WILLIAMS COMPANIES General
We are an energy infrastructure company focused on connectingNorth America's significant hydrocarbon resource plays to growing markets for natural gas and NGLs through our gas pipeline and midstream businesses. Our operations are located inthe United States . Our interstate natural gas pipeline strategy is to create value by maximizing the utilization of our pipeline capacity by providing high quality, low cost transportation of natural gas to large and growing markets. Our gas pipeline businesses' interstate transmission and storage activities are subject to regulation by theFERC and, as such, our rates and charges for the transportation of natural gas in interstate commerce, and the extension, expansion or abandonment of jurisdictional facilities and accounting, among other things, are subject to regulation. Rates are established in accordance with theFERC's ratemaking process. Changes in commodity prices and volumes transported have limited near-term impact on these revenues because the majority of our cost of service is recovered through firm capacity reservation charges in transportation rates. The ongoing strategy of our midstream operations is to safely and reliably operate large-scale midstream infrastructure where our assets can be fully utilized and drive low per-unit costs. We focus on consistently attracting new business by providing highly reliable services to our customers. These services include natural gas gathering, processing, treating, and compression, NGL fractionation and transportation, crude oil production handling and transportation, marketing services for NGL, crude oil and natural gas, as well as storage. EffectiveJanuary 1, 2020 , following an organizational realignment, our interstate natural gas pipeline Northwest Pipeline, which was reported within the West reporting segment throughout 2019, is now managed within the Transmission &Gulf of Mexico reporting segment (previously identified as the Atlantic-Gulf reporting segment). Consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources, our operations are conducted, managed, and presented within the following reportable segments: Transmission &Gulf of Mexico , Northeast G&P, and West. All remaining business activities as well as corporate activities are included in Other. Our reportable segments are comprised of the following businesses: •Transmission &Gulf of Mexico is comprised of our interstate natural gas pipelines,Transco and Northwest Pipeline, as well as natural gas gathering and processing and crude oil production handling and transportation assets in theGulf Coast region, including a 51 percent interest in Gulfstar One (a consolidated variable interest entity), which is a proprietary floating production system, a 50 percent equity-method investment in Gulfstream, and a 60 percent equity-method investment in Discovery. •Northeast G&P is comprised of our midstream gathering, processing, and fractionation businesses in theMarcellus Shale region primarily inPennsylvania andNew York , and theUtica Shale region of easternOhio , as well as a 65 percent interest in our Northeast JV (a consolidated variable interest entity) which operates in WestVirginia, Ohio , andPennsylvania , a 66 percent interest in Cardinal (a consolidated variable interest entity) which operates inOhio , a 69 percent equity-method investment inLaurel Mountain , a 58 percent equity-method investment in Caiman II, and Appalachia Midstream Investments, a wholly owned subsidiary that owns equity-method investments with an approximate average 66 percent interest in multiple gas gathering systems in theMarcellus Shale . •West is comprised of our gas gathering, processing, and treating operations in theRocky Mountain region ofColorado andWyoming , theBarnett Shale region of north-centralTexas , theEagle Ford Shale region of southTexas , theHaynesville Shale region of northwestLouisiana , and the Mid-Continent region which includes theAnadarko , Arkoma, and Permian basins. This segment also includes our NGL and natural gas marketing business, storage facilities, an undivided 50 percent interest in an NGL fractionator nearConway, Kansas , a 50 percent equity-method investment in OPPL, a 50 percent equity-method investment in RMM, and a 15 percent interest in Brazos Permian II. West also included our former 50 percent equity-method investment in Jackalope, which was sold inApril 2019 . •Other includes minor business activities that are not operating segments, as well as corporate operations. 36 -------------------------------------------------------------------------------- Management's Discussion and Analysis (Continued) Dividends InSeptember 2020 , we paid a regular quarterly dividend of$0.40 per share. Overview of Nine Months EndedSeptember 30, 2020 Net income (loss) attributable toThe Williams Companies, Inc. , for the nine months endedSeptember 30, 2020 , decreased$631 million compared to the nine months endedSeptember 30, 2019 , reflecting: •$752 million increase in Impairment of equity-method investments driven by$938 million of impairments in the first quarter of 2020; •$187 million of Impairment of goodwill in 2020; •$122 million decrease due to the absence of a 2019 gain on the sale of our interest in Jackalope; •A$33 million unfavorable change in Other income (expense) - net; •A$25 million decrease in service revenues reflecting decreases in deferred revenue recognition at Gulfstar One and in theBarnett , as well as the expiration of the MVC agreement in theBarnett Shale region in 2019, partially offset by revenue growth from our Northeast JV andTransco expansion projects; •A$24 million decrease in equity earnings, primarily due to our$78 million share of an impairment of goodwill recorded by an equity-method investee in 2020, partially offset by increased contributions from our Northeast G&P investments. These unfavorable changes were partially offset by: •A$220 million favorable change in provision for income taxes; •$98 million of lower Operating and maintenance expenses; •An$81 million favorable change in Net income (loss) attributable to noncontrolling interests primarily due to the noncontrolling interests' share of the first-quarter 2020 goodwill impairment charge; •$76 million increase due to the absence of 2019 Impairment of certain assets; •$56 million of lower Selling, general, and administrative expenses. The following discussion and analysis of results of operations and financial condition and liquidity should be read in conjunction with the consolidated financial statements and notes thereto of this Form 10Q and our annual consolidated financial statements and notes thereto in Exhibit 99.1 of our Form 8-K datedMay 4, 2020 . Recent Developments Expansion Project Update Transmission &Gulf of Mexico Hillabee InFebruary 2016 , theFERC issued a certificate order for the initial phases ofTransco's Hillabee Expansion Project . The project involves an expansion ofTransco's existing natural gas transmission system from Station 85 in west centralAlabama to an interconnection with theSabal Trail pipeline in east centralAlabama . The project is being constructed in phases, and all of the project expansion capacity is dedicated toSabal Trail pursuant to a capacity lease agreement. Phase I was completed in 2017 and it increased capacity by 818 Mdth/d. We placed Phase II into service onMay 1, 2020 . Together, the first two phases of the project increased capacity by 1,025 Mdth/d. 37 -------------------------------------------------------------------------------- Management's Discussion and Analysis (Continued) COVID-19 The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. We are monitoring the COVID-19 pandemic and have taken steps intended to protect the safety of our customers, employees, and communities, and to support the continued delivery of safe and reliable service to our customers and the communities we serve. We are continuing to monitor developments with respect to the outbreak and note the following: •Our financial condition, results of operations, and liquidity have not been materially impacted by direct effects of COVID-19. •We believe we have the ability to access the debt market, if necessary, as evidenced by the successful completion of debt offerings during second-quarter 2020, and continue to have significant levels of unused capacity on our revolving credit facility. •We continue to monitor and adapt our remote working arrangements and limit business-related travel. Implementation of these measures has not required material expenditures or significantly impacted our ability to operate our business. •Our remote working arrangements have not significantly impacted our internal controls over financial reporting and disclosure controls and procedures. Customer Bankruptcies InJune 2020 , our customerChesapeake announced that it had voluntarily filed for relief under Chapter 11 of theU.S. Bankruptcy Code. We provide midstream services, including wellhead gathering, for the natural gas thatChesapeake and its joint interest owners produce, primarily in theEagle Ford Shale ,Haynesville Shale , andMarcellus Shale regions (through Appalachia Midstream Investments). In 2019,Chesapeake accounted for approximately 6 percent of our consolidated revenues. As ofSeptember 30, 2020 , trade accounts receivable due fromChesapeake include$88 million related to services provided prior toChesapeake's bankruptcy filing. The remaining trade accounts receivable due fromChesapeake are current. We have evaluated these receivables fromChesapeake and our related asset groups and investments involved in providing services toChesapeake and determined that no expected credit losses or impairment charges are required to be recognized at this time. This evaluation considered the physical nature of our services in these basins, where we gather at the wellhead and are critical toChesapeake's ability to move product to market, along with an assessed low likelihood of contract rejection, noting that to dateChesapeake has not attempted to reject any of our contracts.Chesapeake also received initial limited approval to continue paying for services such as those we provide. We also considered our prior experiences with customer bankruptcies, where receivables were ultimately collectible even if the timing of collections was impacted. Future developments inChesapeake's ongoing bankruptcy proceedings could affect our assumptions and conclusions regarding credit losses and impairment charges. We have certain other customers of our consolidated operations and investees, which are less significant to our consolidated results of operations, that have also filed for bankruptcy protection. To date, based on considerations such as our review of those bankruptcy filings, our assessment of the likelihood of contract rejection, and/or ongoing collections of amounts invoiced, we have not recognized any significant credit losses or impairment charges related to these customers. We continue to monitor these ongoing customer bankruptcy proceedings as it is reasonably possible that future developments could affect our assumptions and conclusions. Crude Oil Price Decline During the first several months of 2020, crude oil prices decreased as a result of surplus supply and weakened demand caused by the COVID-19 pandemic. In addition, in early March,Saudi Arabia announced that it would cut export prices and increase production, contributing to a sharp decline in crude oil prices. The significant decline in crude oil prices also impacted NGL prices. While our businesses do not have direct exposure to crude oil prices, the 38 -------------------------------------------------------------------------------- Management's Discussion and Analysis (Continued) combined impacts of the crude oil price decline on our industry and the financial market declines driven by COVID-19 have impacted us as follows: •The publicly traded price for our common stock (NYSE: WMB) declined significantly in the first quarter of 2020. As a result, our board of directors approved a limited duration shareholder rights agreement. (See Note 11 - Stockholders' Equity of Notes to the Consolidated Financial Statements.) •Driven by the decline in our market capitalization and the underlying decrease in fair value of our Northeast G&P reporting unit, we recognized a$187 million impairment of goodwill during the first quarter of 2020. (See Note 12 - Fair Value Measurements and Guarantees of Notes to the Consolidated Financial Statements.) •The same economic conditions impacted the fair value of certain of our equity-method investments, resulting in$938 million of other-than-temporary impairments of these investments in the first quarter of 2020. (See Note 12 - Fair Value Measurements and Guarantees of Notes to the Consolidated Financial Statements.) Considering the decline in crude oil prices, we note the following about our businesses: •Our interstate natural gas transmission businesses are fully contracted under long-term firm reservation contracts with high credit quality customers and are not exposed to crude oil prices. •We believe counterparty credit concerns in our gathering and processing business are significantly mitigated by the physical nature of our services, where we gather at the wellhead and are therefore critical to a producer's ability to move product to market. •Our on-shore natural gas gathering and processing businesses are substantially focused on gas-directed drilling basins rather than oil, with a broad diversity of basins and customers served. Further, a decline in oil drilling would be expected to result in less associated natural gas production, which could drive more demand for natural gas produced from gas-directed basins we serve. •Our deepwater transportation business is supported mostly by major oil producers with a long-cycle perspective. NGL Margins Per-unit non-ethane margins were approximately 35 percent lower in the first nine months of 2020 compared to the same period in 2019 primarily due to a 30 percent decrease in per-unit non-ethane sales prices, partially offset by 31 percent lower per-unit natural gas feedstock prices. NGL margins are defined as NGL revenues less any applicable Btu replacement cost, plant fuel, and third-party transportation and fractionation. Per-unit NGL margins are calculated based on sales of our own equity volumes at the processing plants. Our equity volumes include NGLs where we own the rights to the value from NGLs recovered at our plants under both "keep-whole" processing agreements, where we have the obligation to replace the lost heating value with natural gas, and "percent-of-liquids" agreements whereby we receive a portion of the extracted liquids with no obligation to replace the lost heating value. The potential impact of commodity prices on our business for the remainder of 2020 is further discussed in the following Company Outlook. Filing of Rate Case OnAugust 31, 2018 ,Transco filed a general rate case with theFERC for an overall increase in rates. InSeptember 2018 , with the exception of certain rates that reflected a rate decrease, theFERC accepted and suspended our general rate filing to be effectiveMarch 1, 2019 , subject to refund and the outcome of a hearing. The specific rates that reflected a rate decrease were accepted, without suspension, to be effectiveOctober 1, 2018 , as requested byTransco , and were not subject to refund. InMarch 2019 , theFERC accepted our motion to place the rates that 39 -------------------------------------------------------------------------------- Management's Discussion and Analysis (Continued) were suspended by theSeptember 2018 order into effect onMarch 1, 2019 , subject to refund. InOctober 2019 , we reached an agreement on the terms of a settlement with the participants that would resolve all issues in the rate case without the need for a hearing, and onDecember 31, 2019 , we filed a formal stipulation and agreement with theFERC setting forth such terms of settlement. OnMarch 24, 2020 , theFERC issued an order approving the uncontested rate case settlement, which became effective onJune 1, 2020 . Rate refunds related to increased rates collected prior to the effective date of the settlement were paid onJuly 1, 2020 . Company Outlook Our strategy is to provide large-scale energy infrastructure designed to maximize the opportunities created by the vast supply of natural gas and natural gas products that exists inthe United States . We accomplish this by connecting the growing demand for cleaner fuels and feedstocks with our major positions in the premier natural gas and natural gas products supply basins. We continue to maintain a strong commitment to safety, environmental stewardship, operational excellence, and customer satisfaction. We believe that accomplishing these goals will position us to deliver safe and reliable service to our customers and an attractive return to our shareholders. Our business plan for 2020 includes a continued focus on earnings and cash flow growth, while continuing to improve leverage metrics and control operating costs. Many of our producer customers have been impacted by extremely low energy commodity prices, which resulted in a decrease in drilling activity and the temporary shut-in of certain existing production. We are responding by reducing the pace of our capital growth spending in our gathering and processing business and remaining committed to operating cost discipline. In the current environment, the credit profiles of certain of our producer customers are increasingly challenged, including some that have filed for bankruptcy protection. But as previously discussed, the physical nature of services we provide supports the success of these customers. In many cases, we have long-term acreage dedications with strong historical contractual conveyances that create real estate interests in unproduced gas. In exchange for such dedication of production, we invest capital to build gathering lines uniquely to serve a producer's wells. Therefore, our gathering lines are physically connected to the customer's wellheads and pads, conditioning and connecting the production to available markets. There may not be other gathering lines nearby. The construction of gathering systems is capital intensive and it would be very costly for others to replicate, especially considering the depletion to date of the associated reserves. As a result, we play a critical role in getting a customer's production from the wellhead to a marketable condition and location. This tends to reduce collectability risk as our services enable producers to generate operating cash flows. In 2020, our operating results are expected to include higher Northeast G&P results associated with higher gathering and processing volumes and the benefit of lower expenses associated with our organizational realignment completed earlier this year as well as other cost-savings initiatives. We also anticipate increases fromTransco's and Northwest Pipeline's recent expansion projects placed in-service andTransco's rate settlement, as well as a full year contribution from the Norphlet project in the Eastern Gulf region. These increases will be partially offset by lower deferred revenue amortization related to theWest's Barnett Shale region and Gulfstar One in the Eastern Gulf region. We also expect lower fee revenues in the West, as well as reduced results from theGulf of Mexico due to loss of production and an increase in repair expenses as a result of several named windstorms. Our growth capital and investment expenditures in 2020 are expected to be in a range from$1.0 billion to$1.2 billion . Growth capital spending in 2020 primarily includesTransco expansions, all of which are fully contracted with firm transportation agreements, and our Bluestem NGL pipeline project in the Mid-Continent region. In addition to growth capital and investment expenditures, we also remain committed to projects that maintain our assets for safe and reliable operations, as well as projects that meet legal, regulatory, and/or contractual commitments. Potential risks and obstacles that could impact the execution of our plan include: •Continued negative impacts of COVID-19 driving a global recession, which could result in further downturns in financial markets and commodity prices, as well as impact demand for natural gas and related products; 40 -------------------------------------------------------------------------------- Management's Discussion and Analysis (Continued) •Opposition to, and legal regulations affecting, our infrastructure projects, including the risk of delay or denial of permits and approvals needed for our projects; •Counterparty credit and performance risk, including unexpected developments in ongoing customer bankruptcy proceedings; •Unexpected significant increases in capital expenditures or delays in capital project execution; •Unexpected changes in customer drilling and production activities, which could negatively impact gathering and processing volumes; •Lower than anticipated demand for natural gas and natural gas products which could result in lower than expected volumes, energy commodity prices, and margins; •General economic, financial markets, or further industry downturn, including increased interest rates; •Physical damages to facilities, including damage to offshore facilities by named windstorms; •Other risks set forth under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , as filed with theSEC onFebruary 24, 2020 , as supplemented by the disclosures in Part II, Item 1A. in our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2020 . We seek to maintain a strong financial position and liquidity, as well as manage a diversified portfolio of energy infrastructure assets that continue to serve key growth markets and supply basins inthe United States . Expansion Projects Our ongoing major expansion projects include the following: Transmission &Gulf of Mexico Northeast Supply Enhancement InMay 2019 , we received approval from theFERC to expandTransco's existing natural gas transmission system to provide incremental firm transportation capacity from Station 195 inPennsylvania to the Rockaway Delivery Lateral transfer point inNew York . However, approvals required for the project from theNew York State Department of Environmental Conservation and theNew Jersey Department of Environmental Protection were denied inMay 2020 . We have not refiled our applications for those approvals. The project would increase capacity by 400 Mdth/d. See further discussion in Critical Accounting Estimates.Southeastern Trail InOctober 2019 , we received approval from theFERC to expandTransco's existing natural gas transmission system to provide incremental firm transportation capacity from thePleasant Valley interconnect with Dominion'sCove Point Pipeline inVirginia to the Station 65 pooling point inLouisiana . We plan to place up to 230 Mdth/d of capacity under the project into service in the fourth quarter of 2020, and the remainder of the project capacity into service in the first quarter of 2021. In total, the project is expected to increase capacity by 296 Mdth/d. Leidy South InJuly 2020 , we received approval from theFERC for the project to expandTransco's existing natural gas transmission system and also extend its system through a capacity lease withNational Fuel Gas Supply Corporation that will enable us to provide incremental firm transportation fromClermont, Pennsylvania and from the Zick interconnection onTransco's Leidy Line to theRiver Road regulating station inLancaster County, Pennsylvania . We plan to place up to 125 Mdth/d of capacity under the project into service in the fourth quarter of 2020, and we plan to place the remainder of the project into service as early as the fourth quarter of 41 -------------------------------------------------------------------------------- Management's Discussion and Analysis (Continued) 2021, assuming timely receipt of all necessary regulatory approvals. The project is expected to increase capacity by 582 Mdth/d. West Project Bluestem We are expanding our presence in the Mid-Continent region through building a 188-mile NGL pipeline from our fractionator nearConway, Kansas , to an interconnection with a third-party NGL pipeline system inOklahoma , providing us with firm access to Mt. Belvieu pricing. As part of the project, the third-party is constructing a 110-mile pipeline extension of its existing NGL pipeline system that will have an initial capacity of 120 Mbbls/d. The pipeline and extension projects are expected to be in operation by the end of the fourth quarter of 2020. Further, during the first quarter of 2019, we exercised an option to purchase a 20 percent equity interest in a Mt. Belvieu fractionation train developed by the third party, which was placed into service in the first quarter of 2020. Critical Accounting Estimates Equity-Method Investments We monitor our equity-method investments for any indications that the carrying value may have experienced an other-than-temporary decline in value. In the first quarter of 2020, we observed a significant decline in the publicly traded price of our common stock (NYSE: WMB) as well as other industry peers and increases in equity yields within the midstream and overall energy industry, which served to increase our estimates of discount rates and weighted-average cost of capital. These changes were attributed to the swift, world-wide economic declines associated with actions to address the spread of COVID-19, coupled with the energy industry impact of significantly reduced energy commodity prices, which were further impacted by crude oil price declines associated with geopolitical actions during the quarter. These significant macroeconomic changes served as indications that the carrying amount of certain of our equity-method investments may have experienced an other-than temporary decline in fair value, determined in accordance with Accounting Standards Codification (ASC) Topic 323, "Investments -Equity Method and Joint Ventures ." As a result, we estimated the fair value of these equity-method investments in accordance with ASC Topic 820, "Fair Value Measurement," as of theMarch 31, 2020 , measurement date. In assessing the fair value, we were required to consider recent publicly available indications of value, which included lower observed publicly traded EBITDA market multiples as compared with recent history, and significantly higher industry weighted-average discount rates. As a result, we determined that there were other-than-temporary declines in the fair value of certain of our equity-method investments, resulting in recognized impairments during the first quarter of 2020 totaling$938 million . (See Note 12 - Fair Value Measurements and Guarantees of Notes to Consolidated Financial Statements.) This included impairments of certain of our equity-method investments in our Northeast G&P segment totaling$405 million , primarily associated with operations in wet-gas areas where producer drilling activities are influenced by NGL prices, which historically trend with crude oil prices. This total was primarily comprised of impairments of our investment in Caiman II and predominantly wet-gas gathering systems that are part of Appalachia Midstream Investments. We also recognized an impairment of$97 million related to Discovery within the Transmission &Gulf of Mexico segment. We estimated the fair value of these investments as of theMarch 31, 2020 , measurement date utilizing income and market approaches, which were impacted by assumptions reflecting the significant recent market declines previously discussed, such as higher discount rates, ranging from 9.7 percent to 13.5 percent, and lower EBITDA multiples ranging from 5.0x to 6.2x. We also considered any debt held at the investee level, and its impact to fair value. We estimate that a one percentage point increase or decrease in the discount rates used would increase these recognized impairments by approximately$197 million or decrease the level of these recognized impairments by approximately$121 million and a 0.5x increase or decrease in the EBITDA multiples assumed would decrease or increase the level of impairments recognized by approximately$48 million . During the first quarter of 2020 we also recognized$436 million of impairments within our West segment related to our investments in RMM and Brazos Permian II, measured using an income approach. Both investees 42 -------------------------------------------------------------------------------- Management's Discussion and Analysis (Continued) operate in primarily crude oil-driven basins where our gathering volumes are driven by crude oil drilling. Our expectation of continued lower crude oil prices and related expectation of significant reductions in current and future producer activities in these areas led to reduced estimates of expected future cash flows. Our fair value estimates also reflected increases in the discount rates to approximately 17 percent for these investments. We also considered any debt held at the investee level, and its impact to fair value. We estimate that a one percentage point increase in the discount rate would increase these recognized impairments by approximately$32 million , while a one percentage point decrease would decrease these impairments by approximately$43 million . Judgments and assumptions are inherent in our estimates of future cash flows, discount rates, and market measures utilized. The use of alternate judgments and assumptions could result in a different calculation of fair value, which could ultimately result in the recognition of a different impairment charge in the consolidated financial statements, potentially including impairments for investments that were evaluated but for which no impairments were recognized. Property, Plant, and Equipment and Other Identifiable Intangible Assets As a result of the previously described significant macroeconomic changes during the first quarter of 2020, we also evaluated certain of our property, plant, and equipment and other identifiable intangible assets for indicators of impairment as ofMarch 31, 2020 . In our assessments, we considered the impact of the then current market conditions on certain of our assets and did not identify any indicators that the carrying amounts of those assets may not be recoverable. The use of alternate judgments or changes in future conditions could result in a different conclusion regarding the occurrence and measurement of impairments affecting the consolidated financial statements. As ofSeptember 30, 2020 , Property, plant, and equipment in our Consolidated Balance Sheet includes approximately$215 million of capitalized project development costs for the Northeast Supply Enhancement project. As previously discussed, approvals required for the project from theNew York State Department of Environmental Conservation and theNew Jersey Department of Environmental Protection have been denied and we have not refiled at this time. Beginning inMay 2020 , we discontinued capitalization of costs related to this project. The customer precedent agreements for the Northeast Supply Enhancement project remain in effect and the project'sFERC certificate remains active. As such, we do not believe this project is probable of abandonment at this time and consider the carrying amount to be recoverable; thus, no impairment charge has been recognized. It is reasonably possible that further adverse developments in the near future could change this determination, resulting in a future impairment charge of a substantial portion of the capitalized costs. 43 --------------------------------------------------------------------------------
Management's Discussion and Analysis (Continued)
Results of Operations Consolidated Overview The following table and discussion is a summary of our consolidated results of operations for the three and nine months endedSeptember 30, 2020 , compared to the three and nine months endedSeptember 30, 2019 . The results of operations by segment are discussed in further detail following this consolidated overview discussion. Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 $ Change* % Change* 2020 2019 $ Change* % Change* (Millions) (Millions) Revenues: Service revenues$ 1,479 $ 1,495 -16 -1 %$ 4,399 $ 4,424 -25 -1 % Service revenues - commodity consideration 40 38 +2 +5 % 93 158 -65 -41 % Product sales 414 466 -52 -11 % 1,135 1,512 -377 -25 % Total revenues 1,933 1,999 5,627 6,094 Costs and expenses: Product costs 380 434 +54 +12 % 1,047 1,442 +395 +27 % Processing commodity expenses 21 19 -2 -11 % 49 83 +34 +41 % Operating and maintenance expenses 336 364 +28 +8 % 993 1,091 +98 +9 % Depreciation and amortization expenses 426 435 +9 +2 % 1,285 1,275 -10 -1 % Selling, general, and administrative expenses 114 130 +16 +12 % 354 410 +56 +14 % Impairment of certain assets - - - - % - 76 +76 +100 % Impairment of goodwill - - - - % 187 - -187 NM Other (income) expense - net 15 (11) -26 NM 28 30 +2 +7 % Total costs and expenses 1,292 1,371 3,943 4,407 Operating income (loss) 641 628 1,684 1,687 Equity earnings (losses) 106 93 +13 +14 % 236 260 -24 -9 % Impairment of equity-method investments - (114) +114 +100 % (938) (186) -752 NM Other investing income (loss) - net 2 7 -5 -71 % 6 132 -126 -95 % Interest expense (292) (296) +4 +1 % (882) (888) +6 +1 % Other income (expense) - net (23) 1 -24 NM (14) 19 -33 NM Income (loss) before income taxes 434 319 92 1,024 Provision (benefit) for income taxes 111 77 -34 -44 % 24 244 +220 +90 % Net income (loss) 323 242 68 780 Less: Net income (loss) attributable to noncontrolling interests 14 21 +7 +33 % (27) 54 +81 NM Net income (loss) attributable to The Williams Companies, Inc.$ 309 $ 221 $ 95 $ 726
* + = Favorable change; - = Unfavorable change; NM = A percentage calculation is not meaningful due to a change in signs, a zero-value denominator, or a percentage change greater than 200.
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Management's Discussion and Analysis (Continued)
Three months ended September 30, 2020 vs. three months ended September 30, 2019
Service revenues decreased primarily due to lower deferred revenue amortization
associated with the end of the exclusive use period at Gulfstar One, lower
volumes in our West segment, and temporary shut-ins at certain offshore Gulf of
Mexico operations. This decrease was partially offset by an increase in the
Eagle Ford Shale region primarily due to higher MVC revenue, higher Northeast JV
revenues driven by higher volumes, as well as higher transportation fee revenues
at Transco associated with expansion projects placed in service in 2019 and
2020.
Product sales decreased primarily due to lower volumes associated with our
marketing activities. This decrease also includes lower system management gas
sales. Marketing revenues and system management gas sales are substantially
offset in Product costs.
Product costs decreased primarily due to lower volumes for marketing activities
and lower system management gas costs.
Operating and maintenance expenses decreased primarily due to lower
employee-related expenses, including the absence of 2019 severance and related
costs and the favorable impact of a change in an employee benefit policy (see
Note 6 - Other Accruals of Notes to Consolidated Financial Statements), and
lower maintenance and operating costs primarily due to timing and scope of
activities.
Selling, general, and administrative expenses decreased primarily due to lower
employee-related expenses and lower external legal costs.
The unfavorable change in Other (income) expense - net within Operating income
(loss) includes net unfavorable changes in charges and credits to regulatory
assets and liabilities related to the absence of a third-quarter 2019 adjustment
associated with Transco's rate case settlement and the absence of a 2019
customer settlement.
The favorable change in Operating income (loss) includes the impact of an
increase in the Eagle Ford Shale region primarily due to higher MVC revenue,
higher Northeast JV volumes, lower employee-related expenses, and the favorable
impact from Transco's expansion projects. The favorable change was partially
offset by lower deferred revenue amortization associated with the end of the
exclusive use period at Gulfstar One and lower volumes in our West segment.
Equity earnings (losses) changed favorably primarily due to increases at
Appalachia Midstream Investments and Caiman II driven by higher volumes,
partially offset by a decrease at Laurel Mountain driven by our share of an
impairment of certain assets.
The change in Impairment of equity-method investments is due to the absence of
2019 impairments to our equity-method investments, including Laurel Mountain
(see Note 12 - Fair Value Measurements and Guarantees of Notes to Consolidated
Financial Statements).
The unfavorable change in Other income (expense) - net below Operating income
(loss) includes lower allowance for equity funds used during construction
(equity AFUDC) as well as the write-off of a regulatory asset related to a
cancelled project, partially offset by the absence of 2019 charges for loss
contingencies associated with former operations.
Provision (benefit) for income taxes changed unfavorably primarily due to higher
pre-tax income. See Note 7 - Provision (Benefit) for Income Taxes of Notes to
Consolidated Financial Statements for a discussion of the effective tax rate
compared to the federal statutory rate for both periods.
Nine months ended September 30, 2020 vs. nine months ended September 30, 2019
Service revenues decreased primarily due to lower deferred revenue amortization
at Gulfstar One, the expiration of an MVC agreement in the Barnett Shale region,
lower volumes and rates in our West segment, and temporary shut-ins at certain
Gulf of Mexico operations. This decrease was partially offset by higher
Northeast G&P revenues driven by higher volumes and the March 2019 consolidation
of UEOM, higher MVC revenue in the Eagle Ford
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Management's Discussion and Analysis (Continued)
Shale region, as well as higher transportation fee revenues at Transco ,
associated with expansion projects placed in service in 2019 and 2020, and
increased volumes in the Eastern Gulf region.
Service revenues - commodity consideration decreased primarily due to lower
commodity prices, as well as lower equity NGL processing volumes due to less
producer drilling activity. These revenues represent consideration we receive in
the form of commodities as full or partial payment for processing services
provided. Most of these NGL volumes are sold within the month processed and
therefore are offset in Product costs below.
Product sales decreased primarily due to lower NGL and natural gas prices
associated with our marketing and equity NGL sales activities, as well as lower
volumes associated with our equity NGL sales activities, partially offset by
higher marketing volumes. This decrease also includes lower system management
gas sales. Marketing revenues and system management gas sales are substantially
offset in Product costs.
Product costs decreased primarily due to lower NGL and natural gas prices
associated with our marketing and equity NGL production activities. This
decrease also includes lower volumes acquired as commodity consideration for NGL
processing services and lower system management gas costs, partially offset by
higher volumes for marketing activities.
Processing commodity expenses decreased primarily due to lower natural gas
purchases associated with equity NGL production primarily due to lower natural
gas prices and lower volumes.
Operating and maintenance expenses decreased due to lower employee-related
expenses, including the absence of 2019 severance and related costs and the
associated reduced costs in 2020 (see Note 6 - Other Accruals of Notes to
Consolidated Financial Statements) as well as the favorable impact of a change
in an employee benefit policy, and lower maintenance and operating primarily due
to timing and scope of activities. This decrease was partially offset by higher
expenses related to the consolidation of UEOM in March 2019 .
Depreciation and amortization expenses increased primarily due to new assets
placed in service and the March 2019 consolidation of UEOM, partially offset by
lower expense related to assets that became fully depreciated in the fourth
quarter of 2019.
Selling, general, and administrative expenses decreased primarily due to lower
employee-related expenses, including the absence of 2019 severance and related
costs and the associated reduced costs in 2020 (see Note 6 - Other Accruals of
Notes to Consolidated Financial Statements), as well as the absence of
transaction costs associated with our 2019 acquisition of UEOM and the formation
of the Northeast JV.
The favorable change in Impairment of certain assets includes the absence of
2019 impairments of certain Eagle Ford Shale gathering assets and certain idle
gathering assets (see Note 12 - Fair Value Measurements and Guarantees of Notes
to Consolidated Financial Statements).
Impairment of goodwill reflects the goodwill impairment charge at Northeast JV
in 2020 (see Note 12 - Fair Value Measurements and Guarantees of Notes to
Consolidated Financial Statements).
The favorable change in Other (income) expense - net within Operating income
(loss) includes net favorable changes to charges and credits associated with a
regulatory asset related to Transco's asset retirement obligations and the
absence of a 2019 unfavorable regulatory asset adjustment at Other, offset by
the absence of a 2019 customer settlement.
The unfavorable change in Operating income (loss) includes the 2020 impairment
of goodwill at Northeast G&P, lower deferred revenue amortization at Gulfstar
One, the expiration of an MVC agreement in the Barnett Shale region, and
unfavorable commodity margins primarily reflecting lower NGL sales prices. The
unfavorable change was partially offset by higher Northeast JV volumes, the
absence of the 2019 impairment of certain assets, lower employee-related
expenses, the favorable impacts of the consolidation of UEOM, and the favorable
impact from Transco's expansion projects.
46
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Management's Discussion and Analysis (Continued)
Equity earnings (losses) changed unfavorably primarily due to our share of the
2020 impairment of goodwill at RMM (see Note 5 - Investing Activities of Notes
to Consolidated Financial Statements) and a decrease at OPPL. This decrease was
partially offset by increases at Appalachia Midstream Investments and Caiman II
driven by higher volumes.
Impairment of equity-method investments includes impairments of various
equity-method investments in 2020, partially offset by the absence of
impairments of equity method investments in 2019 (see Note 12 - Fair Value
Measurements and Guarantees of Notes to Consolidated Financial Statements).
The unfavorable change in Other investing income (loss) - net is primarily due
to the absence of a 2019 gain on the sale of our equity-method investment in
Jackalope (see Note 5 - Investing Activities of Notes to Consolidated Financial
Statements).
The unfavorable change in Other income (expense) - net below Operating income
(loss) includes lower equity AFUDC, the write-off of a regulatory asset related
to a cancelled project, and a 2020 pension plan settlement charge, partially
offset by the absence of 2019 charges for loss contingencies associated with
former operations.
Provision (benefit) for income taxes changed favorably primarily due to lower
pre-tax income. See Note 7 - Provision (Benefit) for Income Taxes of Notes to
Consolidated Financial Statements for a discussion of the effective tax rate
compared to the federal statutory rate for both periods.
The favorable change in Net income (loss) attributable to noncontrolling
interests is primarily due to the noncontrolling interests' share of the
first-quarter 2020 goodwill impairment charge at Northeast JV, and lower
Gulfstar One results, partially offset by the impact from the formation of the
Northeast JV in June 2019 .
Period-Over-Period Operating Results - Segments
We evaluate segment operating performance based upon Modified EBITDA. Note 14 -
Segment Disclosures of Notes to Consolidated Financial Statements includes a
reconciliation of this non-GAAP measure to Net income (loss). Management uses
Modified EBITDA because it is an accepted financial indicator used by investors
to compare company performance. In addition, management believes that this
measure provides investors an enhanced perspective of the operating performance
of our assets. Modified EBITDA should not be considered in isolation or as a
substitute for a measure of performance prepared in accordance with GAAP.
Transmission & Gulf of Mexico
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(Millions)
Service revenues $ 807 $ 842 $ 2,431 $ 2,473
Service revenues - commodity consideration 6 7 14 33
Product sales 46 76 134 226
Segment revenues 859 925 2,579 2,732
Product costs (47) (75) (136) (226)
Processing commodity expenses (1) (2) (4) (12)
Other segment costs and expenses (233) (227) (670) (733)
Proportional Modified EBITDA of equity-method
investments 38 44 124 130
Transmission & Gulf of Mexico Modified EBITDA $ 616 $ 665 $ 1,893 $ 1,891
Commodity margins $ 4 $ 6 $ 8 $ 21
Three months ended September 30, 2020 vs. three months ended September 30, 2019
Transmission & Gulf of Mexico Modified EBITDA decreased primarily due to lower
Service revenues.
47
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Management's Discussion and Analysis (Continued)
Service revenues decreased primarily due to:
•A $32 million decrease due to lower deferred revenue amortization associated
with the end of the exclusive use period at Gulfstar One for the Tubular Bells
field;
•A $12 million decrease due to temporary named windstorm related shut-ins;
•An $11 million decrease due to the absence of a third-quarter 2019 adjustment
related to Transco's general rate case settlement;
•A $14 million increase at Gulfstar One associated with higher volumes in the
Tubular Bells field due to a new well and higher production;
•A $13 million increase in Transco's natural gas transportation revenues
associated with Transco's expansion projects placed in service in 2019 and 2020.
The net sum of Service revenues - commodity consideration, Product sales,
Product costs, and Processing commodity expenses comprise our commodity margins.
The decrease in Product sales includes $23 million of lower system management
gas sales and a $6 million decrease in commodity marketing sales. System
management and marketing sales are substantially offset in Product costs and
therefore have little impact to Modified EBITDA.
Other segment costs and expenses increased primarily due to lower equity AFUDC
and the absence of a third-quarter 2019 net favorable adjustment to charges and
credits associated with regulatory assets and liabilities primarily driven by
the terms of settlement in Transco's general rate case, partially offset by
lower employee-related expenses, including the absence of third-quarter 2019
severance and related costs (see Note 6 - Other Accruals of Notes to
Consolidated Financial Statements).
Nine months ended September 30, 2020 vs. nine months ended September 30, 2019
Transmission & Gulf of Mexico Modified EBITDA increased primarily due to
favorable changes to Other segment costs and expenses, partially offset by lower
Service revenues and Commodity margins.
Service revenues decreased primarily due to:
•A $92 million decrease due to lower deferred revenue amortization associated
with the end of the exclusive use period at Gulfstar One for the Tubular Bells
field;
•A $34 million decrease due to temporary shut-ins primarily at Perdido and
Gulfstar One related to named windstorms, pricing, and scheduled maintenance;
•A $40 million increase in Transco's natural gas transportation revenues
associated with Transco's expansion projects placed in service in 2019 and 2020;
•A $30 million increase at Gulfstar One associated with higher volumes in the
Tubular Bells field due to a new well and higher production;
•A $17 million increase associated with volumes from Norphlet placed in service
in June 2019 .
The net sum of Service revenues - commodity consideration, Product sales,
Product costs, and Processing commodity expenses comprise our commodity margins.
Our commodity margins associated with our equity NGLs decreased $10 million
primarily driven by unfavorable NGL sales prices and volumes. Additionally, the
decrease in Product sales includes a $42 million decrease in commodity marketing
sales primarily due to lower NGL prices and $31 million lower system management
gas sales. Marketing revenues and system management gas sales are substantially
offset in Product costs and therefore have little impact to Modified EBITDA.
Other segment costs and expenses decreased primarily due to lower
employee-related expenses, including the absence of 2019 severance and related
costs and the associated reduced costs in 2020, the absence of a 2019 charge
48
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Management's Discussion and Analysis (Continued)
for reversal of costs capitalized in previous periods, and net favorable changes
to charges and credits associated with a regulatory asset related to Transco's
asset retirement obligations. Additionally, expenses decreased due to lower
maintenance costs primarily due to a decrease in contracted services related to
general maintenance and other testing at Transco , partially offset by lower
equity AFUDC and higher operating taxes.
Northeast G&P
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(Millions)
Service revenues $ 379 $ 353 $ 1,091 $ 959
Service revenues - commodity consideration 2 1 5 9
Product sales 12 30 42 114
Segment revenues 393 384 1,138 1,082
Product costs (12) (29) (41) (114)
Processing commodity expenses (1) (1) (3) (6)
Other segment costs and expenses (114) (117) (335) (348)
Proportional Modified EBITDA of equity-method
investments 121 108 367 333
Northeast G&P Modified EBITDA $ 387 $ 345 $ 1,126 $ 947
Commodity margins $ 1 $ 1 $ 3 $ 3
Three months ended September 30, 2020 vs. three months ended September 30, 2019
Northeast G&P Modified EBITDA increased primarily due to higher Service revenues
and increased Proportional Modified EBITDA of equity-method investments.
Service revenues increased primarily due to:
•A $13 million increase at the Northeast JV related to higher processing,
fractionation, transportation, and gathering revenues primarily associated with
higher volumes;
•A $7 million increase associated with higher gathering volumes in the Utica
Shale region.
Product sales decreased primarily due to lower non-ethane volumes within our
marketing activities. The changes in marketing revenues are offset by similar
changes in marketing purchases, reflected above as Product costs, and therefore
have little impact to Modified EBITDA.
Other segment costs and expenses decreased primarily due to lower maintenance
and operating expenses, as well as lower external legal costs. These decreases
were partially offset by the absence of a 2019 customer settlement.
Proportional Modified EBITDA of equity-method investments increased at
Appalachia Midstream Investments and Caiman II primarily due to higher volumes,
partially offset by a decrease at Laurel Mountain due to $11 million for our
share of an impairment of certain assets that were subsequently sold.
Nine months ended September 30, 2020 vs. nine months ended September 30, 2019
Northeast G&P Modified EBITDA increased primarily due to higher Service revenues
and increased Proportional Modified EBITDA of equity-method investments, in
addition to the favorable impact of acquiring the additional interest in UEOM,
which is a consolidated entity after the remaining ownership interest was
purchased in March 2019 , and lower Other segment costs and expenses.
49
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Management's Discussion and Analysis (Continued)
Service revenues increased primarily due to:
•A $96 million increase at the Northeast JV, including $64 million higher
processing, fractionation, transportation, and gathering revenues primarily due
to higher volumes and a $32 million increase associated with the consolidation
of UEOM, as previously discussed;
•An $18 million increase in gathering revenues associated with higher volumes in
the Utica Shale region;
•A $13 million increase in revenues associated with reimbursable electricity
expenses, which is offset by similar changes in electricity charges, reflected
in Other segment costs and expenses.
Product sales decreased primarily due to lower NGL prices and lower non-ethane
volumes within our marketing activities. The changes in marketing revenues are
offset by similar changes in marketing purchases, reflected above as Product
costs, and therefore have little impact to Modified EBITDA.
Other segment costs and expenses decreased due to lower maintenance and repair
expenses and operating expenses primarily due to the timing and scope of
activities. Additionally, Other segment costs and expenses decreased due to
lower employee-related expenses, including the absence of second-quarter 2019
severance and related costs (see Note 6 - Other Accruals of Notes to
Consolidated Financial Statements) and the associated reduced costs in 2020, and
the absence of transaction costs associated with our 2019 acquisition of UEOM
and the formation of the Northeast JV. These decreases were partially offset by
higher reimbursable electricity expenses, increased expenses associated with the
consolidation of UEOM, and the absence of a 2019 customer settlement.
Proportional Modified EBITDA of equity-method investments increased at
Appalachia Midstream Investments driven by higher volumes and at Caiman II
driven by higher volumes and a gain on early debt retirement. These increases
were partially offset by a $16 million decrease as a result of the consolidation
of UEOM, as previously discussed, as well as a decrease at Laurel Mountain due
to $11 million for our share of an impairment of certain assets that
subsequently sold.
West
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(Millions)
Service revenues $ 311 $ 322 $ 938 $ 1,049
Service revenues - commodity consideration 32 30 74 116
Product sales 391 389 1,053 1,302
Segment revenues 734 741 2,065 2,467
Product costs (377) (382) (1,026) (1,294)
Processing commodity expenses (18) (13) (41) (63)
Other segment costs and expenses (122) (130) (365) (404)
Impairment of certain assets - - - (76)
Proportional Modified EBITDA of equity-method
investments 30 29 82 83
West Modified EBITDA $ 247 $ 245 $ 715 $ 713
Commodity margins $ 28 $ 24 $ 60 $ 61
Three months ended September 30, 2020 vs. three months ended September 30, 2019
West Modified EBITDA increased primarily due to lower Other segment costs and
expenses and higher Commodity margins, partially offset by lower Service
revenues.
50
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Management's Discussion and Analysis (Continued)
Service revenues decreased primarily due to:
•A $29 million decrease associated with lower volumes, excluding the Eagle Ford
Shale region;
•$14 million associated with various other decreases;
•A $21 million increase in the Eagle Ford Shale region due to higher MVC revenue
and higher rates, partially offset by lower volumes primarily due to decreased
producer activity;
•An $11 million increase associated with a temporary volume deficiency fee from
a customer.
The net sum of Service revenues - commodity consideration, Product sales,
Product costs, and Processing commodity expenses comprise our commodity margins,
which we further segregate into product margins associated with our equity NGLs
and marketing margins. Marketing margins increased by $9 million primarily due
to favorable changes in net commodity prices. Additionally, product margins from
our equity NGLs decreased $5 million .
Other segment costs and expenses decreased primarily due to lower operating
costs primarily due to fewer leased compressors, lower maintenance costs
primarily due to timing and scope of activities, and lower employee-related
expenses in 2020.
Proportional Modified EBITDA of equity-method investments increased primarily
due to higher volumes at RMM and Brazos Permian II, partially offset by lower
volumes at OPPL.
Nine months ended September 30, 2020 vs. nine months ended September 30, 2019
West Modified EBITDA increased primarily due to the absence of Impairment of
certain assets and lower Other segment costs and expenses, partially offset by
lower Service revenues.
Service revenues decreased primarily due to:
•A $72 million decrease driven by lower deferred revenue amortization and MVC
deficiency fee revenues associated with the second-quarter 2019 expiration of
the MVC agreement in the Barnett Shale region;
•A $65 million decrease associated with lower volumes, excluding the Eagle Ford
Shale region;
•A $41 million decrease associated with lower rates, excluding the Eagle Ford
Shale region, driven by lower commodity pricing in the Barnett Shale region and
the expiration of a cost-of-service period on a contract in the Mid-Continent
region;
•An $11 million decrease associated with lower fractionation fees driven by
lower volumes;
•An $11 million decrease driven by the absence of a favorable 2019
cost-of-service agreement adjustment in the Mid-Continent region;
•A $72 million increase in the Eagle Ford Shale region due to higher MVC revenue
and higher rates, partially offset by lower volumes primarily due to decreased
producer activity, including shut-ins on certain gathering systems;
•A $20 million increase associated with a temporary volume deficiency fee from a
customer.
The net sum of Service revenues - commodity consideration, Product sales,
Product costs, and Processing commodity expenses comprise our commodity margins,
which we further segregate into product margins associated with our equity NGLs
and marketing margins. Product margins from our equity NGLs decreased $22
million primarily due to:
•A $30 million decrease associated with lower sales prices primarily due to 30
percent lower average net realized per-unit non-ethane sales prices;
51
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Management's Discussion and Analysis (Continued)
•A $13 million decrease associated with 14 percent lower non-ethane sales
volumes primarily due to less producer drilling activity;
•A $21 million increase related to a decline in natural gas purchases associated
with equity NGL production due to lower natural gas prices and lower equity
non-ethane production volumes.
Additionally, marketing margins increased by $21 million primarily due to
favorable changes in net commodity prices. The decrease in Product sales
includes a $194 million decrease in marketing sales, which is due to lower sales
prices, partially offset by higher marketing sales volumes. These decreases are
substantially offset in Product costs.
Other segment costs and expenses decreased primarily due to lower
employee-related expenses driven by the absence of second-quarter 2019 severance
and related costs and the associated reduced costs in 2020 (see Note 6 - Other
Accruals of Notes to Consolidated Financial Statements), as well as lower
operating costs due to fewer leased compressors and lower maintenance costs
primarily due to timing and scope of activities.
Impairment of certain assets decreased primarily due to the absence of a $59
million impairment of certain Eagle Ford Shale gathering assets and a $12
million impairment of certain idle gathering assets in 2019 (see Note 12 - Fair
Value Measurements and Guarantees of Notes to the Consolidated Financial
Statements).
Proportional Modified EBITDA of equity-method investments decreased primarily
due to lower volumes at OPPL and the absence of the Jackalope equity-method
investment sold in April 2019 , partially offset by growth at the RMM and the
Brazos Permian II equity-method investments.
Other
Three Months Ended September
30, Nine Months Ended September 30,
2020 2019 2020 2019
(Millions)
Other Modified EBITDA $ (7) $ (2) $ 8 $ 1
Three months ended September 30, 2020 vs. three months ended September 30, 2019
Other Modified EBITDA includes:
•A third-quarter 2020 charge of $8 million for the write-off of a regulatory
asset associated with a cancelled project;
•The absence of a third-quarter 2019 $9 million accrual for loss contingencies
associated with former operations.
Nine months ended September 30, 2020 vs. nine months ended September 30, 2019
Other Modified EBITDA increased primarily due to:
•The absence of a first-quarter 2019 $12 million unfavorable adjustment to a
regulatory asset associated with an increase in Transco's estimated deferred
state income tax rate following the merger transaction wherein we acquired all
of the outstanding common units held by others of our former publicly traded
master limited partnership;
•The absence of a third-quarter 2019 $9 million accrual for loss contingencies;
•A third-quarter 2020 charge of $8 million for the write-off of a regulatory
asset.
52
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Management's Discussion and Analysis (Continued)
Management's Discussion and Analysis of Financial Condition and Liquidity
Outlook
As previously discussed in Company Outlook, our growth capital and investment
expenditures in 2020 are currently expected to be in a range from $1.0 billion
to $1.2 billion . Growth capital spending in 2020 primarily includes Transco
expansions, all of which are fully contracted with firm transportation
agreements, and our Bluestem NGL pipeline project in the Mid-Continent region.
In addition to growth capital and investment expenditures, we also remain
committed to projects that maintain our assets for safe and reliable operations,
as well as projects that meet legal, regulatory, and/or contractual commitments.
We intend to fund substantially all of our planned 2020 capital spending with
cash available after paying dividends. We retain the flexibility to adjust
planned levels of growth capital and investment expenditures in response to
changes in economic conditions or business opportunities.
During the first half of 2020, we retired approximately $1.5 billion of
long-term debt and issued approximately $2.2 billion of new long-term debt. In
August 2020 , we early retired our $600 million of 4.125 percent senior unsecured
notes that were scheduled to mature in November 2020 . In July 2020 , we paid $284
million for rate refunds related to Transco's increased rates collected since
the new rates became effective in March 2019 . (See Note 13 - Contingent
Liabilities of Notes to Consolidated Financial Statements.)
Liquidity
Based on our forecasted levels of cash flow from operations and other sources of
liquidity, we expect to have sufficient liquidity to manage our businesses in
2020. Our potential material internal and external sources and uses of liquidity
are as follows:
Sources:
Cash and cash equivalents on hand
Cash generated from operations
Distributions from our equity-method investees
Utilization of our credit facility and/or commercial paper program
Cash proceeds from issuance of debt and/or equity securities
Proceeds from asset monetizations
Uses:
Working capital requirements
Capital and investment expenditures
Quarterly dividends to our shareholders
Debt service payments, including payments of long-term debt
Distributions to noncontrolling interests
Potential risks associated with our planned levels of liquidity discussed above include those previously discussed in Company Outlook.
53
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Management's Discussion and Analysis (Continued)
As of September 30, 2020 , we had a working capital deficit of $458 million ,
including cash and cash equivalents and long-term debt due within one year. Our
available liquidity is as follows:
Available Liquidity September 30, 2020
(Millions)
Cash and cash equivalents $ 70
Capacity available under our
4,460
$ 4,530
(1)In managing our available liquidity, we do not expect a maximum outstanding
amount in excess of the capacity of our credit facility inclusive of any
outstanding amounts under our commercial paper program. We had $40 million of
Commercial paper outstanding as of September 30, 2020 . Through September 30,
2020 , the highest amount outstanding under our commercial paper program and
credit facility during 2020 was $1.7 billion . At September 30, 2020 , we were in
compliance with the financial covenants associated with our credit facility.
Borrowing capacity available under our credit facility as of October 29, 2020
was $4.5 billion .
Dividends
We increased our regular quarterly cash dividend to common stockholders by
approximately 5 percent from the previous quarterly cash dividends of $0.38 per
share paid in each quarter of 2019, to $0.40 per share for the quarterly cash
dividends paid in March, June, and September 2020 .
Registrations
In February 2018 , we filed a shelf registration statement as a well-known
seasoned issuer. In August 2018 , we filed a prospectus supplement for the offer
and sale from time to time of shares of our common stock having an aggregate
offering price of up to $1 billion . These sales are to be made over a period of
time and from time to time in transactions at then-current prices. Such sales
are to be made pursuant to an equity distribution agreement between us and
certain entities who may act as sales agents or purchase for their own accounts
as principals at a price agreed upon at the time of the sale.
Distributions from Equity-Method Investees
The organizational documents of entities in which we have an equity-method
investment generally require distribution of their available cash to their
members on a quarterly basis. In each case, available cash is reduced, in part,
by reserves appropriate for operating their respective businesses.
Credit Ratings
The interest rates at which we are able to borrow money are impacted by our
credit ratings. The current ratings are as follows:
Senior Unsecured
Rating Agency Outlook Debt Rating
S&P Global Ratings Stable BBB
Moody's Investors Service Stable Baa3
Fitch Ratings Stable BBB-
These credit ratings are included for informational purposes and are not
recommendations to buy, sell, or hold our securities, and each rating should be
evaluated independently of any other rating. No assurance can be given that the
credit rating agencies will continue to assign us investment-grade ratings even
if we meet or exceed their current criteria for investment-grade ratios. A
downgrade of our credit ratings might increase our future cost of borrowing and
would require us to provide additional collateral to third parties, negatively
impacting our available liquidity.
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