The Williams Companies, Inc. — 2024 Q1

Yes, I'll start and then Micheal can chime in as well. But yes, I think, overall, we are being cautious, obviously, with where natural gas prices are and especially during the shoulder months. So we started off with a plan that I think embedded a fair amount of cautious, I think, caution, and I think since then, we've taken a little bit more caution just given where things finished from the time that we were at Analyst Day, which was really mid-winter to where we finished the year. So hopefully, we will actually experience some upside relative to these assumptions, but we are going into the rest of the year with quite a bit of caution, especially around the dry gas areas.

Yes. This is Micheal. I can add to that. Obviously, we talk to our producer customers quite often about their plans and they're shifting, obviously, back and forth, depending on where prices are. We feel really comfortable where we've had predicted our results to occur in the second half of the year here with our guidance -- confident. Based on the volume expectations that we have coming from the customers. And so just as a reminder, and I always say this, we have a lot of diversity across geography, customers and rich gas as well as dry gas. And obviously, that benefits us and having that diversity and so we're still seeing some activity on the rich gas side, it's benefiting not only our gathering but our processing business in the Northeast. And as I said, we feel confident about the volumes that we have embedded within our going-forward plans here in 2024.

Yes. Great question, Spiro. And I do think that this is one that will grow over time. Each individual data center isn't going to show up as a big pool and demand given the size and scale of most of these big transmission systems. So it is going to be the collective amount of data centers in these markets that's going to show up. But there certainly is a lot of fury going on right now, I would say, both with our utility customers. And we certainly are working closely with them to make sure that we can serve their needs and the growth in their needs. I would tell you that it's broader than even though data centers and AI gets all the hype, it's actually broader than that in terms of a lot of reshoring of industrial loads that is occurring as well. And part of that is because natural gas is so low cost here. If you think about the rest of the world and the energy cost expanding in the rest of the world and the U.S. sitting here on such a great resource of low-cost energy, it is reshoring industrial loads as well.

Yes. Great question, Jeremy. I firmly agree with the notion that the market is oversupplied right now. And it's kind of a unique time because we've had the market in such strong contango here for quite some period. Putting a lot of value on our Storage. I would tell you we feel very fortunate to have bought the storage that we bought in the time frame that we bought and to pick up the contracts that Sequent had on storage as well. So a lot of in the money business around the storage business because of the strong contango. But that strong contango is also keeping rigs running that might not otherwise be running right now. And I think that's adding to the oversupply situation. But we certainly are starting to see producers respond to that. And we're also starting to see the demand side respond to that as well. And I think we'll see more of that this summer, and the market always finds a way to balance itself with low enough prices.

Jeremy, this is Micheal. I'll take that. I'll start with a bit of a higher level in regard to pipeline crossings and generally, we have almost 26,000 pipeline crossings in the U.S. that have been built over the last several decades, just under 2,200 of those are with energy transfer. And for the most part, those are all being done by our operators in the field unless you have some design issues that you've got to get your engineers involved with. But for the most part, each of our companies work that out in the field until most recently. So we've been challenged in Louisiana and some other states by Energy Transfer and our ability to cross their pipeline. And I would say the tide is turning now on the legal issues. We're seeing the appellate ruling from the Louisiana court that overturned, the lower court ruling in the DTM case.

Yes, absolutely. So when we look at 2025, we've got really quite a bit of spend expected on the Louisiana Energy Gateway project that Micheal just referred to. So that would be in the category of gathering and processing expansions. And by far, the biggest in the gathering and processing area would be the Louisiana Energy Gateway pipeline project. We do have some new Energy Ventures investments that we're expecting to begin to spend some money on, including our first Carbon Capture and Sequestration project, which is at the terminus of the Louisiana Energy Gateway project. So it's related to that LEG project. But we also have some solar projects that we'll be investing in.

And Gupta, I would just add in terms of drivers for growth in '25. We have a number of large deepwater projects that we've already spent a majority of the capital, those will be coming on towards the end of this year and into next year. So we're really excited about the big step-up in deepwater growth and how well we're positioned out there for what we think is going to be a lot of continued growth in that area. So -- but in terms of drivers for growth, that's one additionally, drivers for growth would be the rate case on Transco. And so the benefit of all the money we're spending right now on the emission reduction projects will show up. The benefits of that will show up when we start charging our new rates in March of '25. So those are some of the other drivers for growth.

Yes, I didn't do a great job of connecting that to growth. So thanks, Alan. Just specifically, we have 6 Transco growth projects that are in service between the second half of '24 and 2025, and 5 major Gulf of Mexico projects, that are in service as well as well as that Transco rate case that Alan mentioned. And -- but in many cases, those are projects where we've already spent the capital. Or in some of the cases of some of the deepwater projects, there were no capital requirements at all.

Yes. Good question. Yes, the first evidence of that, even though it really was before the data center load became quite so evident, is our Southeast supply enhancement project. We've announced that and now filed it in the first quarter for 1.6 Bcf a day, and that does serve both the Mid-Atlantic and the Southeast markets. Since that time, as I mentioned, those utilities have come out and said that they were missing their growth targets by many multiples. In fact, I think Southern companies came out and said they missed their original growth for power generation by 17 times. So lots going on in those markets. In terms of our abilities to serve those, we're extremely well positioned to serve that.

Mike, do you want to take that?

Yes, I'll take that. So yes, to answer your last question first, that is embedded in our guidance for 2025. So the process where it stands now. FERC has approved our settlement with the customers, the customers have a choice to take a tranche of capacity on a term that they so desired. So they're making that decision now between now and the end of May. So ultimately, they'll decide upon how long of a term they want and there's already a pre-determined rate for that was embedded within the settlement. And so once they make that decision, that will be effective as of April of 2025. So that's when those rates will go into effect. So we definitely embedded what our expectations are with where we think the customers will end up in regard to their choices of selection.

Yes, Gabe, I would just say our part of that project is on schedule. We're not really at liberty to get into details of the contracting details in that. But remain confident in what we have in the forecast for that project. So anyway, we're not going to speak for the producer. Our part of that project and our work there is on time and team's doing a great job of executing on that, and we'll be ready to serve when we were supposed to be ready to serve on that project.

Gabe, are you referring to Port Arthur?

Chad, do you want to take that?

Yes. I think in general, we're focused on high-return projects that we operate -- we build and operate. And so we continue to look at how we can connect our customers to the most attractive markets. LNG markets are obviously an important destination for U.S. natural gas. And so we're going to continue to look for ways to connect our customers and our value chain to those international markets. But we've typically not been looking for non-operated positions in infrastructure projects. We've got so many opportunities to invest in our kind of organic projects, that's been our primary focus. But again, if we find opportunities that come with our ability to connect our customers to better markets, we'll look at them, but that's certainly not the primary focus of our LNG strategy.

Yes. To answer your question, our work on that in terms of developing that project, obviously, was even further ahead of when we announced that. And so you kind of have to remember that as you think about the timing of that. And to answer your question very simply, the degree -- the kind of incremental demand that we're talking about is not reflected in the [indiscernible] project. There might have been some expectation for that. But in terms of the large incremental growth impacts that customers are now starting to reflect in their integrated resource plans. Those are somewhat, I wouldn't say perfectly incremental, but certainly, a big chunk of that is incremental to the load that we're serving on [indiscernible].

Yes. Well, first of all, there's a lot of productive capability in these fields. And the ability to ramp that up and respond to the market. And I think the producers are managing their business in a way that they will be ready to respond to respond to it, as I mentioned in my comments earlier around gas supply demand balance, that's certainly what we're seeing is producers being willing and able to commit to what they need to on their end to be ready to respond to that. So I think there certainly will be some upside to our business in '25 as the market and supply start to respond to that. But it is typically a very long lag period and very difficult for the market to be able to respond quickly.

Yes. Good question, Theresa. I'll give you my comments, and I'm going to ask Chad to give you a little more detail on that. But I think over time, we have seen the value of storage, and we've certainly seen it with our own Sequent operations. We've seen the value of storage in these volatile markets and markets that are having to respond very quickly to shifts in demand continuing. I think it's also pretty visible to see that both with an increase in renewable power on the market as well as more and more LNG as that comes on LNG is going to need to be a little more responsive. It's not going to run at 100% load factor when the LNG is more -- is closer to meeting the more mature demand from that market. So I think those are a lot of the drivers for the increase in storage capacity.

Yes. I think it's a really important theme to keep an eye on what both the ability to set up our infrastructure to benefit from volatility and price that supports extraction value. But also importantly, we're seeing the transition. We've been talking about it for a while, increased volatility in power markets, Alan talked about the power demand that we're seeing -- I mean we talk often -- I mean, PJM numbers themselves say that by 2040, peak demand will more than double. That's a significant -- from a set of infrastructure that's already full. And so assets like storage will not only be driven from a value perspective by dislocations in price over time, like the contango we're seeing in the current market, but we are seeing an evolution and a recognition that you're going to need those assets for reliability.

Yes. I would just say as the world turns off of coal, as the reliable baseload and is shifting more and more and more to natural gas as the base load, as Chad mentioned, that reliability issue is going to be really key and us continuing to stretch and deny the amount of capacity we really need in these markets, is going to become a louder and louder drumbeat. You're hearing it from the ISOs already. You're hearing it from -- starting to even hear from the utility commissions about how important it is that they have access to natural gas. You're even starting to hear it in places like Connecticut that are upset that they don't have low-priced gas into those markets because Governor Cuomo stopped a number of projects coming across the state. So it's unfortunate.

Yes. I think we think the acquisitions as it relates to Hartree and MountainWest Pipeline have tracked very well to the announcements we made in terms of the valuation and the multiples that were involved there. So I think you can -- you can rely pretty much in terms of sizing those impacts as to the announcements we made at the time of the acquisition. Obviously, with MountainWest Pipeline that closed on Valentine's Day in 2023. So that kind of allows you to size the relative size of the uplift in '24 versus '23 for MountainWest Pipeline. With Hartree, it closed very early in the year. So we pretty much had a full quarter of Hartree. So I think that I would just say size those two pieces.

John, this is Micheal. Yes, obviously, we're watching that closely and the fact that these new gas-fired power plants have to have some kind of sequestration on them in the -- in the midterm, I would say, is certainly taken into consideration by the utilities that are building these plants. I think ultimately, we'll probably be tempering of that. That's my opinion that whenever you see the EPA power plan come out with a new rule, it's certainly subject to litigation as they happened several times now, and I suspect this one will be no different. But that will be a challenge, I think, for the industry to respond to a lot of that sequestration requirement in regard to these combined cycle power plants. I mean it's technology that is available but it is going to be expensive. It's going to be expensive for the end user and the consumers.

Yes. And I would just add to that, the issue around sequestration, if you think about how difficult it's been to build sequestration pipelines in South Dakota and Iowa, in serving those markets. And if you think that we're going to be able to take sequestration to a new level in areas where there isn't good underground resources for sequestration along the East Coast. And pipe that through heavily populated areas. I just think that is very unrealistic perspective right now. And so I think this is a place again where politics and the popular notion of politics and good old-fashioned hard physics are not matching up. And to have the Sierra Club fighting a CO2 pipeline in Iowa that's going to sequester carbon, is really, I think, a forewarning about the practical nature of being able to sequester large volumes of CO2 in these heavily populated areas.

Well, I mean, the fact is we have the right away through those areas. And so there's a very large number, but it's not as simple -- it's not a finite number by any stretch of imagination and it has its economic limits. And so said another way, it may not have its physical limits because we have the right of way through there, but it certainly has its economic limits. And so obviously, the easiest thing to do is to add compression in the area. And then next is replacing lines that are -- that we've had to derate over time.

I think it's about storage.

Sorry, on storage. Sorry, I thought we were back on Transco sorry about that. I'll let Chad take that forward.

Yes, sorry. Just on storage. We do have quite a bit of capacity at the salt-cavern facilities that we acquired in the Gulf Coast. And so -- and those expansions that we're looking at would likely come in kind of 10 Bcf tranches at each facility. And there is a lot of capacity to expand. I think we're going to be thoughtful about how to do that incrementally as the market kind of recognizes the need. And we're seeing that evolution, but we need to see storage contracts shift from short term to long term for us to support that kind of infrastructure expansion. But it would look like kind of 10 Bcf cavern expansions at those salt-cavern facilities.

Yes. Well, that is a great question and one that gets a lot of debate both and this team and within the boardroom as well. And it's a very astute question because if you look at the math, that starts to build on us pretty quickly, we saw the outlook -- positive outlook change coming from S&P on our Credit Rating. And so that we think will meet the conditions for that here through the balance of the year. So only so much more value, I would argue to be added in that regard. But I would say, certainly, our dividend policy is one lever, share buybacks, another and acquisitions of bolt-on transactions that have continued to add a lot of value and ones that we're really excited about the way our teams have performed on taking these assets and extremely quickly extracting the synergies that we expect out of them.

Yes, great question. I think right now, as we sit here today. The power gen loads will be pretty strong this summer if the weather predictions that are out there are accurate right now. I think we'll see some pretty strong pools and that pipe and those gas supplies serve that will be capable of responding to that. And that's probably the extent of what we would see here in the immediate term for that, as our expansions that we're working on like the Southeast supply and expansion, system come on in the years ahead, that will start to take full advantage of those incremental supplies. And we'll see areas where we gather the volumes upstream on that benefit from that. But importantly, our ability to expand Transco is a lot lower cost and a lot higher margin for us if we have supply coming in there at 165.

Okay. Well, thank you all very much. We're very excited to deliver another record at the company and not just for the quarter that it produced in terms of the present a lot of people are talking about what they're going to do in the future. We continue to deliver in the present. But we also have a very strong future ahead of us and are extremely well positioned for not just the next couple of years, but for the next decades, as we were contracting for these major expansions on our system. So very excited to see a strategy that we've stuck with for years now really coming home and all the benefits that we thought natural gas had to offer the market start to be realized by others and putting a lot of demand on our infrastructure. So very excited to see this turn here in the quarter and very thankful for all the extraordinary efforts of the employees and the leadership of this company and the management team that I get to work with for continuing to deliver such great results. So thanks for joining us today.