.
spk05: And if you divide that by 12, I mean, all that's happening is the parent was guaranteeing its subsidiary who was doing purchase transactions under the AMA or just general marketing activities with very low risk.
spk07: They have a very tight risk control process, so there's not risk on those trades. So they were just guaranteeing their subsidiary just like we would guarantee one of our subsidiaries.
spk05: that's $400 to $500 million of guarantees. And so that number was a little bit flashy, but it's not anything of substance.
spk06: It's not like a guaranteeing some risk asset. Hopefully that makes sense. And so beyond that, really, the transport fees, most regulated pipelines have maximum of 90 days requirements. If you fall below investment grade, if you're investment grade, you don't have any requirements, but it's
spk07: If you fall below investment grade, you have obligations, but they're only 90 days. So that's a much smaller part of that guarantee.
spk06: So, again, I would just say, you know, five to six or really six to 700 million of that guarantee number that you may have heard Southern talk about were just simple monthly or quarterly guarantees or monthly guarantees of their sincerity with very little risk.
spk07: Because there's really no changes to that. That's just a normal course of business activity. You know, one thing we haven't talked much about, EBITDA generation. You know, we see a pretty consistent in their history, a pretty consistent, I think Southern talked about this, EBITDA generation of $20 million to $30 million from this business, and we expect it to stay somewhere under our – you know, there will be an occasional market dislocation like we just saw, but generally $20 million to $30 million of EBITDA generation. That doesn't mean the earnings will be consistently that way. We will be doing – adjustments to our EBITDA where, you know, some quarters it may be quite a bit bigger, some quarters, you know, less, but over a year it would average out to that $20 to $30 million. So hopefully that answers your question, but there's not huge credit exposure for us as a company other than the just normal ongoing business activities.
spk06: Great. That was helpful. Thanks.
spk04: Our next question comes from the line of Gabriel Marine with Mizzouho.
spk01: Hey, good morning, everyone. Most of my questions have been asked or answered. I'm just curious on the additional solar projects that were identified, just kind of where you think you are in the $400 million, I think, bogey that you put out there during the ESG day. How much closer that takes you to that?
spk07: Yeah, thanks, Chad. We've got pretty in line of sight to what we showed in our ESG investor day and potentially even more than that. Of the 13 projects that had what we consider advanced beyond gate one. Over half of those are now filed with utility regulators in order for us to advance those projects, which means we've locked in scope, we've locked in land, we have a commercial construct that we're comfortable with, and those will go beyond what we call gate two in the near term, which is effectively an FID stage. So of the 16 now projects that we have, it's over $250 million of investment opportunities that we would expect, and we have a goal for at least half of those projects to achieve what we're considering FIB this year. I'm pretty confident that all those projects will get where we need to be, but the primary initial gating item is making sure we've got sufficient land and, you know, that's really what drives the ultimate size and scope of the project. And so that's what we're spending the most time on on the front end here. But I think we still have a pretty strong line of sight to the kind of scale that we identified during our investor day.
spk01: Thanks, Chad. And then maybe just a quick follow-up. I noticed that I think Northeast Supply Enhancement for an extension at the FERC. Is that project still being worked on? I mean, I'm just curious kind of how that project fits in the portfolio now, if at all, considering regional energy access.
spk07: Hi, Gabe. Michael, yes. We had an expiration of that certificate that was upcoming, and so through just a normal course, requested an extension on that. We still have a proceeding agreement, basically a contract with our customer there. They have not canceled the project as yet. And obviously they are still struggling getting their other projects off the ground from a permitting standpoint that was going to supplement in their terms their ability to serve their customers, increase usage of natural gas. So we thought it was prudent to go ahead and ask for that extension. And other than that, we're not working the project with the exception of having conversations with our customers at this time. We still think there's a great need for natural gas in that market. There's still a great opportunity to take fuel oil out of that market and improve the emissions profile in the Northeast, and we're still ready to serve that market when the customer and the regulatory jurisdictions seek to allow us to do that.
spk01: Thanks, Michael.
spk07: But we have no capital allocated to the project at this time, just to be clear.
spk01: Got it.
spk04: Thank you. Our final question for the day comes from the line of Becca Followill with U.S. Capital Advisors.
spk03: Just following up on Tristan's question, you talked at the beginning that you're beginning to review how to allocate capital given that you've reached your leverage target. Will you make that the capital allocation decisions or some type of plan public maybe in 2022 when you finish that review?
spk07: I think it'll probably just come out in forms, for instance, if we commit to emission reduction projects that drive our capital budget for 22 higher, then that's kind of where we would announce that. And if we haven't done that, then the two options to that would be further debt reduction just naturally or for buybacks of shares as another alternative. So I think as we start to formulate our 2022 CapEx budget and our strategy sessions with the board, which then rotate into budget meetings towards the end of the year, that's really when we'll be making the decisions on whether that money will go to investments in new CapEx left those other two alternatives. And I would think that by the first of the year, then, we would be in a position to say what we would expect to do if it wasn't going towards further capital investment.
spk03: Great. Thank you. That's all I had.
spk07: Thanks, Beth.
spk04: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You
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