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 business. 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 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, and West. All remaining business activities, including our recently acquired upstream operations, 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 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 (we previously effectively owned a 29 percent indirect interest in Blue Racer through our 58 percent equity-method investment in Caiman II until acquiring a controlling interest of Caiman II inNovember 2020 ), 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 northwestLouisiana , and the Mid-Continent region which includes theAnadarko 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, a 20 percent equity-method investment inTarga Train 7, and a 15 percent interest in Brazos Permian II. 33 -------------------------------------------------------------------------------- Management's Discussion and Analysis (Continued) Dividends InJune 2021 , we paid a regular quarterly dividend of$0.41 per share. Overview of Six Months EndedJune 30, 2021 Net income (loss) attributable toThe Williams Companies, Inc. , for the six months endedJune 30, 2021 , increased$944 million compared to the six months endedJune 30, 2020 , reflecting: •The absence of$938 million of Impairment of equity-method investments in the first quarter of 2020; •The absence of$187 million of Impairment of goodwill in 2020, of which$65 million was attributable to noncontrolling interests; •A$136 million favorable change in our commodity margins primarily due to increases in net realized sales prices and volumes. Our commodity margins are comprised of the net sum of Service revenues - commodity consideration, Product sales, Product costs, and Processing commodity expenses; however, Product sales at our Other segment reflect sales related to our recently acquired upstream operations and are excluded from our commodity margins; •A$136 million increase in equity earnings, primarily due to the absence of our$78 million share of an impairment of goodwill recorded by an equity-method investee in 2020 and higher volumes from certain of our Northeast G&P investments; •A$100 million increase in Product sales at our Other segment reflecting sales related to our recently acquired upstream operations. These favorable changes were partially offset by: •A$347 million unfavorable change in provision for income taxes, driven by higher pre-tax earnings; •$82 million of higher Operating and maintenance expenses primarily due to the inclusion of our recently acquired upstream operations at our Other segment and higher employee-related expenses; •A$42 million unfavorable change in Depreciation and amortization 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 Report on Form 10-K datedFebruary 24, 2021 . Recent Developments Sequent Acquisition InJuly 2021 , we completed the acquisition of 100 percent ofSequent Energy Management, L.P. and Sequent Energy Canada, Corp. (collectively, Sequent). Total consideration paid was$134 million , which includes$84 million of working capital acquired, and is subject to post-closing adjustment. Sequent focuses on asset management and the wholesale marketing, trading, storage, and transportation of natural gas for a diverse set of natural gas utilities and producers, and moves gas to markets through transportation and storage agreements on strategically positioned assets, including along ourTransco system. The addition of Sequent complements the current geographic footprint of our core pipeline transportation and storage business and is expected to enhance our gas marketing capabilities. Wamsutter Upstream Joint Venture During the second quarter of 2021, we agreed to cross-convey certain of our oil and gas properties in theWamsutter field (see Note 12 - Segment Disclosures of Notes to Consolidated Financial Statements) to a venture 34 -------------------------------------------------------------------------------- Management's Discussion and Analysis (Continued) along with certain oil and gas properties cross-conveyed by a third-party operator in the region. The combined properties consist of over 1.2 million net acres and an interest in over 3,500 wells. Under the terms of the agreement which became effective during the third quarter of 2021, our partner owns a 25 percent undivided interest in each well's working interest percentage, and we own a 75 percent undivided interest in each well's working interest percentage. Expansion Project Update Transmission &Gulf of Mexico 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 placed 230 Mdth/d of capacity under the project into service in the fourth quarter of 2020, and the project was fully in service onJanuary 1, 2021 . In total, the project increased capacity by 296 Mdth/d. COVID-19 The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. We continue to monitor 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. Our financial condition, results of operations, and liquidity have not been materially impacted by direct effects of COVID-19. 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 2021 includes a continued focus on earnings and cash flow growth, while continuing to improve leverage metrics and control operating costs. In 2021, our operating results are expected to benefit from growth in our Northeast G&P gathering and processing volumes. We also anticipate increases from recently completedTransco expansion projects and higherGulf of Mexico results primarily due to lower planned hurricane impacts. Our results also benefited from the overall net favorable impact of unusually high natural gas prices in the first quarter, including contributions from certain of our recently acquired upstream properties. These increases will be partially offset by a decrease in West results, including a reduction in NGL transportation volumes on OPPL and certain fee reductions in theHaynesville area in exchange for future value in upstream natural gas properties. We also expect a modest increase in expenses, including higher operating taxes. Our growth capital and investment expenditures in 2021 are expected to be in a range from$1.0 billion to$1.2 billion . Growth capital spending in 2021 includesTransco expansions, all of which are fully contracted with firm transportation agreements, projects supporting the Northeast G&P business, midstream opportunities in theHaynesville area in the West segment, and the recent acquisitions of certain upstream operations and Sequent. 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. 35 -------------------------------------------------------------------------------- Management's Discussion and Analysis (Continued) 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; •Opposition to, and legal 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 further industry downturns, including increased 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 endedDecember 31, 2020 , as filed with theSEC onFebruary 24, 2021 . 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 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 placed 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 2021. The project is expected to increase capacity by 582 Mdth/d. 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 2023, assuming timely receipt of all necessary regulatory approvals. The project is expected to increase capacity by 829 Mdth/d. 36 --------------------------------------------------------------------------------
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 six months endedJune 30, 2021 , compared to the three and six months endedJune 30, 2020 . 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, 2021 2020 $ Change* % Change* 2021 2020 $ Change* % Change* (Millions) (Millions) Revenues: Service revenues$ 1,460 $ 1,446 +14 +1 %$ 2,912 $ 2,920 -8 - % Service revenues - commodity consideration 51 25 +26 +104 % 100 53 +47 +89 % Product sales 772 310 +462 +149 % 1,883 721 +1,162 +161 % Total revenues 2,283 1,781 4,895 3,694 Costs and expenses: Product costs 697 271 -426 -157 % 1,629 667 -962 -144 % Processing commodity expenses 18 15 -3 -20 % 39 28 -11 -39 % Operating and maintenance expenses 379 320 -59 -18 % 739 657 -82 -12 % Depreciation and amortization expenses 463 430 -33 -8 % 901 859 -42 -5 % Selling, general, and administrative expenses 114 127 +13 +10 % 237 240 +3 +1 % Impairment of goodwill - - - - % - 187 +187 +100 % Other (income) expense - net 12 6 -6 -100 % 11 13 +2 +15 % Total costs and expenses 1,683 1,169 3,556 2,651 Operating income (loss) 600 612 1,339 1,043 Equity earnings (losses) 135 108 +27 +25 % 266 130 +136 +105 % Impairment of equity-method investments - - - - % - (938) +938 +100 % Other investing income (loss) - net 2 1 +1 +100 % 4 4 - - % Interest expense (298) (294) -4 -1 % (592) (590) -2 - % Other income (expense) - net 2 5 -3 -60 % - 9 -9 -100 % Income (loss) before income taxes 441 432 1,017 (342) Less: Provision (benefit) for income taxes 119 117 -2 -2 % 260 (87) -347 NM Net income (loss) 322 315 757 (255) Less: Net income (loss) attributable to noncontrolling interests 18 12 -6 -50 % 27 (41) -68 NM Net income (loss) attributable to The Williams Companies, Inc.$ 304 $ 303 $ 730 $ (214)
* + = 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.
37
--------------------------------------------------------------------------------
Management's Discussion and Analysis (Continued)
Three months ended June 30, 2021 vs. three months ended June 30, 2020
Service revenues increased primarily due to higher transportation fee revenues
associated with expansion projects placed in service at Transco in 2020 and
2021, the absence of certain 2020 Gulf of Mexico maintenance shut-ins, and an
increase in reimbursable electricity expenses which is offset in Operating and
maintenance expenses in our Northeast G&P segment. These increases were
partially offset by lower volumes driven by production declines, lower deferred
revenue amortization, and the absence of a temporary volume deficiency fee from
a customer, in our West segment.
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 net realized NGL and natural gas
prices and higher natural gas volumes associated with our marketing activities,
and higher net realized prices related to our equity NGL sales activities. This
increase also includes our recently acquired upstream operations (see Note 12 -
Segment Disclosures of Notes to Consolidated Financial Statements). Marketing
sales are offset within Product costs.
Product costs increased primarily due to higher NGL and natural gas prices and
higher natural gas volumes for our marketing activities, as well as higher NGL
prices associated with volumes acquired as commodity consideration related to
our equity NGL production activities.
The net sum of Service revenues - commodity consideration, Product sales,
Product costs, and Processing commodity expenses comprise our commodity margins.
However, Product sales at our Other segment reflect sales related to our oil and
gas producing properties and are excluded from our commodity margins.
Operating and maintenance expenses increased primarily due to the inclusion of
our recently acquired upstream operations, as well as higher maintenance and
reimbursable electricity expenses, and higher employee-related expenses.
Depreciation and amortization expenses increased primarily due to reduced
estimated useful lives for certain facilities in our West segment expected to be
decommissioned during 2021, as well as the inclusion of our recently acquired
upstream operations.
Selling, general, and administrative expenses decreased primarily due to lower
expenses for various corporate costs, partially offset by higher
employee-related expenses.
Equity earnings (losses) changed favorably primarily due to an increase at
Appalachia Midstream Investments.
Six months ended June 30, 2021 vs. six months ended June 30, 2020
Service revenues decreased primarily due to lower volumes driven by production
declines, lower gathering and processing rates, lower deferred revenue
amortization, and the absence of a temporary volume deficiency fee from a
customer, in our West segment. This decrease was partially offset by higher
transportation fee revenues associated with expansion projects placed in service
at Transco in 2020 and 2021, higher MVC revenue in our West segment, higher
revenue associated with reimbursable electricity expenses, and an increase
associated with Norphlet.
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 net realized natural gas and NGL
prices and higher natural gas volumes associated with our marketing activities,
and the inclusion of our recently acquired upstream operations
38
--------------------------------------------------------------------------------
Management's Discussion and Analysis (Continued)
(see Note 12 - Segment Disclosures of Notes to Consolidated Financial
Statements). This increase also includes higher prices related to our equity NGL
sales activities. Marketing sales are partially offset within Product costs.
Product costs increased primarily due to higher natural gas and NGL prices and
higher natural gas volumes for our marketing activities, as well as higher NGL
prices associated with volumes acquired as commodity consideration related to
our equity NGL production activities.
Processing commodity expenses increased primarily due to higher prices for
natural gas purchases associated with our equity NGL production activities.
The net sum of Service revenues - commodity consideration, Product sales,
Product costs, and Processing commodity expenses comprise our commodity margins.
However, Product sales at our Other segment reflect sales related to our oil and
gas producing properties and are excluded from our commodity margins.
Operating and maintenance expenses increased primarily due to the inclusion of
our recently acquired upstream operations, as well as higher maintenance and
reimbursable electricity expenses, and higher employee-related expenses.
Depreciation and amortization expenses increased primarily due to reduced
estimated useful lives for certain facilities in our West segment expected to be
decommissioned during 2021, the inclusion of our recently acquired upstream
operations, as well as new assets placed in-service at Transco .
Selling, general, and administrative expenses decreased primarily due to lower
expenses for various corporate costs, partially offset by higher
employee-related expenses.
Impairment of goodwill reflects the 2020 charge at the Northeast reporting unit
(see Note 10 - Fair Value Measurements and Guarantees of Notes to Consolidated
Financial Statements).
Equity earnings (losses) changed favorably primarily due to the absence of the
2020 impairment of goodwill at RMM, increases at Appalachia Midstream
Investments and Discovery, partially offset by a decrease at OPPL.
The change in Impairment of equity-method investments reflects the absence of
2020 impairments to various equity-method investments (see Note 10 - Fair Value
Measurements and Guarantees of Notes to Consolidated Financial Statements).
Other income (expense) - net includes the unfavorable impact of an accrual for a
loss contingency in 2021.
Provision (benefit) for income taxes changed unfavorably primarily due to higher
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.
The unfavorable change in Net income (loss) attributable to noncontrolling
interests is primarily due to the absence of our partner's share of the 2020
goodwill impairment at the Northeast reporting unit.
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.
39
--------------------------------------------------------------------------------
Management's Discussion and Analysis (Continued)
Transmission & Gulf of Mexico
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(Millions)
Service revenues $ 823 $ 795 $ 1,657 $ 1,624
Service revenues - commodity consideration 10 3 21 8
Product sales 67 36 134 88
Segment revenues 900 834 1,812 1,720
Product costs (68) (37) (134) (89)
Processing commodity expenses (2) (1) (6) (3)
Other segment costs and expenses (230) (223) (459) (437)
Proportional Modified EBITDA of equity-method
investments 46 42 93 86
Transmission & Gulf of Mexico Modified EBITDA $ 646 $ 615 $ 1,306 $ 1,277
Commodity margins $ 7 $ 1 $ 15 $ 4
Three months ended June 30, 2021 vs. three months ended June 30, 2020
Transmission & Gulf of Mexico Modified EBITDA increased primarily due to
favorable changes to Service revenues and Commodity margins, partially offset by
higher Other segment costs and expenses.
Service revenues increased primarily due to:
•A $19 million increase in Transco's natural gas transportation revenues
primarily associated with expansion projects placed in service in 2020 and 2021;
•A $12 million increase in the Western Gulf Coast region primarily due to the
absence of temporary shut-ins in 2020 related to scheduled maintenance.
The increase in Product sales includes an increase in commodity marketing sales
primarily due to higher NGL prices. Marketing sales are substantially offset in
Product costs and therefore have little impact to Modified EBITDA. Our commodity
margins associated with our equity NGLs increased $5 million primarily driven by
favorable NGL sales prices.
Other segment costs and expenses increased primarily due to higher
employee-related costs.
Six months ended June 30, 2021 vs. six months ended June 30, 2020
Transmission & Gulf of Mexico Modified EBITDA increased primarily due to
favorable changes to Service revenues and Commodity margins, partially offset by
higher Other segment costs and expenses.
Service revenues increased primarily due to:
•A $36 million increase in Transco's natural gas transportation revenues
primarily associated with expansion projects placed in service in 2020 and 2021,
partially offset by one less billing day;
•A $16 million increase associated with Norphlet;
•An $11 million increase in the Western Gulf Coast region primarily due to the
absence of temporary shut-ins in 2020 related to scheduled maintenance;
partially offset by
•A $16 million decrease due to lower volumes primarily from certain Eastern Gulf
Coast region operations due to producer operational issues;
40
--------------------------------------------------------------------------------
Management's Discussion and Analysis (Continued)
•An $8 million decrease at Gulfstar One for the Tubular Bells field primarily
due to lower deferred revenue amortization.
The increase in Product sales includes an increase in commodity marketing sales
primarily due to higher NGL prices. Marketing sales are substantially offset in
Product costs and therefore have little impact to Modified EBITDA. Our commodity
margins associated with our equity NGLs increased $9 million primarily driven by
favorable NGL sales prices.
Other segment costs and expenses increased primarily due to higher
employee-related costs and an unfavorable change in allowance for equity funds
used during construction.
Proportional Modified EBITDA of equity-method investments increased at Discovery
driven by higher volumes due to absence of prior year scheduled maintenance and
temporary shut-ins related to Gulf of Mexico weather-related events and pricing.
Northeast G&P
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(Millions)
Service revenues $ 373 $ 354 $ 731 $ 712
Service revenues - commodity consideration 2 1 5 3
Product sales 24 1 56 30
Segment revenues 399 356 792 745
Product costs (26) - (58) (29)
Processing commodity expenses - (1) - (2)
Other segment costs and expenses (126) (111) (238) (221)
Proportional Modified EBITDA of equity-method
investments 162 126 315 246
Northeast G&P Modified EBITDA $ 409 $ 370 $ 811 $ 739
Commodity margins $ - $ 1 $ 3 $ 2
Three months ended June 30, 2021 vs. three months ended June 30, 2020
Northeast G&P Modified EBITDA increased primarily due to increased Proportional
Modified EBITDA of equity-method investments and higher Service revenues,
partially offset by increased Other segment costs and expenses.
Service revenues increased primarily due to:
•A $10 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;
•A $7 million increase in revenues at the Northeast JV primarily related to
higher processing and fractionation volumes.
Product sales increased primarily due to higher sales prices of NGLs associated
with our marketing activities. Marketing sales 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 increased primarily due to higher maintenance
and operating expenses, including higher electricity charges.
41
--------------------------------------------------------------------------------
Management's Discussion and Analysis (Continued)
Proportional Modified EBITDA of equity-method investments increased at
Appalachia Midstream Investments primarily driven by higher volumes.
Additionally, there was an increase at Blue Racer/Caiman II due to the favorable
impact of increased ownership, partially offset by the absence of a gain on
early debt retirement at Blue Racer in the second quarter of 2020.
Six months ended June 30, 2021 vs. six months ended June 30, 2020
Northeast G&P Modified EBITDA increased primarily due to increased Proportional
Modified EBITDA of equity-method investments and higher Service revenues,
partially offset by increased Other segment costs and expenses.
Service revenues increased primarily due to:
•A $12 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;
•A $9 million increase in revenues at the Northeast JV primarily related to
higher processing and fractionation volumes; partially offset by
•An $8 million decrease associated with lower gathering volumes at Susquehanna
Supply Hub.
Product sales increased primarily due to higher sales prices of NGLs associated
with our marketing activities, which were partially offset by lower sales
volumes. Marketing sales 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 increased primarily due to higher maintenance
and operating expenses, including higher electricity charges.
Proportional Modified EBITDA of equity-method investments increased at
Appalachia Midstream Investments primarily driven by higher volumes.
Additionally, there was an increase at Blue Racer/Caiman II primarily due to the
favorable impact of increased ownership, partially offset by the absence of a
gain on early debt retirement at Blue Racer in the second quarter of 2020.
West
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(Millions)
Service revenues $ 291 $ 316 $ 575 $ 627
Service revenues - commodity consideration 39 21 74 42
Product sales 722 303 1,768 662
Segment revenues 1,052 640 2,417 1,331
Product costs (704) (281) (1,640) (649)
Processing commodity expenses (16) (13) (33) (23)
Other segment costs and expenses (123) (117) (245) (243)
Proportional Modified EBITDA of equity-method
investments 22 24 47 52
West Modified EBITDA $ 231 $ 253 $ 546 $ 468
Commodity margins $ 41 $ 30 $ 169 $ 32
42-------------------------------------------------------------------------------- Management's Discussion and Analysis (Continued) Three months endedJune 30, 2021 vs. three months endedJune 30, 2020 West Modified EBITDA decreased primarily due to lower Service revenues and higher Other segment costs and expenses, partially offset by higher Commodity margins. Service revenues decreased primarily due to: •A$10 million decrease associated with lower volumes, primarily due to production declines in theHaynesville Shale region; •A$9 million decrease related to lower deferred revenue amortization primarily in theBarnett Shale region; •A$9 million decrease due to the absence of a temporary volume deficiency fee from a customer in 2020. •Higher gathering rates in theBarnett Shale region and higher processing rates in the Piceance region, both driven by favorable commodity pricing, were substantially offset by lower gathering rates in theHaynesville Shale region due to a customer contract change. 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 increased$7 million , primarily due to higher net realized sales prices, partially offset by lower sales volumes and an increase in natural gas purchases associated with our equity NGLs. Commodity marketing sales increased primarily due to higher net realized NGL and natural gas prices. Marketing sales are substantially offset in Product costs and therefore have little impact to Modified EBITDA. Six months endedJune 30, 2021 vs. six months endedJune 30, 2020 West Modified EBITDA increased primarily due to higher Commodity margins, partially offset by lower Service revenues. Service revenues decreased primarily due to: •A$47 million decrease associated with lower volumes, primarily due to production declines in theEagle Ford Shale region which impact is substantially offset by the recognition of higher MVC revenue (see below). Additionally, lower volumes in theHaynesville Shale region were impacted by production declines; •A$25 million decrease associated with lower gathering rates in theHaynesville Shale region due to a customer contract change and lower processing rates in the Piceance region driven primarily by unfavorable commodity pricing. These decreases are partially offset by an increase in gathering rates in theBarnett Shale region primarily due to favorable commodity pricing; •An$18 million decrease related to lower deferred revenue amortization primarily in theBarnett Shale region; •A$9 million decrease due to the absence of a temporary volume deficiency fee from a customer in 2020; partially offset by •A$36 million increase associated with higher MVC revenue, primarily in theEagle Ford Shale andWamsutter regions; •An$11 million increase in revenues associated primarily with reimbursable compressor power and fuel purchases due to higher prices related to the impact of severe winter weather, which are offset by similar changes in Other segment costs and expenses. 43 -------------------------------------------------------------------------------- Management's Discussion and Analysis (Continued) Marketing margins increased by$122 million primarily due to favorable changes in net realized natural gas and NGL prices, including the impact of severe winter weather in the first quarter of 2021. Product margins from our equity NGLs increased$11 million , primarily due to higher net realized sales prices, partially offset by an increase in natural gas purchases associated with our equity NGLs and lower sales volumes. Other segment costs and expenses increased primarily due to higher maintenance expenses including costs associated with the timing and scope of activities as well as higher reimbursable compressor power and fuel purchases which are offset in Service revenues. These increases are partially offset by lower operating expenses including costs related to fewer leased compressors. Proportional Modified EBITDA of equity-method investments decreased primarily due to lower volumes at OPPL, partially offset by higher volumes and commodity prices at Brazos Permian II. Other Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (Millions) Other Modified EBITDA$ 20 $ 8 $ 53 $ 15 Three and six months endedJune 30, 2021 vs. three and six months endedJune 30, 2020 Other Modified EBITDA increased primarily due to our recently acquired upstream operations, including the favorable commodity price impact of severe winter weather in the first quarter of 2021. See Note 12 - Segment Disclosures of Notes to Consolidated Financial Statements. The year-to-date comparative period also includes the unfavorable impact of an accrual for a loss contingency in 2021. 44 -------------------------------------------------------------------------------- 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 2021 are currently expected to be in a range from$1.0 billion to$1.2 billion . Growth capital spending in 2021 includesTransco expansions, all of which are fully contracted with firm transportation agreements, projects supporting the Northeast G&P business, midstream opportunities in theHaynesville area in the West segment, and the recent acquisitions of certain upstream operations and Sequent. 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 2021 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. In the first half of 2021, we acquired various oil and gas properties in theWamsutter field inWyoming , funding the$165 million paid with cash on hand (see Note 12 - Segment Disclosures of Notes to Consolidated Financial Statements). InJuly 2021 , we acquired Sequent, funding the$134 million paid with cash on hand (see Note 13 - Subsequent Event of Notes to Consolidated Financial Statements). During the first quarter of 2021, we issued$900 million of new long-term debt to fund the repayment of long-term debt maturing in 2021 and for general corporate purposes. As ofJune 30, 2021 , we have approximately$2.1 billion of long-term debt due within one year. Our potential sources of liquidity available to address these maturities include cash on hand, proceeds from refinancing at attractive long-term rates or from our credit facility, as well as proceeds from asset monetizations. InAugust 2021 , we expect to early retire our$500 million of 4 percent senior unsecured notes that are scheduled to mature inNovember 2021 . 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 2021. 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 Debt service payments, including payments of long-term debt Distributions to noncontrolling interests As ofJune 30, 2021 , we have approximately$21.1 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 at attractive long-term rates or from our credit facility, as well as proceeds from asset monetizations. 45 -------------------------------------------------------------------------------- Management's Discussion and Analysis (Continued) Potential risks associated with our planned levels of liquidity discussed above include those previously discussed in Company Outlook. As ofJune 30, 2021 , we had a working capital deficit of$1.134 billion , including cash and cash equivalents and long-term debt due within one year. Our available liquidity is as follows: Available Liquidity June 30, 2021 (Millions) Cash and cash equivalents $ 1,201
Capacity available under our
4,500
$ 5,701
(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 no commercial
paper outstanding as of June 30, 2021 . Through June 30 , there was no amount
outstanding under our commercial paper program and credit facility during 2021.
At June 30, 2021 , we were in compliance with the financial covenants associated
with our credit facility.
Dividends
We increased our regular quarterly cash dividend to common stockholders by
approximately 2.5 percent from the $0.40 per share paid in each quarter of 2020,
to $0.41 per share paid in March and June 2021 .
Registrations
In February 2021 , we filed a shelf registration statement as a well-known
seasoned issuer.
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
In June 2021 , Moody's upgraded our credit rating from Baa3 to Baa2, and changed
our Outlook from Positive to Stable.
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.
46--------------------------------------------------------------------------------
© Edgar Online, source
