The Williams Companies (S&P 500: WMB) is an energy infrastructure company that is focused on connecting hydrocarbon resources to natural gas markets through its gas pipeline and midstream business. The company’s operations are located in the United States.
The company’s business segments include Transmission & Gulf of Mexico, Northeast Gathering and Processing, and West. Transmission & Gulf of Mexico consists of the company’s interstate natural gas pipelines, Transco and Northwest Pipeline. This business segment also comprises the gathering and processing of natural gas.
WMB has a 51% interest in Gulfstar One (a proprietary floating production system), an equity method interest of 50% in Gulfstream, and a 60% equity method investment in Discovery. These assets handle the production of crude oil and transportation in the Gulf Coast region.
The Northeast Gathering and Processing segment consists of midstream gathering, processing, and fractionation businesses in the Utica Shale region of eastern Ohio, and the Marcellus Shale region, which is primarily in Pennsylvania and New York.
The West business segment comprises gas gathering, processing, and treating operations in the Rocky Mountain region of Colorado and Wyoming, the Eagle Ford Shale region of south Texas, the Barnett Shale region of north-central Texas, the Haynesville Shale region of northwest Louisiana, and the Mid-Continent region which includes the Anadarko, Arkoma, and Permian basins. (See Williams stock chart on TipRanks)
Many analysts are bullish on Williams stock. Here are a few reasons why.
Q1 Results and FY21 Outlook
In Q1, Williams reported strong results with total revenues of $2,612 million, up 36.5% year-over-year. Diluted earnings came in at $0.35 per share versus a loss of $0.43 per share in the same quarter last year. The company reported adjusted EBITDA of $1.42 billion, up 12% year-over-year.
WMB expects adjusted EBITDA between $5.2 billion to $5.4 billion in FY21 while the leverage ratio is expected to be approximately 4.2x. Williams anticipates capex to range from $1 billion to $1.2 billion.
Last month, Wells Fargo analyst Praneeth Satish hosted WMB’s President & CEO Alan Armstrong and EVP & COO Michael Dunn in a virtual meeting with investors. The analyst came away bullish on the stock, with a Buy rating and a price target of $28.
Satish said in a note to investors, “Management believes investors could be under-appreciating the following growth drivers for the company: (1) WMB’s plan to convert upstream acreage into midstream cashflow in 2022, (2) Gulf of Mexico growth in 2024-25, and (3) a long runway of ratable growth projects on Transco (that can backstop any slowdown in growth). Taken together, we believe our 5-year EBITDA CAGR forecast of 2% could prove conservative.”
WMB’s Joint Venture in the Wamsutter Field
On July 6, WMB announced an upstream joint venture (JV) with Crowheart Energy (Crowheart) in the Wamsutter Field of the Greater Green River Basin of Wyoming that would involve “the consolidation of three legacy operating assets consisting of over 1.2 million net acres, over 3,500 operating wells, and more than 3,000 potential development locations.”
Initially, WMB will have 75% interest in the JV while Crowheart will own the remaining 25% interest.
The company said in its press release that the strategic effort involved in combining the “Wamsutter Field reserves will enhance the value of its midstream and downstream natural gas and NGL infrastructure.”
Analyst Satish appreciated this growth initiative and said that “this will be an NPV positive transaction for WMB and drive incremental EBITDA growth in 2022. In contrast, we are modeling effectively flat EBITDA in 2022 (versus 2021).”
Collaboration with Microsoft and Acquisition of Sequent Energy Management
Last month, WMB signed a Memorandum of Understanding (MoU) with Microsoft (MSFT) to explore lower carbon opportunities and focus on the development of renewable natural gas products, hydrogen economy, and energy storage solutions. Through the MoU, WMB will also look at ways to use Microsoft Azure services and solutions to monitor and report its emissions and improve them.
Earlier this month, Williams also completed the acquisition of Sequent Energy Management, L.P., and Sequent Energy Canada, Corp. from Southern Company Gas, which was announced in May. WMB acquired Sequent for $50 million in addition to acquiring the working capital of the company.
WMB’s President and CEO, Alan Armstrong said, “The addition of Sequent Energy Management, including its talented workforce and industry leading platform, complements the current geographic footprint of our core pipeline transportation and storage business… “
“Sequent’s operational footprint in the U.S. and Canada provides Williams with an enhanced North American perspective of natural gas markets, in turn bolstering the company’s natural gas focused strategy, and I’m excited to welcome the Sequent employees to the Williams family,” Armstrong added.
WMB’s management told analyst Satish in the virtual meeting that through its partnership with Microsoft, “emissions can be tracked along the value chain and the data can be used to certify emissions free/low emission gas is being delivered to customers. Combined with WMB’s recent Sequent (marketing) acquisition, the company could soon be competitively positioned to deliver low emission / zero emission gas to customers across the country.”
WMB’s Natural Gas Pipeline, Transco
Williams’ management said in the virtual investor conference that its Transco pipeline had a robust backlog of “rate base opportunities” but the management is currently not pursuing these opportunities as the company is looking at other projects with higher returns.
Furthermore, WMB noted that the rate base projects on Transco could earn a return on equity (ROE) between 12.5% and 12.75%. Analyst Satish noted, “These projects have a utility-like risk/return, but should still be accretive in the low rate environment. For now, WMB is pursuing emissions reduction projects, which carry a higher double-digit return. However, the company noted it always has the option to fall back on rate base projects.”
Gulf of Mexico
The company has projected the completion of the expansion of infrastructure in the Gulf of Mexico between 2024 and 2025, WMB’s management told investors. According to WMB, this could result in doubling the EBITDA for the Gulf of Mexico.
Analyst Satish stated, “In contrast, we are projecting only a 50% increase. If EBITDA doubled, this would represent an incremental ~$150MM to our outer year EBITDA projections.”
As a part of this initiative, last month, WMB entered into an export agreement with Beacon Offshore Energy Development LLC and its co-owner ShenHai, LLC, a subsidiary of Navitas Petroleum. Through this agreement, Beacon Offshore Energy Development will provide offshore natural gas gathering and transportation services and onshore natural gas processing services to the Shenandoah development through the Discovery infrastructure in the central Gulf of Mexico.
WMB’s COO Michael Dunn said, “Our investment in Shenandoah is a strategic expansion of our Gulf of Mexico infrastructure which further strengthens our portfolio of services. We are pleased to provide the entire spectrum of midstream capabilities to Beacon that will capture the full value of these important deepwater resources.”
Analysts’ Consensus
Consensus among analysts on Wall Street is a Strong Buy based on 9 Buys and 1 Hold. The average Williams Companies price target of $28.60 implies approximately 9.3% upside potential to current levels.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities
