WILLIAMS COMPANIES, INC. Q2 FY2024 earnings call

• Project executions: Placed Transco regional energy access into full service ahead of schedule and under budget, completed Marcellus gathering expansion and Basin transmission expansion, Deepwater projects like new fields on Discovery system, initiated construction on Louisiana Energy Gateway and Transco's Texas to Louisiana Energy Pathway project, signed precedent agreement on Transco's Gilles West expansion.
• Emissions reductions: Replaced 57 transmission compressor units, on track to replace 112 units by end of year, will file new rates on Transco at end of month with new rates effective March 2025.
• Portfolio optimization: Sold stake in Aux Sable joint venture, consolidated ownership in Gulf of Mexico Discovery system.

Transmission and Storage business drove adjusted EBITDA growth. The Northeast G&P business had a $36 million unfavorable variance due to lower volumes but rate escalations. The West G&P business increased about $7 million. Marketing loss was lower. Upstream joint venture operations were up. In absolute terms, transmission and storage adjusted EBITDA improved $64 million or over 8.5%, Northeast G&P had a $36 million unfavorable variance, West G&P increased ~$7 million, marketing loss was $2 million lower, and upstream joint venture operations were up ~$2 million. Revenue contribution: Transmission and Storage was a key driver of adjusted EBITDA growth.

• Remain on track to achieve the top half of 2024 EBITDA guidance.
• Reaffirm 2025 adjusted EBITDA range of $7.2 billion to $7.6 billion, with a 5-year EBITDA CAGR of 8%.
• AFFO per share CAGR of 7% and EPS CAGR of 12% over 5-year period.
• Fundamentals to sustain and improve earnings and cash flow growth beyond 2025 continue to improve.

• Court decision vacating FERC certificate for ARIA, with need to address court concerns and ensure firm transportation capacity continues.
• Regulatory challenges with projects like REA and potential impacts of Chevron difference case reversal on permitting.

Q: Maybe I'll start with data centers here. So you mentioned that you're looking is just the first and maybe a handful of other data center projects. I guess 2 questions here. Can you give us a sense of the size and scope of some of the other projects that you're looking at in the backlog? And then how do you think about the returns on future projects for SES, I mean, we're estimating around a 5x EBIT Delta. Do you think that some of the future data center projects that are in the backlog could earn similar types of returns?

A: Yes. Well, first of all, Praneeth, thank you for the question and important issue. First of all, on actually, our return is even better than that, probably, as we've mentioned, the best return we've ever seen on a large-scale project on Transco and actually any of our transmission expansions over the long history for Williams. So pretty extraordinary return opportunity there. In terms of the data center load, we are right in the throes of that. We have a very long backlog of projects. And I will tell you that particularly in the Southeast and Atlantic, those expansion opportunities that we have, we frankly are kind of overwhelmed with the number of requests that we're doing and we are trying to make sense of those projects. Obviously, we're not going to start or announce another expansion project on the top of because obviously, that would force a combination of projects. And so it doesn't make any sense for us to be making any announcements when we've got a large project that we've committed to our customers to do everything we can to get that permitted cleanly and push that ahead. So extremely critical expansion for our utility customers in the Mid-Atlantic and the Southeast, and we understand that. And we're going to make sure that we deliver on that first to our customers. But despite the fact that there's a lot of attention there in the Southeast and the Mid-Atlantic, we're actually seeing strong demand response, a lot of projects that we're dealing with and trying to figure out how we can respond to in the Rocky Mountain states, particularly in Eastern Washington, the Quince area, in Idaho, in Salt Lake City region. So a lot of demand going on everywhere. And frankly, the big developers that we're working with are looking to find where they can -- because the time is of the essence, probably more than we can even imagine in our business. And so they are looking to where the permitting regime is right, where there's access to abundant natural gas supplies and frankly, where expansions on our systems are available. And so -- this has moved from being one of where people have been very focused previously in cloud-based data centers. They've been very focused on the latency issue or in other words, the connection into the -- into very fast and broadband networks to where they are now focused on the latency being less of an issue, not -- I wouldn't say it's not an issue, but less of an issue and the speed to market for power generation and gas resources being available to power that are coming front and center, along with the local air permitting issues associated with that. So I would just tell you, it is kind of an exciting time for us and even for me personally to be in such a steep learning curve on how we are going to make the very best use of our assets, but there certainly is not a dearth opportunity for us in that regard. In fact, as I said, it's a little bit overwhelming, and we're going to have to just make sure we make the very highest use of our assets because there obviously is as we expand the lower-cost expansions drive very high returns, but we only have so many of those. And those are precious, and we know that -- and so we're making sure that we make the various high return associated with the expansion around our assets. So we're not going to put a number on it because I hear people putting a number on it. And frankly, that's a very large guess. And in a time frame frankly, that's out there so far that -- and if you're not speaking to the returns that you're making on the project, I'm not really the purpose of quoting those kind of numbers when you're not really talking about the economic or financial impact to your business, and we're not ready to lay that out. But I can tell you that if anybody else has more opportunity than we do, I wish them luck because we're going to have a hard time keeping up with the opportunity in front of us right now. So hopefully, that gives you some color, but I would tell you, I think it's not all that meaningful to quote volumes on expansions if you're not talking about returns and you're not talking about the time frame for those opportunities.

Q: Just want to look at the guidance here and what the current thoughts are with regards to producer production expectations over the -- I guess, the balance of the year and into 25 years is the expectation that we've kind of hit the lows and there's kind of a growth from these points? Or just how you see production trending across your gathering assets?

A: Jeremy, it's Micheal. Yes, I think right now, we feel good about where we're at in regard to our current forecast for the production profiles coming from our customers. You've got to look at it between the rich basins and the dry gas. And obviously, the dry gas is challenged by pricing now. So producers are making a month of decision on gas volumes that they might shut in. I think you probably saw Cutera's announcement where they were shutting in $300 million for the month of August. And it's really a month-by-month decision for all the producers out there. But right now, we've anticipated this, as you've probably seen through the first half of the year. The team did a really good job anticipating where the production shut-ins would occur and the delayed tills and ducts. I would say right now, we've got over a Bcf of delayed TILs in the queue right now between all of our customer base, meaning that the producers have drilled the wells and completed them, and we've connected to them, and are ready to go when the price signals are there. And there's over 1 Bcf as well of us, so they've been drilled but not completed on our systems. So there's definitely a lot of opportunity to bring on gas as a producer, we see a price signal. And so I'd say our risk basins are still outperforming. We're seeing good pricing netbacks for the producers there, and that certainly buffers the dry gas situation that we have right now. But all in all, we feel good about our end-of-year forecast. And certainly, 2025 is going to be presentative as well. The Golden Pass LNG facility, you probably saw the announcement yesterday that they're going to be an end of 2025 in service, it appears. And so that should have been anticipated already by the market. It looks like with the forward curve. And producers will be making decisions on these curves. And when prices elevate, obviously, they'll hedge into that and keep their volumes flowing is what we anticipate. So we're really comfortable with where our current forecasts are.