Williams Companies Inc

NYSE:WMB

Earnings Call Transcript 2023-Q1

[Operator]

Good day, everyone and welcome to the Williams First Quarter 2023 Earnings Conference Call. Today’s conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Danilo Juvane, Vice President of Investor Relations and ESG. Please go ahead.

[Danilo Juvane, Vice President, Investor Relations]

Thanks, Abby and good morning everyone. Thank you for joining us and for your interest in The Williams Companies. Yesterday afternoon, we have released our earnings press release and the presentation that our President and CEO, Alan Armstrong and the Chief Financial Officer, John Porter, will speak to this morning. Also joining us on the call today are Michael Dunn, our Chief Operating Officer; Lane Wilson, our General Counsel; and Chad Zamarin, our Executive Vice President of Corporate Strategic Development.

In our presentation materials, you will find a disclaimer related to forward-looking statements. This disclaimer is important and integral to our remarks and you should review it. Also included in the presentation materials are non-GAAP measures that we reconcile to generally accepted accounting principles. And these reconciliation schedules appear at the back of today’s presentation materials.

So with that, I will turn it over to Alan Armstrong.

[Alan Armstrong, President and Chief Executive Officer]

Thanks, Danilo and thank you all for joining us today. Our natural gas-focused strategy continues to deliver steady predictable growth and this past year was no exception – sorry, this past quarter was no exception with our adjusted EBITDA, up nearly 20% compared to the first quarter of ‘22. And let me remind you that last year was a record year for growth as well when we were up 14% on an annual basis, so really a big quarter for us on a tough comp.

We saw strong performance across all key financial metrics in the first quarter and set new records in our key operational stats as well, once again demonstrating our businesses’ resiliency through commodity price swings. But beyond this obvious financial performance in the headlines, please don’t miss the importance of the accomplishments in this past quarter that will serve to produce growth in ‘24 and beyond.

So let me start out here on Slide 2 by highlighting a few of these accomplishments that will continue to drive what has now been over 10 years of consistent year-over-year EBITDA growth. First, we closed the acquisition of the MountainWest Natural Gas Transmission and Storage business, well ahead of our expectations. This acquisition enhances our position in the Western U.S. and expands our services to key Rockies markets. We are really happy with how the integration of MountainWest and The Williams has been progressing since we closed in February. And in fact, we are already seeing several expansion opportunities that were not in our pro forma, proving this asset is best positioned to be optimized within The Williams platform.

Our team also accelerated the timing on key deliverables for several other fixed fee-based projects that are all supported by long-term contracts. This includes our Louisiana Energy Gateway project, Transco’s Southeast Energy Connector and Transco’s Regional Energy Access project. In fact, project execution is now in full swing on both Regional Energy Access and Louisiana Energy Gateway. And as a result of the quick action by the FERC and our construction teams, we now expect to bring approximately half of this regional energy access capacity into service ahead of schedule and actually in the fourth quarter of this year. So, that will be just in time to meet growing demand in the Northeast region ahead of the winter heating season. Of course, this will also provide new market for producers on our Northeast Pennsylvania gathering systems, which of course is incremental to the returns on a project like that.

We also executed several key agreements with Chevron to facilitate natural gas production growth in the Haynesville and the deepwater Gulf of Mexico. As part of those agreements, we gained a large dedication to our recently acquired Trace gathering system and a long-term capacity commitment on our Louisiana Energy Gateway project. This is a great example of Williams and Chevron working together to connect prolific domestic resources to expanding LNG export markets.

We also placed several large-scale gathering expansion into service this quarter. The Marcellus South gathering expansion in Southwest Appalachia increased our capacity by 100 million cubic feet per day from rich gas supplies in this area and significant progress was also made on our build-out of the new and fully contracted capacity on our Susquehanna County gathering system in Northeast PA. We also added 100 million cubic feet per day of capacity this quarter as part of the second phase of our Haynesville Spring Ridge expansion. And we saw first flow for the Taggart expansion project in the deepwater Gulf of Mexico across our Devils Tower platform. Importantly, this is the first of five significant expansion projects that are expected to come online over the next 2 years and that will ultimately double our Gulf of Mexico earnings contributions.

Finally, I will add that we are moving forward on a number of projects in our backlog and our visibility to growth on the transmission side of the business is as good as we have seen it. From a financial perspective, the strength of our assets across all areas is reflected in our solid first quarter results and in fact, our base business produced record contracted transmission capacity and record gathering volumes even after we exclude the contributions from acquisitions. The one underperforming area was in NGL processing margins, but more about this in a moment.

Importantly, this was a quarter in which we saw Sequent fully optimized assets in our base business, underscoring the balance and improved commercial competencies that the Sequent acquisition has delivered for the benefit of our natural gas strategy. So for example, in the Northeast, we benefited from record gathering volumes and significantly outperformed the broader Marcellus production trends as Sequent provided takeaway markets uniquely for our producing customers in Ohio. In the transmission and Gulf of Mexico segment, we realized higher short-term firm sales on our pipes as Sequent helped to commercialize more business in that area as well and now back to the big variance in our processing margins.

In the West, our NGL processing margins on the legacy Williams business were actually negative due to abnormally high natural gas prices at Opal and really throughout everything west of Opal. Normally, this would have shown up as a significant negative issue for the quarter. However, Sequent was able to capitalize on these large natural gas basis spreads in the West and more than offset the negative NGL margins turning this volatility into a net positive for Williams.

Our acquisitions continue to deliver as expected proving that our capital allocation strategy to fund these transactions with excess Sequent and E&P cash flows is setting us up for continued reliable and predictable earnings growth. I’d also note that as the market continues to underappreciate and undervalue the strength and resilience of our business, we stand ready to utilize our repurchase program as we did during this first quarter. So overall, a great quarter that has us set up for growth in ‘24 and beyond.

And with that, John will walk us through the financial metrics for the quarter. John?

[John Porter, Chief Financial Officer]

Thanks, Alan. Starting here on Slide 4 with a summary of our year-over-year financial performance, beginning with adjusted EBITDA, we saw a 19% year-over-year increase. As we will see on the next slide, our adjusted EBITDA growth included growth of over $100 million from our core large-scale natural gas transmission and gathering and processing businesses, including new records for both gathering and contracted transmission capacity. But it also included strong performance from our Sequent gas marketing business, which dramatically overcame a perfect storm of severe winter weather impacts on our Wyoming businesses. Those Wyoming impacts included hits to both upstream and gathering and processing volumes as well as our Southwest Wyoming gas processing margins which were much lower from a surge in January shrink replacement gas price.

Our adjusted EPS increased 37% for the quarter, continuing the strong growth we have had in EPS over the last many years. Available funds from operations, AFFO growth was even better than adjusted EBITDA at 22% year-over-year. Also, you see our dividend coverage based on AFFO was a very strong 2.65x on a dividend that grew 5.3% over the prior year.

Our balance sheet continues to strengthen with debt to adjusted EBITDA now reaching 3.57x versus last year’s 3.81x. And that’s even after closing the trade, NorTex and MountainWest acquisitions and also repurchasing $83 million of shares since last year. On growth CapEx, you see an increase over first quarter last year primarily reflecting the progress we are making on some of our key growth projects, including Regional Energy Access and Louisiana Energy Gateway.

So before we move to the next slide and dig a little deeper into our adjusted EBITDA results for the quarter, we will provide a few updates to our 2023 financial guidance. No change to our consolidated adjusted EBITDA guidance of $6.4 billion to $6.8 billion or any of our other consolidated financial performance metrics. Looking further into the year, our core transmission and gathering and processing businesses should see some additional growth from the first quarter level.

For transmission in Gulf of Mexico, we will see some ramp from a full quarter of MountainWest Pipeline and some other smaller sequential improvements through the rest of the year that should allow for a strong finish to the year. In the Northeast, we are expecting a modest increase towards the end of the year from the first quarter EBITDA level, primarily from our higher margin liquids-rich systems. Overall though, we are not counting on a lot of additional growth in the Northeast from this $470 million first quarter level, which was up 12% over the prior year. In the West, we are expecting some modest increases through the remainder of the year from the $286 million first quarter level, especially reflecting improvement from some of the challenges we saw in the first quarter, which we will discuss further on the next slide.

For the marketing business, we have had a strong overall start to 2023. And importantly, hitting the midpoint of our guidance doesn’t rely on any additional EBITDA from Sequent at this point. With respect to the upstream joint venture EBITDA guidance, it’s been a tough start to our Wyoming operation with the extremely difficult winter weather that significantly impacted producing volume and our drilling plans. So we see this business likely trending towards the lower half of the $230 million to $430 million guidance range. But to be clear, for our consolidated adjusted EBITDA, we are still focused on hitting at least the midpoint of our guidance range at $6.6 billion. We are increasing our growth CapEx by $200 million to reflect the acceleration of our largest Transco project, Regional Energy Access, which we hope to bring into partial service later this year, early partial in-service for regional energy access won’t have a huge impact on 2023 and is really just upside to our hitting the midpoint of our guidance for EBITDA.

So, let’s turn to the next slide and take a little closer look at the first quarter results. Again, the first quarter matched our expectations for a very strong start to the year with 19% growth over the prior year. Walking now from last year’s $1.512 billion to this year’s record $1.795 billion, we start with our upstream joint venture operations that are included in our other segment, which were up only $3 million over last year.

Our Haynesville upstream EBITDA was up about $32 million as there was really very little production in the first quarter of last year. However, the Haynesville increase was offset by lower Wamsutter results due primarily to the historically difficult winter weather we saw in Wyoming this year. In fact, we estimate overall weather-impacted volumes during the first quarter were probably about 3.5x what we normally expect. And of course that impact flowed through to our Wamsutter gathering and processing assets as well.

Shifting now to our core business performance, our transmission in Gulf of Mexico business improved $31 million or 4% due primarily from the partial contribution from the MountainWest Pipeline acquisition, which closed on February 14 and a full quarter from the NorTex acquisition. Our Northeast Gathering and Processing business performed very well with a $52 million or 12% increase driven by $73 million increase in service revenue. This revenue increase was fueled by 7% increase in total volumes in the Northeast focused in our liquids-rich areas, where we tend to have higher per unit margins than our dry gas areas. And in the appendix, you will find a slide that compares our 7% volume growth to the overall basin growth of just under 2%.

Shifting now to the West, which increased $26 million or 10%, benefiting from positive hedge results and a full quarter of the Trace acquisition, but the West was significantly unfavorably impacted by the severe Wyoming weather and January processing economics at our Opal Wyoming processing plants. Overall, gas processing margins were $44 million lower this year than last and that was largely a January phenomenon. All in, the West was about 3% short of our plan, although the winter weather impact was much worse than we had planned.

And then you see the $165 million increase in our gas and NGL marketing business. And at our Analyst Day, we did point to a strong start to the year for this business due to the economics that we saw around our year end Sequent transportation and storage positions. Ultimately, the $231 million for gas marketing was driven by positive transportation margins across all regions and strong storage margins that benefited from the lower cost or market write-down we discussed in the fourth quarter review. So again, a strong start to 2023 with 19% growth in EBITDA, driven by core infrastructure business performance with strength from our marketing business that dramatically overcame weaker-than-expected results from the upstream joint ventures.

And with that, I will turn it back to Alan.

[Alan Armstrong, President and Chief Executive Officer]

Great. Well, thanks, John. And so, now just a few closing remarks before we turn it over to your questions. First, I will start by reiterating our belief that Williams remains a compelling investment opportunity. We are the most natural gas-centric large-scale midstream company around today and the integrated nature of our business from our best-in-class long-haul pipes to our formidable gathering assets and our value-driving Sequent platform is unique.

Our combination of proven resilience, a 5-year EPS CAGR of 23%, coverage that is now approaching 3x on our high growth dividend, a strong balance sheet and high visibility to growth is unique amongst the S&P 500 and unique within our sector. I will add that there is a reason we have stuck with our natural gas-focused strategy for as long as we have. This strategy allowed us to produce a 10-year track record of growing adjusted EBITDA through a large number of commodity and economic cycles and is continuing to deliver significant growth in the current environment, but the signals coming from the market show that it is going to continue to deliver substantial growth for the long-term as well. Natural gas demand continues to build, and the recent low prices actually will drive even more growth in demand over the long-term as the combination of low price, low emissions and energy security is exactly what the world will need more of. U.S. natural gas infrastructure is key to meeting both today’s energy demand as well as projected growth of electrification and renewables build out in the future.

Natural gas is the solution for the most complex challenge of our time, producing affordable and reliable energy while meeting our climate goals and the United States is positioned better than any other country on this front. But access to our abundant and low cost natural gas reserves is dependent on having the appropriate infrastructure to move energy when and where it is needed and we are seeing and feeling today the impacts of inadequate infrastructure with consumers bearing the brunt of these actions in the form of high utility bills, unnecessary blackouts and energy-driven inflation.

The good news is that we have a solution that is readily available, a solution that will support global emission reductions, keep energy cost affordable and grow our nation’s competitiveness. Enabling this efficient, unobstructed build-out of our nation’s energy infrastructure to ensure delivery of natural gas is foundational to the U.S.’ leadership on greenhouse gas emission reduction and energy security. And we at Williams will proudly continue our efforts to strongly advocate for actionable energy policy solutions and permitting reform in the days and months ahead.

So with that, I will open it up for your questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Brian Reynolds from UBS. Your line is open.

[Brian Reynolds, UBS]

Hi, good morning everyone. John, appreciate the color in the prepared remarks on being able to hit your guidance with the base business without marketing. That said marketing clearly showcased a really strong results for the quarter. And while I know the segment is volatile. I was curious if you guys could provide perhaps an updated view on maybe an annualized EBITDA run-rate for the marketing segment, just given the recent acquisitions of NorTex and MountainWest? Thanks.

[John Porter, Chief Financial Officer]

Yes. Thanks, Brian. We certainly have seen that since we bought Sequent back in about 18 months ago or coming up on 2 years ago, Sequent has a great ability to capitalize on natural gas price volatility, but also doing that using a low-risk business model. I would say though that we are really not ready to take the $50 million to $70 million long-term run rate that we have talked about before up at this point. Some of these positions that they utilize are more short-term in nature, especially the storage positions. And again, we would emphasize that a big reason they have been able to do as well as they have has just been the historically high natural gas price volatility, especially what we saw last year through the summer months and also in the fourth quarter. So those are a couple of reasons that we would like to stick with the $50 million to $70 million long-term run-rate. However, as I mentioned in my commentary, I forecast – our current forecast does show that we do not need any additional EBITDA from Sequent this year to make the midpoint of our guidance. And as I also mentioned, the favorable results really did show in the first quarter how Sequent was able to counter the unfavorable results we saw in our gas processing margins and some of the other things that we saw in the Upstream and Wamsutter gathering and processing EBITDA.

[Brian Reynolds, UBS]

Great. Thanks. Appreciate all that. Maybe just a follow-up on the nat gas macro, Williams has highlighted that I can continue to show base business growth in a low nat gas environment. So kind of I was wondering if you could perhaps discuss two sides of the coin. One, how low nat gas prices are supporting increased demand for transmission projects in that 2025 plus timeframe? And then second, near-term, how could low nat gas prices kind of impact some volumetric headwinds on the G&P side of the business over the next, call it, next 6 to 12 months? Thanks.

[Alan Armstrong, President and Chief Executive Officer]

Yes. Thanks, Brian. This is Alan. First of all, I think what we are seeing already, April numbers came out on power generation and power generation was already up about 2 Bcf a day on a previous 27 Bcf a day load for April of ‘22. So we are already seeing some pretty good pool based on price on natural gas in the power generation space. And I think we will continue if prices stay low like they are, I think we will continue to see that through the summer on the full side. So that’s a good thing for us just because obviously, the capacity demand will be important for us. I think on the – in terms of that impact on the G&P business, I think we’re certainly paying close attention to that. Many of our big producers are hedged out pretty well, and we’re seeing people continuing to produce through that. So don’t expect – we’re certainly not expecting growth on average across the space, to be clear, but we’re pretty fortunate to be in some of the lower-cost basins and with producers that have been managing this pretty well.

One of the areas that we’re really seeing continued growth is in the rich gas and some of the condensate areas in the Marcellus and the Utica areas, and so we’re fortunate to be pretty well exposed to that area as well. So I would just say, as always, we have such a wide variety of exposure across so many different basins that will whatever the demand pool is on natural gas, our volumes will reflect that and really excited this quarter to see our Sequent team, it’s been a strategy of ours for our Sequent team to go out and provide market and preferentially to our gathering customers in places like the Marcellus because obviously, there is value for our gas moving over the top of other gas in the basin. And so certainly, our Sequent team has shown their ability in that area and we’re excited to see that. So I would just say we’re – I’d say on the macro side, it certainly see an oversupply situation. Supply grew almost 6 Bcf in first quarter of 23% versus first quarter of 22%. So supply side is certainly continuing to grow a lot faster than demand and obviously that means lower prices. But I do think we will see a pretty big response from power generation this summer as we’re already seeing here – as we already saw in April.

[Brian Reynolds, UBS]

Great. Appreciate all the color. I will leave it there. Thanks.

[Operator]

Your next question comes from the line of Jeremy Tonet from JP Morgan. Your line is open.

[Jeremy Tonet, JP Morgan]

Hi, good morning.

[Alan Armstrong, President and Chief Executive Officer]

Good morning, Jeremy.

[Jeremy Tonet, JP Morgan]

Just wanted to kind of switch to natural gas and exports, LNG, if I could. Just wondering your wellhead to export strategy at this point. So the Sempra HOA and just wondering if you could expand a bit there. I guess, what your vision is for that dynamic? And how big could that be over time?

[Chad Zamarin]

Yes. Thanks, Jeremy. This is Chad Zamarin. We continue to advance our wellhead water strategy since our Analyst Day update. And I’ll start by saying you referenced the Sempra HOA. I mean we think very highly of the Sempra team and have continued to engage with Sempra following the non-binding HOA we announced last year. But we’ve also been evaluating a number of competing opportunities as well. We’ve been spending a lot of time with our producer customers as well as with international LNG buyers, and we’re seeing really positive strong interest in both producers wanting access to international prices and international LNG buyers wanting access to domestic producers so they can buy LNG from U.S. supplies at international prices.

And so we think we provide a unique solution. We haven’t finalize the definitive agreement yet, but we continue to build confidence around our ability to add LNG as an extension of our natural gas value chain in a way it will provide for fixed margins for Williams while shifting that international price exposure to producers and LNG buyers. And so I would just say that we continue to prove up the strategy. We feel really good and feel like we’re making great positive strides. And I think we’d expect to finalize a definitive arrangement with Sempra or with an alternative LNG partner sometime here in the near-term 2023.

[Jeremy Tonet, JP Morgan]

Got it. That’s helpful there. Thanks. And I just wanted to kind of shift to REA in the partial and service this winter. Just wondering how you think about timing there? Maybe it’s not much of a 23% EBITDA contribution, but any thoughts and really, I also want to see on the Northeast G&P, does that kind of unlock growth there? Or do you think producers might be timing production with when that comes online and just wondering how much EBITDA uplift could you see in the Northeast GMP associated with REA unlocking incremental capacity there?

[Michael Dunn, Chief Operating Officer]

Hey, good morning, Jeremy, this is Michael. Yes, I would just, first of all, I want to thank our project execution team for doing a tremendous job being prepared to start construction on that project. It’s a challenging permitting environment, especially in the Northeast right now, and the team designed this project so that it could be permitted and we really got through that process fairly quickly there. Ultimately, and the team was certainly prepared to the tree-clearing window that was closing very rapidly post FERC certificate issuance and really pleased that we got that tree-clearing done early, and we’ve actually fully mobilized contractors for the pipeline loop installations.

So we do expect a partial in service by the fourth quarter of 2023. So there will be a contribution to 2023 EBITDA. We’re not predicting the actual in-service date of that yet, but it will be before year-end. And I do think that will translate to some opportunities in the gathering business as well upstream. The producers have been awaiting this additional capacity to be unlocked in the Northeast. And we are certainly pocketing those producer customers up there to be anticipating when this project will come online. But I do think it will provide additional value in ‘24 as well, and I think that’s really where we’re going to see the additional uplift on the gathering business, certainly not only on the Transco side. Really pleased with how it’s gone so far, and we will keep you updated as we progress with the construction through the summer.

[Jeremy Tonet, JP Morgan]

Got it. That’s helpful. I will leave it there. Thanks.

[Operator]

Your next question comes from the line of Marc Solecitto from Barclays. Your line is open.

[Marc Solecitto, Barclays]

Hi, good morning. Could you maybe help us unpack the weather impacts that affected the West segment during the quarter, particularly on the volume and cost side and maybe the underlying trajectory of that business through the course of the year?

[John Porter, Chief Financial Officer]

Yes, Marc, I’ll take that on. Michael can add any color. I think break it down into a couple of different areas. One, we’ve talked quite a bit about the impact of the NGL margins, which is pretty clear. If you look at the analyst package on the appendix to the press release, NGL margins were $44 million lower year-over-year. So that’s a pretty good go by in terms of the impact there. Almost all of that decrease in NGL margins happened at the Opal processing plant and almost all of that was related to the historically high shrink cost that we had in January of this year where natural gas prices were in the $50 a dekatherm range. And since then, we’ve seen that come way back down into something much more normal like $2.50. As far as the rest of the impact, if you kind of look at the sum of what happened in the upstream JV part of the business at Wamsutter plus the Wamsutter gathering and processing impact. Some of those two were about $70 million lower than our planned expectations for the first quarter. So again, between those two, about a $70 million impact, yes, we saw – I think one of the things we looked at said that we saw probably about 12 Bcf of impacted volumes for the whole first quarter, whereas in a normal year, that might be a little bit more than 3 Bcf. So just very historic conditions out there and the recovery is ongoing. It’s – now we’ve transitioned to high rivers and muddy roads but the recovery is happening and volumes are being restored and margins are returning to a more normalized level. So expect quite a bit of improvement there when we get to the second quarter versus what we saw in the first quarter.

[Marc Solecitto, Barclays]

Got it. That was very helpful. And in terms of the domestic demand outlook in the medium to longer-term, there is obviously a lot of focus on the incremental LNG export capacity expected to come online over the next few years. But also curious to get your take on domestic industrial demand outlook in the U.S. with potential onshore and just given everything going on geopolitically?

[Alan Armstrong, President and Chief Executive Officer]

Yes. Thanks for that good question. I think really, if you break that down, the areas that are going to be driven. Obviously, anything that is heavy gas use is coming home. If we’re going to be – we are the major exporter and will be the growing larger exporter. It means we’ve got the lowest price natural gas around the world likely, and that will bring the industry here, like fertilizer business, obviously, is a big piece that been picking up pretty significantly from that, but a lot of other industries that are heavy natural gas users will continue to be domiciled here in the U.S. So that, I think, is fairly certain. I think in terms of how much that is, it will probably be pretty small in comparison to the LNG growth that we’re seeing. And it’s pretty impressive right now to look at the amount of NGL growth I think right now, there is about 23 Bcf of new expected on by 2032. And that’s up against a ‘22 number of about 10.9 Bcf a day. So, a lot of growth coming in that space. The other area, as I mentioned earlier, obviously, the power generation sector and for us, that’s kind of got two facets to it that I think sometimes the market misunderstands for us. First of all, certainly, when low gas prices are there, we will see that take out a lot of the baseload coal business that’s out there today. We’re already seeing that here in the shoulder, but we will certainly see it this summer. But in addition to that, from a Williams perspective, we sell the capacity. And so as you see more and more electrification occurring, it’s very clear that the utilities are going to be left with really no other alternative in gas-fired generation as a backup for that, and we are certainly seeing that in our discussions with our customers and a demand for that incremental capacity that’s available that we can uniquely provide into some of those markets.

And so that demand for capacity as opposed to volume is a really key thing to note from a Williams perspective because we’re not all that concerned about the annual average demand for natural gas as much as we are the capacity that has to be provided to back up renewables. And as you study electrification, that is really going to fall to the benefit of natural gas-fired generation and particularly to the infrastructure, both on the transmission and the storage side that can support that. And obviously, we continue with our MountainWest acquisition and with our expansions on the Transco system, our conversion of Washington storage and our purchase of NorTex storage last year. We are all about being in a position to serve that business and serve it well.

[Marc Solecitto, Barclays]

Got it. That’s very helpful. Appreciate the time.

[Operator]

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

[Praneeth Satish, Wells Fargo]

Thanks. Good morning. Just maybe a follow-up on Sequent, do you think at this point, Sequent is basically like a hedge against worsening gas prices? In other words, do you think Sequent could generate higher results if gas prices go lower and therefore, kind of offset some of the exposure you have to gas price on the E&P and G&P side?

[Alan Armstrong, President and Chief Executive Officer]

Yes. Well, I would just say where there is volatility, that’s where Sequent going to perform well and where there is basis dislocation that’s where they are going to perform because effectively, what we’re really monetizing with Sequent is we’re monetizing storage. So price movement from one period from a time-based period obviously drives value for us. as well as dislocation and basis differentials when we own the transportation between those locations. That’s really what drives value for Sequent. And so I would say that it’s pretty hard to forecast a period where we don’t see quite a bit of volatility in price as we’ve got a big growing demand for LNG looming on the horizon and people not being exactly certain when that’s going to be available. And certainly, the value of storage to serve those loads and to serve quick swing loads for renewables is definitely on the horizon.

And I think we will continue to cause volatility both from a time spread and both from a basis spread perspective. And so we’re pretty excited about the way that Sequent will perform in that. But what it wouldn’t protect from is if we were sitting here with a completely flat curve at both prices far out in the future, that’s the environment that it wouldn’t provide us any protection and to be clear. But as long as we’ve got basis spread and we’ve got time spread and value there, that’s where the Sequent team is going to perform well.

[Praneeth Satish, Wells Fargo]

Got it. And I was just wondering if you could comment on your JV with GeoSouthern and the outlook for production there with gas prices at these levels. I guess the futures curve is still pretty good. So is there still an intent to increase production to, I think it was a goal of 800 million cubic feet per day by 2025 or could the pace kind of moderate a bit until prices recover?

[Chad Zamarin]

Thanks. This is Chad. As of right now, that team is continuing to perform and performed exceptionally well. We’ve got great partnership with GeoSouthern. And right now, they are holding production based on the available midstream capacity. And as Alan mentioned, as you noted, the forward curve is constructive, so they intend to kind of keep that development pace going and we’re looking at kind of the gas macro coming into late ‘24, early ‘25 and seeing demand pick up. So I think there is a desire to want to be ready to make sure the volumes are there as the market continues to balance towards more demand. And so our expectation is that they’ll continue to keep pace with the midstream capacity. They work very closely. Again, the Sequent story, I mean we are working really hard to make sure they find good markets. And so we think also with the Louisiana Energy Gateway project and our ability to get the GeoSouthern volumes connected to really good markets that they’ll continue that growth that we’ve laid out.

[Praneeth Satish, Wells Fargo]

Got it. Thank you.

[Operator]

Your next question comes from the line of Gabe Moreen from Mizuho. Your line is open.

[Gabe Moreen, Mizuho]

Hi, good morning, everyone. Can I ask on a quick question on the share repurchases for the quarter? John, it looks like you beat the average price for the quarter quite nicely in the buybacks. Should we think about this still is pretty opportunistic and then the $75 billion figure is that about your bogey for what you think you can handle quarter in, quarter out at this point?

[John Porter, Chief Financial Officer]

Thanks for the question, Gabe. Obviously, financial performance continues to be really strong for the company, and the balance sheet is in great shape. Regarding the buybacks, really no change to the returns-based approach that we’re taking on the share repurchases, very similar to what we discussed at Analyst Day, we’re really looking at all of our investment opportunities that we have in the company and seeing that our lowest expected returns on capital investment in the business are really associated with our regulated rate base investments, principally through our emissions reduction program, which we’ve talked about being at that 11%, 12% return range. Obviously, this year, since the beginning of the year, we’ve seen a pretty sharp decline in our valuation as natural gas prices dropped. And we saw our dividend yield expand to 6%, even while we continue to have a lot of confidence in our long-term 5% to 7% growth rate. So that looked like a pretty attractive investment opportunity relative to all of our options. So we took action to utilize some of that financial flexibility for share repurchase. And I think going forward, it will be a similar approach. We will just monitor conditions and weigh that investment opportunity up against the other investment opportunities that we have.

[Alan Armstrong, President and Chief Executive Officer]

Yes, Gabe, this is Alan. The only thing I would add to that is we are not capped at $75 million kind of number in that there. So that just happened to be how much we could buy at the price targets that we had set based on our dividend yield and our expected growth up against our rate base returns, as we mentioned.

[Gabe Moreen, Mizuho]

Got it. Thanks, Alan. Thanks, John. And maybe I could just ask a two-parter on growth projects. One is on the MountainWest opportunities that I think you alluded to, to the extent you can describe maybe some of those that are coming to fruition? And then second is low gas prices at all impacting, discussions with potential leg customers on that expansion or new projects?

[Alan Armstrong, President and Chief Executive Officer]

Yes, sure. First of all, I’d say on regional energy access. Obviously, there is a big spread between the eastern end of the MountainWest and the Opal basis. And so obviously, that drives need for any kind of expansion that can be built there. And that has certainly shown up in – as we’ve gone out to the market. testing for support on that. So we’re really excited about that and more to come in pretty short order on that particular front. In addition to that, though, there is things like in the Uinta, particularly in the [indiscernible] area over there. A lot – that area is kind of getting cap right now based on lack of gas takeaway capacity out of the area. And so some opportunities on that front. And then as well some pretty significant conversions from coal to gas on some of the big western coal plants out there. And so we will be – we’re extremely well positioned to capture those expansions as well. So I would say we were pretty conservative in our approach to that acquisition and really thrilled with the work that, that team has been doing in terms of identifying opportunities and I think Williams strategy that we bring to those efforts will maximize the value of those opportunities in and around our assets there. So that’s what I have to offer on that. And Mike, why don’t you take the Louisiana Energy Gateway question [indiscernible]?

[Michael Dunn, Chief Operating Officer]

Yes. The LEG project in regard to the opportunity there, I think we still see an opportunity to have that project online later this fall. We are in the permitting process for the project today. And I don’t see any obstacles to being able to achieve in service that as we have expected to come online in the 2024 timeframe. Right away acquisitions occurring there as well, and we are seeing a lot of expectations there with our producer customers and bring that online and those are take-or-pay type contracts. And so very comfortable with where we are sitting today on that project.

[Gabe Moreen, Mizuho]

Thanks everyone.

[Operator]

Thank you. Your next question comes from the line of Neal Dingmann from Truist Securities. Your line is open.

[Jake Nivasch, Truist Securities]

Hi. This is Jake Nivasch on for Neal. Thanks for the question. Just a question on your G&P fee-based contracts, given where commodity prices are today, I just wanted to get a sense of what those contracts are looking like. Have – are the contracts at a fee floor, and if so, any way to quantify that? Thank you.

[Alan Armstrong, President and Chief Executive Officer]

Yes. So, was that on our gathering contracts?

[Jake Nivasch, Truist Securities]

Yes. I am sorry, on the G&P. Yes, correct.

[Michael Dunn, Chief Operating Officer]

Yes. So, we have a number of contracts that do have exposure to natural gas pricing. We have talked about those in the past, where some of those have direct NYMEX exposure like in the Barnett, some like more about midstream at the floor underneath those. And then we have some of the Haynesville wells that have exposure as natural gas prices ratchet up, where we have peers that we haven’t publicly stated what they are. But as natural gas prices do escalate, we have an opportunity to increase our fees on those gathering rates. So, I would say, for the most part, we are very comfortable with where we stand in regard to our guidance this year and the expectation for what those triggers are in regard to our gathering rates. And I will just also remind you that we do have a lot of fee escalation in those based on inflation in disease. And so many of those have kicked in over the last several years as well. And our team has done a really good job controlling our costs, and we feel really good about where those escalators are in relation to our cost escalation being able to cover those – any cost increases that we see. And a lot of those cost increases that we are seeing are in power generation, for example, and a lot of those are pass-throughs to our customers as well. So, we don’t have exposure to that. But all-in-all, we are very comfortable with where our G&P rates are today in regard to the low natural gas prices.

[Alan Armstrong, President and Chief Executive Officer]

And I would just add to that, many of the structures for these expansions that we are doing, and you heard me mention several expansions in our – in my prepared remarks. And those expansions tend to be backed by either MDCs, which are pretty simple, obviously, or they are backed by rate increases on the base volumes. And therefore, we are not all that exposed to the volume increases as much in terms of recovering the capital for our expansion. So, the majority of those contracts are set up that way for the expansions that I referenced.

[Jake Nivasch, Truist Securities]

Perfect. Thank you.

[Operator]

Your next question comes from the line of Brandon Joe from Scotiabank. Your line is open.

[Tristan Richardson, Scotiabank]

Hey guys. This is Tristan with Scotiabank. Can you hear me okay?

[Alan Armstrong, President and Chief Executive Officer]

Yes. Thanks. Thanks Tristan.

[Tristan Richardson, Scotiabank]

Appreciate it. Appreciate your comments, Alan, on Gulf of Mexico and bringing Taggart online, but maybe kind of curious just a general update on the progress of sort of the big five coming online in ‘24, just general progress and an update there would be great.

[Alan Armstrong, President and Chief Executive Officer]

Mike, do you want to take that?

[Michael Dunn, Chief Operating Officer]

Yes, sure, I will take that. No real change from what you have seen in our published materials in regarding our projects. We have made really good progress on the Whale projects, in the Western Gulf of Mexico, we have the offshore pipeline that was installed last fall, and we just recently installed the deck modifications on the platform that brings the gas and oil to shore there, and that was just done last week. So, that work is progressing with an outage there as we speak. And all-in-all, we feel very good about that work. The Markham processing plant modifications are underway as well. So, we will be well in front of when the producers are expected to come online in 2024 for that project. The Shenandoah project in our Discovery system is also going very well. A lot of the offshore work by the producers is underway. And our onshore work has been fully permitted and that we are working under the construction projects also. And so nothing has changed on the timing of those. We hope that producers will accelerate those, and we will be ready for that if they choose to do so. It’s really up to their schedules right now as to when they bring those online. But like for the Whale project, they have wanted us done well in advance of their offshore activities. And so we are prepared to go early if they choose to do so. And that’s where we stand today on those. But really good progress on the non-CapEx tie-backs and the opportunities that we have had out there also.

[Alan Armstrong, President and Chief Executive Officer]

And we also – Tristan, as you know on the Chevron Ballymore project, we finalized contracts with the producers on vale more this quarter as well. Of course, that doesn’t require you need capital on our part, but a significant accomplishment to finalize that deal, particularly with the other producer working interest producer on that platform. So, things have gone – as Michael said, things have gone very well out there and great to have the primary risk for us was that offshore installation on well, and the majority of that risk has been put behind us, so really great work by the team. It’s nice and the team is doing such a great job that you don’t hear anything mentioned by it because things have been going so smoothly on that front.

[Tristan Richardson, Scotiabank]

Okay. Thanks Alan. And then maybe just on LEG. I appreciate the updates there. But maybe curious on how things are progressing on the carbon side of that project. Do we need to be in sort of a primacy in Class 6 world for that component of LEG to go forward, or maybe just an update on what you are seeing on that?

[Chad Zamarin]

Yes, sure. Thanks. This is Chad again. That’s also progressing well alongside the gathering project. And what we see today is an interest in the ability to move CO2 along that pipe and then remove the CO2 and sequester it. It is not dependent upon primacy. I mean we are prepared to work likely with third-parties for the sequestration, but the timing of the project, we think can work full based on kind of the existing permitting process, but also I think primacy just makes things that much more efficient in Louisiana. I think there has been some recent progress in Louisiana that looks like primacy is likely to be near-term. But we don’t think the project is dependent upon achieving that. And right now, the project is on track and looking positive.

[Tristan Richardson, Scotiabank]

Great. Thanks Chad. Appreciate it guys. Thank you.

[Operator]

Your next question comes from the line of Spiro Dounis from Citi. Your line is open.

[Spiro Dounis, Citi]

Thanks operator. Good morning team. First question, going to upstream actually, it sounds like not an urgent need to monetize those assets, of course. But as I recall, you have been pretty close to an asset sales in the last year. So, just curious where does that process sit right now? And is that forward curve strong enough to maybe incent some buyers to come in here at attractive levels for you?

[Alan Armstrong, President and Chief Executive Officer]

Yes. Spiro, I would just say, no, obviously, we haven’t kept that any secret that we are interested in monetizing those. I would say, certainly Haynesville because it’s proven up its capabilities here in short order with great work by the Southern team there of developing that acreage so fast. But really the way that deal is structured, our capital has been required has fallen off dramatically on that as that reversion continues out there on those interests. And so I would just say that the – we have been pretty clear with the market that if somebody wants to put an attractive offer on the table, we are very interested in those discussions, and we certainly have been and we will continue to entertain offers on that. But we are not in a passive sell mode. And so we are not going to sell at the bottom of the market. On the Wamsutter piece, obviously, we have got a lot more development out there to prove up to really, I think get the volumes where we need that to be for the benefit of our midstream business. So, I would still say there is still some execution to be done on the Wamsutter development out there and again, the right party came along that could convince us that they could develop that aggressively and that would be great. But I think there is probably better value right now and improving up the opportunity out there and getting the volumes up for the benefit of all of our downstream business. If you realize, if you think about how much margin we make off the Wamsutter area that is clearly our highest unit margin area for us because not only do we obviously have interest in the production, but we also have the condensate gathering. We have the gas gathering. We have the gas processing. We have the NGL takeaway. We are soon that likely have the gas take away via the MountainWest acquisition. So, a lot of coupons to clip off of the production out there that makes that a very valuable area for us to get developed, and we want to make sure that, that occurs. So anyway, that’s the way we are thinking about it for sale signs out I would say, but we are not selling that at the bottom of the market.

[Spiro Dounis, Citi]

Got it. That’s helpful color. Thanks for that Alan. Second one, just wanted to come back to the guidance quickly for a second. I think back at the Investor Day, you have mentioned that the guidance contemplated a producer slowdown just given where you saw the natural gas price at the time and it looks like, to some degree, that’s been proving out. We have seen a handful of announcements now on some slowing of activity, I guess I am just curious, compared to what you were thinking in February, how does that kind of track to your expectations?

[John Porter, Chief Financial Officer]

Yes. I can take that, Spiro and others can chime in. But I think as we went into Analyst Day, establishing our guidance, we went in with a pretty sober outlook for the year and embedded some pretty conservative estimates for what we thought would be happening with our producer customers. Since then, we have ran another bottoms-up forecast and continue to feel good about the guidance.

[Spiro Dounis, Citi]

Perfect. Helpful color guys. Thank you.

[Operator]

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

[Sunil Sibal, Seaport Global]

Yes. Hi. Good morning everybody. So, my first question was related to some recent comments from the administration, especially with regard to gas infrastructure. I was just curious, is that something that you also picked up on based on your discussions with the administration. And then is there a specific opportunity for Williams to capitalize on that note?

[Alan Armstrong, President and Chief Executive Officer]

Yes. No, great point, and we were thrilled to see Secretary Granholm’s letter in support of Mountain Valley Pipeline and recognizing the critical role that natural gas plays and particularly the more we want to electrify and the faster we go at electrification, more dependent we are going to be on natural gas to help support that. And so I was really pleased to see Secretary Granholm’s acknowledgment of that. I will tell you, we certainly have been close to that, but the credit, I think there is due to a few things. One, the utility industry has become pretty clear in this last quarter that to try to deliver on electrification and the inflation reduction at goals that we are going to have to have more natural gas capacity to help support that and help support backup of electrification. So, the utility industry and a lot of the utility leadership, Lynn Good as I think a prime example from Duke have been pretty clear about the importance of natural gas. And I think their messages have hit the mark with the administration on that front. But as well, I would tell you that, folks like Senator Manchin, who certainly understands energy very well, has been very vocal about the need for getting the permitting reform done as well. And so there are a lot of people that are starting to kind of move beyond what is just politically correct and what is popular to say and getting down to the cold hard facts of physics and science and realizing that we are going to have natural gas to be able to carry out our goals around emission reduction and support aggressive electrification of our grid. So, we are really thrilled to see that. I am glad you picked up on that as well. And I think that bodes very well for the natural gas industry here domestically and abroad.

[Sunil Sibal, Seaport Global]

Got it. And then on the LNG marketing strategy, so we will kind of stay tuned to updates coming up on that. But I was just curious, is that marketing strategy more driven by supply push currently, or is it more of a demand pull in the international markets?

[Chad Zamarin]

Yes. Thanks. This is Chad. I would say it’s both. I mean one of the things that we offer and that’s unique today, if an international LNG buyer wants to buy U.S. LNG and if you think about we are the low-cost, most reliable producer of natural gas in the world. And there is a great interest in sourcing gas supplies in the United States, but the international buyer has to primarily buy LNG at domestic Henry Hub prices, indexed prices. And we have producers that we are connected to that are interested in selling a portion of their production into international markets and gain exposure to international prices. So, what we are offering is the ability for international LNG buyers that buy U.S. supplied natural gas, but to be able to buy that at an international price because our producers are interested in gaining access to international prices. So, we can be a unique bridge between domestic producers and international buyers for a product that really isn’t available broadly today because the international buyer has to buy U.S. gas at a Henry Hub index. And so that’s why we are seeing, I think really strong interest from both domestic producers that do want to gain exposure to additional markets and additional price opportunities, but also international buyers that would like to source U.S. supplies, but do so in a more native price index that they could buy again. So, it’s really a combination of both.

[Michael Dunn, Chief Operating Officer]

Yes. If I could add to that, this is Michael. The opportunities that we are looking at also involve some pretty significant FERC regulated fee-based pipeline opportunities for the infrastructure to be built there well beyond what we are thinking about with the LEG project. So, we are certainly looking at the opportunities to build FERC regulated transmission projects associated with this wellhead water strategy.

[Sunil Sibal, Seaport Global]

Got it. And just one clarification on that, I think in the past, duration of contracts between – the duration of contracts at the international parties were looking for and what the domestic parties were looking for, there was a bit of a mismatch in that. And based on the recent discussions, do you think there is – those two are kind of closer to where they were say, a few months back?

[Chad Zamarin]

Yes. I would say that we are not going to take large open mismatch positions. There may be some modest mismatch across the portfolio of LNG transactions. But our goal is going to be to not have a lot of speculative open positions, again kind of offer a unique product to the market and our goal would be to, for the most part, de-risk the term of those commitments. And if we do take any lesser term on a commitment to make sure that the margin that we are capturing is more than adequate to support that. But for the most part, we are targeting significant coverage and matching of the terms across the portfolio.

[Sunil Sibal, Seaport Global]

Got it. Thanks for all the color.

[Operator]

Your final question comes from the line of Jean Ann Salisbury from Bernstein. Your line is open.

[Jean Ann Salisbury, Bernstein]

Hi. Thanks for squeezing me in. I just have one. You have several Mid-Atlantic demand pull projects, Commonwealth Energy connector, sell-side reliability enhancement in Carolina MarketLink. Do these also create more capacity out of Transco 165 than exists today if MVP starts up, or are those kind of low CapEx, high return opportunities that you have referenced in the past, like completely, like they are not even on the board yet?

[Michael Dunn, Chief Operating Officer]

Yes. Jean Ann, this is Michael. I would say those are more of the latter right now. These are fairly low CapEx compression with some small lubing opportunities with really healthy returns on those projects. Anything that would be associated with NBP completion would be a much more substantial capital-intensive project opportunity that we are certainly looking at with customers. But at this time, we haven’t announced anything in that regard. But there definitely are opportunities that NBP is successful and the takeaway from Transco will ultimately be built.

[Alan Armstrong, President and Chief Executive Officer]

Jean Ann, this is Alan. I would just add, I think that Michael hit that nail on the head. But we do have decision to make around NBP, because obviously, NBP is critical and that gas that would come in there is going to be searching for new market and we have got decisions to make on how to really optimize that southbound capacity if NBP gets built. If it doesn’t get built, then we have got some decisions to make around expanding southbound capacity from the Pennsylvania area on Transco along the mainline in terms of brownfield expansion along the mainline as well. So, those – that’s really what we are kind of waiting to see is how big those projects might be and it’s somewhat dependent on whether or not NBP gets built. Certainly, we think it should get finished, but it’s just getting harder and harder to predict that given the time it passed. So anyway, we are standing ready with alternatives there, but NBP, I think it is the right sensible solution for our nation, and hopefully, we see that completed.

[Jean Ann Salisbury, Bernstein]

Great. Thanks a lot.

[Operator]

There are no further questions at this time. Mr. Alan Armstrong, President and Chief Executive Officer, I will turn the call back over to you.

[Alan Armstrong, President and Chief Executive Officer]

Great. Thank you. Well, we are really as a team, I tell you, we are really excited to deliver the quarter that we just delivered, particularly within commodity cycle that we are in and really excited about how we are set up for the future and some of the great accomplishments that team delivered this quarter as well. So, we look forward to rewarding our shareholders with more growth in the future and are very well positioned for that. So, thank you for joining us today and look forward to talking to you in the future.

[Operator]

This concludes today’s conference call. You may now disconnect.