Williams (NYSE: WMB) is a FORTUNE 500 investment
grade corporation and a leader in clean energy infrastructure.
Williams handles 30% of the country’s natural gas, and it owns and
operates infrastructure that safely and reliably delivers the
natural gas that is used every day to affordably heat our homes,
cook our food and generate our electricity. As the world moves to a
low-carbon future, Williams is well-positioned to leverage its
natural gas-focused strategy while continuing to deliver
consistently stable returns for shareholders. With operations
across the natural gas value chain spanning the United States,
Williams is one of the largest natural gas providers to the growing
global market for liquefied natural gas (LNG) exports.
Advisor Access spoke with Williams’ president and
CEO, Alan Armstrong, about the company’s
business strategy, plans for future growth, financial strength and
focus on environmental, social and governance (ESG) matters.
Advisor Access: Can
you tell us a bit about Williams’ business model?
Armstrong: At Williams, our
vision is to provide the best transport, storage and delivery
solutions for reliable, low-cost, low-carbon energy. Our midstream
assets serve critical demand sectors, such as residential and
commercial natural gas utilities, power generation, industrial
facilities and LNG exports.
Our strategy is primarily driven by natural gas
demand. Most of our customer contracts involve either fee-based
earnings or long-term take-or-pay commitments for transmission
pipeline capacity, which creates reliable and stable earnings. We
are well-protected from downside risk presented by fluctuating
commodity prices and rising inflation, yet we are well-positioned
to capture upside exposure in a strong natural gas environment.
We have the largest natural gas focused portfolio
among U.S. midstream competitors, and our intense focus on our
natural gas-based strategy has built a business that is steady and
predictable with continued growth, improving returns and free cash
flows.
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AA: Why is a natural
gas focused strategy so important to you?
Armstrong: We continue to believe
in the importance of natural gas to serve growing demand for
low-carbon energy across the world, and we see a robust demand
outlook ahead that underpins our growth strategy. Natural gas has
been, and will continue to be, a cornerstone of our nation’s
prosperity in the 21st century as it has driven significant
reductions in U.S. CO2 emissions, lowered consumers’ utility bills
and paved the way for investment in renewables.2 Natural gas is
affordable, reliable and has a cleaner emissions profile than other
traditional energy sources making it a key fuel choice to meet
future energy demand around the world.
AA: Williams has an
expansive footprint, and it is well-positioned to capture growing
natural gas demand. Can you tell us a bit about your company’s
growth outlook?
Armstrong: Our natural gas
transmission pipelines are ideally positioned near densely
populated areas and along U.S. Gulf Coast LNG export facilities.
This strategic positioning provides us with opportunities to
benefit from both domestic and international natural gas demand
growth. As of May 2022, we are executing on six unique transmission
expansion projects totaling 1.9 billion cubic feet/day (Bcf/d) and
are pursuing a backlog of an additional ~25 unique transmission
project opportunities totaling 10 Bcf/d. Through strong project
execution, we continue to bring projects on line, moving backlog
projects into execution, and backfilling this backlog with
additional opportunities. This is evidenced by the fact that our
contracted capacity has more than doubled since 2005, reaching
~24.4 Bcf/d in the first quarter of 2022.
Speaking to international natural gas demand, LNG
exports currently present the largest natural gas demand growth
outlook in the United States as volumes are expected to more than
double through 2035.3 Importantly, all the approved U.S. LNG export
facilities are located within our pipeline corridor, creating
additional opportunities for expansions on our Transco
pipeline.
In addition to increased opportunities for
transmission pipelines to meet growing demand, we also see a growth
trajectory for our Gathering and Processing (G&P) and Deepwater
Gulf of Mexico businesses. In our G&P business, we are active
in 14 geographically diverse supply areas led in scale by
Appalachia, the largest and most economic U.S. natural gas basin.
Since 2005, our gathering volumes increased over 4x, reaching ~15.1
Bcf/d in the first quarter of 2022. We have an unmatched
competitive position in the Deepwater Gulf of Mexico and are seeing
continued drilling activity near our infrastructure. We are also
executing on six deepwater expansion projects that are expected to
approximately double Deepwater Gulf of Mexico annualized Adjusted
EBITDA by 2025. The robust natural gas demand outlook we see today
will drive additional volumes through our G&P and Deepwater
Gulf of Mexico assets.
AA: Williams has continued to strengthen
its balance sheet while increasing earnings. Given your strong
financial position, how do you plan to return value to
shareholders?
Armstrong: In 2021, we achieved
our long-term leverage ratio target, and consequently, received
improved credit ratings. This was driven by record earnings and
annual Adjusted EBITDA growth for the 9th consecutive year. Given
our healthy balance sheet, financial flexibility and excess cash
flow generation, we recently announced the following capital
allocation priorities:
- Balance Sheet Strength: Protect our investment-grade credit
ratings
- Dividends: Preserve the dividend and increase annually in line
with EBITDA growth
- Reinvest: Invest capital toward traditional gathering,
processing and transmission growth projects with high returns
- Emissions Reduction Program and Renewables: Invest in our
emissions reduction projects while generating a regulated return,
and allocate capital toward New Energy Ventures
- Financial Flexibility: Allocate excess cash toward lowering
debt, stock buybacks and/or strategic acquisitions
AA: Williams has paid a quarterly dividend
since 1974. Can you discuss why the dividend is important to
Williams? How would you describe your dividend policy to
shareholders?
Armstrong: Williams is committed
to delivering shareholder value. Our long-standing dividend
commitment remains important to Williams’ executive management and
Board of Directors. It is top of our capital allocation priorities
list, along with maintaining investment-grade credit ratings. When
looking forward to our 2022 dividend expectations, we plan to pay
an annualized dividend of $1.70 per share, an increase of 4% over
2021, pending Board approval. Our current dividend policy is to
continue to grow the dividend in pace with annual EBITDA growth,
while maintaining strong dividend coverage. Our 2022 dividend
coverage ratio expectation is 2.22x. I’ll also point out that a
portion of our quarterly distributions may be considered return of
capital for tax purposes. Additional information regarding return
of capital distributions is available on Williams’ Investor
Relations website.
AA: Williams was the first North American
midstream company to set aggressive climate targets, and it is at
the forefront of the transition to a low-carbon fuel future. Can
you explain your emissions reduction goal and how you plan to get
there?
Armstrong: In 2020, we announced
our climate commitment, setting a 2030 goal to reduce our
company-wide scope 1 and scope 2 greenhouse gas emissions on an
absolute basis by 56%, based on our 2005 levels. So far, we have
made a 47% absolute reduction in our emissions, so we are well on
our way to meeting our goal. By setting a near-term goal for 2030,
we plan to leverage our natural gas-focused strategy and technology
that is available today to reduce emissions, scale renewables and
build a clean energy economy. Our 2030 goal puts us on a trajectory
for net zero carbon emissions by 2050. We are exploring and
investing in next generation technologies including hydrogen and
carbon capture and storage, and we are leaning into solar and
battery technology to help power our own operations. We are excited
to continue to show how natural gas infrastructure complements
renewables, and to invest in new energy ventures that will keep
Williams at the forefront of technological changes within the
midstream natural gas industry. For more information, please visit
our climate commitment.
AA: What makes Williams a unique
investment opportunity?
Armstrong: We are uniquely
positioned with exceptional financial strength, flexibility and
growth opportunities. Williams remains steadfast in creating
long-term shareholder value by maintaining a healthy balance sheet,
executing on growth opportunities and protecting the viability of
our dividend. Our expansive footprint of energy infrastructure and
robust natural gas demand outlook creates ample growth
opportunities. We will continue to advance a sustainable, long-term
strategy to assure that we remain a relevant player in the energy
landscape for years to come.
AA: Thank you, Alan.
1 Midpoint of our updated 2022 Guidance, issued on
May 2nd, 2022 2 Statements based on EIA data 3 Source: Wood
Mackenzie March 2022 NAGS forecast 4 As of February 2022. Source:
Data based off 2020 Census estimates
Disclosures
This document contains non-GAAP financial
measures, including Adjusted EBITDA and Adjusted Earnings per
Share. These non-GAAP financial measures should not be considered
in isolation or as substitutes for a measure of performance
prepared in accordance with United States generally accepted
accounting principles (GAAP). For a full reconciliation of the
2018-2021 non-GAAP financial measures to their nearest GAAP
financial measures, please see our 2022 Analyst Presentation, dated
02/22/22. For a full reconciliation of the 2022 financial
guidance, please see our first-quarter 2022 earnings press release,
dated 05/02/22. Both can be found under the Investor Relations
tab of our website.
This document may contain or incorporate by
reference statements that do not directly or exclusively relate to
historical facts. Such statements are “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as
amended (Securities Act), and Section 21E of the Securities
Exchange Act of 1934, as amended (Exchange Act). These
forward-looking statements relate to anticipated financial
performance, management’s plans and objectives for future
operations, business prospects, outcome of regulatory proceedings,
market conditions, and other matters. We make these forward-looking
statements in reliance on the safe harbor protections provided
under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on numerous assumptions,
uncertainties, and risks that could cause future events or results
to be materially different from those stated or implied in this
document. Many of the factors that will determine these results are
beyond our ability to control or predict. Given the uncertainties
and risk factors that could cause our actual results to differ
materially from those contained in any forward-looking statement,
we caution investors not to unduly rely on our forward-looking
statements. We disclaim any obligations to and do not intend to
update the policy list of specific factors that could cause actual
results to differ from results contemplated by the forward-looking
statements. Nor do we intend to announce publicly the result of any
revisions to any of the forward-looking statements to reflect
future events or developments. For a detailed discussion of our
forward-looking statements and other risk factors that may cause
actual result to differ materially from those contained in
forward-looking statements, please see our most recent annual
report on Form 10-K filed with the SEC as updated in reports filed
with the SEC, which are located under the Investor Relations tab of
our website. Williams has paid Advisor Access a fee to distribute
this press release. Williams had final approval of the content, and
Advisor Access is not responsible for any reliance on the
statements contained herein.
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