The Williams Companies, Inc. (NYSE:WMB) Q3 2023 Earnings Call Transcript

In a moment, I’ll provide a little color on our expectations for the remainder of the year and a few thoughts regarding the outlook beyond 2023. So let’s turn to the next slide and take a little closer look at the third quarter results. We see a 1% overall increase, but a strong 6% increase in our base business EBITDA over the prior year, even as average natural gas prices for the third quarter decreased 68%. Now even for the base business, excluding marketing and our upstream joint ventures, that dramatic decrease in natural gas prices had a significant impact on our revenues. In fact, we saw about $70 million of lower natural gas price based gathering rates at certain of our franchises in the West and Northeast Gathering & Processing segments.

Last year, saw those rates significantly lift from the floor values they had been at for many years, and in 2023, we’ve seen them return back to their floor values. Looking now at our core business performance, our Transmission & Gulf of Mexico business improved $83 million, or 12%, including about a $47 million contribution from our MountainWest Pipelines and NorTex acquisitions, but we did see other increases in our transmission and deepwater businesses as well. Our Northeast gathering and processing business performed well with a $21 million or 5% increase, including a 4% overall increase in volumes versus last year. This 4% volume growth happened even though we saw much lower shoulder season natural gas pricing in 2023 versus 2022. And as we expected, that particularly impacted our dry gas systems, including some significant shut in volumes in Northeast Pennsylvania.

However, as we’ve talked about before, when low natural gas prices weigh on dry gas production, we tend to see a shift to our liquids rich systems where higher margins tend to compensate for lower volumes. And that’s what we see in third quarter this year, with about a 22% increase in processing plant volumes fed by those liquids rich systems, with related increases in NGL production, volumes and associated fractionation and transportation revenues as well. So shifting now to the West, which decreased $22 million or 7%, where the unfavorable impact of those lower natural gas price based rates fueled by last year’s much higher natural gas prices overcame what was strong volume growth in the Haynesville. And then you see the $22 million decrease in the gas and NGL marketing business.

Last year’s third quarter saw much more favorable conditions for the gas marketing business with stronger natural gas price volatility in particular. Our upstream joint venture operations that are included in our other segment were down about $52 million versus last year, that includes the Haynesville upstream EBITDA, which was down about $36 million despite higher production, but due to much lower net realized prices and a lower working interest percentage on new wells beginning in January 2023. The Wamsutter upstream EBITDA was down about $16 million, where increases in gas and oil production significantly offset much lower net realized prices versus last year. So again, the third quarter continued our strong base business performance in 2023 with 6% growth and EBITDA driven by core infrastructure business performance in spite of natural gas prices that were 68% lower than third quarter of 2022.

Let’s turn the page and touch on the year-to-date comparison. Year-to-date, we’ve seen a 9% increase over 2022, even as average natural gas prices year-to-date fell 63% versus last year. And walking now from last year’s $4.6 billion to this year’s $5.1 billion and looking at our core business performance, Transmission & Gulf of Mexico business improved $210 million or 10% really on similar themes as our third quarter, namely the impacts of the MountainWest Pipelines and NorTex acquisitions, and still seeing other increases in our transmission and deepwater revenues as well. Our Northeast G&P business has performed very well with $138 million or 10% increase driven by a $217 million increase in their service revenues. And this revenue increase was really fueled by a 6% increase in total volumes 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’ll find a slide that compares our 6% volume growth to the overall basin growth of just over 2%. Shifting now to the West, which increased $20 million or 2%, benefiting from positive hedge results and strong Haynesville volume growth, including the Trace acquisition in the Haynesville, but the West was significantly unfavorably impacted by those lower natural gas price based gathering rates and also lower NGL margins. And then you see the $122 million increase in our gas and NGL marketing business, as you’ll recall, really caused by the very strong first quarter start to the year for the gas marketing business. Our upstream joint venture operations included in our other segment were down $92 million versus last year.