Williams Companies Inc
NYSE:WMB
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
31.9065
59.74
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Williams Companies Inc
You don't have any saved screeners yet
Good day, everyone and welcome to the Williams Third Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introduction, I would like to turn the call over to Mr. Danilo Juvane, Vice President of Investor Relations. Please go ahead.
Thanks [Indiscernible] Good morning, everyone. Thank you for joining us and for your interest in the Williams Companies. Yesterday afternoon, we released our earnings press release and the presentation that our president and CEO, Allan Armstrong and our Chief Financial Officer, John Chandler will speak to this morning. Also joining us on the call are Micheal Dunn, our Chief Operating Officer, Lane Wilson, our General Counsel, and Chad Zamarin, our Senior Vice President of Corporate Strategic Development.
In our presentation materials, you'll find a disclaimer related to forward-looking statements. This disclaimer is important and integral to our remarks and should review it. Also included in the presentation materials are non-GAAP measures that reconcile to generally accepted accounting principles, and these reconciliation schedules appear at the back of today's presentation materials. So with that, I'll turn it over to Alan Armstrong.
Great. And thanks, Danilo and thanks to all of you for joining us today. We do have a lot of good news to share with you today, but let me just start by saying that our long-term strategy of connecting the fastest-growing natural gas markets with the best supply areas continues to deliver exceptional financial results as demonstrated by these higher-than-expected third quarter financials. As John walk through just a moment, we achieved all-time record results in the third quarter with our adjusted EBITDA of 12% compared to the same period last year driven by growth across all 3 of our major business segments.
Given our robust performance today and continued strong fundamentals, we are raising our 2021 EBITDA guidance midpoint for the second time this year to a level that is now 8% above our realized 2020 result which, I'll remind you, came in above expectations last year in a very challenging backdrop. Not only did we deliver more on our financial performance this quarter than we expected, but we continue to make strides in executing on key projects and transactions that give us a clear line of sight to sustain growth for many years to come. We'll talk a little bit about that today, but -- so for right now let me turn it over to John to provide you some insight into the drivers of this all-time record quarter for Williams. John?
Thanks, Alan. First of all, just what an incredible quarter we had, and a very high-level summary. The quarter benefited from nice increases in profitability from our Northeast Gathering systems and EPF lift in revenues on our Transco pipeline from new projects have been put into service over the last year. Significant contributions from our upstream operations in the Wamsutter and the benefit of higher commodity prices in our West segment. The positives were offset somewhat by slightly higher operating expenses resulting from increased incentive compensation expenses, reflective of the strong performances unfolding for the year.
And you can see that strong performance in our statistics on this page. In fact, once again, we saw improvements in all of our key financial metrics. First, our adjusted EBITDA for the quarter was up $153 million or 12%, setting a new record. And we've seen a 10% increase in EBITDA year-to-date. We'll discuss EBITDA variances in more depth in a moment. Adjusted EPS for the quarter increased $0.07 a share or 26%. AFFO also grew significantly for the quarter, up $217 million or 25%. And AFFO, I'll remind you, is essentially cash from operations, including JV cash flows and excluding working capital fluctuations.
If you put our year-to-date AFFO of $3 billion up against capital investments year-to-date of $1.2 billion and dividends year-to-date of $1.5 billion, you can see that we generated over $300 million of excess cash year-to-date. Included in those capital investments I just mentioned with $307 million of maintenance capital. Also, you can see our dividend coverage based on AFFO divided by dividends is a healthy 2.17x for the quarter. This strong cash generation and strong EBITDA for the quarter, along with continued capital discipline, has led to our exceeding our leverage metric goal, where we currently set at 4.04x net debt to EBITDA.
You'll see later in our guidance update in the deck that we've moved our guidance for the year from where we were at less than 4.2x for the year now to around 4x at year-end. So really strong performance for the quarter and the year, and the fundamentals are set up for a good fourth quarter and a very good 2022. So now let's go to the next slide and dig in a little deeper into our EBITDA results for the quarter. Again, Williams performed very well, realizing a -- 153 million or 12% higher EBITDA. Our upstream operations added $55 million to adjusted EBITDA this quarter.
This is almost entirely from the Wamsutter upstream acreage production from the combined assets, mostly from Wamsutter totaled 232 million CFEs a day for the quarter net to our ownership. Again, the Haynesville upstream acreage, but is very little EBITDA given it has only a small amount of existing PDP reserves. And therefore it will take a little time before we see new production and therefore EBITDA, coming from those assets. Our transmission Gulf of Mexico assets produced results that were 8 million more than the same period last year.
New transmission pipeline projects added 24 million in revenue versus the third quarter of 2020, including the Southeastern trails project that went into service in the fourth quarter of last year. And a portion of aligning South project that also went into service in the fourth quarter of last year. And you can see this evidenced in the growth in our firmed reserve capacity, which is up 4% from the Third Quarter of last year. Offsetting this somewhat was Gulf of Mexico revenues that were down due to incremental impacts from hurricane shut-ins during the quarter from Hurricane Ida in comparison to the hurricane impacts from the Third Quarter of last year.
Just so you have a number there, the incremental impact this year was a negative 5 million versus the Q3 of last year on hurricane impacts. In addition, the transportation revenue increases were offset somewhat by a slight increase in operating expenses, mostly due to employee related expenses. A large part of which can be attributed to higher incentive compensation accruals. The Northeast G&P segment continues to come on strong to attributing $46 million of additional EBITDA this quarter.
Collectively, total Northeast gathering volumes grew 470 million a day for 5% this quarter versus the third quarter of 2020, while processing volumes grew 20%. The volume growth was predominantly at our joint ventures in the Bradford supply hub where we benefited from a gathering system expansion on that system in late 2019. And at our Marcellus South supply base and where we benefited from more productive wells at larger pads. And just to be clear, because we do not operate Blue Racer Midstream, those volumes are not included in the volume statistics I just quoted.
As a result of these increased JV volumes, our EBITDA from equity method investments improved by $45 million, which also included the benefit of additional profits from blue -- blue ratio midstream, again, due to our additional ownership, we acquired in mid-November of last year. Otherwise, in the Northeast, higher revenues from higher processing volumes were offset by higher expenses. Again, with a significant portion of those expenses being related to higher incentive compensation accruals. You go to the West that segment improved by $48 million compared to prior year.
35 million of this increase is related to higher commodity margins due to higher natural gas and higher NGL prices. Otherwise, the remainder of the [Indiscernible] lift in EBITDA comes from lower operating cost due to lower maintenance fees and due to the absence of legal costs and small asset write-offs that occurred in the third quarter of last year. And revenues for the West were only up slightly compared to the same period last year. Now they're a number of big items that go opposite directions in revenues that I'd like to point out.
First of all, for example, remember that we've lowered our gathering rates in the Haynesville this year in return for undeveloped upstream acreage from Chesapeake in the South Banfield area in Haynesville. The resulting gathering revenue decreased from this during this quarter was more than offset by rate increases in the Barnett and the [Indiscernible] where our gathering contracts allow us to participate in the upside when prices are higher. Also last year, our partner on Overland Pass Pipeline was paying us a deficiency fee to allow them to pull volume off of OPPL. Those deficiency fees do not exist this year.
However, the assets of those fees are being offset by fees from prior gathering volumes otherwise. And to that point, overall gathering volumes in the West were up 1% with higher volumes in the Haynesville and the Piceance being offset somewhat by lower volumes in the Wamsutter in the Barnett. And then finally the Sequent segment produced near flat adjusted EBITDA for the quarter. Sequent traditionally makes a significant portion of its profit in the first couple of quarters of the year in the heart of the winter season. And therefore, did not realize profit for the quarter.
Sequent does have significant portion of their transportation capacity hedged with basis swaps, as well as our storage inventory hedged with nymex positions, which of course led to the large $277 million unrealized mark-to-market loss on those hedges this quarter, as prices increased and as basis differentials widen in some markets. This, of course, means that the intrinsic value of our storage and transportation positions have gone up significantly as well. And again, you will see a significant portion of that value realized in the first half of 2022.
Now to go to the year-to-date results. Again, our year-to-date results showed strong growth of $383 million or 10% and adjusted EBITDA. Many profitable things that are happening across all of our segments. First, I'd point to Winter Storm Uri, which added $55 million in profits to the West. And it contributed $22 million of income -- profit store upstream results. In addition, our upstream operations otherwise have added an additional $83 million year-to-date, almost entirely from the Wamsutter properties.
Our transmission in Gulf of Mexico assets is up 30 million or 2% better, with the increase is being driven largely by additional transmission revenues from new projects that have been put into service and incremental revenues from Gulf of Mexico assets, largely due to lower downtime this year versus last year. These positives were partially offset by lower revenues due to a Transco rate place decline following the rate case final settlement in mid-2020 related to just a few markets. And as a reminder, a majority of our Transco rates actually increased in 2019.
In addition, expenses are higher this year, year-to-date due to higher incentive compensation expenses resulting, again, from our strong performance. The Northeast [indiscernible] is up $124 million for the year, almost entirely driven by profits from our JV investments, again, mainly from the Bradford supply hub gathering systems and our Marcellus South gathering systems. In addition, we've benefited from increased ownership and Blue Racer Midstream. In total, gathering volumes for the Northeast are up 8% over the third quarter of last year, while processing volumes are up 22%. And then in the West, our West [indiscernible] is up $71 million, and this is on top of the $55 million that we earned from Winter Storm Uri.
The $71 million increase is driven by higher commodity margins, higher gathering rates in the [indiscernible] offs where we participate in the commodity upside, and lower operating costs. These positives were offset somewhat by lower deferred revenue in the Barnett, Lower Haynesville gathering rates, which again, were exchanged for upstream acreage and lower Overland Pass Pipeline profits from lower actual volumes shipped and the elimination of the deficiency payments that we were receiving in 2020. And while we did see a 4% gathering volume decline year-to-date in the West, that was mostly offset set by minimum volume commitment payments.
Again, this is stacking up to be an incredible year for us. In one of the thing I do want to point out we did pickup in some of the narratives from some of the analysts last night, the view that our operating costs increased and we did ourselves a bit of a disservice by not providing more information on our other operating segment where our E and P upstream operations reside. Actually, if you look on the face of our financial statements, our operating expenses went up $73 million. $12 million of that came from Sequent who, by the way covered most of that with their profits. E&P went up $51 million on costs, but of course, they're making significant EBITDA, so they're covering that with their revenues.
And then the rest was related to bonus expenses. So our expenses actually doing -- when you extract Sequent and E&P and the bonus costs are actually down otherwise, so we actually are not seeing a significant -- or are seeing expense increases in pack with the contracts through other than the bonus-related expenses. So I thought I'd clear that up. I will now turn the call back over to Alan to cover a number of key investor focus areas. Alan.
Great. Well, thanks John. And we'll move on here to slide 4 covering key investor focus areas. Our natural gas focused strategy is delivering even better results than we expected in this high commodity price environment. Demand for natural gas in the third quarter was surprisingly inelastic against this higher-than-expected pricing environment. And while we would prefer more moderate natural gas prices for our business over the long haul, the recent demand resilience highlights the near and long-term role that natural gas will play as a complement to growing demand for renewable energy and emission reduction in general.
The past 18 months have demonstrated the benefits of our high-quality portfolio of contracts through which we've thoughtfully built a business that is durable in the down cycles, but exposed to upside potential when it is available. This quarter's results show how meaningful that upside can be even after excluding our upstream results. Along these lines, we also have contracted our business over the years to be protected from inflationary environment, and we see additional upside potential in our G&P businesses due to contract terms that adjust our rate for inflation. In short, our business and its contractual portfolios are set up with the long-term investor in mind, and are positioned to thrive through these cycles.
So looking at our financial strength and focus on long-term shareholder value here, we are increasing our '21 financial guidance for the second time this year as we've mentioned with our EBITDA midpoint now residing at $5.525 billion. And that is 8% higher than last year's strong $5.105 billion of EBITDA, and of course that was a feat by itself in the environment that we're in. So we're really excited to show our durability in the down-cycle and our exposure here on the positive side is well coming through. And while the past few years have been characterized by lower commodity prices and reduced producer customer activity, among other challenges, our updated '21 EBITDA and EPS guidance, the midpoint translate into a three-year [indiscernible] of 6% on the EBITDA and 17% on the EPS.
So a three-year [indiscernible] on our EPS now it's 17% at that midpoint. And of course, this is proving up our ability to produce reliable and growing earnings under a variety of market conditions. Our financial results in '21 continue to de -risk our Balance Sheet, which is now at about 4.0 leverage. And also of note, we recently issued $1.25 billion of 10-year and 30-year bonds at the most attractive interest rates ever issued here at Williams. This is significant because we are now positioned to allocate capital to a variety of options that will provide compounding value to our long-term shareholder. To this end, we've continued to grow our stable quarterly dividend through our investors and remain steadfast in maintaining the long-term security of the dividend.
And most recently, we unveiled our long-term capital allocation priorities, including a $1.5 billion opportunistic share repurchase program that has the potential to enhance shareholder returns beyond the dividend. And perhaps most unique to Williams as we think about capital allocation, is the option we have to grow dependable earnings by investing in the modernization of our regulated transmission systems, which will both grow earnings and as well as reduced emissions across our footprint. Next here, looking at growth, from a project execution point, we continue to deliver on multiple fronts, including bringing online key projects such as lighting South, which we are targeting to bring into full-service earlier than projected and importantly, before the winter heating season.
While projects, such as REA, remain in the execution phase, we've continued to receive first in demand full projects on the Transco system. Our 2 recently announced Mid-Atlantic expansions will add a little more than 500 million a day of capacity on the system. And in the coming weeks, we expect to secure precedent agreements for another system expansion, bringing a total of 3 incremental expansion projects on Transco just during the last half of '21. Our natural gas fundamentals are not only supportive of our transmission assets, but also our G&P business and our gathering volumes continue to grow at a rate of nearly 10 times the Lower 48 U.S. gas production volumes.
This supports were led by the Marcellus growth where we are also growing a rate that is almost double that of our competitors, and you can see the layout of that in some slides we put in the index. With projects like Leidy South and REA providing takeaway out of the basin, we expect our gathering volumes in the Northwest -- Northeast, sorry, to remain resilient. In fact, we expect to announce a system expansion in the basin soon, underscoring that we don't see takeaway constraints of the near-term deterrent to volume growth in our systems there in our Northeast gathering area. And finally on sustainability. As we think about sustainability both today and into the future, our highly reliable natural gas infrastructure is extremely well-positioned to continue replacing higher carbon fuels while supporting the growth of renewable energy and responsibly-sourced natural gas for LNG export.
Looking forward and anticipating future innovations and technologies that we can use on our key energy networks to deliver on our country's clean energy future. And to this end, we are pursuing emerging opportunities like a hydrogen hub near assets in Southwestern Wyoming and are evaluating a large-scale co-development of wind energy, electrolysis, and synthetic gas via [Indiscernible] in the, state of Wyoming as part of our recently announced in MOU with Orsted. Our solar initiative continues to move forward as we now advance the execution of now 12 projects on our systems, and those are as we've mentioned before, large solar arrays that will provide power for our fairly large loads on our compressing and processing.
So now, looking at our renewable natural gas efforts, we set a 2021 goal of adding an incremental 5 million a day of renewable natural gas. And we now expect to exceed that goal. We recently signed an interconnect that should enable up to 10 million cubic feet per day of the new source of [indiscernible] supply, bringing our entire already [indiscernible] portfolio close to 25 million cubic feet per day with in-service [Indiscernible], in the '22 through '23 time-frame. A lot going on on that front, seems doing a great job of making sure that we're capturing opportunities in and around our assets there. We do remain steadfast in the view that natural gas will play a role in the world's clean energy future.
And our latest efforts to advance responsibly [indiscernible] through the value chain will provide transparency on the sustainability of our operations and help to solidify the role of natural gas and reducing emissions. We're also pursuing sustainable investment opportunities and are pleased to be partnering on 2 strategies with energy impact partners and investment firm that makes venture and growth investments in companies that are optimizing energy consumption and improving sustainable energy. Williams is among the first Midstream investors in the platform, and we're expecting to facilitate diverse investment opportunities that reduce emissions and advance our ESG goals.
Finally, our ongoing focus on sustainable operations continue to deliver strong results that are being recognized by our key rating agencies in this state. Williams sits in the top quartile for our industry with rankings that reflect the dedication of our team towards doing the right thing from an ESG perspective. So here in closing, a lot of really positive things to report on this quarter, demonstrating that our intense focus on natural gas-based strategy has built a business that is steady and predictable with continued growth, improving returns, and significant free cash flows. This has translated into a strong balance sheet and a well-covered and growing dividend. And our best-in-class long-haul pipes, like, Transco and Northwest Pipeline, and Gulfstream, are in the right place and in the right markets.
And by design, our formidable gathering assets are in the low-cost basins that will be called on to meet gas demand as it continues to grow. The triple-punch of benefits provided by American source natural gas must not be understated as we work to accelerate our clean energy future around the world. As we work to balance sustainability and climate goals with growing energy demand, natural gas will remain a key component of the fuel mix and should be prioritized as renewables complement the more aggressively displaced more carbon-intensive fuels around the world. Natural gas does provide right here, right now, emissions reduction solution that is economically viable and can keep industry and manufacturing here at home. William’s transmission and storage networks are extremely well-positioned to aggregate and bring to scale to multiple mission reduction opportunities, taking out higher carbon fuels while supporting renewable energy and emerging opportunities like hydrogen and carbon capture.
So in closing we produced tremendous 3Q results. But more importantly, we have an unmatched platform to continue to deliver growth and lower emissions at the same time. We look forward to helping our customers and stakeholders meet their goals in an environmentally and financially sustainable manner. And with that, I'll open it up for your questions.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Please stand-by while we compile the Q&A roster. Your first question comes from the line of Jeremy Tonet with J.P. Morgan. Your line is open.
Hi, good morning.
Good morning, Jeremy.
I just wanted to touch on these strong results this quarter and how we should think about that going forward. If I look at the guidance raise, it doesn't necessarily seem that all -- the benefits that materialized in 3Q fully translate into 4Q. And so just wondering how much of this is sustainable, how much growth -- is this a level that could be built off of into 2022 EBITDA. Just trying to get a sense for what's recurring here in the strength this quarter.
Yes. We did take an accrual for bonuses for the year, and both on our long-term incentive comp as well. I see a lot of [Indiscernible] adjusting that out of their EBITDA. We don't adjust that out of our EBITDA. So our long-term incentive comp did take some accruals for that as well as our annual bonus, which obviously with this [indiscernible] And so those -- that was a hit to the quarter that would be negative -- on the other side of that, we had about $24 million, I believe, of pricing increase on our NGLs and inventory, and so to the degree that that doesn't increase again, that would offset against that positive that shows up in the quarter.
So that's a non-operational issue, if you will, we have to price that inventory up, but to the degree that NGL prices don't move again and that wouldn't show up. So that's just a couple of 1 positive, 1 negative. I will just say we pay attention to the forward strip when we think about our forecast and our guidance, and obviously, those are backward dated, as we sit here, and so our expectations would be the same moving forward as it relates to the E and P business. I will say that's not a huge driver of our business obviously it’s pretty [Indiscernible]. As you can see, it will become larger in '22 as we start to -- the Haynesville starts to get developed.
That will be a net positive that where we will build larger sensitivity to gas prices in '22 as the Haynesville starts to, be developed. I would just say we know this was a good quarter in terms of pricing and we're not going to build our business in a way that's just sustained off of high commodity prices, and that's hopefully evident in how we forecast our business as well. Nice to take the winnings when they come to us, but we're not going to build -- we're not going to forecast our business around that. Obviously prices do stay high, then we'll certainly see the rewards.
And Jeremy, just as it relates to this year's guidance, obviously, I think by our mainstream probably now we're somewhat conservative on how we do things. That's probably a bit of that embedded there. But also we left ourselves some flexibility that relates to the fourth quarter if we wanted to accelerate, for example, gifts to our foundation, we've dealt things like that, that would be expenses from otherwise [Indiscernible] after and so we do have some flexibility and some capacity to do things like that.
Moving along here, I guess next question I have is in the build back better build here. Just wondering what implications do you see for your business here it seems like it could be different things that 45 [Indiscernible] some other energy transition initiatives in a bill and at the same time, 15% minimum tax. Just wondering if you could walk us through some of the pluses and minuses that you see. The bill, if passed as written, how would it impact the [indiscernible]
Well, certainly we would keep our eyes on the alternative minimum tax, and I'll let John speak here in a minute to that. I think as it relates to things like the increasing to 45Q amount, obviously, that would be positive for us, particularly as we think about utilizing our infrastructure for carbon capture and in places like the Gulf Coast where we have a pretty sizable footprint that extends out to some of those water drive reservoirs that the key targets for carbon sequestration. So lots of positives I think in that area on the methane emissions issue. We are really encouraging that to be done in a way that rewards those who reduce methane emissions.
We think it's smart to continue to put focus on methane emissions reductions, and we're extremely well-positioned for that. But we would much prefer one that rewards the good actors, here and that, and not just a pure [Indiscernible], but one that does [Indiscernible] those that have been working to reduce their emissions. And we think we stand out in that regard and we think that would be a net positive for us if it's positioned that way. Obviously, we think that makes sense when you're talking about the lowest, carbon content hydrocarbon. It seemed a little bit odd that you would just put a pure tax on that when it has such an ability to help reduce emissions around the world.
So we're hopeful that we'll get to a wide place on that, but we think that actually could be positioned in the way that could be somewhat of a positive force. So we will look forward to that. So I think that's, I don't know, Chad or...
Yeah, Jerry. This is Chad, just on the last note on the hydrogen front. The hydrogen incentives as currently drafted would be I think a good complement to our current strategy. And so we've been working closely on that front because that would be supportive as well as our -- supportive of our goals on that front.
Just as it relates to the alternative minimum tax. There's still a lot left to be discovered there. I would tell you on balance, obviously, we prefer a lower corporate tax rate and an alternative minimum tax than the inverse. A&P is just timing of pipe tax payments, higher tax rates forever and permanent. If that's where we land, the question is going to really be around that NOL usage against under the old tax scheme while we had an alternative minimum tax before. You could take up the 80% of your NOL's against your income, for an alternative minimum tax calculation. That's not clear in the current legislation.
As we've thought about it, we've seen -- let's say we could take 50% of our income out, usage of our NOL's. That alternative minimum tax would be not that size before us. We'd probably be able to cover it with excess cash flow. So that's how we look at it now. But just to be clear, there's still a lot of questions around the usage of its [indiscernible] going forward. Can you use 50%, 80% or use them at all? And so that's still yet to be understood. And just you know is an additional factor. We're carrying forward $4 billion [indiscernible]
Understood. Thank you.
Your next question comes from the line of Christine Cho with Barclays. Your line is open.
Thank you. Good morning. Maybe with the out-performance this year and [indiscernible] tracking below your target, how should we think about the execution of the buyback that you announced a couple of months ago?
Yeah, Christine, thank you for your question. I kind of expected we would get that. And I would just say that we've been pretty clear about how we're thinking about that, and it is a multiple of the cost of our 10-year debt costs of the market per 10-year debt costs, and so you can see that -- that spread with price actually kind of wide -- or did widen. And so that yields continued to go down and there was way from that multiples earned a period since we announced buyback. But I would say as we don't make investment in that or if we continue to invest in earnings, either one of those will continue to drive our credit metrics to more positive place, which will drive down the 10-year debt, which then will improve the price on [Indiscernible] would lower the yield, which we would invest in.
I think it's pretty natural in terms of how that will occur if money is flowing in a way that is improving our credit metrics, you would expect our 10-year rate to continue to improve, which we continue to lower the yields and eventually, we would hit a point at which you would be buying back, but we certainly stand ready. And if that price moves to that zone, will be anxious to be taking advantage of that, if that occurs. nothing's really changed from our perspective on that other than the fact that our amount of free cash flow continues to expand and accelerate. But other than that, nothing's really changed here this quarter since we announced that.
And you would be okay with just having your leverage trend below 4x if the opportunity to buy back factored in presents itself.
That's right. And I will just say though, as we've mentioned before, obviously the one kind of unique option we have is continued investment in the right base in a way that modernize this and reduces emissions on our system. And so that's not a hair-trigger, so to speak, because we have to plan for that and that permitting process that we don't snap the fingers at. That's something that takes time, but that's obviously another place that money will flow through our capital allocation costs.
That actually was my follow-up question around the modernization program. Can you just remind us how this works? How much you spend per year, the return how quickly you can earn on the spend and then I guess as you mentioned, what regulatory process we're looking at?
[Indiscernible] Hi Christine it's Micheal, we're we're working on both fronts with Northwest Pipeline customers, as well as Transco customers and working to enact a tracker. If we can get to a position with them. And if we can't, we would go through our normal rate case process to seek recovery of those emissions reduction projects. And we believe we've got a worth of about $2 billion or so that we could invest between both Northwest and Transco. On those projects that could be a very long-term program, over maybe six years or so. So would you start doing the math on that, that's $3 to $500 million a year potentially that we could deploy there. Depending on the spend profile and how many projects we want to take on at a time.
If you don't come to an agreement with your customers, would you have to recover it through a rate case or is there something quicker?
No, we would have to go through the rate case process and that's obviously one of the reasons why we would like to have a tracker to accelerate that recovery and not have to go through the thrush and the rate case and the disruption that occurs with the customer base there. But we're prepared to do that if we need to, but we would certainly like to do it through a tracker mechanism. Very similar to what many of our customers are doing in their jurisdictions.
And the returns?
Returns would be very similar to what our regulated returns would be on either Transco and Northwest Pipeline once those rate case outcomes are known.
Great. Thank you.
And Christine, I'll just add there just to remind folks on -- when we do file those rate case, we still -- we do go ahead and raise our rates. We don't have to wait for the settlement in rate case once we file those rates. So that is your call that -- we hold that in reserve sometimes pending that. So -- but we do have the authorities go ahead and charge higher rates.
Right. Thank you.
Your next question comes from the line of Shneur Gershuni with UBS. Your line is open.
Hi, good morning, guys. I wanted to start off a little bit here. You've had a strong performance last year, strong performance this year, or heading into the end of the year, you should be based on your guidance, you've had a growth target in the 5% to 7% range. The question I have is, does any of the performance in this year, takeaway from next year? But at the same time, you've announced several Mid Atlantic projects. You intimated that there's another one potentially coming in your prepared remarks. I was just wondering if you can share some detail about the return expectations of these new projects, and are they high enough to help drive growth forward. Is there a backlog of more of these projects that we can see more announced overtime?
Yes, Shneur, thank you. First to the projects, I would just say our returns generally continue to improve. One of -- it's been, as we've said many times, it's a double-edged sword about the difficulty off building projects. It certainly has been detrimental to the country and the industry overall. But to the degree that you're the incumbent with pipe in place and you could expand those in brownfield. It effectively expands your return opportunity in that regard. So I would just say that the returns in general, not saying that they always will be that way, but in general, these returns that for these mid-Atlantic projects that we're mentioning are at least as good as Atlantic Sunrise or better. And so that's kind of the way to think about that REA 's and attractive return projects as well.
And the question of how many we have, we keep the slide updated in there about the number of projects in development in our appendix. And it always looks like it's the same old slide, but in reality, that we are moving projects from development into execution. And we have new projects flowing in there that are keeping that pipeline very full. So I will just tell you, we don't see much backing off in the way of opportunity for expansions of our transmission systems. And with that obviously will flow gas from the low costs, reducing areas. And we're well-positioned to capture that on the gathering side as well.
So despite what you might think, when you listen to the media and the rhetoric, it's certainly not showing up in people's reluctance to make long-term commitments to our transmission systems for supplies that they know they're going to need. Whether that's the backup renewables or whether it is a base load people, and our customers certainly understand that it takes time to build these projects and that it takes long term commitments to be built. that's what we'll continue to see.
Really appreciate the color there. Maybe if we can return to the return of capital priorities. In your response to Christine's question, I think you were fairly clear in terms of you were looking for the opportunities to execute, but at the same time, your balance sheet is obviously doing better than expected. There's a priority over growth, how we discussed in the last question here. Just curious if one of the other arrows in the quiver shall we say, would be around the dividend. Are there any thoughts around a dividend step-up, or specials, or is there a different payout ratio that we should be thinking about as part of your return of capital strategies?
Yes, I would say never say never, but I would say right now, we just continue to maintain that steady growth and continue to maintain the growth in our business that's commensurate with our cash flow growth and obviously to continue to maintain that high level of coverage of the dividend there. So don't expect -- we don't expect anything special if we did some asset sale and, by the way, don't run off with that one, because there's no
intent behind that was something special or some structure that delivered a bunch of cash then we would consider that. But right now, there's -- I think you should expect steady growth in our dividend that's well covered and very durable. And we think this is the business we've built, the long-term durable business as I think we've proven out. And we think that our yield on our dividend audit continued to trade down plus the durability and the growth in our dividend. And I think it's a pretty hard. Dividend to compete but frankly, given its security and the growth in it by both utility sector and within our peer group. And we think eventually we'll be rewarded for that.
So all else equal buybacks are probably the preferred [Indiscernible] at this point, if you hit investor returns section?
Well again, I mean we've laid out the options. The market will tell us whether we need to buy back shares because it's presenting an opportunity or not. And if it presents itself. We'll be all over it. And if it does, the value will continue to generate through these other notes.
Perfect. Thank you very much, really appreciate the color today.
Your next question comes from the line of Praneeth Satish with Wells Fargo. Your line is open.
Thanks. Good morning. You touched on this earlier, but if we assume that the Biden administration passes for [Indiscernible] on admission, what exactly could that mean for your business? I guess, how further ahead are you than peers, and do you think this helps you win new customers or pull volumes from competitors?
Yes. I don't know exactly where we stand up against peers. I know where we stand on the One Future measures, and we're almost orders of magnitude lower than what's required for our elements of the sector. So again, that One Future is a 1% all the way from the E&P space, all the way through the [indiscernible] or to the delivery to burner tips. so we're excited to be a part of that, but there's a certain percentage of that 1% that's allocated to our sectors of the business. And in those cases, we are way below and as I said, orders of magnitude below back. So we think we stand well, but we really don't know exactly where other competitors might stand on that.
And therefore, what kind of advantage might [indiscernible] But I do believe that we need good, honest, reliable operators in this space that are going to be focused on methane emissions reductions. Ernest Moniz, back when he was Secretary of Energy, really made it clear to the gas industry that, hey, I love this industry, I think it has a lot to offer from an emissions reduction standpoint. But you guys have got to get your methane emissions. That's going to be your Achilles' heel if you don't go after this. And so we've been on a mission to reduce that. I think we're extremely well-positioned if the methane emissions are positioned right.
And frankly, I think it's a real positive to make sure that we're reducing flaring, we're reducing emissions and VOC s from tanks in the field. I think all these things are very positive for our industry, and we certainly intend to continue to be a leader in that space.
Got it. And I'm wondering if you could just give us a sense of how large the projects are that you're working on with Orsted as part of that JV or MOU [Indiscernible] returns per day basis or absolute dollar cost basis, just trying to get a sense of how big the projects are. And then just tied to that. it's the hydrogen subsidies that are part of the reconciliation bill passed. Would that accelerate your hydrogen development plans?
Yes, it is in Chad, thanks for the question. Maybe starting with your last question. Yes, the incentives will be supportive in accelerating project opportunity. I mean, as we've discussed, hydrogen has been -- without an incentive structure and really needs an incentive structure to help support being projects jumpstarted. And I would also say that it's still early days on the hydrogen front. We're at the pilot stage. I would characterize project opportunities, but as far as our ambition goes, and if things prove out, if costs continue to come down, which we expect they would incentives get passed in Wyoming, for example, Alan talked about the potential to develop an energy hub in Wyoming in partnership with watershed and others. You could envision a very large
wind power production facility, 3 to 500 megawatts, if not larger, there's tremendous wind resource in Wyoming that hasn't been fully developed because it's not easy to build electric infrastructure to deliver that power to markets outside Wyoming. We have pipeline infrastructure that can deliver that energy at other parts of the country. We can build a very substantial wind power generation platform tied to several 100 megawatts of hydrogen production that we can move through we believe we could move through our existing infrastructure to customers across our footprint. Those are big ambitions.
And I will tell you again, its very early innings, but the pieces are coming together and we're very hopeful, we're going to start by crawling before we walk and put some projects online that I think will demonstrate the feasibility, but that gives you just one example and they are looking at others across our footprint, but that's one example of where we think we can get to scale.
Great. Thank you.
Your next question comes from the line of Spiro Dounis with Credit Suisse. Your line is open.
Good morning [indiscernible] (ph). First question, just on inflation from 2 different angles. First, just curious if you guys are seeing or do you expect to see any sort of impact on the cost side? And then alternatively, imagine a lot of your contracts, such on the G&P side, probably had some sort of escalators in there tied to CPI or PPI. So curious, how should we think about any sort of upward pressure on fees as we head into next year in this environment?
Good morning. This is Micheal. We are watching with supply chain issues and the inflation issues very closely. We got in front of the supply chain concerns early on with treating chemicals and lube and things of that nature to make sure that we had what we need to operate the business. And I do would expect, we are seeing price increases, fuel, diesel, gasoline, prices are up through this small component of what our overall expenses are in business. And we could likely to be managed appropriately. As you mentioned, the bulk of our gathering and processing agreements do have escalators in them, so we are protected there on the gathering and processing side and on the transmission side, we could obviously take advantage of rate cases if we need to.
But we've done a really good job managing our costs for several years now. And so we've been in very good shape for a number of years and managing that. And I suspect our teams will continue to do a great job at that. Going forward to year and take advantage of opportunities where we can to control our costs, but we will see some increased costs and there's no doubt about that. And the escalators that we have, there's various escalators that we use in the gathering and processing agreements. And I believe that would definitely cover the expense increases that we'll see.
Got it. Thanks for that color, Mike. Second question just switching gears slightly to the Permian. I know you are all focused on gas basins and that's certainly served you well. But I know at one you had considered Blue Barnett as a pipeline out of the basin. And obviously, I think we're seeing that basin tighten a lot faster than we all are expected with some of your peers talking about another pipeline, potentially as early as 2024. Just curious on any interest levels in the Permian in general and how you're thinking about Blue Barnett and your competitive nature there?
Yeah. We've certainly positioned ourselves where well there to take part in projects that come up. And I would just tell you, so far, we like the risk mitigation that we get out of the kind of projects that we do with 2 or more market or unit and not 7 and 10-year kind of contracts that are just basis differential pipeline, that once that basis differential slides, they come out of the mining. And with a number of pipelines in the market today that fit that bill, every yard getting written down or struggling for re-subscription. Not yet in the Permian, but you say it's always an issue of risk-adjusted return and those are big risks on the back end of pipeline that are easy to use more on the front end, but hard to ignore on the back end. And we think about our business on a very long-term sustainable basis.
And so tends to drive us towards longer-term contracts, and ones that we know that the value will be in there for the transportation for the long haul. I'm not telling you that we will be looking to take part, but with the returns would certainly have to be better than our other projects that we see within our capital stack.
And it's jagging and we have been expanding the capabilities of Transco, received volumes from the Permian. You think about our project strategy. If you look at the projects that and then approved projects we focused on, we connect directly to demand. And that is a very strong, sustainable, I think strategy. And as Alan mentioned, typically the demand contracts are very long tenured and we'll keep an eye on Permian [Indiscernible] as you mentioned, unless we can tie those projects to long-term contracts or to demand that we know will be sustainable. Then, we will probably fit that bill.
Got it. Appreciate the color guys, and John, congrats on the upcoming retirement.
Thanks.
Your next question comes from the line of Colton Bean with Tudor Pickering Holt. Your line is open.
Morning. So just circling back briefly on the Wyoming energy hub, is that an area we're willing to look to own a stake in the wind and electronic facilities? Would you prefer to lease the surface acreage or set and then participate further downstream on the transportation side?
I think -- we're valuing a lot of different possibilities. And clearly, we're going to focus on whether we have strength and capabilities. The strategy there is to -- [Indiscernible] could be a part of the energy systems for, not just the next 10 to 20 years, but for the next 100 years -- what we're good at. We're going to partner
with really strong, capable partners like Orsted and others. And so I think will certainly set of skills and infrastructure to make these projects possible. We're going to want to make sure that we participate where it makes sense, but I'd say it's a little bit early on to understand exactly where we're going to be putting our investments. And so, clearly after the Orsted announced we're not going to -- we're not a wind power Company. We're not a technology providers to work with us whether or not we invest in those parts of the value chain. I think we will stay unprepared to do that, if it is a smart place to invest, and what we're doing on the solar front, it's what we're doing in certain R and G opportunities. But, it's still pretty early on to figure out how all those pieces come together. But, we're constantly
evaluating that.
And then just briefly in the West, it looks like NGL transportation volumes stepped up a bit more than NGL production. Are you seeing a rebound in volumes coming into Overland Pass from the north, is there anything else to point to you there?
Yes. Well, we're already seeing some production increases from our assets out. I'm not going to talk too much about the third-parties coming in there, but we are seeing some really good uplift from a processing plants. And I think recovery, there has been off and on throughout the summer in -- coming into the fall here is that we're seeing an opportunity to bring in additional ethane into the systems as well.
And we were able in the Wyoming area, even though this should have showed up in production volumes coming out on the C3. I think it's always a good thing to pay attention to the C3+ volumes as obviously the ethane comes in and out based on pricing. And C3+ is kind of a better indicator of what's available on a regular basis. But I would say that the Patrick Draw Facility in Wyoming that we picked up earlier in the year, which was an adjacent plant to Echo Springs, shows up and those volumes came directly in to our system as well. And so we also picked up some volumes off the competitor pipeline there during the bankruptcy process from South Glynn. And so those volumes flowed into this as well.
So there at [indiscernible] springs are Wamsutter facility really been able to pick up the equity volumes that are coming to us. So some of that equity would've gotten produced some of it would've gotten on a competitor pipeline. All of that is not coming into our pipeline. And so that's some of that pickup you see.
Okay. I appreciate that.
Your next question comes from the line of Chase Mulvehill with B of A. Your line is open.
Good morning, everybody. I guess you spoke briefly about responsibly sourced natural gas during the [Indiscernible] remarks, but just a quick follow-up here. And I'd like to ask if you're seeing more interest from LNG liquefaction operators or really more interest from utility customers. And then I guess if you look at this, responsibly sourced natural gas, what's really the constraint to seeing quicker market adoption of responsibly source natural gas.
Hey, this is Chad. Thanks for the question. What I would say is that we are seeing strong interest from both LNG off-takers and utility customers. We have a wellhead to water and a wellhead to [indiscernible] of strategy with respect to [Indiscernible] been extremely listed on our plans and [indiscernible]because we've been working very hard and walk as Allan mentioned, to have a very credible solution in place. And I would tell you that we're clearly seeing a need within the marketplace to demonstrate not only within our footprint, but the work with our upstream partners and to work with our downstream customers to really track the full life cycle emissions footprint of the gap than flows through our systems.
And so we will be announcing several solutions that we are going to be focused on delivering for our customers. We have been in discussions with several of our customers where we think we can marry the solutions that we're developing with our producing partners efforts as well as our LNG customers and our utility customers. And we want to be able to shine a very credible light on the gap that we move versus drive down as admissions over time and just circling back to Alan's comments. Also, the Transco system is the largest, most flexible pipeline system here in the United States. We had the benefit of having multiple lines and our right of way.
We can do a lot with that system to demonstrate a lower emissions footprint, today. And to show a continually decreasing emissions footprint over time, we'd want to make sure we can do that in a very credible manner. And I do truly believe we're working with the Sequent team to make sure we did market. We'll responsibly sourced products and we are seeing a real intense focus on that front to the point where we've even had meetings with utility customers that have totaled. They are looking at the midstream providers to understand the emissions footprints of their potential gas supply. And they're going to factor that into their decisions with respect to how they source their gas. We think that sets up very well for us, again, because we've got I think the most modern, most efficient system in the United States.
And some quick follow-up on Sequent, I guess, first on responsibly sourced natural gas, you probably got a better view than most people. Are you seeing responsibly sourced natural gas get a premium out in the market today? And if not, what do you think will be the catalyst where responsibly sourced natural gas will actually start getting a premium out in the market?
I wouldn't think of it in terms of premium. I think in terms of the demand for our space is going to continue to drive, I think, the responsibly sourced gas, whether that -- whether you consider that to be a premium or, at some point, it will become competitive cost to play. I think it will reflect in natural gas prices and in demand for natural gas. There have been a few marketed RSG products out there and they haven't -- they think maybe attractive at a small premium.
I would also say though I don't know that anyone -- no one has yet truly tag an RSG product from wellhead water well hadn't earned it in a way that I think can be credibly marketed. But we don't think of it in terms of premium. We think of it in terms of this is going to be good for us, differentiate for what we can provide to our customers and therefore, support their goals as well as our emission goal.
I think in the current environment, you should think about it in the context of that somebody is going to sign up for a long-term supply. Even that it's an indexed price supply. That's competitive in the market. They're going to want to know that they are -- that's the supply that is not going to have a negative connotation with it. And so I would say when it comes to doing long-term contracts at index pricing, that people are going to be asking those questions and the tight right now would you say the tide is going to go to the runner, so to speak, the responsively [Indiscernible] gap to the degree that somebody can prove that up or demonstrate that they are on a fast available to prove that out.
So I think that's about as far as it's gone at this point, but, I think it's certainly something, and I think it's pretty strong support across the industry for making that more of a determinant in the marketing space. And we certainly want to be a part of that. But it's got to be credible, reliable, and something that's got good strong data behind it that ultimately could perhaps be even trade it. And so that's what we're focused on.
It all makes sense. Appreciate the color. I'll turn it back over.
And our final question comes from the line of Sunil Sibal with Seaport Global. Your line is open.
[indiscernible] good morning, folks. And thanks for squeezing me in. My first question related to the 1.2 billion of high return growth projects that you've highlighted in your capital allocation framework. I was just curious. I think you talked about some big projects in Gulf of Mexico and then, obviously, on the gas side, about, the Atlantic projects. Are there any other big projects we should be thinking of when we think about that $1.2 billion annual spend?
I think that pretty well got it captured. I think the $1.2 billion on normal capital spend is going to go first to the big projects on Transco, some of which we've mentioned today, our continued gathering system expansions. Even though those are more limited. We're really excited about the dollars we're investing right now in the deep-water Gulf of Mexico to support big client like the Well Prospect. And so the deep-water Gulf of Mexico is going to be a real driver of growth as you look out 3 years. And then beyond that, as we've mentioned, many times, investing in the modernization of our rate base, which will come with emissions reduction along our systems.
And about $400 million of Solar projects that we are moving rapidly through the development stage right now and starting to move towards execution on those projects. Those are the primary drivers that hasn't really changed a whole lot. I would say some of the projects on Transco, are moving up from our development list into execution list. But other than that really not a whole lot has changed since we laid out our capital allocation footprint.
Okay. Got it. And then one thing related to that, so is 3.5 to Forex kind of leverage level the right way to think about the additional debt, which could come with those kind of capital spend?
I would just say our -- depending on what happens with the price of our stock versus the cost of our debt will dictate a little bit of that, but there's another way. If the price of the stock came down or the yield -- yields came up in a way that mix is multiple of our 10-year debt, and money would go towards buying back stock and we would be running at the higher end of that range. If that doesn't occur, you'll see that drift down depending on how much we allocate towards the modernization projects that we talked about. And so those are the immediate variables that we'll be navigating between.
But if we -- I'll just say it's pretty strong, multiplying effect as our EBITDA continues to grow and continuing to invest in earning projects. And our EBITDA continues to grow, that move down on the debt metric. And this starts to move pretty fast. That as you see it's not -- that's not just in forecast, what you're seeing in real-time here as we continue to overperform on our debt metrics, as our EBITDA.
Okay, got it. And then once again related to that. So when I think about your 10-year bonds you use versus the? Obviously, this year, it's kind of come in a fair bit. But [Indiscernible] that metrics [Indiscernible] dividend you were as 10-year bond yields spread. And how does -- what do you think is a normalized kind of metric to look at when you think about your stock buyback decisions. Thanks.
[Indiscernible] from a debt yields standpoint, it feels like we're probably going to be hovering in this 2.5% to maybe 3% range for a while on the one hand feels like treasury rates start to move a little bit now. So we'll have to see what happens on that front. Credit spreads though, I think we're performing obviously very well and I think the sector is performing fairly well as we've seen. Credit spreads tightened a little bit. We just saw that in our recent bond yields, incredible demand for our -- for mid-part papers.
So I don't think we expect long-term rates, 10-year rates with the 2.5% range, but it doesn't feel like probably going to be 3.5 or 4. So that's the first part of your question. How do we see rates, probably 3%. The other part of your question might be getting that what's the multiple? And we're not disclosing that if that's your question on dividend yields relative to that 10-year rate, that's [Indiscernible] feel smart really to signal to the market with that point is.
Got it. I thought I would try anyways. Thanks for all the color.
Fair enough.
I will now turn the call back over to Alan Armstrong for closing remarks.
Okay. Well, great. Thank you all very much for joining us. Really excited to present for the benefits of all the hard work of our employees around the Company that occult produce such a terrific quarter, both through continued great operations as well as a lot of the transactions that we've executed on this year that are driving some of these. And so it's a real pleasure to get to talk about great performance that the organizations produced. And we look forward to doing that in the future. Many times more so thank you all very much for joining us.
This concludes today's conference call. Thank you for participating. You may now disconnect.