WILLIAMS COMPANIES General
We are an energy company committed to being the leader in providing
infrastructure that safely delivers natural gas products to reliably fuel the
clean energy economy. Our operations are located in
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. The rates are established primarily through theFERC's ratemaking process, but we also may negotiate rates with our customers pursuant to the terms of our tariffs andFERC policy. Changes in commodity prices and volumes transported have limited near-term impact on these revenues because the majority of 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 service 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 facilities. 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, West, and Gas & NGL Marketing Services. All remaining business activities, including our upstream operations and 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 VIE), 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 VIE) which operates in WestVirginia, Ohio , andPennsylvania , a 66 percent interest in Cardinal (a consolidated VIE) which operates inOhio , a 69 percent equity-method investment inLaurel Mountain , a 50 percent equity-method investment in Blue Racer, 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 region. •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 eastTexas and northwestLouisiana , and the Mid-Continent region which includes theAnadarko and Permian basins. This segment also includes our NGL 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, a 20 percent equity-method investment inTarga Train 7, and a 15 percent interest inBrazos Permian II, LLC . •Gas & NGL Marketing Services includes our NGL and natural gas marketing and trading operations previously reported within the West segment prior toJanuary 1, 2022 , as well as the operations acquired in 35 --------------------------------------------------------------------------------
Management's Discussion and Analysis (Continued) Table of Contents
the Sequent Acquisition in 2021. This segment includes risk management and the storage and transportation of natural gas on strategically positioned assets, including ourTransco system.
Dividends
In
Overview of Six Months Ended
Net income (loss) attributable toThe Williams Companies, Inc. , for the six months endedJune 30, 2022 , increased$50 million compared to the six months endedJune 30, 2021 , reflecting the benefit of higher service revenues from commodity-based gathering and processing rates and higher gathering volumes, including from the Trace Acquisition in the West, as well asTransco's Leidy South project placed in service during the second half of 2021, higher results from our upstream operations associated with increased scale of operations, higher commodity margins, higher equity earnings, and favorable interest expense due to debt retirements. These favorable impacts were partially offset by a$356 million unfavorable change in net unrealized loss on commodity derivatives, increased intangible asset amortization, the absence of a$77 million favorable impact in 2021 from Winter Storm Uri, and higher selling, general, and administrative expenses, primarily resulting from the Sequent Acquisition. The tax provision benefited from$134 million associated with the release of valuation allowances on deferred income tax assets and federal income tax settlements. Our results include a$356 million unfavorable change in net unrealized losses from commodity derivatives not designated as hedges for accounting purposes. We can experience significant earnings volatility from the fair value accounting required for the derivatives used to hedge a portion of the economic value of the underlying transportation and storage marketing portfolio as well as upstream related production. However, the unrealized fair value measurement gains and losses are generally offset by valuation changes in the economic value of the underlying production or contracts, which is not recognized until the underlying transaction occurs. The following discussion and analysis of results of operations and financial condition and liquidity should be read in conjunction with our consolidated financial statements and notes thereto of this Form 10Q and in Exhibit 99.1 of our Form 8-K datedMay 2, 2022 .
Recent Developments
Trace Acquisition
On
Company Outlook Our strategy is to provide a large-scale, reliable, and clean 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 including seeking opportunities for renewable energy ventures, operational excellence, and customer satisfaction. We believe that accomplishing these goals will position us to deliver safe, reliable, clean energy services to our customers and an attractive return to our shareholders. Our business plan for 2022 includes a continued focus on earnings and cash flow growth. In 2022, our operating results are expected to benefit from higher commodity prices and volume growth in ourHaynesville and Ohio Valley Midstream areas. We also anticipate increases resulting from recently completedTransco expansion projects, development of our upstream oil and gas properties, and our recently completed Trace 36 --------------------------------------------------------------------------------
Management's Discussion and Analysis (Continued) Table of Contents
Acquisition. These increases are partially offset by the absence of favorable results captured during Winter Storm Uri in 2021 by our Gas & NGL Marketing Services business and lower expected results in the Bradford Supply Hub primarily due to lower gathering rates resulting from annual cost of service contract redeterminations. We seek to maintain a strong financial position and liquidity, as well as manage a diversified portfolio of safe, clean, and reliable energy infrastructure assets that continue to serve key growth markets and supply basins inthe United States . Our growth capital and investment expenditures in 2022 are expected to be in a range from$2.25 billion to$2.35 billion . Growth capital spending in 2022 primarily includesTransco expansions, all of which are fully contracted with firm transportation agreements, projects supporting the Northeast G&P business, the Trace Acquisition, and an expansion in the Western Gulf area. We also expect to invest capital in the development of our upstream oil and gas properties. 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 downturns in financial markets and commodity prices, as well as impact demand for natural gas and related products;
•Opposition to, and regulations affecting, our infrastructure projects, including the risk of delay or denial in permits and approvals needed for our projects;
•Counterparty credit and performance risk;
•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 industry downturns, including increased inflation and interest rates;
•Physical damages to facilities, including damage to offshore facilities by weather-related events;
•Other risks set forth under Part I, Item 1A. Risk Factors in our Annual Report
on Form 10-K for the year ended
Expansion Projects
Our ongoing major expansion projects include the following:
Transmission &
Regional Energy Access
InMarch 2021 , we filed an application with theFERC for the project to expandTransco's existing natural gas transmission system to provide incremental firm transportation capacity from receipt points in northeasternPennsylvania to multiple delivery points inPennsylvania ,New Jersey , andMaryland . We plan to place the project into service as early as the fourth quarter of 2024, assuming timely receipt of all necessary regulatory approvals. The project is expected to increase capacity by 829 Mdth/d. 37 --------------------------------------------------------------------------------
Management's Discussion and Analysis (Continued) Table of Contents
Southside Reliability Enhancement
InMay 2022 , we filed an application with theFERC for the project which is an incremental expansion ofTransco's existing natural gas transmission system to provide firm transportation capacity from receipt points inVirginia andNorth Carolina to delivery points inNorth Carolina . The expansion project will add a total of approximately 423 Mdth/d of capacity. We plan to place the project into service as early as the 2024/2025 winter heating season assuming timely receipt of all necessary regulatory approvals.
West
Louisiana Energy Gateway
InJune 2022 , we announced our intention to construct new natural gas gathering assets which are expected to gather 1.8 Bcf/d of natural gas produced in theHaynesville Shale basin for delivery to premium markets, includingTransco , industrial markets, and growing LNG export demand along theGulf Coast . This project is expected to go into service in late 2024. We may consider a partner for this project. 38 --------------------------------------------------------------------------------
Management's Discussion and Analysis (Continued) Table of Contents
Results of Operations Consolidated Overview The following table and discussion is a summary of our consolidated results of operations for the three and six months endedJune 30, 2022 , compared to the three and six months endedJune 30, 2021 . The results of operations by segment are discussed in further detail following this consolidated overview discussion. Three Months Ended Six Months Ended June 30, June 30, 2022 2021 $ Change* % Change* 2022 2021 $ Change* % Change* (Millions) (Millions) Revenues: Service revenues$ 1,606 $ 1,460 +146 +10 %$ 3,143 $ 2,912 +231 +8 % Service revenues - commodity consideration 86 51 +35 +69 % 163 100 +63 +63 % Product sales 1,111 786 +325 +41 % 2,215 1,933 +282 +15 % Net gain (loss) on commodity derivatives (313) (14) -299 NM (507) (50) -457 NM Total revenues 2,490 2,283 5,014 4,895 Costs and expenses: Product costs 857 697 -160 -23 % 1,660 1,629 -31 -2 % Net processing commodity expenses 40 18 -22 -122 % 70 39 -31 -79 % Operating and maintenance expenses 465 379 -86 -23 % 859 739 -120 -16 % Depreciation and amortization expenses 506 463 -43 -9 % 1,004 901 -103 -11 % Selling, general, and administrative expenses 160 114 -46 -40 % 314 237 -77 -32 % Other (income) expense - net (10) 12 +22 NM (19) 11 +30 NM Total costs and expenses 2,018 1,683 3,888 3,556 Operating income (loss) 472 600 1,126 1,339 Equity earnings (losses) 163 135 +28 +21 % 299 266 +33 +12 % Other investing income (loss) - net 2 2 - - % 3 4 -1 -25 % Interest expense (281) (298) +17 +6 % (567) (592) +25 +4 % Other income (expense) - net 6 2 +4 +200 % 11 - +11 NM Income (loss) before income taxes 362 441 872 1,017 Less: Provision (benefit) for income taxes (45) 119 +164 NM 73 260 +187 +72 % Net income (loss) 407 322 799 757 Less: Net income (loss) attributable to noncontrolling interests 7 18 +11 +61 % 19 27 +8 +30 % Net income (loss) attributable to The Williams Companies, Inc.$ 400 $ 304 $ 780 $ 730
* + = 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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Three months ended
Service revenues increased primarily due to higher gathering rates driven by favorable commodity prices and annual contractual rate escalations for certain of our West and Northeast operations, higher gathering volumes including from the Trace Acquisition, higher transportation fee revenues associated with the Leidy South expansion project placed fully in service atTransco inDecember 2021 , and higher reimbursable electric power and storage costs, which are substantially offset in Operating and maintenance expenses. Service revenues - commodity consideration increased primarily due to higher NGL prices. 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 during the month processed and therefore are offset within Product costs below. Product sales increased primarily due to higher marketing sales volumes of NGLs and natural gas, including the increase associated with the Sequent Acquisition in third-quarter 2021, higher sales prices and volumes associated with our upstream operations presented in our Other segment, higher sales prices related to our equity NGL sales and gas marketing activities, and higher other product sales. These increases were partially offset by the impact of netting the 2022 legacy natural gas marketing revenues with the associated costs (see Note 1 - General, Description of Business, and Basis of Presentation of Notes to Consolidated Financial Statements). As we are acting as agent for natural gas marketing customers of our Gas & NGL Marketing Services segment, our natural gas marketing product sales are presented net of the related costs of those activities. Net gain (loss) on commodity derivatives includes realized and unrealized gains and losses from derivative instruments reflected within Total revenues. The unfavorable change primarily reflects net realized and unrealized losses in our Gas & NGL Marketing Services segment, as well as higher net realized losses related to derivative contracts in our Other and West segments. Higher net realized gains at our Other segment partially offset these impacts. Product costs increased primarily due to higher prices for our NGL marketing activities, as well as higher NGL prices associated with volumes acquired as commodity consideration related to our equity NGL production activities, and higher other product costs. These increases were partially offset by the impact of netting the 2022 legacy natural gas marketing revenues with the associated costs. Net processing commodity expenses increased primarily due to higher net realized prices for natural gas purchases associated with our equity NGL production activities, including a net gain from commodity derivatives related to these purchases in 2022. This net gain from commodity derivatives includes a realized gain in our West segment and an unrealized gain in our Gas & NGL Marketing segment. The net sum of Service revenues - commodity consideration, Product sales, Product costs, net realized gains and losses on commodity derivatives related to sales of product, and net realized processing commodity expenses comprise our Commodity margins. However, Net realized product sales at our Other segment reflect sales of our upstream related production net of the associated realized gains and losses and are excluded from our commodity margins. Operating and maintenance expenses increased primarily due to higher operating costs including higher expenses associated with our upstream operations, higher reimbursable electric power and storage costs, which are substantially offset in Service revenues, higher employee-related expenses, and increased costs associated withTransco's Leidy South expansion project placed in service in 2021. Depreciation and amortization expenses increased primarily due to amortization of intangibles acquired in the Sequent and Trace Acquisitions and an increase in depreciation atTransco related to ARO revisions (offset in Other (income) expense - net within Operating income (loss) resulting in no net impact on our results of operations), partially offset by the absence of 2021 depreciation on certain decommissioned facilities in our West segment.
Selling, general, and administrative expenses increased primarily due to higher employee-related expenses, including those associated with the Sequent Acquisition, and Trace Acquisition costs.
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Other (income) expense - net within Operating income (loss) changed favorably primarily due to the deferral of ARO depreciation (offset in Depreciation and amortization expenses resulting in no net impact on our results of operations).
Equity earnings (losses) changed favorably primarily due to an increase at
Interest expense changed favorably primarily due to the early retirement of notes, partially offset by interest on outstanding commercial paper (see Note 8 - Debt and Banking Arrangements of Notes to Consolidated Financial Statements).
Provision (benefit) for income taxes changed favorably primarily due to a benefit of$134 million related to the release of valuation allowances on certain federal and state deferred income tax assets and federal income tax settlements, as well as lower pre-tax income. See Note 5 - 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.
Six months ended
Service revenues increased primarily due to higher gathering and processing rates driven by favorable commodity prices and annual contractual rate escalations for certain of our West and Northeast operations, higher gathering volumes including from the Trace Acquisition, higher transportation fee revenues associated with the Leidy South expansion project placed fully in service atTransco inDecember 2021 , and higher reimbursable electric power and storage costs, which are substantially offset in Operating and maintenance expenses. Service revenues - commodity consideration increased primarily due to higher NGL prices. 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 during the month processed and therefore are offset within Product costs below. Product sales increased primarily due to higher marketing sales volumes of NGLs and natural gas, including the increase associated with the Sequent Acquisition in third-quarter 2021, higher sales prices and volumes associated with our upstream operations presented in our Other segment, higher sales prices related to our equity NGL sales activities, and higher other product sales. These increases were partially offset by the impact of netting the 2022 legacy natural gas marketing revenues with the associated costs (see Note 1 - General, Description of Business, and Basis of Presentation of Notes to Consolidated Financial Statements) and lower gas marketing sales prices related to the absence of severe winter weather in 2022 as compared to the first quarter of 2021. As we are acting as agent for natural gas marketing customers of our Gas & NGL Marketing Services segment, our natural gas marketing product sales are presented net of the related costs of those activities. The unfavorable change in Net gain (loss) on commodity derivatives primarily reflects net realized and unrealized losses in our Gas & NGL Marketing Services and Other segments. Product costs increased primarily due to higher prices for our NGL marketing activities, as well as higher NGL prices associated with volumes acquired as commodity consideration related to our equity NGL production activities, and higher other product costs. These increases were partially offset by the impact of netting the 2022 legacy natural gas marketing revenues with the associated costs. Net processing commodity expenses increased primarily due to higher net realized prices for natural gas purchases associated with our equity NGL production activities, including a net gain from commodity derivatives related to these purchases in 2022. This net gain from commodity derivatives includes a realized gain in our West segment and an unrealized gain in our Gas & NGL Marketing segment. Operating and maintenance expenses increased primarily due to higher operating costs including higher expenses associated with our upstream operations, higher reimbursable electric power and storage costs which are substantially offset in Service revenues, increased costs associated withTransco's Leidy South expansion project placed in service in 2021, and higher employee-related expenses. 41 --------------------------------------------------------------------------------
Management's Discussion and Analysis (Continued) Table of Contents
Depreciation and amortization expenses increased primarily due to amortization of intangibles acquired in the Sequent and Trace Acquisitions and an increase in depreciation atTransco related to ARO revisions (offset in Other (income) expense - net within Operating income (loss) resulting in no net impact on our results of operations), partially offset by the absence of 2021 depreciation on certain decommissioned facilities in our West segment.
Selling, general, and administrative expenses increased primarily due to higher employee-related and other general expenses, primarily resulting from the Sequent Acquisition, as well as Trace Acquisition costs.
Other (income) expense - net within Operating income (loss) changed favorably primarily due to the deferral of ARO depreciation (offset in Depreciation and amortization expenses resulting in no net impact on our results of operations).
Equity earnings (losses) changed favorably primarily due to increases at
Interest expense changed favorably primarily due to the early retirement of notes, partially offset by interest on outstanding commercial paper (see Note 8 - Debt and Banking Arrangements of Notes to Consolidated Financial Statements).
The favorable change in Other income (expense) - net below Operating income (loss) reflects the absence of an accrual for a loss contingency in 2021.
Provision (benefit) for income taxes changed favorably primarily due to a benefit of$134 million related to the release of valuation allowances on certain federal and state deferred income tax assets and federal income tax settlements, as well as lower pre-tax income. See Note 5 - 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.
Period-Over-Period Operating Results - Segments
We evaluate segment operating performance based upon Modified EBITDA. Note 12 - 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 &
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(Millions)
Service revenues $ 867 $ 823 $ 1,741 $ 1,657
Service revenues - commodity consideration 22 10 43 21
Product sales 113 67 213 134
Segment revenues 1,002 900 1,997 1,812
Product costs (109) (68) (209) (134)
Net processing commodity expenses (15) (2) (21) (6)
Other segment costs and expenses (271) (230) (511) (459)
Proportional Modified EBITDA of equity-method
investments 45 46 93 93
Transmission & Gulf of Mexico Modified EBITDA $ 652 $ 646 $ 1,349 $ 1,306
Commodity margins $ 11 $ 7 $ 26 $ 15
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Management's Discussion and Analysis (Continued) Table of Contents
Three months ended
Transmission & Gulf of Mexico Modified EBITDA increased primarily due to a favorable change to Service revenues, partially offset by higher Other segment costs and expenses.
Service revenues increased primarily due to a$51 million increase inTransco's natural gas transportation and storage revenues primarily associated with the Leidy South expansion project placed fully in service inDecember 2021 and higher storage rates effective during the second quarter of 2022. The 2022 quarter also benefited from higher reimbursable electric power costs, which is offset by a similar change in electricity charges reflected in Other segment costs and expenses. Other segment costs and expenses increased primarily due to higher operating costs, including costs associated with the Leidy South expansion project, higher reimbursable electric power costs and storage costs, which are offset by a similar change in electricity reimbursements and storage revenues, reflected in Service revenues, and higher employee-related costs. These increases are partially offset by a favorable change in the deferral of ARO related depreciation atTransco .
Six months ended
Transmission & Gulf of Mexico Modified EBITDA increased primarily due to a favorable change to Service revenues and Commodity margins, partially offset by higher Other segment costs and expenses.
Service revenues increased primarily due to a$91 million increase inTransco's natural gas transportation and storage revenues primarily associated with the Leidy South expansion project placed fully in service inDecember 2021 and higher storage rates effective during the second quarter of 2022. The 2022 period also benefited from higher reimbursable electric power costs, which is offset by a similar change in electricity charges reflected in Other segment costs and expenses.
Commodity margins associated with our equity NGLs increased
Other segment costs and expenses increased primarily due to higher operating costs, including costs associated with the Leidy South expansion project, higher reimbursable electric power costs and storage costs, which are offset by a similar change in electricity reimbursements and storage revenues, reflected in Service revenues, and higher employee-related costs. These increases are partially offset by a favorable change in the deferral of ARO related depreciation atTransco . 43 --------------------------------------------------------------------------------
Management's Discussion and Analysis (Continued) Table of Contents
Northeast G&P
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(Millions)
Service revenues $ 411 $ 373 $ 791 $ 731
Service revenues - commodity consideration 3 2 10 5
Product sales 34 24 70 56
Segment revenues 448 399 871 792
Product costs (34) (26) (71) (58)
Net processing commodity expenses (2) - (2) -
Other segment costs and expenses (136) (126) (254) (238)
Proportional Modified EBITDA of equity-method
investments 174 162 324 315
Northeast G&P Modified EBITDA $ 450 $ 409 $ 868 $ 811
Commodity margins $ 1 $ - $ 7 $ 3 Three months ended
Northeast G&P Modified EBITDA increased primarily due to higher Service revenues and higher Proportional Modified EBITDA of equity-method investments, partially offset by higher Other segment costs and expenses.
Service revenues increased primarily due to:
•A
•A
•A
Other segment costs and expenses increased primarily due to higher operating expenses.
Proportional Modified EBITDA of equity-method investments increased atLaurel Mountain due to higher commodity-based gathering rates and higher MVC revenue, partially offset by a decrease at Appalachia Midstream Investments primarily driven by lower gathering rates resulting from annual cost of service contract redetermination.
Six months ended
Northeast G&P Modified EBITDA increased primarily due to higher Service revenues and higher Proportional Modified EBITDA of equity-method investments, partially offset by higher Other segment costs and expenses.
Service revenues increased primarily due to:
•A
•A
•A
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•A$9 million increase in revenues associated with reimbursable electricity expenses, which is offset by similar changes in electricity charges, reflected in Other segment costs and expenses.
Other segment costs and expenses increased primarily due to higher operating expenses, including higher electricity charges.
Proportional Modified EBITDA of equity-method investments increased atLaurel Mountain due to higher commodity-based gathering rates and higher MVC revenue, partially offset by a decrease at Appalachia Midstream Investments primarily driven by lower gathering rates resulting from annual cost of service contract redetermination. West Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 (Millions) Service revenues$ 383 $ 297 $ 714 $ 588 Service revenues - commodity consideration 61 39 110 74 Product sales 252 112 439 264 Net gain (loss) on commodity derivatives (9) (5) (14) (7) Segment revenues 687 443 1,249 919 Product costs (247) (104) (429) (241) Net processing commodity expenses (37) (16) (63) (33) Other segment costs and expenses (146) (122) (267) (247) Proportional Modified EBITDA of equity-method investments 31 22 58 47 West Modified EBITDA$ 288 $ 223 $ 548 $ 445 Commodity margins$ 25 $ 26 $ 48 $ 57
Three months ended
West Modified EBITDA increased primarily due to higher Service revenues, partially offset by higher Other segment costs and expenses.
Service revenues increased primarily due to:
•A$50 million increase in theHaynesville Shale region primarily associated with higher gathering volumes including from the Trace Acquisition (see Note 3 - Acquisitions of Notes to Consolidated Financial Statements) inApril 2022 as well as higher gathering rates driven by favorable commodity pricing;
•A
Product margins from our equity NGLs decreased$1 million , primarily due to higher net realized prices for natural gas purchases associated with our equity NGLs production activities and lower non-ethane sales volumes, substantially offset by higher net realized commodity sales prices. Other segment costs and expenses changed unfavorably primarily due to higher operating expenses and expenses associated with our Trace Acquisition inApril 2022 .
Proportional Modified EBITDA of equity-method investments increased primarily due to higher commodity prices at RMM.
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Six months ended
West Modified EBITDA increased primarily due to higher Service revenues, partially offset by higher Other segment costs and expenses.
Service revenues increased primarily due to:
•A
•A
•A
•An
•A
Marketing margins decreased$17 million , primarily due to the absence of severe winter weather in the first quarter of 2022 as compared to 2021. Product margins from our equity NGLs were zero with higher net realized commodity sales prices offset by higher net realized prices for natural gas purchases associated with our equity NGLs production activities and lower non-ethane sales volumes. Other product margins increased$8 million primarily due to higher commodity prices. Other segment costs and expenses changed unfavorably primarily due to higher operating expenses and expenses associated with our Trace Acquisition inApril 2022 .
Proportional Modified EBITDA of equity-method investments increased primarily due to higher commodity prices at RMM.
Gas & NGL Marketing Services
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(Millions)
Service revenues $ - $ 1 $ 1 $ 2
Product sales 872 727 1,840 1,815
Net realized gain (loss) from derivative instruments (16) (1) (72) (35)
Net unrealized gain (loss) from derivative
instruments (297) (3) (356) (3)
Net gain (loss) on commodity derivatives (313) (4) (428) (38)
Segment revenues 559 724 1,413 1,779
Net unrealized gain (loss) from derivative
instruments within Net processing commodity expenses 9 - 11 -
Product costs (833) (713) (1,645) (1,672)
Other segment costs and expenses (17) (3) (48) (6)
Gas & NGL Marketing Services Modified EBITDA
8$ (269) $ 101 Commodity margins$ 23 $ 13 $ 123 $ 108 46
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Management's Discussion and Analysis (Continued) Table of Contents
Three months ended
Gas & NGL Marketing Services Modified EBITDA decreased primarily due to higher net unrealized loss from derivative instruments and higher Other segment costs and expenses, partially offset by higher Commodity margins.
Commodity margins increased
•A
•A$3 million increase from our natural gas marketing operations including$13 million of higher natural gas transportation capacity marketing margins due to favorable net realized commodity pricing, partially offset by$10 million lower natural gas storage marketing margins due to a second-quarter 2022 charge related to a lower of cost or net realizable value inventory adjustment. Net unrealized gain (loss) from derivative instruments relates to derivative contracts that are not designated as hedges for accounting purposes. The change from 2021 is primarily related to the Sequent Acquisition inJuly 2021 and the discontinuance of hedge accounting for new hedges beginning in the second half of 2021.
Other segment costs and expenses increased primarily due to higher employee-related costs related to the Sequent Acquisition.
Six months ended
Gas & NGL Marketing Services Modified EBITDA decreased primarily due to higher net unrealized loss from derivative instruments and higher Other segment costs and expenses, partially offset by higher Commodity margins.
Commodity margins increased
•An
•An
•A
•A
•A$15 million charge in 2022 related to the remaining recognition of a purchase accounting inventory fair value adjustment which increased the weighted-average cost of inventory; and
•A
•A
Net unrealized gain (loss) from derivative instruments changed significantly primarily due to the Sequent Acquisition inJuly 2021 and the discontinuance of hedge accounting for new hedges beginning in the second half of 2021.
Other segment costs and expenses increased primarily due to higher employee-related costs related to the Sequent Acquisition.
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Other
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(Millions)
Service revenues $ 7 $ 8 $ 16 $ 15
Product sales 180 49 284 105
Net realized gain (loss) from derivative
instruments (38) - (46) -
Net unrealized gain (loss) from derivative
instruments 47 (5) (19) (5)
Net gain (loss) on commodity derivatives 9 (5) (65) (5)
Segment revenues 196 52 235 115
Other segment costs and expenses (57) (32) (91) (62)
Other Modified EBITDA $ 139 $ 20 $ 144 $ 53
Net realized product sales $ 142 $ 49 $ 238 $ 105 Three months ended
Other Modified EBITDA increased primarily due to
•A$93 million increase in Net realized product sales primarily due to higher net realized commodity prices in the second quarter of 2022 and higher volumes associated with acquisitions of additional ownership interests in the second and third quarters of 2021 and higher production from new wells; •A$52 million favorable change in Net unrealized gain (loss) from derivative instruments due to a change in forward commodity prices relative to our hedge positions and an increase in the volume of production hedged in 2022 compared to 2021; partially offset by •A$28 million increase in Other segment costs and expenses primarily related to higher expenses associated with the increased scale of our upstream operations and higher production and property taxes associated with higher commodity prices.
Six months ended
Other Modified EBITDA increased primarily due to
•A$133 million increase in Net realized product sales primarily due to higher volumes associated with acquisitions of additional ownership interests in the second and third quarters of 2021 and higher production from new wells. Net realized product sales also increased due to higher net realized commodity prices in the second quarter of 2022, partially offset by lower prices from the absence of winter weather in the first quarter of 2022 compared to the first quarter of 2021; partially offset by •A$14 million unfavorable change in Net unrealized gain (loss) from derivative instruments due to a change in forward commodity prices relative to our hedge positions and an increase in production hedged in 2022 compared to 2021; and 48 --------------------------------------------------------------------------------
Management's Discussion and Analysis (Continued) Table of Contents
•A$34 million increase in Other segment costs and expenses primarily related to higher expenses associated with the increased scale of our upstream operations and higher production and property taxes associated with higher commodity prices.
Other segment costs and expenses also reflects a
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Management's Discussion and Analysis of Financial Condition and Liquidity
Outlook
Our growth capital and investment expenditures in 2022 are currently expected to be in a range from$2.25 billion to$2.35 billion . Growth capital spending in 2022 primarily includesTransco expansions, all of which are fully contracted with firm transportation agreements, projects supporting the Northeast G&P business, the Trace Acquisition, and an expansion in the Western Gulf area. We also expect to invest capital in the development of our upstream oil and gas properties. 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 funded the Trace Acquisition with available sources of short-term liquidity and intend to fund substantially all additional planned 2022 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 including the repurchase of our common stock. During the first quarter of 2022, we early retired$1.25 billion of 3.6 percent senior unsecured notes that were scheduled to mature inMarch 2022 using proceeds from ourOctober 2021 debt offering. During the second quarter of 2022, we early retired$750 million of 3.35 percent senior unsecured notes that were scheduled to mature inAugust 2022 using issuances of commercial paper. As ofJune 30, 2022 , we have$876 million of long-term debt due within one year and$1.040 billion of Commercial paper outstanding (at par value). Our potential sources of liquidity available to address these maturities include cash on hand, proceeds from refinancing, our credit facility, or our commercial paper program, as well as proceeds from asset monetizations.
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
2022. 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
Product costs
Other operating costs including human capital expenses
Quarterly dividends to our shareholders
Repayments of borrowings under our credit facility and/orcommercial paper program
Debt service payments, including payments of long-term debt
Distributions to noncontrolling interests
Share repurchase program
As of June 30, 2022 , we have $20.8 billion of long-term debt due after one year.
Our potential sources of liquidity available to address these maturities include
cash generated from operations, proceeds from refinancing, our credit facility,
or our commercial paper program, as well as proceeds from asset monetizations.
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Potential risks associated with our planned levels of liquidity discussed above include those previously discussed in Company Outlook.
As of
Available Liquidity June 30, 2022
(Millions)
Cash and cash equivalents $ 133
Capacity available under our
2,710
$ 2,843
(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 $1.040 billion of
Commercial paper (at par value) outstanding as of June 30, 2022 . Through
June 30, 2022 , the highest amount outstanding under our commercial paper program
and credit facility during 2022 was $1.219 billion . At June 30, 2022 , we were in
compliance with the financial covenants associated with our credit facility.
Borrowing capacity under our credit facility as of July 28, 2022 was $2.712
billion .
Dividends
We increased our regular quarterly cash dividend to common stockholders by
approximately 3.7 percent from the
Distributions from Equity-Method Investees
The organizational documents of entities in which we have an equity-method investment generally require periodic distributions of their available cash to their members. 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 Baa2
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,
if ratings were to fall below investment-grade, could require us to provide
additional collateral to third parties, negatively impacting our available
liquidity.
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Sources (Uses) of Cash
The following table summarizes the sources (uses) of cash and cash equivalents for each of the periods presented (see Notes to Consolidated Financial Statements for the Notes referenced in the table):
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