Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – General, Description of Business, and Basis of Presentation
General
Our accompanying interim consolidated financial statements do not include all the notes in our annual financial statements and, therefore, should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020, in our Annual Report on Form 10-K. The accompanying unaudited financial statements include all normal recurring adjustments and others that, in the opinion of management, are necessary to present fairly our interim financial statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Unless the context clearly indicates otherwise, references in this report to “Williams,” “we,” “our,” “us,” or like terms refer to The Williams Companies, Inc. and its subsidiaries. Unless the context clearly indicates otherwise, references to “Williams,” “we,” “our,” and “us” include the operations in which we own interests accounted for as equity-method investments that are not consolidated in our financial statements. When we refer to our equity investees by name, we are referring exclusively to their businesses and operations.
Description of Business
We are a Delaware corporation whose common stock is listed and traded on the New York Stock Exchange. Our operations are located in the United States and are presented within the following reportable segments: Transmission & Gulf of Mexico, Northeast G&P, West, and Sequent, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources. All remaining business activities, including our recently acquired upstream operations, as well as corporate activities are included in Other.
Transmission & Gulf of Mexico is comprised of our interstate natural gas pipelines, Transcontinental Gas Pipe Line Company, LLC (Transco) and Northwest Pipeline LLC (Northwest Pipeline), as well as natural gas gathering and processing and crude oil production handling and transportation assets in the Gulf Coast region, including a 51 percent interest in Gulfstar One LLC (Gulfstar One) (a consolidated variable interest entity, or VIE), which is a proprietary floating production system, a 50 percent equity-method investment in Gulfstream Natural Gas System, L.L.C., and a 60 percent equity-method investment in Discovery Producer Services LLC (Discovery).
Northeast G&P is comprised of our midstream gathering, processing, and fractionation businesses in the Marcellus Shale region primarily in Pennsylvania and New York, and the Utica Shale region of eastern Ohio, as well as a 65 percent interest in Ohio Valley Midstream LLC (Northeast JV) (a consolidated VIE) which operates in West Virginia, Ohio, and Pennsylvania, a 66 percent interest in Cardinal Gas Services, L.L.C. (Cardinal) (a consolidated VIE) which operates in Ohio, a 69 percent equity-method investment in Laurel Mountain Midstream, LLC (Laurel Mountain), a 50 percent equity-method investment in Blue Racer Midstream LLC (Blue Racer) (we previously effectively owned a 29 percent indirect interest in Blue Racer through our 58 percent equity-method investment in Caiman Energy II, LLC (Caiman II) until acquiring a controlling interest of Caiman II in November 2020 and the remaining interest in September 2021), and Appalachia Midstream Services, LLC, a wholly owned subsidiary that owns equity-method investments with an approximate average 66 percent interest in multiple gas gathering systems in the Marcellus Shale region (Appalachia Midstream Investments).
West is comprised of our gas gathering, processing, and treating operations in the Rocky Mountain region of Colorado and Wyoming, the Barnett Shale region of north-central Texas, the Eagle Ford Shale region of south Texas, the Haynesville Shale region of northwest Louisiana, and the Mid-Continent region which includes the
Anadarko and Permian basins. This segment also includes our natural gas liquid (NGL) and natural gas marketing business (excluding the activities within the Sequent segment described below), storage facilities, an undivided 50 percent interest in an NGL fractionator near Conway, Kansas, a 50 percent equity-method investment in Overland Pass Pipeline Company LLC, a 50 percent equity-method investment in Rocky Mountain Midstream Holdings LLC (RMM), a 20 percent equity-method investment in Targa Train 7 LLC (Targa Train 7) (a nonconsolidated VIE), and a 15 percent interest in Brazos Permian II, LLC (Brazos Permian II) (a nonconsolidated VIE).
Sequent includes the operations of Sequent Energy Management, L.P. and Sequent Energy Canada, Corp. (collectively, Sequent) acquired on July 1, 2021. Sequent focuses on risk management and the marketing, trading, storage, and transportation of natural gas for a diverse set of natural gas utilities, municipalities, power generators, and producers, and moves gas to markets through transportation and storage agreements on strategically positioned assets, including along our Transco system. See Note 3 – Acquisitions.
Basis of Presentation
Significant risks and uncertainties
We believe that the carrying value of certain of our property, plant, and equipment and other identifiable intangible assets, notably certain acquired assets accounted for as business combinations between 2012 and 2014, may be in excess of current fair value. However, the carrying value of these assets, in our judgment, continues to be recoverable. It is reasonably possible that future strategic decisions, including transactions such as monetizing non-core assets or contributing assets to new ventures with third parties, as well as unfavorable changes in expected producer activities, could impact our assumptions and ultimately result in impairments of these assets. Such transactions or developments may also indicate that certain of our equity-method investments have experienced other-than-temporary declines in value, which could result in impairment.
Note 2 – Variable Interest Entities
Consolidated VIEs
As of September 30, 2021, we consolidate the following VIEs:
Northeast JV
We own a 65 percent interest in the Northeast JV, a subsidiary that is a VIE due to certain of our voting rights being disproportionate to our obligation to absorb losses and substantially all of the Northeast JV’s activities being performed on our behalf. We are the primary beneficiary because we have the power to direct the activities that most significantly impact the Northeast JV’s economic performance. The Northeast JV provides midstream services for producers in the Marcellus Shale and Utica Shale regions. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner on a proportional basis.
Gulfstar One
We own a 51 percent interest in Gulfstar One, a subsidiary that, due to certain risk-sharing provisions in its customer contracts, is a VIE. Gulfstar One includes a proprietary floating production system, Gulfstar FPS, and associated pipelines that provide production handling and gathering services in the eastern deepwater Gulf of Mexico. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Gulfstar One’s economic performance.
Cardinal
We own a 66 percent interest in Cardinal, a subsidiary that provides gathering services for the Utica Shale region and is a VIE due to certain risks shared with customers. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Cardinal’s economic performance. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner on a proportional basis.
The following table presents amounts included in the Consolidated Balance Sheet that are only for the use or obligation of our consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
(Millions)
|
Assets (liabilities):
|
|
|
|
Cash and cash equivalents
|
$
|
147
|
|
|
$
|
107
|
|
Trade accounts and other receivables – net
|
134
|
|
|
148
|
|
|
|
|
|
|
|
|
|
Other current assets and deferred charges
|
6
|
|
|
7
|
|
|
|
|
|
Property, plant, and equipment – net
|
5,364
|
|
|
5,514
|
|
Intangible assets – net of accumulated amortization
|
2,295
|
|
|
2,376
|
|
Regulatory assets, deferred charges, and other
|
15
|
|
|
15
|
|
Accounts payable
|
(85)
|
|
|
(42)
|
|
|
|
|
|
Accrued liabilities
|
(26)
|
|
|
(34)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory liabilities, deferred income, and other
|
(289)
|
|
|
(289)
|
|
|
|
|
|
Nonconsolidated VIEs
Targa Train 7
We own a 20 percent interest in Targa Train 7, which provides fractionation services at Mt. Belvieu and is a VIE due primarily to our limited participating rights as the minority equity holder. At September 30, 2021, the carrying value of our investment in Targa Train 7 was $48 million. Our maximum exposure to loss is limited to the carrying value of our investment.
Brazos Permian II
We own a 15 percent interest in Brazos Permian II, which provides gathering and processing services in the Delaware basin and is a VIE due primarily to our limited participating rights as the minority equity holder. During the first quarter of 2020, we recorded an impairment of our equity-method investment in Brazos Permian II. Our maximum exposure to loss is limited to the carrying value of our investment.
Note 3 – Acquisitions
Sequent
On July 1, 2021, we completed the acquisition of 100 percent of Sequent. Total consideration for this acquisition was $159 million, which included $109 million related to working capital. Of the total consideration, $134 million of cash was paid in the third quarter of 2021 and $25 million was accrued in the same period for post-closing working capital adjustments.
Sequent focuses on risk management and the marketing, trading, storage, and transportation of natural gas for a diverse set of natural gas utilities and producers, and moves gas to markets through transportation and storage agreements on strategically positioned assets, including along our Transco system. The purpose of the acquisition was to expand our natural gas marketing activities as well as optimize our pipeline and storage capabilities with expansions into new markets to reach incremental gas-fired power generation, liquified natural gas exports, and future renewable natural gas and other emerging opportunities.
The acquisition of Sequent was accounted for as a business combination, which requires, among other things, that identifiable assets acquired and liabilities assumed be recognized at their acquisition date fair values.
Pro forma revenues and earnings as if the Sequent acquisition had been completed on January 1, 2020, are not materially different from our historical results for the three and nine months ended September 30, 2021 and 2020.
During the period from the acquisition date of July 1, 2021 to September 30, 2021, Sequent contributed product sales of $54 million, net loss on commodity derivatives of $322 million, and unfavorable Modified EBITDA (as defined in Note 14 – Segment Disclosures) of $281 million. Both the net loss on commodity derivatives and Modified EBITDA amounts reflect a net unrealized loss on commodity derivatives of $277 million for the period.
Costs related to this acquisition are approximately $3 million and are included in Selling, general, and administrative expenses in our Consolidated Statement of Income.
The following table presents the allocation of the acquisition date fair value of the major classes of the assets acquired, which are presented in the Sequent segment, and liabilities assumed at July 1, 2021. The fair value of accounts receivable acquired equals contractual amounts receivable. Preliminary fair value measurements were made for certain acquired assets and liabilities, primarily intangible assets; however, adjustments to those measurements may be made in subsequent periods, up to one year from the acquisition date, as new information related to facts and circumstances as of the acquisition date may be identified. The fair value of the intangible assets were measured using an income approach. The inventory acquired relates to natural gas in underground storage. The fair value of this inventory was based on the market price of the underlying commodity at the acquisition date. See Note 11 – Fair Value Measurements and Guarantees for the valuation techniques used to measure fair value of derivative assets and liabilities.
|
|
|
|
|
|
|
(Millions)
|
Cash and cash equivalents
|
$
|
8
|
|
Trade accounts and other receivables – net
|
498
|
|
Inventories
|
121
|
|
Other current assets and deferred charges
|
4
|
|
Commodity derivatives included in other current assets and deferred charges
|
57
|
|
Property, plant, and equipment – net
|
5
|
|
Intangible assets
|
306
|
|
Regulatory assets, deferred charges, and other
|
3
|
|
Commodity derivatives included in regulatory assets, deferred charges, and other
|
49
|
|
Total assets acquired
|
$
|
1,051
|
|
|
|
Accounts payable
|
$
|
514
|
|
Accrued liabilities
|
46
|
|
Commodity derivatives included in accrued liabilities
|
116
|
|
Regulatory liabilities, deferred income, and other
|
1
|
|
Commodity derivatives included in regulatory liabilities, deferred income, and other
|
215
|
|
Total liabilities assumed
|
$
|
892
|
|
|
|
Net assets acquired
|
$
|
159
|
|
Accounts Receivable and Accounts Payable
Sequent provides services to retail and wholesale gas marketers, utility companies, upstream producers, and industrial customers. These counterparties utilize netting agreements that enable Sequent to net receivables and payables by counterparty upon settlement. Sequent also nets across product lines and against cash collateral, provided the netting and cash collateral agreements include such provisions. While the amounts due from, or owed to, Sequent’s counterparties are settled net, they are recorded on a gross basis in the Consolidated Balance Sheet as accounts receivable and accounts payable.
Intangible Assets
Intangible assets are primarily related to transportation and storage capacity contracts. The basis for determining the value of these intangible assets was estimated future net cash flows to be derived from acquired transportation and storage capacity contracts that provide future economic benefits due to their market location, discounted using an industry weighted-average cost of capital. This intangible asset is being amortized based on the expected benefit period over which the underlying contracts are expected to contribute to our cash flows ranging from 1 year to 10 years. As a result, we expect a significant portion of the amortization to be recognized within the first few years of this range. We recognized $21 million of amortization expense during the third quarter of 2021.
Commodity Derivatives
Sequent purchases natural gas for storage when the current market price paid to buy and transport natural gas plus the cost to store and finance the natural gas is less than an estimated, forward market price that can be received in the future, resulting in positive net product sales. Commodity-based exchange-traded futures contracts and over-the-counter (OTC) contracts are used to sell natural gas at that future price to substantially protect the natural gas revenues that will ultimately be realized when the stored natural gas is sold. Additionally, Sequent enters into transactions to secure transportation capacity between delivery points in order to serve its customers and various markets. Commodity-based exchange-traded futures contracts and OTC contracts are used to capture the price differential or spread between the locations served by the capacity in order to substantially protect the natural gas revenues that will ultimately be realized when the physical flow of natural gas between delivery points occurs. Some commodity-related derivative contracts require physical delivery as opposed to financial settlement, and this type of derivative is both common and prevalent within the natural gas marketing operations. These contracts generally meet the definition of derivatives and are carried at fair value in the Consolidated Balance Sheet, with changes in fair value recorded in Net gain (loss) on commodity derivatives in the Consolidated Statement of Income in the period of change. These contracts are not designated as hedges for accounting purposes.
The physical purchase, transportation, storage, and sale of natural gas are accounted for on a weighted-average cost or accrual basis, as appropriate, rather than on the fair value basis utilized for the derivatives used to mitigate the natural gas price risk associated with the storage and transportation portfolio. Monthly demand charges are incurred for the contracted storage and transportation capacity and payments associated with asset management agreements, and these demand charges and payments are recognized on the Consolidated Statement of Income in the period they are incurred. Sequent experiences significant earnings volatility from the fair value accounting required for the derivatives used to hedge a portion of the economic value of the underlying transportation and storage portfolio. However, the unrealized fair value measurement gains and losses are offset by valuation changes in the economic value of the underlying transportation and storage portfolio, which is not accounted for on a fair value basis. (see Note 12 – Derivatives).
Concentration of Credit Risk
Sequent has a concentration of credit risk as its top 20 counterparties represented 54 percent, or $267 million, of the total counterparty exposure as of September 30, 2021.
Sequent uses established credit policies to determine and monitor the creditworthiness of counterparties, including requirements to post collateral or other credit security, as well as the quality of pledged collateral. Collateral or credit security is most often in the form of cash or letters of credit from an investment-grade financial institution, but may also include U.S. government securities. Sequent also utilizes netting agreements whenever possible to mitigate exposure to counterparty credit risk. When more than one derivative transaction with the same counterparty is outstanding and a legally enforceable netting agreement exists with that counterparty, the “net” mark-to-market exposure represents a reasonable measure of Sequent’s credit risk with that counterparty.
Note 4 – Revenue Recognition
Revenue by Category
The following table presents our revenue disaggregated by major service line:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transco
|
|
Northwest Pipeline
|
|
Gulf of Mexico Midstream
|
|
Northeast Midstream
|
|
West Midstream
|
|
Sequent
|
|
Other
|
|
Eliminations
|
|
Total
|
|
(Millions)
|
Three Months Ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated interstate natural gas transportation and storage
|
$
|
642
|
|
|
$
|
107
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(12)
|
|
|
$
|
737
|
|
Gathering, processing, transportation, fractionation, and storage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetary consideration
|
—
|
|
|
—
|
|
|
74
|
|
|
340
|
|
|
298
|
|
|
—
|
|
|
—
|
|
|
(29)
|
|
|
683
|
|
Commodity consideration
|
—
|
|
|
—
|
|
|
13
|
|
|
(1)
|
|
|
52
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
64
|
|
Other
|
3
|
|
|
—
|
|
|
5
|
|
|
52
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
(4)
|
|
|
66
|
|
Total service revenues
|
645
|
|
|
107
|
|
|
92
|
|
|
391
|
|
|
360
|
|
|
—
|
|
|
—
|
|
|
(45)
|
|
|
1,550
|
|
Product sales
|
20
|
|
|
—
|
|
|
72
|
|
|
19
|
|
|
1,177
|
|
|
960
|
|
|
116
|
|
|
(166)
|
|
|
2,198
|
|
Total revenues from contracts with customers
|
665
|
|
|
107
|
|
|
164
|
|
|
410
|
|
|
1,537
|
|
|
960
|
|
|
116
|
|
|
(211)
|
|
|
3,748
|
|
Other revenues (1)
|
1
|
|
|
1
|
|
|
3
|
|
|
7
|
|
|
(51)
|
|
|
903
|
|
|
(18)
|
|
|
(5)
|
|
|
841
|
|
Other adjustments (2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,131)
|
|
|
—
|
|
|
17
|
|
|
(2,114)
|
|
Total revenues
|
$
|
666
|
|
|
$
|
108
|
|
|
$
|
167
|
|
|
$
|
417
|
|
|
$
|
1,486
|
|
|
$
|
(268)
|
|
|
$
|
98
|
|
|
$
|
(199)
|
|
|
$
|
2,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated interstate natural gas transportation and storage
|
$
|
600
|
|
|
$
|
111
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3)
|
|
|
$
|
708
|
|
Gathering, processing, transportation, fractionation, and storage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetary consideration
|
—
|
|
|
—
|
|
|
85
|
|
|
332
|
|
|
288
|
|
|
—
|
|
|
—
|
|
|
(17)
|
|
|
688
|
|
Commodity consideration
|
—
|
|
|
—
|
|
|
6
|
|
|
2
|
|
|
32
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40
|
|
Other
|
3
|
|
|
—
|
|
|
3
|
|
|
41
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
65
|
|
Total service revenues
|
603
|
|
|
111
|
|
|
94
|
|
|
375
|
|
|
340
|
|
|
—
|
|
|
—
|
|
|
(22)
|
|
|
1,501
|
|
Product sales
|
21
|
|
|
—
|
|
|
26
|
|
|
12
|
|
|
394
|
|
|
—
|
|
|
—
|
|
|
(36)
|
|
|
417
|
|
Total revenues from contracts with customers
|
624
|
|
|
111
|
|
|
120
|
|
|
387
|
|
|
734
|
|
|
—
|
|
|
—
|
|
|
(58)
|
|
|
1,918
|
|
Other revenues (1)
|
2
|
|
|
—
|
|
|
3
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
(4)
|
|
|
15
|
|
Total revenues
|
$
|
626
|
|
|
$
|
111
|
|
|
$
|
123
|
|
|
$
|
393
|
|
|
$
|
734
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
(62)
|
|
|
$
|
1,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transco
|
|
Northwest Pipeline
|
|
Gulf of Mexico Midstream
|
|
Northeast Midstream
|
|
West Midstream
|
|
Sequent
|
|
Other
|
|
Eliminations
|
|
Total
|
|
(Millions)
|
Nine Months Ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated interstate natural gas transportation and storage
|
$
|
1,880
|
|
|
$
|
328
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(17)
|
|
|
$
|
2,191
|
|
Gathering, processing, transportation, fractionation, and storage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetary consideration
|
—
|
|
|
—
|
|
|
250
|
|
|
966
|
|
|
838
|
|
|
—
|
|
|
—
|
|
|
(76)
|
|
|
1,978
|
|
Commodity consideration
|
—
|
|
|
—
|
|
|
34
|
|
|
4
|
|
|
126
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
164
|
|
Other
|
8
|
|
|
—
|
|
|
15
|
|
|
145
|
|
|
39
|
|
|
—
|
|
|
—
|
|
|
(12)
|
|
|
195
|
|
Total service revenues
|
1,888
|
|
|
328
|
|
|
299
|
|
|
1,115
|
|
|
1,003
|
|
|
—
|
|
|
—
|
|
|
(105)
|
|
|
4,528
|
|
Product sales
|
50
|
|
|
—
|
|
|
178
|
|
|
75
|
|
|
2,983
|
|
|
960
|
|
|
216
|
|
|
(343)
|
|
|
4,119
|
|
Total revenues from contracts with customers
|
1,938
|
|
|
328
|
|
|
477
|
|
|
1,190
|
|
|
3,986
|
|
|
960
|
|
|
216
|
|
|
(448)
|
|
|
8,647
|
|
Other revenues (1)
|
3
|
|
|
1
|
|
|
8
|
|
|
19
|
|
|
(83)
|
|
|
903
|
|
|
(3)
|
|
|
(11)
|
|
|
837
|
|
Other adjustments (2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,131)
|
|
|
—
|
|
|
17
|
|
|
(2,114)
|
|
Total revenues
|
$
|
1,941
|
|
|
$
|
329
|
|
|
$
|
485
|
|
|
$
|
1,209
|
|
|
$
|
3,903
|
|
|
$
|
(268)
|
|
|
$
|
213
|
|
|
$
|
(442)
|
|
|
$
|
7,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated interstate natural gas transportation and storage
|
$
|
1,796
|
|
|
$
|
336
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6)
|
|
|
$
|
2,126
|
|
Gathering, processing, transportation, fractionation, and storage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetary consideration
|
—
|
|
|
—
|
|
|
262
|
|
|
952
|
|
|
884
|
|
|
—
|
|
|
—
|
|
|
(58)
|
|
|
2,040
|
|
Commodity consideration
|
—
|
|
|
—
|
|
|
14
|
|
|
5
|
|
|
74
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
93
|
|
Other
|
8
|
|
|
—
|
|
|
19
|
|
|
123
|
|
|
46
|
|
|
—
|
|
|
—
|
|
|
(11)
|
|
|
185
|
|
Total service revenues
|
1,804
|
|
|
336
|
|
|
295
|
|
|
1,080
|
|
|
1,004
|
|
|
—
|
|
|
—
|
|
|
(75)
|
|
|
4,444
|
|
Product sales
|
61
|
|
|
—
|
|
|
75
|
|
|
42
|
|
|
1,056
|
|
|
—
|
|
|
—
|
|
|
(96)
|
|
|
1,138
|
|
Total revenues from contracts with customers
|
1,865
|
|
|
336
|
|
|
370
|
|
|
1,122
|
|
|
2,060
|
|
|
—
|
|
|
—
|
|
|
(171)
|
|
|
5,582
|
|
Other revenues (1)
|
4
|
|
|
—
|
|
|
6
|
|
|
16
|
|
|
5
|
|
|
—
|
|
|
25
|
|
|
(11)
|
|
|
45
|
|
Total revenues
|
$
|
1,869
|
|
|
$
|
336
|
|
|
$
|
376
|
|
|
$
|
1,138
|
|
|
$
|
2,065
|
|
|
$
|
—
|
|
|
$
|
25
|
|
|
$
|
(182)
|
|
|
$
|
5,627
|
|
______________________________
(1)Revenues not derived from contracts with customers consist of leasing revenues associated with our headquarters building and management fees that we receive for certain services we provide to operated equity-method investments, which are reported in Service revenues in the Consolidated Statement of Income, and realized and unrealized gains and losses associated with our derivative contracts (except for those requiring physical delivery), which are reported in Net gain (loss) on commodity derivatives in the Consolidated Statement of Income.
(2)Other adjustments relate to costs of Sequent’s risk management activities. As Sequent is acting as an agent for its customers, its revenues are presented net of the related costs of those activities in the Consolidated Statement of Income.
Contract Assets
The following table presents a reconciliation of our contract assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
(Millions)
|
Balance at beginning of period
|
$
|
38
|
|
|
$
|
30
|
|
|
$
|
12
|
|
|
$
|
8
|
|
Revenue recognized in excess of amounts invoiced
|
51
|
|
|
36
|
|
|
134
|
|
|
105
|
|
Minimum volume commitments invoiced
|
(39)
|
|
|
(24)
|
|
|
(96)
|
|
|
(71)
|
|
Balance at end of period
|
$
|
50
|
|
|
$
|
42
|
|
|
$
|
50
|
|
|
$
|
42
|
|
Contract Liabilities
The following table presents a reconciliation of our contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
(Millions)
|
Balance at beginning of period
|
$
|
1,193
|
|
|
$
|
1,203
|
|
|
$
|
1,209
|
|
|
$
|
1,215
|
|
Payments received and deferred
|
14
|
|
|
14
|
|
|
99
|
|
|
116
|
|
Significant financing component
|
3
|
|
|
3
|
|
|
8
|
|
|
8
|
|
Contract liability acquired
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Recognized in revenue
|
(48)
|
|
|
(50)
|
|
|
(154)
|
|
|
(169)
|
|
Balance at end of period
|
$
|
1,163
|
|
|
$
|
1,170
|
|
|
$
|
1,163
|
|
|
$
|
1,170
|
|
Remaining Performance Obligations
Remaining performance obligations primarily include reservation charges on contracted capacity for our gas pipeline firm transportation contracts with customers, storage capacity contracts, long-term contracts containing minimum volume commitments associated with our midstream businesses, and fixed payments associated with offshore production handling. For our interstate natural gas pipeline businesses, remaining performance obligations reflect the rates for such services in our current Federal Energy Regulatory Commission (FERC) tariffs for the life of the related contracts; however, these rates may change based on future tariffs approved by the FERC and the amount and timing of these changes are not currently known.
Our remaining performance obligations exclude variable consideration, including contracts with variable consideration for which we have elected the practical expedient for consideration recognized in revenue as billed. Certain of our contracts contain evergreen and other renewal provisions for periods beyond the initial term of the contract. The remaining performance obligation amounts as of September 30, 2021, do not consider potential future performance obligations for which the renewal has not been exercised and exclude contracts with customers for which the underlying facilities have not received FERC authorization to be placed into service. Consideration received prior to September 30, 2021, that will be recognized in future periods is also excluded from our remaining performance obligations and is instead reflected in contract liabilities.
The following table presents the amount of the contract liabilities balance expected to be recognized as revenue when performance obligations are satisfied and the transaction price allocated to the remaining performance obligations under certain contracts as of September 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Liabilities
|
|
Remaining Performance Obligations
|
|
(Millions)
|
2021 (three months)
|
$
|
45
|
|
|
$
|
875
|
|
2022 (one year)
|
139
|
|
|
3,465
|
|
2023 (one year)
|
124
|
|
|
3,184
|
|
2024 (one year)
|
120
|
|
|
2,870
|
|
2025 (one year)
|
105
|
|
|
2,367
|
|
|
|
|
|
Thereafter
|
630
|
|
|
18,326
|
|
Total
|
$
|
1,163
|
|
|
$
|
31,087
|
|
Accounts Receivable
The following is a summary of our Trade accounts and other receivables – net:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
(Millions)
|
Accounts receivable related to revenues from contracts with customers (1)
|
$
|
1,472
|
|
|
$
|
892
|
|
Other accounts receivable (2)
|
514
|
|
|
107
|
|
Trade accounts and other receivables – net
|
$
|
1,986
|
|
|
$
|
999
|
|
(1)Includes $298 million related to our Sequent segment as of September 30, 2021.
(2)Includes $441 million related to our Sequent segment as of September 30, 2021.
Note 5 – Investing Activities
Equity Earnings (Losses)
Equity earnings (losses) for the nine months ended September 30, 2020, includes a $78 million loss associated with the first-quarter 2020 full impairment of goodwill recognized by our investee RMM, which was allocated entirely to our member interest per the terms of the membership agreement.
Impairment of Equity-Method Investments
Impairment of equity-method investments for the nine months ended September 30, 2020, includes $938 million associated with the first-quarter 2020 impairment of certain equity-method investments (see Note 11 – Fair Value Measurements and Guarantees).
Note 6 – Provision (Benefit) for Income Taxes
The Provision (benefit) for income taxes includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
(Millions)
|
Current:
|
|
|
|
|
|
|
|
Federal
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
(28)
|
|
State
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
(28)
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
40
|
|
|
97
|
|
|
240
|
|
|
56
|
|
State
|
11
|
|
|
14
|
|
|
73
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
111
|
|
|
313
|
|
|
52
|
|
Provision (benefit) for income taxes
|
$
|
53
|
|
|
$
|
111
|
|
|
$
|
313
|
|
|
$
|
24
|
|
The effective income tax rates for the total provision (benefit) for both the three and nine months ended September 30, 2021 and 2020 are greater than the federal statutory rate, primarily due to the effect of state income taxes.
During the next 12 months, we do not expect ultimate resolution of any unrecognized tax benefit associated with domestic or international matters to have a material impact on our unrecognized tax benefit position.
Note 7 – Earnings (Loss) Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
(Dollars in millions, except per-share
amounts; shares in thousands)
|
Net income (loss) available to common stockholders
|
$
|
164
|
|
|
$
|
308
|
|
|
$
|
893
|
|
|
$
|
93
|
|
Basic weighted-average shares
|
1,215,434
|
|
|
1,213,912
|
|
|
1,215,113
|
|
|
1,213,512
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Nonvested restricted stock units
|
2,539
|
|
|
1,423
|
|
|
2,437
|
|
|
1,241
|
|
Stock options
|
6
|
|
|
—
|
|
|
8
|
|
|
4
|
|
Diluted weighted-average shares
|
1,217,979
|
|
|
1,215,335
|
|
|
1,217,558
|
|
|
1,214,757
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
.14
|
|
|
$
|
.25
|
|
|
$
|
.74
|
|
|
$
|
.08
|
|
Diluted
|
$
|
.13
|
|
|
$
|
.25
|
|
|
$
|
.73
|
|
|
$
|
.08
|
|
Note 8 – Employee Benefit Plans
Net periodic benefit cost (credit) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
(Millions)
|
Components of net periodic benefit cost (credit):
|
|
|
|
|
|
|
|
Service cost
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
23
|
|
|
$
|
23
|
|
Interest cost
|
7
|
|
|
9
|
|
|
21
|
|
|
28
|
|
Expected return on plan assets
|
(11)
|
|
|
(13)
|
|
|
(33)
|
|
|
(40)
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
4
|
|
|
5
|
|
|
11
|
|
|
16
|
|
Net actuarial loss from settlements
|
—
|
|
|
1
|
|
|
1
|
|
|
9
|
|
Net periodic benefit cost (credit)
|
$
|
8
|
|
|
$
|
10
|
|
|
$
|
23
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
(Millions)
|
Components of net periodic benefit cost (credit):
|
|
|
|
|
|
|
|
Service cost
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
1
|
|
|
2
|
|
|
4
|
|
|
5
|
|
Expected return on plan assets
|
(2)
|
|
|
(3)
|
|
|
(7)
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to regulatory liability
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Net periodic benefit cost (credit)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
(1)
|
|
The components of Net periodic benefit cost (credit) other than the Service cost component are included in Other income (expense) – net below Operating income (loss) in the Consolidated Statement of Income.
During the nine months ended September 30, 2021, we contributed $4 million to our pension plans and $4 million to our other postretirement benefit plans. We presently anticipate making additional contributions of approximately $1 million to our other postretirement benefit plans and no further contributions to our pension plans in the remainder of 2021.
Note 9 – Debt and Banking Arrangements
Long-Term Debt
Issuances and retirements
On October 8, 2021, we completed a public offering of $600 million of 2.6 percent senior unsecured notes due 2031. The new 2031 notes are an additional issuance of the $900 million of 2.6 percent senior unsecured notes due 2031 issued on March 2, 2021 and will trade interchangeably with such notes. Also, on October 8, 2021, we completed a public offering of $650 million of 3.5 percent senior unsecured notes due 2051.
On September 1, 2021, we retired $371 million of 7.875 percent senior unsecured notes due 2021.
On August 16, 2021, we retired $500 million of 4.0 percent senior unsecured notes due 2021.
Commercial Paper Program
At September 30, 2021, no Commercial paper was outstanding under our $4 billion commercial paper program. In connection with our amended and restated credit agreement described below, we reduced the size of our commercial paper program to $3.5 billion.
Credit Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
Stated Capacity
|
|
Outstanding
|
|
(Millions)
|
|
|
|
|
Long-term credit facility (1)
|
$
|
4,500
|
|
|
$
|
—
|
|
Letters of credit under certain bilateral bank agreements
|
|
|
17
|
|
(1)In managing our available liquidity, we do not expect a maximum outstanding amount in excess of the capacity of our credit facility inclusive of any outstanding amounts under our commercial paper program.
Revolving credit facility
In October 2021, we along with Transco and Northwest Pipeline, the lenders named therein, and an administrative agent entered into an amended and restated credit agreement (Credit Agreement) that reduced aggregate commitments available from $4.5 billion to $3.75 billion, with up to an additional $500 million increase in aggregate commitments available under certain circumstances. The Credit Agreement was effective on October 8, 2021. The maturity date of the credit facility is October 8, 2026. However, the co-borrowers may request up to two extensions of the maturity date each for an additional one-year period to allow a maturity date as late as October 8, 2028, under certain circumstances. The Credit Agreement allows for swing line loans up to an aggregate of $200 million, subject to available capacity under the credit facility, and letters of credit commitments of $500 million. Transco and Northwest Pipeline are each able to borrow up to $500 million under this credit facility to the extent not otherwise utilized by the other co-borrowers. At September 30, 2021, and as of October 8, 2021, the effective date of the amended and restated Credit Agreement, no letters of credit have been issued and no loans were outstanding under the credit facility.
The Credit Agreement contains the following terms and conditions:
•Various covenants may limit, among other things, a borrower’s and its material subsidiaries’ ability to grant certain liens supporting indebtedness, merge or consolidate, sell all or substantially all of its assets in certain circumstances, make certain distributions during an event of default, and each borrower and each borrower’s respective material subsidiaries’ ability to enter into certain restrictive agreements.
•If an event of default with respect to a borrower occurs under the credit facility, the lenders will be able to terminate the commitments for the respective borrowers and accelerate the maturity of the loans of the defaulting borrower under the credit facility and exercise other rights and remedies.
•Other than swing line loans, each time funds are borrowed, the applicable borrower may choose from two methods of calculating interest: a fluctuating base rate equal to an alternative base rate as defined in the Credit Agreement plus an applicable margin or a periodic fixed rate equal to the London Interbank Offered Rate (LIBOR) plus an applicable margin. We are required to pay a commitment fee based on the unused portion of the credit facility. The applicable margin is determined by reference to a pricing schedule based on the applicable borrower’s senior unsecured long-term debt ratings and the commitment fee is determined by reference to a pricing schedule based on Williams’ senior unsecured long-term debt ratings. The Credit Agreement also includes customary provisions to provide for replacement of LIBOR with an alternative benchmark rate when LIBOR ceases to be available.
Significant financial covenants under the Credit Agreement require the ratio of debt to EBITDA (earnings before interest, taxes, depreciation, and amortization), each as defined in the Credit Agreement, to be no greater than 5.0 to 1.0, except that for any fiscal quarter in which the funding of the purchase price for an acquisition (whether
effectuated as one or a series of related transactions) with an aggregate purchase price of $25 million or more has been effected, and the following two fiscal quarters (in each case subject to certain limitations), the ratio of debt to EBITDA is to be no greater than 5.5 to 1.
The ratio of debt to capitalization (defined as net worth plus debt), each as defined in the Credit Agreement, must be no greater than 65 percent for each of Transco and Northwest Pipeline.
At September 30, 2021, we are in compliance with these covenants.
Note 10 – Stockholders’ Equity
Share Repurchase Program
On September 3, 2021, our Board of Directors authorized a new share repurchase program with a maximum dollar limit of $1.5 billion. Repurchases may be made from time to time in the open market, by block purchases, in privately negotiated transactions or in such other manner as determined by our management. Our management will also determine the timing and amount of any repurchases based on market conditions and other factors. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended or discontinued at any time. This share repurchase program does not have an expiration date. There were no repurchases under the program through September 30, 2021.
Stockholder Rights Agreement
As disclosed in our Annual Report on Form 10-K filed February 24, 2021, a purported shareholder filed a putative class action lawsuit in the Delaware Court of Chancery challenging our stockholder rights agreement (Rights Agreement). On February 26, 2021, the Delaware Court of Chancery issued a decision which declared the Rights Agreement unenforceable and permanently enjoined the continued operation of the Rights Agreement, which otherwise would have expired on March 20, 2021.
AOCI
The following table presents the changes in AOCI by component, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow
Hedges
|
|
Foreign
Currency
Translation
|
|
Pension and
Other Postretirement
Benefits
|
|
Total
|
|
(Millions)
|
Balance at December 31, 2020
|
$
|
(3)
|
|
|
$
|
(1)
|
|
|
$
|
(92)
|
|
|
$
|
(96)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
(43)
|
|
|
—
|
|
|
—
|
|
|
(43)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
21
|
|
|
—
|
|
|
9
|
|
|
30
|
|
Other comprehensive income (loss)
|
(22)
|
|
|
—
|
|
|
9
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2021
|
$
|
(25)
|
|
|
$
|
(1)
|
|
|
$
|
(83)
|
|
|
$
|
(109)
|
|
Reclassifications out of AOCI are presented in the following table by component for the nine months ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Component
|
|
Reclassifications
|
|
Classification
|
|
|
(Millions)
|
|
|
Cash flow hedges:
|
|
|
|
|
Energy commodity contracts
|
|
$
|
28
|
|
|
Net gain (loss) on commodity derivatives
|
|
|
|
|
|
Pension and other postretirement benefits:
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial (gain) loss and net actuarial loss from settlements included in net periodic benefit cost (credit)
|
|
12
|
|
|
Other income (expense) – net below Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
(10)
|
|
|
Provision (benefit) for income taxes
|
|
|
|
|
|
Reclassifications during the period
|
|
$
|
30
|
|
|
|
Note 11 – Fair Value Measurements and Guarantees
The following table presents, by level within the fair value hierarchy, certain of our significant financial assets and liabilities. The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of the short-term nature of these instruments. Therefore, these assets and liabilities are not presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Quoted
Prices In
Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
(Millions)
|
Assets (liabilities) at September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
ARO Trust investments
|
|
$
|
248
|
|
|
$
|
248
|
|
|
$
|
248
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commodity derivative assets (1)
|
|
131
|
|
|
131
|
|
|
38
|
|
|
83
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative liabilities (1)
|
|
(773)
|
|
|
(773)
|
|
|
(285)
|
|
|
(470)
|
|
|
(18)
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portion
|
|
(22,362)
|
|
|
(26,614)
|
|
|
—
|
|
|
(26,614)
|
|
|
—
|
|
Guarantees
|
|
(40)
|
|
|
(26)
|
|
|
—
|
|
|
(10)
|
|
|
(16)
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (liabilities) at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
ARO Trust investments
|
|
$
|
235
|
|
|
$
|
235
|
|
|
$
|
235
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commodity derivative assets
|
|
3
|
|
|
3
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative liabilities
|
|
(6)
|
|
|
(6)
|
|
|
(3)
|
|
|
(1)
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional disclosures:
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portion
|
|
(22,344)
|
|
|
(27,043)
|
|
|
—
|
|
|
(27,043)
|
|
|
—
|
|
Guarantees
|
|
(40)
|
|
|
(27)
|
|
|
—
|
|
|
(11)
|
|
|
(16)
|
|
(1)Excludes approximately $313 million of net cash collateral.
Fair Value Methods
We use the following methods and assumptions in estimating the fair value of our financial instruments:
Assets measured at fair value on a recurring basis
ARO Trust investments: Transco deposits a portion of its collected rates, pursuant to its rate case settlement, into an external trust (ARO Trust) that is specifically designated to fund future asset retirement obligations (ARO). The ARO Trust invests in a portfolio of actively traded mutual funds that are measured at fair value on a recurring basis based on quoted prices in an active market and is reported in Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet. Both realized and unrealized gains and losses are ultimately recorded as regulatory assets or liabilities.
Commodity derivatives: Commodity derivatives include commodity-based exchange-traded contracts and OTC contracts, which consist of physical forwards, futures, and swaps that are measured at fair value on a recurring basis. We also have other derivatives related to asset management agreements and other contracts that require physical delivery. Derivatives classified as Level 1 are valued using NYMEX futures prices. Derivatives classified as Level 2
are valued using basis transactions that represent the cost to transport natural gas from a NYMEX delivery point to the contract delivery point. These transactions are based on quotes obtained either through electronic trading platforms or directly from brokers. Derivatives classified as Level 3 are valued using a combination of observable and unobservable inputs. Beginning in the third quarter of 2021 the fair value amounts are presented on a net basis and reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements and cash held on deposit in margin accounts that we have received or remitted to collateralize certain derivative positions. Commodity derivative assets are reported in Other current assets and deferred charges and Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet. Commodity derivative liabilities are reported in Accrued liabilities and Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet.
Additional fair value disclosures
Long-term debt, including current portion: The disclosed fair value of our long-term debt is determined primarily by a market approach using broker quoted indicative period-end bond prices. The quoted prices are based on observable transactions in less active markets for our debt or similar instruments. The fair values of the financing obligations associated with our Dalton lateral and Atlantic Sunrise projects, which are included within long-term debt, were determined using an income approach.
Guarantees: Guarantees primarily consist of a guarantee we have provided in the event of nonpayment by our previously owned communications subsidiary, Williams Communications Group (WilTel), on a lease performance obligation that extends through 2042. Guarantees also include an indemnification related to a disposed operation.
To estimate the fair value of the WilTel guarantee, an estimated default rate is applied to the sum of the future contractual lease payments using an income approach. The estimated default rate is determined by obtaining the average cumulative issuer-weighted corporate default rate based on the credit rating of WilTel’s current owner and the term of the underlying obligation. The default rate is published by Moody’s Investors Service. The carrying value of the WilTel guarantee is reported in Accrued liabilities in the Consolidated Balance Sheet. The maximum potential undiscounted exposure is approximately $26 million at September 30, 2021. Our exposure declines systematically through the remaining term of WilTel’s obligation.
The fair value of the guarantee associated with the indemnification related to a disposed operation was estimated using an income approach that considered probability-weighted scenarios of potential levels of future performance. The terms of the indemnification do not limit the maximum potential future payments associated with the guarantee. The carrying value of this guarantee is reported in Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet.
We are required by our revolving credit agreement to indemnify lenders for certain taxes required to be withheld from payments due to the lenders and for certain tax payments made by the lenders. The maximum potential amount of future payments under these indemnifications is based on the related borrowings and such future payments cannot currently be determined. These indemnifications generally continue indefinitely unless limited by the underlying tax regulations and have no carrying value. We have never been called upon to perform under these indemnifications and have no current expectation of a future claim.
Nonrecurring fair value measurements
During the first quarter of 2020, we observed a significant decline in the publicly traded price of our common stock (NYSE: WMB), which declined 40 percent during the quarter, including a 26 percent decline in the month of March. These changes were generally attributed to macroeconomic and geopolitical conditions, including significant declines in crude oil prices driven by both surplus supply and a decrease in demand caused by the coronavirus (COVID-19) pandemic. As a result of these conditions, we performed an interim assessment of the goodwill associated with our Northeast G&P reporting unit as of March 31, 2020.
The assessment considered the total fair value of the businesses within the Northeast G&P reporting unit, which was determined using income and market approaches. We utilized internally developed industry weighted-average discount rates and estimates of valuation multiples of comparable publicly traded gathering and processing
companies. In assessing the fair value as of the March 31, 2020 measurement date, we were required to consider recent publicly available indications of value, which included lower observed publicly traded EBITDA market multiples as compared with recent history and significantly higher industry weighted-average discount rates. The fair value of the reporting unit was further reconciled to our estimated total enterprise value as of March 31, 2020, which considered observable valuation multiples of comparable publicly traded companies applied to each distinct business including the Northeast G&P reporting unit. This assessment indicated that the estimated fair value of the Northeast G&P reporting unit was below its carrying value, including goodwill. As a result of this Level 3 measurement, we recognized a full impairment charge of $187 million as of March 31, 2020, in Impairment of goodwill in the Consolidated Statement of Income. Our partner’s $65 million share of this impairment is reflected within Net income (loss) attributable to noncontrolling interests in the Consolidated Statement of Income.
The following table presents impairments of equity-method investments associated with certain nonrecurring fair value measurements within Level 3 of the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
Segment
|
|
Date of Measurement
|
|
Fair Value
|
|
2021
|
|
2020
|
|
|
|
|
|
|
(Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of equity-method investments:
|
|
|
|
|
|
|
|
|
|
|
RMM (1)
|
|
West
|
|
March 31, 2020
|
|
$
|
557
|
|
|
$
|
—
|
|
|
$
|
243
|
|
Brazos Permian II (1)
|
|
West
|
|
March 31, 2020
|
|
—
|
|
|
—
|
|
|
193
|
|
Caiman II (2)
|
|
Northeast G&P
|
|
March 31, 2020
|
|
191
|
|
|
—
|
|
|
229
|
|
Appalachia Midstream Investments (2)
|
|
Northeast G&P
|
|
March 31, 2020
|
|
2,700
|
|
|
—
|
|
|
127
|
|
Aux Sable (2)
|
|
Northeast G&P
|
|
March 31, 2020
|
|
7
|
|
|
—
|
|
|
39
|
|
Laurel Mountain (2)
|
|
Northeast G&P
|
|
March 31, 2020
|
|
236
|
|
|
—
|
|
|
10
|
|
Discovery (2)
|
|
Transmission & Gulf of Mexico
|
|
March 31, 2020
|
|
367
|
|
|
—
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of equity-method investments
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
938
|
|
_______________
(1)Following the previously described declining market conditions during the first quarter of 2020, we evaluated these investments for other-than-temporary impairment. The fair value was measured using an income approach. Both investees operate in primarily oil-driven basins where significant expected reductions in producer activities led to reduced estimates of expected future cash flows. Our fair value estimates also reflected discount rates of approximately 17 percent for these investments. We also considered any debt held at the investee level, and its impact to fair value. The industry weighted-average discount rates utilized were significantly influenced by the market declines previously discussed.
(2)Following the previously described declining market conditions during the first quarter of 2020, we evaluated these investments for other-than-temporary impairment. The impairments within our Northeast G&P segment are primarily associated with operations in wet-gas areas where producer drilling activities are influenced by NGL prices which historically trend with crude oil prices. The fair values of our investments in Caiman II and Aux Sable Liquid Products LP (Aux Sable) were estimated using a market approach, reflecting valuation multiples ranging from 5.0x to 6.2x EBITDA (weighted-average 6.0x). The fair values of the other investments, including gathering systems that are part of Appalachia Midstream Investments, were estimated using an income approach, with discount rates ranging from 9.7 percent to 13.5 percent (weighted-average 12.6 percent). We also considered any debt held at the investee level, and its impact to fair value. The assumed valuation multiples and industry weighted-average discount rates utilized were both significantly influenced by the market declines previously discussed.
Note 12 – Derivatives
Commodity-Related Derivatives
We are exposed to commodity price risk. To manage this volatility we use various contracts in our marketing and trading activities that generally meet the definition of derivatives. Derivative positions are monitored using techniques including, but not limited to value at risk. Derivative instruments are recognized at fair value in the Consolidated Balance Sheet as either assets or liabilities and are presented on a net basis by counterparty, net of margin deposits. See Note 11 – Fair Value Measurements and Guarantees for additional fair value information. In the Consolidated Statement of Cash Flows, any cash impacts of settled commodity-related derivatives are recorded as operating activities.
We enter into commodity-related derivatives to hedge exposures to natural gas, NGLs, and crude oil and retain exposure to price changes that can, in a volatile energy market, be material and can adversely affect our results of operations.
Our commodity-related derivative contracts are primarily not designated as hedging instruments. Realized and unrealized gains and losses on these non-designated commodity-related derivative contracts are recognized in Net gain (loss) on commodity derivatives in the Consolidated Statement of Income as incurred. Unrealized gains and losses on commodity-related derivative contracts that are designated as hedging instruments are initially reported in AOCI in the Consolidated Balance Sheet and later reclassified as realized gains and losses into Net gain (loss) on commodity derivatives in the Consolidated Statement of Income in the period in which the hedged item affects earnings.
Some commodity-related derivative contracts require physical delivery as opposed to financial settlement, and this type of derivative is both common and prevalent within the natural gas marketing operations. When a commodity-related derivative contract is settled physically, any cumulative unrealized gain or loss is reversed and the contract price is recognized in the respective line item in the Consolidated Statement of Income representing the actual price of the underlying goods being delivered.
At September 30, 2021, the notional volume of the net long (short) positions for our commodity derivative contracts were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
Commodity
|
|
Unit of Measure
|
|
Net Long (Short) Position
|
|
|
|
|
|
|
|
Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
West - Central Hub Risk
|
|
Natural Gas Liquids
|
|
Barrels
|
|
(261,000)
|
|
West - Central Hub Risk
|
|
Natural Gas
|
|
MMBtu
|
|
(7,217,500)
|
|
West - Basis Risk
|
|
Natural Gas
|
|
MMBtu
|
|
(3,542,000)
|
|
|
|
|
|
|
|
|
Not Designated as Hedging Instruments
|
|
|
|
|
Sequent (1)
|
|
Natural Gas
|
|
MMBtu
|
|
591,732,203
|
|
West - Central Hub Risk
|
|
Natural Gas Liquids
|
|
Barrels
|
|
(515,000)
|
|
West - Basis Risk
|
|
Natural Gas Liquids
|
|
Barrels
|
|
(22,449,000)
|
|
West - Central Hub Risk
|
|
Natural Gas
|
|
MMBtu
|
|
(25,281,500)
|
|
West - Basis Risk
|
|
Natural Gas
|
|
MMBtu
|
|
(51,362,500)
|
|
West - Central Hub Risk
|
|
Crude Oil
|
|
Barrels
|
|
(96,000)
|
|
_______________
(1)Derivative instruments include both long and short natural gas positions. The volume represents the net of long natural gas positions of 4.3 billion MMBtu (million British thermal units) and short natural gas positions of 3.7 billion MMBtu.
Derivative Financial Statement Presentation
The fair value of commodity-related derivatives was reflected in the Consolidated Balance Sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
Derivative Category
|
|
Assets
|
|
(Liabilities)
|
|
Assets
|
|
(Liabilities)
|
|
|
(Millions)
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
1
|
|
|
$
|
(31)
|
|
|
$
|
1
|
|
|
$
|
(2)
|
|
Noncurrent
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total derivatives designated as hedging instruments
|
|
$
|
1
|
|
|
$
|
(31)
|
|
|
$
|
1
|
|
|
$
|
(2)
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
1,832
|
|
|
$
|
(2,203)
|
|
|
$
|
2
|
|
|
$
|
(3)
|
|
Noncurrent
|
|
240
|
|
|
(481)
|
|
|
—
|
|
|
(1)
|
|
Total derivatives not designated as hedging instruments
|
|
$
|
2,072
|
|
|
$
|
(2,684)
|
|
|
$
|
2
|
|
|
$
|
(4)
|
|
|
|
|
|
|
|
|
|
|
Gross amounts recognized
|
|
$
|
2,073
|
|
|
$
|
(2,715)
|
|
|
$
|
3
|
|
|
$
|
(6)
|
|
Counterparty and collateral netting offset
|
|
(1,939)
|
|
|
2,252
|
|
|
—
|
|
|
—
|
|
Amounts recognized in the Consolidated Balance Sheet
|
|
$
|
134
|
|
|
$
|
(463)
|
|
|
$
|
3
|
|
|
$
|
(6)
|
|
For the three and nine months ended September 30, 2021 and 2020 the pre-tax effects of commodity-related derivatives instruments in the Consolidated Statement of Income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
Income Statement Location
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
(Millions)
|
Realized commodity-related derivatives designated as hedging instruments
|
Net gain (loss) on
commodity derivatives
|
|
$
|
(20)
|
|
|
$
|
(1)
|
|
|
$
|
(28)
|
|
|
$
|
(1)
|
|
Realized commodity-related derivatives not designated as hedging instruments
|
Net gain (loss) on
commodity derivatives
|
|
(57)
|
|
|
—
|
|
|
(96)
|
|
|
(1)
|
|
Unrealized commodity-related derivatives not designated as hedging instruments
|
Net gain (loss) on
commodity derivatives
|
|
(314)
|
|
|
(3)
|
|
|
(317)
|
|
|
(2)
|
|
Total
|
Net gain (loss) on
commodity derivatives
|
|
$
|
(391)
|
|
|
$
|
(4)
|
|
|
$
|
(441)
|
|
|
$
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Features
Generally, collateral may be provided by a parent guaranty, letter of credit, or cash. If collateral is required, fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are offset against fair value amounts recognized for derivatives executed with the same counterparty.
We have trade and credit contracts that contain minimum credit rating requirements. These credit rating requirements typically give counterparties the right to suspend or terminate credit if our credit ratings are downgraded to non-investment grade status. Under such circumstances, we would need to post collateral to continue transacting business with some of our counterparties. As of September 30, 2021 the required collateral in the event of a credit rating downgrade to non-investment grade status was $33 million.
We maintain accounts with brokers or the clearing houses of certain exchanges to facilitate financial derivative transactions. Based on the value of the positions in these accounts and the associated margin requirements, we may be required to deposit cash into these accounts. At September 30, 2021, net cash collateral held on deposit in broker margin accounts was $313 million.
Note 13 – Contingent Liabilities and Commitments
Reporting of Natural Gas-Related Information to Trade Publications
Direct and indirect purchasers of natural gas in various states filed individual and class actions against us, our former affiliate WPX Energy, Inc. (WPX) and its subsidiaries, and others alleging the manipulation of published gas price indices and seeking unspecified amounts of damages. Such actions were transferred to the Nevada federal district court for consolidation of discovery and pre-trial issues. We have agreed to indemnify WPX and its subsidiaries related to this matter.
In the individual action, filed by Farmland Industries Inc. (Farmland), the court issued an order on May 24, 2016, granting one of our co-defendant’s motion for summary judgment as to Farmland’s claims. On January 5, 2017, the court extended such ruling to us, entering final judgment in our favor. Farmland appealed. On March 27, 2018, the appellate court reversed the district court’s grant of summary judgment, and on April 10, 2018, the defendants filed a petition for rehearing with the appellate court, which was denied on May 9, 2018. The case was remanded to the Nevada federal district court and subsequently remanded to its originally filed court, the Kansas federal district court where we re-urged our motion for summary judgment. The district court denied the motion but granted our request to seek permission for an immediate appeal to the appellate court. Oral argument occurred before the appellate court on January 19, 2021. On June 22, 2021, the appellate court ruled that we are not entitled to summary judgment and remanded the case to the Kansas federal district court. The court has scheduled trial to begin May 9, 2022.
In the putative class actions, on March 30, 2017, the court issued an order denying the plaintiffs’ motions for class certification. On June 13, 2017, the United States Court of Appeals for the Ninth Circuit granted the plaintiffs’ petition for permission to appeal the order. On August 6, 2018, the Ninth Circuit reversed the order denying class certification and remanded the case to the Nevada federal district court.
We reached an agreement to settle two of the actions, and on April 22, 2019, the Nevada federal district court preliminarily approved the settlements, which are on behalf of Kansas and Missouri class members. The final fairness hearing on the settlement occurred August 5, 2019, and a final judgment of dismissal with prejudice was entered the same day.
Two putative class actions remain unresolved, and they have been remanded to their originally filed court, the Wisconsin federal district court where the plaintiffs have re-urged their motion for class certification. Trial was scheduled to begin June 14, 2021, but the court struck the setting and has not reset it.
Because of the uncertainty around the remaining unresolved issues, we cannot reasonably estimate a range of potential exposure at this time. However, it is reasonably possible that the ultimate resolution of these actions and our related indemnification obligation could result in a potential loss that may be material to our results of operations. In connection with this indemnification, we have an accrued liability balance associated with this matter and have exposure to future developments.
Alaska Refinery Contamination Litigation
We are involved in litigation arising from our ownership and operation of the North Pole Refinery in North Pole, Alaska, from 1980 until 2004, through our wholly owned subsidiaries Williams Alaska Petroleum Inc. (WAPI) and MAPCO Inc. We sold the refinery to Flint Hills Resources Alaska, LLC (FHRA), a subsidiary of Koch Industries, Inc., in 2004. The litigation involves three cases, with filing dates ranging from 2010 to 2014. The actions primarily arise from sulfolane contamination allegedly emanating from the refinery. A putative class action lawsuit was filed by James West in 2010 naming us, WAPI, and FHRA as defendants. We and FHRA filed claims against
each other seeking, among other things, contractual indemnification alleging that the other party caused the sulfolane contamination. In 2011, we and FHRA settled the claim with James West. Certain claims by FHRA against us were resolved by the Alaska Supreme Court in our favor. FHRA’s claims against us for contractual indemnification and statutory claims for damages related to off-site sulfolane were remanded to the Alaska Superior Court. The State of Alaska filed its action in March 2014, seeking damages. The City of North Pole (North Pole) filed its lawsuit in November 2014, seeking past and future damages, as well as punitive damages. Both we and WAPI asserted counterclaims against the State of Alaska and North Pole, and cross-claims against FHRA. FHRA has also filed cross-claims against us.
The underlying factual basis and claims in the cases are similar and may duplicate exposure. As such, in February 2017, the three cases were consolidated into one action in state court containing the remaining claims from the James West case and those of the State of Alaska and North Pole. The State of Alaska later announced the discovery of additional contaminants per- and polyfluoralkyl (PFOS and PFOA) offsite of the refinery, and the court permitted the State of Alaska to amend its complaint to add a claim for offsite PFOS/PFOA contamination. The court subsequently remanded the offsite PFOS/PFOA claims to the Alaska Department of Environmental Conservation for investigation and stayed the claims pending their potential resolution at the administrative agency. Several trial dates encompassing all three cases have been scheduled and stricken. In the summer of 2019, the court deconsolidated the cases for purposes of trial. A bench trial on all claims except North Pole’s claims began in October 2019.
In January 2020, the Alaska Superior Court issued its Memorandum of Decision finding in favor of the State of Alaska and FHRA, with the total incurred and potential future damages estimated to be $86 million. The court found that FHRA is not entitled to contractual indemnification from us because FHRA contributed to the sulfolane contamination. On March 23, 2020, the court entered final judgment in the case. Filing deadlines were stayed until May 1, 2020. However, on April 21, 2020, we filed a Notice of Appeal. We also filed post-judgment motions including a Motion for New Trial and a Motion to Alter or Amend the Judgment. These post-trial motions were resolved with the court’s denial of the last motion on June 11, 2020. Our Statement of Points on Appeal was filed on July 13, 2020. On June 22, 2020, the court stayed the North Pole’s case pending resolution of the appeal in the State of Alaska and FHRA case. On December 23, 2020, we filed our opening brief on appeal. The court set oral argument for December 15, 2021. We have recorded an accrued liability in the amount of our estimate of the probable loss. It is reasonably possible that we may not be successful on appeal and could ultimately pay up to the amount of judgment.
Royalty Matters
Certain of our customers, including Chesapeake Energy Corporation (Chesapeake), have been named in various lawsuits alleging underpayment of royalties and claiming, among other things, violations of anti-trust laws and the Racketeer Influenced and Corrupt Organizations Act. We have also been named as a defendant in certain of these cases filed in Pennsylvania based on allegations that we improperly participated with Chesapeake in causing the alleged royalty underpayments. We believe that the claims asserted are subject to indemnity obligations owed to us by Chesapeake. Chesapeake has reached a settlement to resolve substantially all Pennsylvania royalty cases pending, which settlement applies to both Chesapeake and us. The settlement does not require any contribution from us. On August 23, 2021, the court approved the settlement, but two objectors filed an appeal with the United States Court of Appeals for the Fifth Circuit.
Litigation Against Energy Transfer and Related Parties
On April 6, 2016, we filed suit in Delaware Chancery Court against Energy Transfer Equity, L.P. (Energy Transfer) and LE GP, LLC (the general partner for Energy Transfer) alleging willful and material breaches of the Agreement and Plan of Merger (ETE Merger Agreement) with Energy Transfer resulting from the private offering by Energy Transfer on March 8, 2016, of Series A Convertible Preferred Units (Special Offering) to certain Energy Transfer insiders and other accredited investors. The suit seeks, among other things, an injunction ordering the defendants to unwind the Special Offering and to specifically perform their obligations under the ETE Merger Agreement. On April 19, 2016, we filed an amended complaint seeking the same relief. On May 3, 2016, Energy Transfer and LE GP, LLC filed an answer and counterclaims.
On May 13, 2016, we filed a separate complaint in Delaware Chancery Court against Energy Transfer, LE GP, LLC and the other Energy Transfer affiliates that are parties to the ETE Merger Agreement, alleging material breaches of the ETE Merger Agreement for failing to cooperate and use necessary efforts to obtain a tax opinion required under the ETE Merger Agreement (Tax Opinion) and for otherwise failing to use necessary efforts to consummate the merger under the ETE Merger Agreement wherein we would be merged with and into the newly formed Energy Transfer Corp LP (ETC) (ETC Merger). The suit sought, among other things, a declaratory judgment and injunction preventing Energy Transfer from terminating or otherwise avoiding its obligations under the ETE Merger Agreement due to any failure to obtain the Tax Opinion.
The Court of Chancery coordinated the Special Offering and Tax Opinion suits. On May 20, 2016, the Energy Transfer defendants filed amended affirmative defenses and verified counterclaims in the Special Offering and Tax Opinion suits, alleging certain breaches of the ETE Merger Agreement by us and seeking, among other things, a declaration that we were not entitled to specific performance, that Energy Transfer could terminate the ETC Merger, and that Energy Transfer is entitled to a $1.48 billion termination fee. On June 24, 2016, following a two-day trial, the court issued a Memorandum Opinion and Order denying our requested relief in the Tax Opinion suit. The court did not rule on the substance of our claims related to the Special Offering or on the substance of Energy Transfer’s counterclaims. On June 27, 2016, we filed an appeal of the court’s decision with the Supreme Court of Delaware, seeking reversal and remand to pursue damages. On March 23, 2017, the Supreme Court of Delaware affirmed the Court of Chancery’s ruling. On March 30, 2017, we filed a motion for reargument with the Supreme Court of Delaware, which was denied on April 5, 2017.
On September 16, 2016, we filed an amended complaint with the Court of Chancery seeking damages for breaches of the ETE Merger Agreement by defendants. On September 23, 2016, Energy Transfer filed a second amended and supplemental affirmative defenses and verified counterclaim with the Court of Chancery seeking, among other things, payment of the $1.48 billion termination fee due to our alleged breaches of the ETE Merger Agreement. On December 1, 2017, the court granted our motion to dismiss certain of Energy Transfer’s counterclaims, including its claim seeking payment of the $1.48 billion termination fee. On December 8, 2017, Energy Transfer filed a motion for reargument, which the Court of Chancery denied on April 16, 2018. The Court of Chancery originally scheduled trial for May 20 through May 24, 2019; the court struck that setting and reset trial to occur in 2020. All 2020 trial settings were struck due to COVID-19. Trial was held May 10 through May 17, 2021. Post-trial argument occurred September 16, 2021.
Environmental Matters
We are a participant in certain environmental activities in various stages including assessment studies, cleanup operations, and/or remedial processes at certain sites, some of which we currently do not own. We are monitoring these sites in a coordinated effort with other potentially responsible parties, the U.S. Environmental Protection Agency (EPA), or other governmental authorities. We are jointly and severally liable along with unrelated third parties in some of these activities and solely responsible in others. Certain of our subsidiaries have been identified as potentially responsible parties at various Superfund and state waste disposal sites. In addition, these subsidiaries have incurred, or are alleged to have incurred, various other hazardous materials removal or remediation obligations under environmental laws. As of September 30, 2021, we have accrued liabilities totaling $32 million for these matters, as discussed below. Estimates of the most likely costs of cleanup are generally based on completed assessment studies, preliminary results of studies, or our experience with other similar cleanup operations. At September 30, 2021, certain assessment studies were still in process for which the ultimate outcome may yield different estimates of most likely costs. Therefore, the actual costs incurred will depend on the final amount, type, and extent of contamination discovered at these sites, the final cleanup standards mandated by the EPA or other governmental authorities, and other factors.
The EPA and various state regulatory agencies routinely promulgate and propose new rules and issue updated guidance to existing rules. These rulemakings include, but are not limited to, rules for reciprocating internal combustion engine and combustion turbine maximum achievable control technology, air quality standards for one-hour nitrogen dioxide emissions, and volatile organic compound and methane new source performance standards impacting design and operation of storage vessels, pressure valves, and compressors. The EPA previously issued its rule regarding National Ambient Air Quality Standards for ground-level ozone. We are monitoring the rule’s
implementation as it will trigger additional federal and state regulatory actions that may impact our operations. Implementation of the regulations is expected to result in impacts to our operations and increase the cost of additions to Property, plant, and equipment – net in the Consolidated Balance Sheet for both new and existing facilities in affected areas. We are unable to reasonably estimate the cost of additions that may be required to meet the regulations at this time due to uncertainty created by various legal challenges to these regulations and the need for further specific regulatory guidance.
Continuing operations
Our interstate gas pipelines are involved in remediation activities related to certain facilities and locations for polychlorinated biphenyls, mercury, and other hazardous substances. These activities have involved the EPA and various state environmental authorities, resulting in our identification as a potentially responsible party at various Superfund waste sites. At September 30, 2021, we have accrued liabilities of $4 million for these costs. We expect that these costs will be recoverable through rates.
We also accrue environmental remediation costs for natural gas underground storage facilities, primarily related to soil and groundwater contamination. At September 30, 2021, we have accrued liabilities totaling $8 million for these costs.
Former operations
We have potential obligations in connection with assets and businesses we no longer operate. These potential obligations include remediation activities at the direction of federal and state environmental authorities and the indemnification of the purchasers of certain of these assets and businesses for environmental and other liabilities existing at the time the sale was consummated. Our responsibilities relate to the operations of the assets and businesses described below.
•Former agricultural fertilizer and chemical operations and former retail petroleum and refining operations;
•Former petroleum products and natural gas pipelines;
•Former petroleum refining facilities;
•Former exploration and production and mining operations;
•Former electricity and natural gas marketing and trading operations.
At September 30, 2021, we have accrued environmental liabilities of $20 million related to these matters.
Other Divestiture Indemnifications
Pursuant to various purchase and sale agreements relating to divested businesses and assets, we have indemnified certain purchasers against liabilities that they may incur with respect to the businesses and assets acquired from us. The indemnities provided to the purchasers are customary in sale transactions and are contingent upon the purchasers incurring liabilities that are not otherwise recoverable from third parties. The indemnities generally relate to breach of warranties, tax, historic litigation, personal injury, property damage, environmental matters, right of way, and other representations that we have provided.
At September 30, 2021, other than as previously disclosed, we are not aware of any material claims against us involving the above-described indemnities; thus, we do not expect any of the indemnities provided pursuant to the sales agreements to have a material impact on our future financial position. Any claim for indemnity brought against us in the future may have a material adverse effect on our results of operations in the period in which the claim is made.
In addition to the foregoing, various other proceedings are pending against us that are incidental to our operations, none of which are expected to be material to our expected future annual results of operations, liquidity, and financial position.
Summary
We have disclosed our estimated range of reasonably possible losses for certain matters above, as well as all significant matters for which we are unable to reasonably estimate a range of possible loss. We estimate that for all other matters for which we are able to reasonably estimate a range of loss, our aggregate reasonably possible losses beyond amounts accrued are immaterial to our expected future annual results of operations, liquidity, and financial position. These calculations have been made without consideration of any potential recovery from third parties.
Commitments
Commitments for Sequent pipeline transportation capacity, storage capacity, and gas supply are approximately $424 million at September 30, 2021.
Note 14 – Segment Disclosures
Our reportable segments are Transmission & Gulf of Mexico, Northeast G&P, West, and Sequent. All remaining business activities are included in Other. (See Note 1 – General, Description of Business, and Basis of Presentation.)
Performance Measurement
We evaluate segment operating performance based upon Modified EBITDA. This measure represents the basis of our internal financial reporting and is the primary performance measure used by our chief operating decision maker in measuring performance and allocating resources among our reportable segments. Intersegment Service revenues primarily represent transportation services provided to our marketing business and gathering services provided to our oil and gas properties. Intersegment Product sales primarily represent the sale of NGLs from our natural gas processing plants and our oil and gas properties to our marketing business.
We define Modified EBITDA as follows:
•Net income (loss) before:
◦Provision (benefit) for income taxes;
◦Interest incurred, net of interest capitalized;
◦Equity earnings (losses);
◦Impairment of equity-method investments;
◦Other investing income (loss) – net;
◦Impairment of goodwill;
◦Depreciation and amortization expenses;
◦Accretion expense associated with asset retirement obligations for nonregulated operations.
•This measure is further adjusted to include our proportionate share (based on ownership interest) of Modified EBITDA from our equity-method investments calculated consistently with the definition described above.
The following table reflects the reconciliation of Segment revenues to Total revenues as reported in the Consolidated Statement of Income and Total assets by reportable segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission & Gulf of Mexico
|
|
Northeast G&P
|
|
West
|
|
Sequent (1)
|
|
Other
|
|
Eliminations
|
|
Total
|
|
(Millions)
|
Three Months Ended September 30, 2021
|
Segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
$
|
812
|
|
|
$
|
390
|
|
|
$
|
300
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
1,506
|
|
Internal
|
24
|
|
|
9
|
|
|
12
|
|
|
—
|
|
|
4
|
|
|
(49)
|
|
|
—
|
|
Total service revenues
|
836
|
|
|
399
|
|
|
312
|
|
|
—
|
|
|
8
|
|
|
(49)
|
|
|
1,506
|
|
Total service revenues – commodity consideration
|
13
|
|
|
(1)
|
|
|
52
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
64
|
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
54
|
|
|
(1)
|
|
|
1,126
|
|
|
70
|
|
|
47
|
|
|
—
|
|
|
1,296
|
|
Internal
|
34
|
|
|
20
|
|
|
44
|
|
|
(16)
|
|
|
64
|
|
|
(146)
|
|
|
—
|
|
Total product sales
|
88
|
|
|
19
|
|
|
1,170
|
|
|
54
|
|
|
111
|
|
|
(146)
|
|
|
1,296
|
|
Net gain (loss) on commodity derivatives
|
—
|
|
|
—
|
|
|
(48)
|
|
|
(322)
|
|
|
(21)
|
|
|
—
|
|
|
(391)
|
|
Total revenues
|
$
|
937
|
|
|
$
|
417
|
|
|
$
|
1,486
|
|
|
$
|
(268)
|
|
|
$
|
98
|
|
|
$
|
(195)
|
|
|
$
|
2,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
Segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
$
|
797
|
|
|
$
|
366
|
|
|
$
|
311
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
1,479
|
|
Internal
|
10
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
(26)
|
|
|
—
|
|
Total service revenues
|
807
|
|
|
379
|
|
|
311
|
|
|
—
|
|
|
8
|
|
|
(26)
|
|
|
1,479
|
|
Total service revenues – commodity consideration
|
6
|
|
|
2
|
|
|
32
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40
|
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
34
|
|
|
2
|
|
|
382
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
418
|
|
Internal
|
12
|
|
|
10
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
(35)
|
|
|
—
|
|
Total product sales
|
46
|
|
|
12
|
|
|
395
|
|
|
—
|
|
|
—
|
|
|
(35)
|
|
|
418
|
|
Net gain (loss) on commodity derivatives
|
—
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4)
|
|
Total revenues
|
$
|
859
|
|
|
$
|
393
|
|
|
$
|
734
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
(61)
|
|
|
$
|
1,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission & Gulf of Mexico
|
|
Northeast G&P
|
|
West
|
|
Sequent (1)
|
|
Other
|
|
Eliminations
|
|
Total
|
|
(Millions)
|
Nine Months Ended September 30, 2021
|
Segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
$
|
2,445
|
|
|
$
|
1,101
|
|
|
$
|
859
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
4,418
|
|
Internal
|
48
|
|
|
29
|
|
|
28
|
|
|
—
|
|
|
10
|
|
|
(115)
|
|
|
—
|
|
Total service revenues
|
2,493
|
|
|
1,130
|
|
|
887
|
|
|
—
|
|
|
23
|
|
|
(115)
|
|
|
4,418
|
|
Total service revenues – commodity consideration
|
34
|
|
|
4
|
|
|
126
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
141
|
|
|
11
|
|
|
2,885
|
|
|
70
|
|
|
122
|
|
|
—
|
|
|
3,229
|
|
Internal
|
81
|
|
|
64
|
|
|
98
|
|
|
(16)
|
|
|
94
|
|
|
(321)
|
|
|
—
|
|
Total product sales
|
222
|
|
|
75
|
|
|
2,983
|
|
|
54
|
|
|
216
|
|
|
(321)
|
|
|
3,229
|
|
Net gain (loss) on commodity derivatives
|
—
|
|
|
—
|
|
|
(93)
|
|
|
(322)
|
|
|
(26)
|
|
|
—
|
|
|
(441)
|
|
Total revenues
|
$
|
2,749
|
|
|
$
|
1,209
|
|
|
$
|
3,903
|
|
|
$
|
(268)
|
|
|
$
|
213
|
|
|
$
|
(436)
|
|
|
$
|
7,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
Segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
$
|
2,394
|
|
|
$
|
1,052
|
|
|
$
|
938
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
4,399
|
|
Internal
|
37
|
|
|
39
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
(86)
|
|
|
—
|
|
Total service revenues
|
2,431
|
|
|
1,091
|
|
|
938
|
|
|
—
|
|
|
25
|
|
|
(86)
|
|
|
4,399
|
|
Total service revenues – commodity consideration
|
14
|
|
|
5
|
|
|
74
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
93
|
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
104
|
|
|
17
|
|
|
1,018
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,139
|
|
Internal
|
30
|
|
|
25
|
|
|
39
|
|
|
—
|
|
|
—
|
|
|
(94)
|
|
|
—
|
|
Total product sales
|
134
|
|
|
42
|
|
|
1,057
|
|
|
—
|
|
|
—
|
|
|
(94)
|
|
|
1,139
|
|
Net gain (loss) on commodity derivatives
|
—
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4)
|
|
Total revenues
|
$
|
2,579
|
|
|
$
|
1,138
|
|
|
$
|
2,065
|
|
|
$
|
—
|
|
|
$
|
25
|
|
|
$
|
(180)
|
|
|
$
|
5,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (2)
|
$
|
20,095
|
|
|
$
|
14,249
|
|
|
$
|
10,718
|
|
|
$
|
1,357
|
|
|
$
|
1,681
|
|
|
$
|
(2,115)
|
|
|
$
|
45,985
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
19,110
|
|
|
$
|
14,569
|
|
|
$
|
10,558
|
|
|
$
|
—
|
|
|
$
|
927
|
|
|
$
|
(999)
|
|
|
$
|
44,165
|
|
______________
(1) Sequent nets revenues from marketing and trading activities with the associated costs. Sequent records transactions that qualify as derivatives at fair value with changes in fair value recognized in earnings in the period of change and characterized as unrealized gains or losses. Gains and losses on derivatives held for energy trading purposes are presented on a net basis in revenue.
(2) The increase at our Other segment is primarily due to the acquisitions of oil and gas properties in 2021. In February 2021, we acquired properties in the Wamsutter field in Wyoming from a supermajor oil and gas
company for approximately $79 million, a portion of which was paid in the prior year. We recorded $290 million of property, plant, and equipment and $207 million of ARO related to this transaction. In June 2021, we acquired additional properties also in the Wamsutter field in Wyoming from an oil and gas company for approximately $86 million in cash, which is net of approximately $48 million reflecting the full settlement of outstanding receivables. We recorded $257 million of property, plant, and equipment and $125 million of ARO related to this transaction. Our oil and gas exploration and production activities are accounted for under the successful efforts method.
The following table reflects the reconciliation of Modified EBITDA to Net income (loss) as reported in the Consolidated Statement of Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
(Millions)
|
Modified EBITDA by segment:
|
|
|
|
|
|
|
|
Transmission & Gulf of Mexico
|
$
|
630
|
|
|
$
|
616
|
|
|
$
|
1,936
|
|
|
$
|
1,893
|
|
Northeast G&P
|
442
|
|
|
387
|
|
|
1,253
|
|
|
1,126
|
|
West
|
276
|
|
|
247
|
|
|
822
|
|
|
715
|
|
Sequent
|
(281)
|
|
|
—
|
|
|
(281)
|
|
|
—
|
|
Other
|
38
|
|
|
(7)
|
|
|
91
|
|
|
8
|
|
|
1,105
|
|
|
1,243
|
|
|
3,821
|
|
|
3,742
|
|
Accretion expense associated with asset retirement obligations for nonregulated operations
|
(12)
|
|
|
(10)
|
|
|
(33)
|
|
|
(27)
|
|
Depreciation and amortization expenses
|
(487)
|
|
|
(426)
|
|
|
(1,388)
|
|
|
(1,285)
|
|
Impairment of goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
(187)
|
|
Equity earnings (losses)
|
157
|
|
|
106
|
|
|
423
|
|
|
236
|
|
Impairment of equity-method investments
|
—
|
|
|
—
|
|
|
—
|
|
|
(938)
|
|
Other investing income (loss) – net
|
2
|
|
|
2
|
|
|
6
|
|
|
6
|
|
Proportional Modified EBITDA of equity-method investments
|
(247)
|
|
|
(189)
|
|
|
(702)
|
|
|
(573)
|
|
Interest expense
|
(292)
|
|
|
(292)
|
|
|
(884)
|
|
|
(882)
|
|
(Provision) benefit for income taxes
|
(53)
|
|
|
(111)
|
|
|
(313)
|
|
|
(24)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
173
|
|
|
$
|
323
|
|
|
$
|
930
|
|
|
$
|
68
|
|