Once again WMB beats estimates and its outlook. With oil demand in India surging, natural gas is back in the spotlight as a plentiful and cheap energy source in the US. With the first batch of wind energy turbines reaching the end of their useful life and realizing they cannot be recycled and are just piling up in landfills, people are becoming less convinced it actually is “clean energy” (PS, clean energy doesn’t exist).
LNG exports are surging and demand for electricity keeps climbing. all these are nice tailwinds for WMB and KMI
The dividend growth now also means our dividend yield on our initial investments is now 9%
With leverage ratios lower than both their long-term targets, both KMI and WMB have plenty of room for accretive acquisitions to grow their footprint
The Release:
Williams Delivers Another Year of Record Results;
TULSA, Okla. – Williams (NYSE: WMB) today announced its unaudited financial results for the three and 12 months ended December 31, 2023.
Continued strength in base business drives higher financial results
- GAAP net income of $3.273 billion, or $2.68 per diluted share (EPS) – up 60% vs. 2022
- Adjusted net income of $2.334 billion, or $1.91 per diluted share (Adj. EPS) – up 5% vs. 2022
- Adjusted EBITDA of $6.779 billion – up $361 million or 6% vs. 2022
- Cash flow from operations (CFFO) of $6.055 billion – up $1.166 billion or 24% vs. 2022
- Available funds from operations (AFFO) of $5.213 billion – up $295 million or 6% vs. 2022
- Dividend coverage ratio of 2.39x (AFFO basis)
- Record gathering volumes of nearly 18 Bcf/d and contracted transmission capacity of 32.3 Bcf/d– up 6% and 32%, respectively, from 2022
- Adjusted EBITDA guidance range of $6.8 billion to $7.1 billion in 2024 and $7.2 billion to $7.6billion in 2025, yielding an expected 5-year CAGR of 8%
- Ended year with 3.58x leverage ratio
- Raised dividend by 6.1% to $1.90 annualized; hit 50 consecutive years of dividend paymentsTransmission projects driving additional business growth in 2024-25; strategic acquisitions add highly contracted take-or-pay transmission and fee-based storage assets
- Pre-filed FERC application for Transco’s 1.6 Bcf/d Southeast Supply Enhancement 1Q 2024
- Received FERC certificates for Transco’s Commonwealth Energy Connectors, SouthsideReliability Enhancement, Southeast Energy Connector and Texas to Louisiana Energy Pathway
- Placed Transco’s Carolina Market Link in service in 1Q 2024
- Placed phase one of Transco’s Regional Energy Access expansion in service in 4Q 2023 aheadof schedule with remainder expected by 4Q 2024
- Completed Cardinal and Susquehanna gathering & processing expansions in 4Q 2023
- Acquired 115-Bcf natural gas storage portfolio, positioning Williams as the largest storage owneron the Gulf Coast as storage spreads and natural gas volatility continue to expand
- Optimized DJ Basin position with transactions to enhance natural gas and NGL value chain
- Added more than 8 Bcf/d of transmission capacity and 56 Bcf of gas storage with MountainWestacquisition in the Rockies serving western markets
CEO Perspective
Alan Armstrong, president and chief executive officer, made the following comments:
“Our natural gas-focused strategy delivered excellent financial results again in 2023 with contracted transmission capacity, gathering volumes and Adjusted EBITDA surpassing previous highs, demonstrating our ability to grow despite low natural gas prices. We expect this strong performance to continue in 2024 and have set our Adjusted EBITDA guidance midpoint at $6.95 billion, paving the way for what we anticipate will be a breakout year in 2025 as several large fee-based projects come online.
“In addition to outstanding financial results in 2023, we acquired strategic natural gas transmission, gathering and storage assets in the Rockies and on the Gulf Coast, enhancing our footprint in key areas and adding highly contracted take-or-pay transmission and fee-based storage assets to our business. We also continue to expand our existing infrastructure with 18 high-return projects in execution, including approximately 3.1 Bcf/d of expansions on Transco coming online over the next few years. I’m extremely proud of our teams for their commitment to best-in-class project execution in what has become a complex and challenging permitting environment for energy infrastructure of all types.”
Armstrong added, “Looking ahead, Williams is excited to provide additional natural gas solutions to support the reliability of the U.S. power sector as it faces growing regional demand driven in large part by the emergence of new, large-scale data centers that are accelerating throughout our key markets. With the buildout of electrification and renewables, as well as previously permitted LNG export growth, Williams will be there to provide additional natural gas baseload to ensure reliability. Our infrastructure today is vital to meeting the energy needs of tomorrow. Natural gas is an immediate and scalable climate solution to reduce global emissions and serve the growing need for energy security, while creating long-term value for our shareholders.”
GAAP Measures
Fourth-quarter 2023 net income increased by $478 million compared to the prior year driven by a $534 million gain related to the net cash received from the favorable resolution of litigation with Energy Transfer. The improvement also reflects a favorable change of $147 million in net unrealized gains/ losses on commodity derivatives and higher service revenues driven by recent acquisitions and expansion projects. These improvements were partially offset by lower gas marketing margins reflecting the absence of favorable severe winter weather impacts in the prior year, lower results from our upstream business, and higher depreciation and operating expenses resulting from acquisitions. The income tax provision increased $114 million primarily due to higher pretax income.
Full-year 2023 net income increased $1.2 billion compared to the prior year reflecting a favorable change of $909 million in net unrealized gains/losses on commodity derivatives, the previously described $534 million net litigation gain, and higher service revenues driven by recent acquisitions, expansion projects, and increased Northeast G&P volumes and rates. The improvement also included a $129 million gain on the sale of the Bayou Ethane system in 2023, partially offset by lower results from our upstream business, and higher depreciation and operating expenses resulting from acquisitions. The income tax provision increased $580 million primarily due to higher pretax income and the absence of $134 million benefit associated with the release of valuation allowances on deferred income tax assets and federal income tax settlements recorded in the prior year, and a lower benefit associated with decreases in our estimate of the state deferred income tax rate in both periods. The 2023 period also reported a loss from discontinued operations associated with an adverse legal ruling involving former refinery operations.
Cash flow from operations for the fourth quarter increased compared to the prior year primarily due to $534 million of net cash received related to the favorable Energy Transfer litigation outcome and favorable net changes in working capital. Full-year cash flow from operations increased compared to the prior year reflecting similar drivers, as well as favorable changes in derivative margin requirements partially offset by lower distributions from certain equity-method investments.
Non-GAAP Measures
Fourth-quarter 2023 Adjusted EBITDA decreased by $53 million from the prior year, driven by the previously described higher service revenues, more than offset by lower gas marketing margins, reduced upstream results and higher operating costs. Full-year 2023 Adjusted EBITDA increased by $361 million over the prior year, driven by the previously described higher service revenues, partially offset by reduced upstream results and higher operating costs.
Fourth-quarter 2023 Adjusted Net Income decreased by $65 million compared to the prior year, driven by the previously described impacts to net income, adjusted primarily to remove the net litigation gain, net unrealized gains/losses on commodity derivatives, and the related tax effects of these adjustments. Full-year Adjusted Net Income increased by $106 million over the prior year driven by the previously described impacts to net income from continuing operations, adjusted primarily for the litigation gain, net unrealized gains/losses on commodity derivatives, the gain on the sale of the Bayou Ethane system, amortization of certain assets from the Sequent acquisition, and the related tax effects of these adjustments as well as excluding the impact of the previously described prior year favorable income tax benefits.
Fourth-quarter 2023 Available Funds From Operations (AFFO) decreased slightly by $34 million compared to the prior year primarily due to lower operating results exclusive of noncash items. Full-year 2023 AFFO increased by $295 million primarily reflecting higher results from continuing operations exclusive of non-cash items partially offset by lower distributions from certain equity method investments.
Note: Williams uses Modified EBITDA for its segment reporting. Definitions of Modified EBITDA and Adjusted EBITDA and schedules reconciling to net income are included in this news release.
Transmission & Gulf of Mexico
Fourth-quarter 2023 Modified and Adjusted EBITDA improved compared to the prior year driven by the MountainWest acquisition. Modified EBITDA for full-year 2023 was further impacted by the gain on the sale of the Bayou Ethane system, benefits from the NorTex acquisition and expansion projects, increased benefit of allowance for equity funds used during construction, and one-time MountainWest acquisition and transition costs, while 2022 included a loss related to Eminence storage cavern abandonments and a regulatory charge associated with Transco’s deferred state income tax rate. The gain on sale, MountainWest acquisition and transition costs, Eminence abandonment costs, and Transco’s regulatory charge are all excluded from Adjusted EBITDA.
Northeast G&P
Fourth-quarter and full-year 2023 Modified and Adjusted EBITDA improved reflecting increased rates and volumes driven by the Ohio Valley, Cardinal, and Susquehanna operations. For our joint ventures, the full-year benefits of higher volumes and rates at Marcellus South and higher volumes at Blue Racer were more than offset by lower rates and volumes at Laurel Mountain Midstream and Bradford compared to the prior year. Modified EBITDA for full-year 2023 also reflects our share of a loss contingency accrual at Aux Sable which is excluded from Adjusted EBITDA.
West
Fourth-quarter 2023 Modified and Adjusted EBITDA decreased compared to the prior year primarily reflecting lower NYMEX-based rates in the Barnett partially offset by benefits from the DJ Basin Acquisitions. Full-year Modified and Adjusted EBITDA improved compared to the prior year driven by benefits from the DJ Basin and Trace Midstream Acquisitions and higher volumes at our Overland Pass joint venture. Favorable changes in operating and administrative costs were more than offset by lower processing margins reflecting a short-term gas price spike at Opal early in the year and severe weather impacts and lower service revenues reflecting lower NYMEX-based rates in the Barnett partially offset by favorable changes in realized gains on natural gas hedges and higher Haynesville volumes.
Gas & NGL Marketing Services
Fourth-quarter 2023 Modified EBITDA improved from the prior year primarily reflecting a $142 million net favorable change in unrealized gains/losses on commodity derivatives partially offset by lower gas marketing margins reflecting the absence of favorable severe winter weather impacts in the prior year. Full-year 2023 Modified EBITDA improved from the prior year primarily reflecting a $933 million net favorable change in unrealized gains/losses on commodity derivatives and higher commodity marketing margins reflecting reduced levels of inventory write-downs partially offset by the previously discussed lower gas marketing margins. The unrealized gains/losses on commodity derivatives are excluded from Adjusted EBITDA.
Other
Fourth-quarter and full-year 2023 Modified EBITDA increased compared to the prior year primarily reflecting the $534 million gain from the net cash received from the favorable resolution of our litigation with Energy Transfer, partially offset by lower results from our upstream business driven by lower prices, partially offset by higher production volumes. The full-year comparison also reflects a $24 million unfavorable change in unrealized gains/losses on commodity derivatives. Adjusted EBITDA for both comparative periods was lower and excludes the favorable litigation gain and the effects of changes in unrealized gains/losses on commodity derivatives.
Financial Guidance
The company expects 2024 Adjusted EBITDA between $6.8 billion and $7.1 billion. The company also expects 2024 growth capex between $1.45 billion and $1.75 billion and maintenance capex between $1.1 billion and $1.3 billion, which includes capital of $350 million based on midpoint for emissions reduction and modernization initiatives. For 2025, the company expects Adjusted EBITDA between $7.2 billion and $7.6 billion with growth capex between $1.65 billion and $1.95 billion and maintenance capex between $750 million and $850 million, which includes capital of $100 million based on midpoint for emissions reduction and modernization initiatives. Williams anticipates a leverage ratio midpoint for 2024 of 3.85x and has increased the dividend by 6.1% on an annualized basis to $1.90 in 2024 from $1.79 in 2023.
