Williams Companies, Inc. (The)

being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Daniel Giovanni, Vice President of Investor Relations and ESG. Please go ahead.

Thanks, Sarah, and good morning, everyone. Thank you for joining us and for your interest in the Williams Company. Yesterday afternoon, we released our earnings press release and the presentation that our President and CEO, Alan Armstrong, and our Chief Financial Officer, John Porter, will speak to this morning. Also joining us on the call today are Michael Dunn, our Chief Operating Officer, Lane Wilson, our General Counsel, and Chad Zemrin, our Senior Vice President of Corporate Strategic Development. In our presentation materials, you'll find a disclaimer related to forward-looking statements. This disclaimer is important and integral to our remarks, and you should review it. Also included in our presentation materials are non-GAAP measures that we reconciled to generally accepted accounting principles. and these reconciliation schedules appear at the back of today's presentation materials. So with that, I'll turn it over to Alan Armstrong.

Thanks, Danilo. Our natural gas focus strategy continues to deliver steady, predictable growth, and this past quarter was certainly no exception. In fact, we posted yet another quarter of record EBITDA driven by growth across all four of our core business segments as well as our upstream JV operations. We continue to set new records for contracted transmission capacity and expect this record-breaking performance to continue for many years to come as we execute on the six unique transmission expansion projects totaling 1.9 BCF per day. And our GMP business remains strong with modest growth during the quarter expected to ramp up over the balance of the year. We continue to further advance our clean energy strategy through tightly aligned deals announced this quarter, including our acquisition of the Trace midstream assets in the fast-growing Hainesville region, which just closed this past Friday, and through our partnership with Context Labs that I'll detail more when we get to our key investor focus areas. Overall, we expect strong natural gas market fundamentals and steadfast project execution to drive additional growth for our business in 2022. And as a result, we are raising financial guidance with expectations of another remarkable year of growth. Importantly, the midpoint of this new guidance is beyond the top of our previous range. So an impressive start to the year with a number of clear catalysts for growth for the balance of the year and into 23. And now I'll turn it over to John to go through the results for the quarter and our raised guidance. John?

Thanks, Alan. Starting here on slide one with the summary of our year-over-year financial performance. Overall, 22 is off to a strong start. We've seen 7% growth in EBITDA or 13% if you adjust last year to remove the favorable effects of last year's severe winter weather, including winter storm URI. And as we'll see on the next slide, our core natural gas-focused transmission and gathering and processing businesses have fueled this EBITDA growth, although we have also enjoyed continued strength in our upstream and marketing businesses. Our adjusted EPS increased 17%, continuing the strong trend of double-digit growth we've seen now for many years. Available funds from operations, AFFO, grew a bit more than EBITDA, continuing the trend of strong growth in this measure, up 16% year over year. As a reminder, AFFO is cash from operations, including JV cash flows, but excluding working capital fluctuations. If you compare AFFO to our capital investments of $316 million and our dividends of $518 million, you see that we generated over $350 million in excess cash for the quarter. Also, you see our dividend coverage on this page based on AFFO continues to be very strong at 2.3 times. Our debt-to-adjusted EBITDA metric continues to improve based on our strong growth in EBITDA and cash generation and our capital investment discipline. You see a nearly four-tenths or 9% improvement in this measure in only a year. So now let's move to the next slide and dig a little deeper into our EBITDA results for the quarter. Again, another strong start this year with 7% growth reflecting the combined effect of the performance of our core business and upside in our upstream operations. Walking now from last year's $1.415 billion to this year's $1.511 billion, we start by isolating those favorable effects from last year's severe winter weather, which were $77 million and are shown here in gray. Maybe just a quick opening comment regarding expense trends, since inflation has been such a big topic lately. We've actually continued to see very solid cost control in our business. You may have noticed the $34 million increase in operating and maintenance expense on the face of our income statement, but this is really driven by a combination of higher reimbursable expenses that are offset in other fee revenue, new lease payments that were just a planned part of Transco's Lighty South expansion project, and finally operating expenses associated with our new upstream operations. And related to the $31 million increase in SG&A on the face of the income statement, you should know that this is pretty much entirely related to the addition of the sequent business. That also includes their bonus accrual and also an $8 million credit reserve related to a small customer bankruptcy. Moving next to our upstream operations on the waterfall chart here, included in our other segment, Upstream operations were up $56 million, excluding the $22 million of winter weather benefits from last year. Importantly, our first new Hainesville production only began in April, so really no contribution in this $54 million yet from Hainesville. So the full amount of the growth is attributable to our Womstetter properties, and it's a bit of an apples to oranges comparison at that. As a reminder, last year we owned 100% of the acreage we acquired from BP only for February and March, but in the first quarter of this year we owned 75% of the Womstetter upstream JV, which now includes the combined BP, Southland, and Crowhart acreage. Shifting now to our core business performance. Our transmission and Gulf of Mexico business improved $37 million, or 6%, primarily at Transco and largely from the Lighty South expansion project, which came online in phases last year. Overall, our average daily transmission volumes for Transco increased over 6% versus the prior year, as we once again saw record winter natural gas demand. Transco's revenues are driven by reserve capacity, not actual throughput, but continued growth and actual throughput does highlight the criticality of Transco's service. We also saw higher margins in our Gulf of Mexico business. Our Northeast GMP business increased $16 million, or 4%, driven by top-line gathering and processing revenue growth on slightly lower volumes. GMP rate growth was supported by a combination of factors, including higher commodity-based rates, annual fee escalation, and other expansion-related fee increases that more than offset lower cost of service rates at our Bradford franchise. The slightly lower year-over-year Northeast volumes in the first quarter were anticipated in our initial guidance, and we expect a continued quarterly increase for the remainder of the year compared to the first quarter of 22 levels. We continue to expect a gradual increase in overall Northeast volumes throughout the remainder of the year, but ultimately our plan for the Northeast in 22 continues to see higher EBITDA versus 21 on pretty flat volumes. However, we are well positioned to resume stronger volume and EBITDA growth in the Northeast in 23, driven by several expansion and optimization projects underway that Alan will discuss in more detail. Shifting now to the West, which saw an impressive $35 million or 17% improvement over 21. In the West, we continue to see upside from our commodity price exposed rates in the Barnett, Piont, and Haynesville, as well as substantially higher volumes in the Haynesville that drove an 11% overall increase in volumes for the West. In the west, we see a strong quarter-over-quarter growth trajectory throughout the rest of the year, and especially in the second half of the year, driven primarily by strong drilling activity in the Haynesville. Next, you see a $30 million increase in our gas and NGL marketing services business, which includes both our legacy gas and NGL marketing business, as well as Sequin. This improvement was primarily caused by the addition of Sequin in July of last year. Overall, this segment produced $65 million of EBITDA. As a reminder, the first quarter of each year is typically when Sequent creates the majority of its EBITDA, and this was a strong performance for the team. While we expect to see $50 to $70 million of annual adjusted EBITDA contribution for this combined segment, Sequent plus our legacy marketing business, this year we've gotten off to a stronger start than expected. And with the strong commodity price expectation for 22, we expect to exceed this $50 to $70 million range. So, again, another strong start to the year, a 7% growth in EBITDA of over $1.5 billion, driven by core business performance and upside in our upstream and marketing operations. Let's move to slide three to look at our latest financial guidance thoughts for full year 22. We are pleased to share a substantial improvement in our 22 financial guidance versus what we provided in February of this year. I won't go through each of these metrics, but we'll offer some commentary on the most pivotal numbers. Let's start with adjusted EBITDA, where our midpoint is increasing $250 million, moving from $5.8 billion to $6.05 billion, with a tightened range of plus or minus $150 million versus the original plus or minus $200 million. This substantial raise in EBITDA guidance is grounded in our confidence in the continued growth in our core business before considering the trace acquisition. Specifically, we expect steady quarterly EBITDA in our transmission and Gulf of Mexico business through the remainder of the year, but continued quarterly EBITDA and volume growth from our west and northeast segments with some level of acceleration through the second half of the year. Additionally, for the remainder of 22, we expect a growing contribution from the trace acquisition, which closed last week as it moves towards the targeted approximately six times acquisition multiple based on its 23 EBITDA. And finally, with respect to our upstream operations, we are encouraged by the results we've seen thus far in 22 and remain confident in the fourth quarter exit rates we quoted at our analyst day. Shifting down the page now to growth CapEx, you'll note a $1 billion increase in guidance from a combination of the $950 million trace acquisition value and other trace-related CapEx. Note that we've closed the trace acquisition using a combination of cash on hand and other sources of liquidity, including our revolver and commercial paper. You see that our debt to adjusted EBITDA remains steady at 3.8 times, reflecting the balancing of our increased EBITDA with our increased growth capex per tray. The remainder of the guidance items either changed in relation to the change in EBITDA that I just discussed or remained unchanged as in the case of maintenance capex. So, again, a substantial increase in EBITDA guidance of $250 million at the midpoint, driven by continued growth in our core business, as well as contributions from trace acquisition and sustained expectations for our upstream JV operations. So with that, I'll pass it back to Alan to review our key investor-focused areas.

Alan? Okay. Well, thanks, John. I'm going to move on now to the key investor-focused areas here on slide four. Our natural gas-focused strategy continues to play out. with strong fundamentals that are driving incremental growth opportunities, particularly as we continue to see increasing demand for US LNG exports along the Transco corridor. As well, we have seen domestic demand for power and industrial sectors continue to grow despite much higher natural gas prices. Admittedly, it has been somewhat surprising to us how inelastic this demand has remained. The challenge ahead to meet this stubborn and growing demand isn't higher cost of supply. It is simply that we need more U.S. infrastructure to connect some of the world's lowest cost supplies to this burgeoning demand. I'll point out that Transco delivered a record-breaking 17.15 million decatherms on January 3rd. And while extreme winter weather usually coincides with these peak-day deliveries, this volume record was due to growing demands in the Transco markets. And we expect this natural growth in demand to continue as we continue to see lows within our existing footprint. Our GMP business continues to thrive in the current environment, allowing us to capture the upside benefit of pricing and inflation adjusters in our rates that have been sitting on their floors for many years. And we continue to execute our upstream JV strategy by realizing the near-term benefits of its commodity price exposure while setting the stage for continued use of our latent midstream capacity in the longer term as these volumes grow. And now I'm going to move on to our financial strength and stability. And as detailed earlier by John, we increased our guidance midpoint to $6.05 billion, driven by the following. First of all, strong-based business performance with volumes in the northeast GMT business expected a rebound for the balance of the year. And, of course, this, along with the higher rates that we're seeing in some of our consolidated assets, has got us set up for a very strong performance for the balance of the year. Strong performance of our gas and NGO marketing business in first quarter and the growing volumes in our upstream JV, which are enjoying higher-than-planned pricing, is another driver. And finally, incremental volume and earnings from the trace acquisition, as we've mentioned earlier. With our recent updated guidance, we expect to achieve a four-year EBITDA CAGR now of 7% and an impressive EPS CAGR of 19% at our midpoint. On the whole, our business continued to fire on all cylinders, driving our financial strength and stability. And the picture actually just keeps improving as we have been well positioned to capture the upside in this environment. Looking now at our exposure to growth, given the current strength of natural gas fundamentals in the U.S. and abroad, we see a significant runway of growth opportunities for Williams. First of all, we now have 1.9 DCF per day of high-return Transco projects that have now moved into execution. This has been raised since our analyst day due to recently secured customer commitments to advance the Texas-Louisiana Energy Pathway project, which moved out of the development bucket into execution. And this project connects low-cost South Texas gas supplies with LNG markets in Louisiana. Second, in the Gulf of Mexico, we secured another customer agreement at Salamanca, further building on growth momentum in the deepwater Gulf of Mexico, which continues to deliver more and more opportunities in response to these higher world prices. In the Northeast, we've reached agreements with our producing customers for significant gathering expansions, in both the Rich Utica and the Rich Marcellus, and we now have four significant expansion projects under execution that will drive growth showing up later this year and into 2023. And our strategic bulk on acquisition of assets from Trace Midstream closed last week, and this now positions Williams as the second largest gas gatherer in the fast-growing Haynesville. This is consistent with our long-held strategy to seek a number one or number two position in the key basins in which we operate. With our Hainesville gas gathering capacity now above 4 BCF per day, we continue to crisply execute on our wellhead-to-water strategy. In fact, we are close to commercializing the Louisiana Energy Gateway project. And given significant interest by various shippers, we do expect to announce a final investment decision on that project soon. Our growth prospects don't stop with these projects, however. We see more opportunities on the horizon, even as we navigate an evolving regulatory environment. Importantly, we saw the FERC respond to concerns from both industry and legislators in a constructive manner this past quarter, and we are optimistic that regulators recognize the need for a reliable permitting process to support natural gas infrastructure. Importantly, key legislative leaders have renewed their focus on streamlining permitting in our country to ensure we've got the necessary midstream infrastructure to support our country's LNG build-out goals. And finally, let's look at the developments related to our new energy ventures. Obviously, as we think about decarbonization, there are a lot of opportunities to invest in energy innovation and new technologies. As part of our strategy to accelerate the next generation energy marketplace, Williams has established a corporate venture capital fund that is set up in a way to support direct investments in startups that leverage Williams assets for decarbonization solutions, as well as limited partnership funds that specifically invest in low-carbon technologies. A great example of how we're utilizing this VC fund is our recently announced partnership with Context Labs on a technology solution to support the gathering, marketing, and transportation of responsibly sourced natural gas from wellhead to end user. And by leveraging Context Labs technology, we will enable supply and delivery decisions that connect the cleanest energy sources to meet real-time energy needs across the country. Also supporting our work in this space, we just announced a collaboration with Chenier Energy to implement a QMRV pilot that will further the development of advanced monitoring technologies to enhance clean energy supply and delivery for Williams and its customers. So lots of exciting things happening in this space and all positioned around supporting and enhancing our natural gas focus strategy. So in closing, I'll reiterate that our intense focus on our natural gas focus strategy has built a business that is steady and predictable with continued growth, improving returns, and free cash flow. Our best-in-class long-haul pipes are in the right place, serving the very best 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. These gathering assets are irreplaceable and critical infrastructure within the natural gas value chain. And our secret platform that extends across the natural gas pipeline and storage industry is providing infrastructure optimization services that create value for Williams and our customers while mitigating downside risks. You've heard me say it before, but 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. And finally, as we look overseas to the energy crisis in Europe and its ripple effects on energy security, the importance of affordable and reliable energy supplies on a global scale has now taken center stage. Williams is excited about the important role we will play in meeting the dual challenge of delivering increasing amounts of reliable affordable energy while also continuing to decrease greenhouse gas emissions around the world. Utilizing our critical infrastructure that is connected to the best natural gas basins in the U.S. to increasingly serve LNG export facilities and growing U.S. demand for clean affordable energy is a great place for our organization to start. And with that, I'll open it up for your questions.

Operator, please open up the Q&A line.

Thank you. We will now begin the question and answer session. To ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brian Reynolds of UBS. Your line is now open.

Hi, good morning, everyone. Maybe to talk on the EBITDA guidance for a little bit, I was curious if you could just provide a little bit more colors, the upside and downside of the EBITDA range. You know, first look at apples-to-apples comparison, it seems like commodity exposure is really the main driver of the guidance in addition to the trace acquisition. And I was just wondering if you had anything to add to that in addition to, like, if there are any volumetric assumption changes to the guidance update. Thanks.

Yeah, actually, the drivers are kind of – Primarily, as we studied, the drivers are absolutely our base business. If you look at first quarter volumes in the northeast and you consider the rebound that we're seeing from very active drilling operations, a lot of that will fit in the third and fourth quarter just due to infrastructure issues on our part. That is the primary driver is just seeing a nice rebound in the Northeast. Actually, I would say we're being pretty modest in our expectation of pricing. And, in fact, you know, if you look at this quarter, Hainesville really didn't even produce this quarter other than the base level it's been producing at and certainly didn't contribute to EBITDA. So the upside that we have is really just from volumetric exposure with a pretty modest assumption on pricing. for the balance of the year. So really the primary driver for growth is first our base business and second the E&P in the Haynesville and that ramp up that is going very well at this point but did not contribute in the first quarter. And then finally is the trace acquisition in that order in terms of the value.

Great, appreciate that color. And then maybe as a follow up on just the evolving regulatory environment, it appears that there's some, you know, near term tailwinds to support natural gas and energy infrastructure permitting. It's curious if, you know, you could comment on this evolving environment and curious if William is considering adding, you know, new Transco growth projects for FERC approval for the docket, you know, that may not have been pursued at the end of last year, the beginning of this year. Thanks.

Well, I would just say, first of all, we have a long list within that six projects that are under execution, and we are encouraged in our discussion with the FERC and their clear desire to see good projects that reduce emissions in the markets they serve. And so I would say we're very fortunate to have a number of projects that actually reduce emissions in the markets they serve, and so we certainly are seeing support out of the FERP, and obviously they've been moving projects through pretty quickly. On the increment, I would say nothing's really changed that much for us. It's just kind of a steady beat right now of continued demands from customers and RFPs that we're responding to and working with customers on. So I will say that I think on the one hand you kind of have this popular notion that, that, you know, gas demand is not increasing. And on the other hand, the reality is it is increasing, and we're certainly seeing that through RFPs coming from our various customers on the demand side. So, we're pretty excited about the way the future is shaping up on that front. And we do think, particularly at the FERC level, that they are being supportive, particularly of projects that we can demonstrate reduce emissions in the markets we serve. a great track record of working with the FERC in a constructive manner, and we expect that to continue.

Your next question comes from the line of Chase Moodyhill from Bank of America. Your line is now open.

Hey, good morning. I guess, you know, first question is just really on the leg. It sounds like that, you know, you guys are getting close to FIB-ing that. Could you talk about, I guess, how much contracting that you still have left that you need to accomplish and how much capacity that you expect LEG to be and maybe the total cost there as well? And I've got a follow-up after that.

Sure. Hey, this is Chad. So LEG is at full capacity, a 1.8 BCF a day project. We have over half of that contract. contracted today and we would expect to achieve a sufficient level of commercial contracts over the next couple of months to FID the project. We see, you know, a pretty significant need for volumes that are growing in Haynesville to get to Gulf Coast markets. And so I would feel pretty good about that getting done. Michael, do you want to talk about the capital in the project? Yeah, I'd say, you know, the capital cost estimates are really pretty much in line with the other projects that we've been executing on the large diameter type activities. We're not ready to disclose the actual capital investment opportunity there, but I would suffice to say that the returns are very nice. And the fact that we also have options on some pipe right now really tells us that we are locking in on what we think the cost will be. Just because the volatility of steel prices right now And that's been going on for quite some time now. And we were able to acquire some options on some surplus pipe from canceled projects and can apply that toward the leg projects. So we feel good about the material costs right now that we have in the budget and certainly feel pretty good about the capital costs that we'll take to construct it based on what we know today. Yeah, it's important to just remember that when we executed on the trace acquisition, Quantum did And we announced that Quan will be an equity partner in the project. So that will reduce our capital load a bit. And it could be that we bring in an additional equity partner in the project. So we will, I think, de-risk a portion of the capital, but get the benefit of creating that full value chain from truly well-headed water across our infrastructure. And we'll work with our partners on the project to optimize the entire value chain.

Okay. All right. Perfect. The quick follow-up is just, you know, directly on that strategy of wellhead to water. You know, we do get questions from investors about, you know, midstream and, you know, if they would ever, you know, consider LNG export facilities. Obviously, we've got, you know, one of your peers out there that's obviously considering this. So, I guess my question to you is, you know, will you ever consider, you know, building an LNG export facility?

Yeah, I'll start and then I'll follow up. I'd say for the Haynesville strategy, the well-headed water, there's a pretty good existing footprint of LNG export facilities that we're focused on connecting to. You know, we are the largest infrastructure provider to the LNG terminals across the entire footprint. So for the near term, our focus is on making sure that our customers can access those LNG terminals and also access we can connect our customers to the very best markets, whether those are domestic or international. So I think our strategy of building that full value chain is not dependent upon us building and operating LNG terminals. And so our strategy today is to serve as a reliable supplier to LNG export terminals and then increasingly provide access to our customers to those LNG markets. I don't know if Alan... Yeah, no, I think you said that very well, Chad. I think, you know, obviously there's a lot of project debt that's utilized in that space today that gets those down to some pretty low cash on cash returns that we think is, you know, a great way to make sure there's plenty of capacity to get out. If we determine that there wasn't going to be plenty of capacity to get out, then we might consider that. But as it sits today, it looks like there's plenty of new capacity that is trying to get built and and at low cost um and and fairly low returns given given the project financing that's being applied to this project so so we we see you know better places that we can put our capital to use better today uh than there and so that keeps us focused on the areas we have very strong competitive advantages as chad pointed out

All right. I appreciate the color. I'll turn it back over. Thanks, Alan. Thank you.

Your next question comes from the line of Ranit Satish from Wells Fargo. Your line is now open.

Thanks. Good morning. Just staying on the Haynesville, there's a lot of midstream companies now that are evaluating takeaway projects, including you guys. I guess my question is how competitive is it to secure contracts for a new pipeline? I mean, I know you have a head start on leg because of the trace deal, but do you think you can generate the same return on leg as you would on Transco projects? Just trying to get a sense of competitiveness.

Yeah, that's a great question. I would say generally probably not just because our returns on Transco have gotten to be, you know, very much higher than the normal projects. And, you know, thanks to the efforts of the environmental opposition of making pipeline permitting so difficult in the areas that we operate. it's allowed us much higher returns in that space than would normally be allowed. So, yeah, it's definitely more competitive. We like it because, you know, we've got follow-on business upstream and downstream with Transco, so it makes the kind of total implement return on those projects attractive, but it is not as high as kind of bolt-on expansions that we see on Transco today just because of our strong competitive position in those areas.

Got it. And then maybe if you could just give us an update on producer activity in the Northeast. Sounds like you're positive, you know, given the gathering expansions you've announced. But do you see the potential for a more meaningful volume increase in 2023? And then maybe tied to that, where do you stand in terms of NGL volumes versus frac capacity? Do you see the need to expand frac capacity at any point over the coming years? Thanks.

Good morning. This is Michael. I'll take the Northeast question. You know, we saw in the first quarter this year really a convergence of several things that impacted volumes in the Northeast, really across the entire basin. And a lot of that was driven by production increases that occurred in the fourth quarter of 21, where a lot of producers accelerated their well pad connections early in order to hit great exit rates for the end of 2021. which was great for our systems, and we saw a lot of peaks on our systems in 2021. But that obviously hurt 22 performance in the first quarter with all of that early execution and then the decline that occurs from those new wells. So we saw that, and we saw really significant winter weather in the northeast this year, something that we haven't seen in several years at this magnitude, and that did impact a lot of the production from the producer freeze-offs And not only just on our systems and the producers on our systems, but the production that was gathered by others that would be brought to our processing facilities, we also saw some impacts there. So we did see some inlet plant volume declines because of that. And then finally, we had a producer that had some well pads that came online that had significant levels of condensate, which is good. for them from a production standpoint, but it overwhelmed their facilities. So they weren't able to bring those volumes to us until they rectified that situation. So that's been fixed, but that did impact some significant volumes from that producer in the quarter. So we had several big items that impacted that. And as Alan said, we expect an acceleration of volume coming on between now and the end of the year. And we have talked about volumes in the Northeast being somewhat flat this year. from some of the producers talking about being in maintenance mode. But we do see 2023 shaping up pretty well with the four expansions that we have underway across all of the dry and rich basins in the Northeast. And just to be clear, when we say we're talking about flat volumes, they were saying flat to 21. So it would be a growth point from where we are here in the first quarter for sure.

Got it. Thank you.

Your next question comes from the line of Gabriel Marine from Missoula. Your line is now open.

Gabriel Marine Hey, good morning, everyone. With some of the gathering contracts now, it sounds like being off the minimums from a, I guess, commodity price standpoint. I was wondering if there's a possibility for getting enterprise-rise rule of thumb for sensitivity to net gas prices overall. And I'm also just curious, you know, what gas price forecasts you're using in your guidance now.

Yeah, Gabe, thanks for the question. I don't think we've released that sensitivity on price. We have, you know, we have said the contracts that we have there are around our Laurel Mountain midstream business with EQT and the Marcellus has that feature as well as the Barnett gathering contract with Total in the Barnett shale. So those are kind of the two primary areas exposure to those. There's a lot of areas with smaller ones, but in terms of any significance, those are bigger ones. But we have not provided that. In terms of the pricing that's in there, I would just tell you it's, you know, we're not counting on the kind of current pricing that we have obviously for the balance of the year. So we're being, I would say, a bit conservative about what we expect for the balance of the year because we do think, given the kind of growth that we're seeing in both the Hainesville and that's gearing up in the Marcellus and the Utica that we're exposed to, we can't very well, on one hand, see the kind of growth that we see coming on there and expect prices to remain at these levels. And so I would say that those two things have to be considered jointly, and we do so.

Thanks, Alan. And maybe if I can just ask one follow-up on the Hainesville. After, hopefully, like FIDs in the not-too-distant future, just how you're feeling about your current footprint there relative to kind of where you want to be. Clearly there's some other assets, I think, that are out there on the market. So maybe if you could just kind of speak to that as your balance sheet is kind of giving you more room here, I think, to play some more offense.

Yeah, I would just say, you know, as usual, we're going to be patient and picky and, you know, And we've done that, and it's served us well. In the case of Trace, we kind of caught that from a timing standpoint. I think we caught that at a great timing. And we had unique considerations that we had to offer Quantum and Rockcliffe there, both in terms of access to LNG markets via our WEG and Transco systems, as well as an interest in leg for quantum, which was valuable for them. So, you know, we'll continue to look for those kind of unique opportunities as they pop up where we've got significant value that we can add between us and the buyer. So I wouldn't say we're not going to look at everything, because we probably will, but I think we'll remain, you know, fairly patient and picky about how we choose our points of growth. Thanks, Al.

your next question comes from the line of jeremy tanet from jp morgan securities your line is now open hi good morning hey good morning jeremy um just wanted to touch on appalachia a bit more and i guess the production outlook there in you know given how egress constraints impacts uh production just wondering now they have mariner east online you have the shellcracker uh coming here With higher, I guess, egress or demand for NGLs, are you starting to see any more pivot towards liquids-rich areas, or is it really focused still on dry gas more given the higher prices? Just wondering how your conversations with producers are going now, and how do you think that shifts, and could growth materialize this year or next year, do you think? It seems like it's not.

Hey, Jeremy. It's Michael. We are seeing growth expectations increasing for 23 in both sides of the rich and the dry. You know, we've got an expansion in northeast PA underway that comes online in 2023, unlocking additional volumes through our gathering systems. And the other expansions that we spoke of are really down in the bridge area. So we're working with Encino, who's the stream process of both rich and dry, and the Flint Cardinal,

gathering systems that we have and benefit being in close proximity there. And so they're just taking advantage of capacity when it becomes available.

And we have some interconnects that we're increasing capacity on as well to put additional volumes into Texas Eastern and Rover from those systems. And so those will come online this year. But that just unlocks more capability to move gas out of the system and then take advantage of latent capacity that's available in those interstate pipeline. So I would say we're seeing pretty exciting growth coming in 23 from definitely the rich side with the support of NGL and condensate prices that are tied to WDI. And right now we're seeing our processing complex in the ODM system is full, where we had some impacts, as I said earlier, from the winter weather with production being able to get into those systems. We are back to full now, and we're working on our interconnect between our OVM system and the BlueRacer system so that we can utilize latent capacity there when it's available and vice versa ultimately. And so that will certainly unlock some additional opportunities there to continue to grow those rich volumes.

Got it. Thanks for that. And just wanted to touch on higher nat gas prices a little bit more if I could. And whether these higher prices impact your thoughts on monetizing Wamsutter, you know, Hainesville E&P assets given the strong price in gas here. And at the same time, higher prices, more volatility leading to wider basis differentials. Do you see this kind of maybe driving more upside through the sequent operations in the near term given this backdrop?

Yeah, great question, Jeremy. And I would tell you, I've been really impressed with the way our commercial teams have been working together on sequence. I'm going to answer the end of your question first. Really, if you think about Sequin and the way that they run the business of optimization, being in a basin that is starting to get crowded from a transport standpoint and starting to have volatility in the basis and allows us to capture and aggregate supplies, into then turning that into an infrastructure solution is exactly what we bought Secret for. And that's turning in to be a pretty powerful tool for us. And probably, while I certainly expected over time for us to get there, I've been very impressed how quickly the teams have come together to materialize some opportunities on that front. So really excited about that. And I think not just you know, the nice performance that we got out of sequent here in the first quarter, but as well just seeing strategically what it's doing for us in terms of intelligence in the basin and dealing with volatility in the basin as markets grow. And optimization of capacity becomes critical as you get up near the limits of a basin's capacity to export. Again, that allows us then to aggregate those supplies that need optimization, and then that, of course, gives us a front seat as it relates to infrastructure solutions for that. So, really, that has gone, you know, according to plan and then some, I would say. On the question of monetization of the E&P business, you know, remember that, First on the long stutter our primary goal and the real value there is for us build getting those volumes built up and So the the structure that we have today there with crowbar Art we can sense them and very powerful incentive to dramatically grow volumes. And then that cash margin of that kind of regardless of pricing environment, that cash margin is exactly what we're looking for, which is obviously a much more durable solution than depending on high prices here. in the current environment. So that strategy remains intact, and we remain very focused on getting the volumes built up in that basin of monetization, which may very well come there. On the angel side, somewhat similar, except that in that structure, the undeveloped, not the existing producing reserves, but the undeveloped acreage does transfer over as the development is done by GeoSouthern. And they are just doing an incredible job. I want to give them a lot of credit here on the way they've been managing as an operator out there on the drilling operations. And we're really excited to see what that's going to mean for us, both in terms of responding to this very strong pricing environment we have on gas in here in the near term, but as well the volumes and the cash margin that we'll get from the downstream assets in the longer term so both of those are going you know extremely well um but the haynesville obviously is going to be a much more near-term catalyst for growth just given the ability to very quickly value will be transferred in the undeveloped acreage not in the producing acreage but in the undeveloped acreage will will transfer over to to Geo Southern over time. Anything to add to that, Chad? Just that at the pace they're currently, there are three rigs that Geo Southern is running in the Hainesville on our position. And at that pace, we would see that reversion of interest on the undeveloped occur sometime in early 2023. So it's kind of self-fulfilling in the Hainesville. So that will happen naturally.

Got it. I'll leave it there. Thank you.

Your next question comes from the line of Michael left this from Goldman Sachs. Your line is now open.

Hey, guys, thank you for taking my question. One modeling one in one kind of citing and permitting longer term one just on the modeling one. Can you remind us? I want to make sure I caught this correctly. What was the sequence contribution in the first quarter? And what do you expect for the full year?

We're speaking to a run rate in our overall combined marketing business of Sequent and our legacy NGO and gas marketing at $50 to $70 million on a normal run rate. What we said, though, is that the $65 million that that segment produced in the first quarter given the strong start that we've seen and the price outlook for the rest of 22 means that we'll likely exceed that range for 22. But 50 to 70 is what we're targeting as sort of a normal run rate for our overall marketing business, which is now combined, sequent, and our legacy gas and NGL business. Got it.

And then on the permitting front, I know there's lots of discussion in

DC about doing things that can make development of gas infrastructure assets easier over time. But we just saw the administration in the last couple of weeks revised some of the NEPA related requirements for gas infrastructure, which strikes me that would actually make it a little more onerous in the siting and permitting process. And we just saw yesterday a challenge to a license amendment for a Louisiana LNG project that already has an EIS. I'm just curious, kind of from your thinking longer term, what do you think the messages that are coming out across the board are in terms of either from policymakers, environmental groups, or others in terms of the desire, but more importantly, the process for siting and permitting gas infrastructure?

Michael, great question. We study a lot, and I would just say, first of all, that is not a well-oiled machine we're talking about there, and I'm not sure sometimes the right-hand knows. And certainly, you know, the FERC got some very clear instruction from the Energy and Natural Resources Committee, so I think that was very helpful in terms of getting the FERC lined out. The CEQ that you spoke about was certainly a step backwards, but frankly, you know, really the previous path that the Trump administration set on CEQ was helpful, but it really hadn't had that much impact yet on NEPA, but it definitely was a step backwards. I wonder if that was a little better communication within the administration. I kind of wonder if that would have come out given the need for and the desire for natural gas infrastructure to get permitted, but it certainly was a step in the wrong direction.

I don't really have a comment yet on the EIS and relicensing issue that you mentioned.

I'm not familiar enough with that to provide a comment on that. Anyway, I would just say Yes, we think there's a desire from the administration and certainly from some of the key Senate committees to streamline permitting, but I'm not sure that everybody's moving in lockstep with that amongst the various agencies just yet. But I'm very hopeful given the direction that the FERC responded to, I'm very hopeful that we'll see that with other agencies.

Got it. When you're referring to the FERC, you're just calling the changes to the policy statement, making a draft and taking comments, et cetera, or something else along those lines?

Well, I would say a couple of things there. I mean, yes, certainly that's positive. But as well, we saw a lot of certificates get issued that have been pending for some time there pretty quickly as well post the hearing that the Senate committee held. And so we thought that was very constructive. And, frankly, our discussion with various commissioners indicate that they really are serious about trying to get good projects that, you know, have the ability to reduce emissions and are being done and permitted responsibly, including very intense stakeholder engagement.

They're serious about getting those.

From the line of Jean Salisbury from Bernstein, your line is now open.

Hi, good morning. How close do you think the Hainesville is to running out of capacity today? Do you think that it will actually run out and you'll see blowouts before the next wave of projects come on, beginning with gold?

Good question. I think that the Hainesville, you know, it does have takeaway capacity.

that we see providing relief through probably the next couple of years. I would just note, though, that the traditional annual capacity wasn't necessarily built to the markets that need the gas today, so it's not the most efficient path for getting gas to the growing markets, which is why our Louisiana Energy Gateway project, we think, makes a lot of sense. targeting that project to move directly from the Haynesville south to growing LNG in industrial markets along the Gulf Coast. So we do see capacity that will allow the Haynesville growth to continue over the next couple of years, but we see a need for projects to come online in the 2023-2024 – sorry, 2024 timeframe.

Great. That makes a lot of sense. And then sort of a related follow-up, we're obviously kind of getting tight on gas takeaway from all of the major Tier 1 gas basins. Are you starting to see any increase in interest or planned activity from the so-called Tier 2 basins, like the Barnett or the Piance at the current gas strip?

Yeah. This is Michael. We are capacity – We've got a lot of capacity available out of the Rockies, for example. So I would say you'll see some uptick in activity out of the Rockies to move gas out of there with those pipes that were built historically to move that Rockies gas. So there is definitely opportunity to continue to increase from those basins that you called Tier 2. And we have a large footprint there certainly in the Rockies. So we're pretty optimistic about that. We're seeing some drilling activity in the Barnett as well, but most of that is keeping production flat to slightly growing on our systems there. A lot of that's been drilled out, and it's a more tough environment to drill in with mostly being urban there. But we are seeing some activity that's very pleasing to us with the rate structure that we have there in the Barnett. So I think where you see producers with takeaway capability and available, you're going to see some increased activity if these prices continue as they have been.

Great. That's helpful. Thank you.

Your next question comes from the line of Sunil from Seaport Global. Your line is now open.

Yes. Hi. Good morning, folks. And thanks for all the clarity on the call. So I just wanted to go back to the Venture Technical Fund, which was mentioned for clean energy and greenhouse gas monitoring. I was curious, you know, if you could talk about, you know, that investment opportunity in there in terms of the size. and the threshold on returns on that?

Sure. You know, I would just say we are being pretty modest in those investments. We have a pretty tight screening process in that regard, and we're not putting – large amounts of capital to work right now on that but it is important capital because we do think that that'll long term be a differentiator and we've been very clear with ourselves that we want to think about where the is going in that regard and we do think that reducing methane emissions and overall greenhouse gas emissions from our natural gas value chain is absolutely essential for natural gas to be the powerful tool and be considered the most powerful tool at reducing and impacting positively climate change. Making sure that on the UMRV front and our ability to, in an unassailable way, certify responsibly sourced gas. We think that's going to be very important in the long run. And so that's not super expensive because it's not big capital, but we are certainly engaging our organization and making sure that we don't sit around and wait for really good solutions to be developed we think there's a lot of efforts going on on that front but we think at the end of the day those are going to have to be really strong unassailable solutions that that people can trust and whether they're an ngo or they're a gas producer uh that it can be trusted and so we're we're very focused on that and and we want to be uh there on the front lines of that but it is not that is not big capital that we're investing in that space right now. In terms of the return component, the areas that we are investing more sizable amounts of capital, like in our solar business, We are targeting mid-teens returns on those projects. Obviously, that's not available in the merchant space around renewables today, and we're well aware of that. But given the fact that we've got our own load to serve there and we've got a lot of the essential facilities already in place, that reduce the capital load on that. That's what drives the higher returns there. So, Chad, you got anything to add? Yeah, I would just add that on the venture capital front, we have been venture capital investors. That's not our core business, and so we've made some small investments in a couple of existing funds. On the context labs investment, we're actually investing alongside Boone Pickens Energy Partners. They are the large investor in that. platform, which, again, we really like, a highly credible investor. And our relatively small minority investment, though, does allow us to have significant impact over how that technology will get developed and deployed. And we want to make sure that we can help bring to market the very best decarbonization solutions. And so I think, you know, the strategy of finding you know, really promising technologies, partnering with investment platforms that understand these markets and know how to put, you know, good money to work, and then having our seat at the table to influence the direction of the technology so that it achieves the goals that we're all trying to achieve. And so that's how we're approaching the investment strategy.

Oh, got it. Thanks for that. And just one follow-up. I think we mentioned about the gas prices and, you know, I was curious, you know, how is the E&P production that you have explored to, you know, hedge for, say, the remainder of 2022 or for 2023?

John? Yeah, yeah. So, Sunil, thank you for the question. As we discussed at Analyst Day, our upstream hedging program, we've been pretty much focused on supporting our original street guidance and the underlying capital investments that we're making in those upstream businesses. And so as such, we've continued to expand the hedges that will protect the planned upstream gross margin. And those have been at favorable prices versus the original guidance. A couple points, though. Because a good portion of our production volumes is really dependent on future production, we generally don't hedge more than about 70% of our expected exposure for the year. Also, in this environment, with the strong current pricing that we're seeing, we do expect that operators will push for volumes beyond what those original plans but until we see those volumes really materialize, we don't intend to hedge more than really 70% of those originally expected volumes. You know, we do, as we've already discussed, we do have significant contracts with direct exposure to prices as well above a four, especially at the Barnett and then the Marcellus. So those contracts also provide us with exposure to gas prices beyond the upstream JVs.

Okay. Thanks for the call. That's all I had.

Your next question comes from the line of Alex Cagna from Wolf. Your line is now open.

Great, thanks. Maybe just a follow-up from earlier discussions on policy, but, you know, from the administration, you've talked about the agencies, but also, you know, do you think that there's, you know, kind of legislative kind of work being done that maybe, you know, kind of is kind of sort of an all-of-the-above sort of strategy coupling, you know, clean energy, incentives with more focus on natural gas? And then maybe on a related question on policy, are you seeing this Department of Commerce review on solar impacting the $100 million or so placeholder that you've got for solar this year, or whether it's impacting any thoughts for future years?

Yeah, I'll take the first part of that, and I'll hand this solar question off to Chad. First of all, I would just say on the policy question, normally my immediate response to that would be, boy, it's a crowded field of issues and it would be hard to get any movement on energy policy, but Senator Manchin has been very well-seated and very well-positioned to drive through these solutions, and he has been putting forth some thoughts on energy policy, and I'm very, very thankful for that because I think the timing is right to get some attention to that and to actually come up with an energy policy. I think all of us would question whether we've actually had an energy policy or not. And so I think the timing is right for that. And I think getting some clarification on that would really benefit our country and and hopefully set legislation in place that puts aside some of the ways that we continue to stand in our own way as a country, using our natural gas resource as both a powerful economic driver for us, which I think in the next year or so we're going to wish we had, as well as a powerful geopolitical tool, obviously. And so I think the timing is right, and I think we've got, you know, a really good advocate for that in Senator Manchin. So I would just say we're very hopeful on that front. And I'll turn the solar question over to Chad. Yeah, I would just say that, you know, we are watching, you know, proposed tariffs, we're watching the discussions regarding incentive structures for solar. But I would remind you that, you know, our solar program is primarily focused on installing solar at facilities where we have utilize power that in many cases is more expensive than standalone solar that we can install. And so, you know, the economics of our investments are primarily driven by our ability to install solar projects that, frankly, can keep even without incentives and almost irrespective of, you know, some of the costs. pressures that we're seeing. So as it relates to the $100 million that we've talked about this year, I'd say not so much affected by the policy issues, but I will say that we have said we're keeping a close eye on supply chain issues. We are under no time demand to install our solar facilities by a date certain, and so we are going to make sure that we time those projects appropriately. We don't you know, get caught subject to higher prices than we need to pay for materials because of kind of supply constraint issues. And so we're keeping a close eye on the supply chain side of things, which has a much bigger impact, we think, at least for the projects that are currently underway than, you know, kind of the policy issues that we're keeping an eye on. Great. Thank you.

And I would like to turn the call over to your... ...in today and appreciate the great

questions. I just want to reiterate here on the back end that the drivers for the growth for the balance of the year are really powerful, and really across our base business, the Marcellus and the Utica, as we discussed, obviously the Hainesville growth is powerful, and I think people are starting to see strong evidence of that. Deepwater business, we've got a couple of really nice tie-in projects this year that will add to value towards the end of this year. And the Wamsutter, later this year as our drilling operations pick up out there towards the very end of this year, we'll see volumes in the Wamsutter that, of course, will be driving the base business. as well out there. And then finally, as I mentioned earlier, the Haynesville, we really haven't even seen the power of that yet on the E&P side. So first quarter was definitely not driven by that because that's really a balance of the year. And into 2023, some really attractive earnings coming out of that area as well. So a lot of great quarter, but a whole lot of firepower left here to drive growth for balance of the year and into 23. And with that, I thank you for your attention today and look forward to talking to you soon.

And ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.