Williams Companies Q1 2022 Earnings Call Transcript

Participants

Corporate Executives

• Danilo Juvane, Vice President of Investor Relations
• Alan S. Armstrong, President and Chief Executive Officer
• John D. Porter, Senior Vice President, Chief Financial Officer
• Chad J. Zamarin, Senior Vice President, Corporate Strategic Development
• Micheal G. Dunn, Executive Vice President and Chief Operating Officer

Analysts

• Brian Reynolds, UBS Group AG
• Chase Mulvehill, Bank of America Co.
• Praneeth Satish, Wells Fargo & Company
• Gabriel Moreen, Mizuho
• Jeremy Tonet, JPMorgan Securities
• Michael Lapides, The Goldman Sachs Group, Inc.
• Jean Salisbury, Sanford C. Bernstein
• Sunil, Seaport Global Securities
• Alex Kania, Wolfe Research

Presentation

[Operator]

Good day, everyone, and welcome to the Williams First Quarter 2022 Earnings Conference Call.

At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Danilo Juvane, Vice President of Investor Relations and ESG. Please go ahead.

[Danilo Juvane, Vice President of Investor Relations at Williams Companies]

Thanks, Sarah, and good morning, everyone. Thank you for joining us and for your interest in The Williams Companies. Yesterday afternoon, we released our earnings press release and the presentation that our President and Chief Executive Officer, Alan Armstrong; and our Chief Financial Officer, John Porter, will speak to this morning. Also joining us on the call today are Michael Dunn, our Chief Operating Officer; Lane Wilson, our General Counsel; and Chad Zamarin, our Senior Vice President of Corporate Strategic Development.

In our presentation materials, you'll find a disclaimer related to forward-looking statements. This disclaimer is important and integral to our remarks, and you should review it. Also included in our presentation materials are non-GAAP measures that we reconciled to generally accepted accounting principles, and these reconciliation schedules appear at the back of today's presentation materials.

So with that, I'll turn it over to Alan Armstrong.

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Thanks, Danilo. Our natural gas-focused strategy continues to deliver steady, predictable growth, and this past quarter was certainly no exception. In fact, we posted yet another quarter of record EBITDA, driven by growth across all four of our core business segments as well as our upstream JV operations. We continue to set new records for contracted transmission capacity and expect this record-breaking performance to continue for many years to come as we execute on the six unique transmission expansion projects totaling 1.9 Bcf per day.

And our G&P business remained strong with modest growth during the quarter, expected to ramp up over the balance of the year. We continue to further advance our clean energy strategy through tightly aligned deals announced this quarter, including our acquisition of the Trace Midstream assets in the fast-growing Haynesville region, which just closed this past Friday and through our partnership with Context Labs that I'll detail more when we get to our key investor focus areas. Overall, we expect strong natural gas market fundamentals in steadfast project execution to drive additional growth for our business in '22.

And as a result, we are raising financial guidance with expectations of another remarkable year of growth. Importantly, the midpoint of this new guidance is beyond the top of our previous range. So an impressive start to the year with a number of clear catalysts for growth for the balance of the year and into '23.

And now I'll turn it over to John to go through the results for the quarter and our raised guidance. John?

[John D. Porter, Senior Vice President, Chief Financial Officer at Williams Companies]

Thanks, Alan. Starting here on Slide one with a summary of our year-over-year financial performance. Overall, '22 is off to a strong start. We've seen 7% growth in EBITDA or 13% if you adjust last year to remove the favorable effects of last year's severe winter weather, including Winter Storm Uri. And as we'll see on the next slide, our core natural gas-focused transmission and gathering and processing businesses have fueled this EBITDA growth, although we have also enjoyed continued strength in our upstream and marketing businesses.

Our adjusted EPS increased 17%, continuing the strong trend of double-digit growth we've seen now for many years. Available funds from operations, AFFO, grew a bit more than EBITDA, continuing the trend of strong growth in this measure, up 16% year-over-year. As a reminder, AFFO is cash from operations, including JV cash flows, but excluding working capital fluctuations. If you compare AFFO to our capital investments of $316 million and our dividends of $518 million, you see that we generated over $350 million in excess cash for the quarter.

Also, you see our dividend coverage on this page based on AFFO continues to be very strong at 2.3 times. Our debt to adjusted EBITDA metric continues to improve based on our strong growth in EBITDA and cash generation and our capital investment discipline. You see a nearly 0.4 or 9% improvement in this measure in only a year. So now let's move to the next slide and dig a little deeper into our EBITDA results for the quarter. Again, another strong start this year with 7% growth, reflecting the combined effect of the performance of our core business and upside in our upstream operations.

Walking now from last year's $1.415 billion to this year's $1.511 billion, we start by isolating those favorable effects from last year's severe winter weather, which were $77 million and are shown here in gray. Maybe just a quick opening comment regarding expense trends since inflation has been such a big topic lately. We've actually continued to see very solid cost control in our business. You may have noticed the $34 million increase in operating and maintenance expense on the face of our income statement, but this is really driven by a combination of higher reimbursable expenses that are offset in other fee revenue, new lease payments that were just a planned part of Transco's Leidy South expansion project; and finally, operating expenses associated with our new upstream operations.

And related to the $31 million increase in SG&A on the face of the income statement, you should know that this is pretty much entirely related to the addition of the Sequent business. That also includes their bonus accrual and also an $8 million credit reserve related to a small customer bankruptcy. Moving next to our upstream operations on the waterfall chart here included in our Other segment. Upstream operations were up $56 million, excluding the $22 million of winter weather benefits from last year. Importantly, our first new Haynesville production only began in April, so really no contribution in this $54 million yet from Haynesville.

So the full amount of the growth is attributable to our Wamsutter properties. And it's a bit of an apples-to-oranges comparison at that. As a reminder, last year, we owned 100% of the acreage we acquired from BP only for February and March, but in the first quarter of this year, we own 75% of the Wamsutter upstream JV, which now includes the combined BP, Southland and Crowheart acreage. Shifting now to our core business performance.

Our transmission and Gulf of Mexico business improved $37 million or 6%, primarily at Transco and largely from the Leidy South expansion project, which came online in phases last year. Overall, our average daily transmission volumes for Transco increased over 6% versus the prior year as we once again saw record winter natural gas demand. Now Transco's revenues are driven by reserve capacity, not actual throughput, but continued growth in actual throughput does highlight the criticality of Transco service. We also saw higher margins in our Gulf of Mexico business.

Our Northeast G&P business increased $16 million or 4%, driven by top line gathering and processing revenue growth on slightly lower volumes. G&P rate growth was supported by a combination of factors, including higher commodity-based rate, annual fee escalations and other expansion-related fee increases that more than offset lower cost of service rates at our Bradford franchise. The slightly lower year-over-year Northeast volumes in the first quarter were anticipated in our initial guidance, and we expect a continued quarterly increase for the remainder of the year compared to the first quarter of '22 levels.

We continue to expect a gradual increase in overall Northeast volumes throughout the remainder of the year but ultimately, our plan for the Northeast in '22 continues to see higher EBITDA versus '21 on pretty flat volumes. However, we are well positioned to resume stronger volume and EBITDA growth in the Northeast in '23 driven by several expansion and optimization projects underway that Alan will discuss in more detail. Shifting now to the West, which saw an impressive $35 million or 17% improvement over '21.

In the West, we continue to see upside from our commodity price exposed rates in the Barnett, Piceance and Haynesville, as well as substantially higher volumes in the Haynesville that drove an 11% overall increase in volumes for the West. In the West, we see a strong quarter-over-quarter growth trajectory throughout the rest of the year and especially in the second half of the year, driven primarily by strong drilling activity in the Haynesville. Next, you see a $30 million increase in our gas and NGL marketing services business, which includes both our legacy gas and NGL marketing business as well as Sequent.

This improvement was primarily caused by the addition of Sequent in July of last year. Overall, this segment produced $65 million of EBITDA. As a reminder, the first quarter of each year is typically when Sequent creates the majority of its EBITDA, and this was a strong performance for the team. While we expect to see $50 million to $70 million of annual adjusted EBITDA contribution for this combined segment Sequent plus our legacy marketing business, this year, we've gotten off to a stronger start than expected. And with the strong commodity price expectation for '22, we expect to exceed this $50 million to $70 million range.

So again, another strong start to the year with 7% growth in EBITDA of over $1.5 billion, driven by core business performance and upside in our upstream and marketing operations. Let's move to Slide three to look at our latest financial guidance thoughts for full year '22. We are pleased to share a substantial improvement in our '22 financial guidance versus what we provided in February of this year. I won't go through each of these metrics, but we'll offer some commentary on the most pivotal numbers.

Let's start with adjusted EBITDA, where our midpoint is increasing $250 million, moving from $5.8 billion to $6.05 billion with a tightened range of plus or minus $150 million versus the original plus or minus $200 million. This substantial raise in EBITDA guidance is grounded in our confidence in the continued growth in our core business before considering the Trace acquisition. Specifically, we expect steady quarterly EBITDA in our transmission and Gulf of Mexico business through the remainder of the year, but continued quarterly EBITDA and volume growth from our West and Northeast segments with some level of acceleration through the second half of the year. Additionally, for the remainder of '22, we expect a growing contribution from the Trace acquisition, which closed last week as it moves towards the targeted approximately six times acquisition multiple based on its '23 EBITDA.

And finally, with respect to our Upstream operations, we are encouraged by the results we've seen thus far in '22 and remain confident in the fourth quarter exit rates we quoted at our Analyst Day. Shifting down the page now to growth capex, you'll note a $1 billion increase in guidance from a combination of the $950 million Trace acquisition value and other Trace-related capex. Note that we've closed the Trace acquisition using a combination of cash on hand and other sources of liquidity, including our revolver and commercial paper.

You see that our debt to adjusted EBITDA remained steady at 3.8 times reflecting the balancing of our increased EBITDA with our increased growth capex for Trace. The remainder of the guidance items either changed in relation to the change in EBITDA that I've just discussed or remain unchanged as in the case of maintenance capex. So again, a substantial increase in EBITDA guidance of $250 million at the midpoint, driven by continued growth in our core business as well as contributions from Trace acquisition and sustained expectations for our upstream JV operations.

So with that, I'll pass it back to Alan to review our key investor focus areas. Alan?

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Okay. Well, thanks, John. I'm going to move on now to the key investor focus areas here on Slide four. Our natural gas focused strategy continues to play out with strong fundamentals that are driving incremental growth opportunities, particularly as we continue to see increasing demand for U.S. LNG exports along the Transco corridor, as well, we have seen domestic demand for power and industrial sectors continue to grow despite much higher natural gas prices. Admittedly, it has been somewhat surprising to us how inelastic this demand has remained.

The challenge ahead to meet this stubborn and growing demand isn't higher cost of supply, it is simply that we need more U.S. infrastructure to connect some of the world's lowest cost supplies to this burgeoning demand. I'll current point out that Transco delivered a record-breaking 17.15 million dekatherms on January three. And while extreme winter weather usually coincides with these peak day deliveries, this volume record was due to growing demand in the Transco markets. And we expect this natural growth in demand to continue as we continue to see loads within our existing footprint.

Our G&P business continues to thrive in the current environment, allowing us to capture the upside benefit of pricing and inflation adjusters in our rates that have been sitting on their floors for many years. And we continue to execute our upstream JV strategy by realizing the near-term benefits of its commodity price exposure while setting the stage for continued use of our latent midstream capacity in the longer term as these volumes grow. And now I'm going to move on to our financial strength and stability. And as detailed earlier by John, we increased our guidance midpoint to $6.05 billion, driven by the following.

First of all, strong base business performance with volumes in the Northeast G&P business expected to rebound for the balance of the year and of course, this, along with the higher rates that we're seeing in some of our consolidated assets has got a set up for a very strong performance for the balance of the year. Strong performance of our gas and NGL marketing business in first quarter and the growing volumes in our upstream JV, which are enjoying higher than planned pricing is another driver. And finally, incremental volume and earnings from the Trace acquisition, as we've mentioned earlier. With our recent updated guidance, we expect to achieve a four year EBITDA CAGR now of 7% and an impressive EPS CAGR of 19% at our midpoint.

On the whole, our business continues to fire on all cylinders, driving our financial strength and stability. And the picture actually just keeps improving as we have been well positioned to capture the upside in this environment. Looking now at our exposure to growth. Given the current strength of natural gas fundamentals in the U.S. and abroad, we see a significant runway of growth opportunities for Williams. First of all, we now have 1.9 Bcf per day of high-return Transco projects that have now moved into execution.

This has been raised since our Analyst Day due to recently secured customer commitments to advance the Texas-Louisiana energy pathway project, which moved out of the development bucket into execution, and this project connects low-cost South Texas gas supplies with LNG markets in Louisiana. Second, in the Gulf of Mexico, we secured another customer agreement at Salamanca, further building on growth momentum in the deepwater Gulf of Mexico, which continued to deliver more and more opportunities in response to these higher oil prices. In the Northeast, we've reached agreements with our producing customers for significant gathering expansions in both the rich Utica and the rich Marcellus.

And we now have four significant expansion projects under execution that will drive growth showing up later this year and into 2023. And our strategic bolt-on acquisition of assets from Trace Midstream closed last week. And this now positions Williams as the second largest gas gatherer in the fast-growing Haynesville. This is consistent with our long-held strategy to seek a number one or number two position in the key basins in which we operate. With our Haynesville gas gathering capacity now above four Bcf per day, we continue to crisply execute on our wellhead-to-water strategy.

In fact, we are close to commercializing the Louisiana Energy Gateway project. And given significant interest by various shippers, we do expect to announce the final investment decision on that project soon. Our growth prospects don't stop with these projects. However, we see more opportunities on the horizon, even as we navigate an evolving regulatory environment. Importantly, we saw the FERC responded concerns from both industry and legislators in a constructive manner this past quarter, and we are optimistic that regulators recognize the need for reliable permitting process to support natural gas infrastructure.

Importantly, key legislative leaders have renewed their focus on streamlining permitting in our country to ensure we've got the necessary midstream infrastructure to support our country's LNG build-out goals. And finally, let's look at the development that's related to our new energy ventures. Obviously, as we think about decarbonization, there are a lot of opportunities to invest in energy innovation and new technologies. As part of our strategy to accelerate the next-generation energy marketplace, Williams has established a corporate venture capital fund that is set up in a way to support direct investments in start-ups that leverage Williams' assets for decarbonization solutions as well as limited partnership funds that specifically invest in low-carbon technologies.

A great example of how we're utilizing this VC fund is our recently announced partnership with Context Labs on a technology solution to support the gathering, marketing and transportation of responsibly sourced natural gas from wellhead to end user. And by leveraging the Context Labs' technology, we will enable supply and delivery decisions that connect the cleanest energy sources to meet real-time energy needs across the country. Also supporting our work in this space, we just announced a collaboration with Cheniere Energy to implement a QMRV pilot that will further the development of advanced monitoring technologies to enhance clean energy supply and delivery for Williams and its customers.

So lots of exciting things happening in this space and all positioned around supporting and enhancing our natural gas focused strategy. So in closing, I'll reiterate that our intense focus on our natural gas focused strategy has built a business that is steady and predictable with continued growth, improving returns and free cash. Our best-in-class long-haul pipes are in the right place serving the very best markets. And by design, our formidable gathering the assets are in the low-cost basins that will be called on to meet gas demand as it continues to grow.

Hese gathering assets are irreplaceable and critical infrastructure within the natural gas value chain. And our Sequent platform that extends across the natural gas pipeline and storage industry is providing infrastructure optimization services that create value for Williams and our customers while mitigating downside risk. You've heard me say it before, but we remain bullish on natural gas because we recognize the critical role it plays and will continue to play in both our countries and the world's pursuit of a clean energy future. Natural gas is an important component of today's fuel mix and should be prioritized as one of the most important tools to aggressively displace more carbon-intensive fuels around the world.

Our networks are critical to serving both domestic and global energy demand in a lower carbon and economically viable manner. And finally, as we look overseas to the energy crisis in Europe and its ripple effects on energy security, the importance of affordable and reliable energy supplies on a global scale has now taken center stage. Williams is excited about the important role we will play in meeting the dual challenge of delivering increasing amounts of reliable, affordable energy while also continuing to decrease greenhouse gas emissions around the world. Utilizing our critical infrastructure that is connected to the best natural gas basins in the U.S. to increasingly serve LNG export facilities and growing U.S. demand for clean affordable energy is a great place for our organization to start.

And with that, I'll open it up for your questions.

[Danilo Juvane, Vice President of Investor Relations at Williams Companies]

Operator, please open up the Q&A line.

Questions and Answers

[Operator]

Thank you. [Operator Instructions] Your first question comes from the line of Brian Reynolds of UBS. Your line is now open.

[Brian Reynolds, Analyst at UBS Group]

Hi, Good morning everyone. Maybe to talk on the EBITDA guidance for a little bit. I was curious if you could just provide a little bit more color as to the upside and downside of the EBITDA range. First look at apples-to-apples comparison, it seems like commodity exposure is really the main driver of the guidance in addition to the Trace acquisition. And I was just wondering if you had anything to add to that in addition to like if there are any volume metric assumption changes to the guidance update. Thanks.

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Yes. Actually, the drivers are kind of primarily as we said that the driver absolutely our base business. If you look at first quarter volumes in the Northeast and you consider the rebound that we're seeing from very active drilling operations, a lot of that in the third and fourth quarter just due to infrastructure issues, but on our part, but that is the primary driver is just seeing a nice rebound in the Northeast. Actually, we're -- I would say we're being pretty modest in our expectation of pricing. And in fact, if you look at this quarter, Haynesville really didn't even produce this quarter other than the base level it's been producing at and certainly didn't contribute to EBITDA. So the upside that we have is really just from a volumetric exposure with a pretty modest assumption on pricing for the balance of the year. So really, the driver -- the primary driver for growth is, first, our base business; and second, the E&P in the Haynesville and that ramp-up that is going very well at this point, but did not contribute in the first quarter; and then finally is the Trace acquisition in that order in terms of the value.

[Brian Reynolds, Analyst at UBS Group]

Great. I appreciate that color. And then maybe as a follow-up on just the evolving regulatory environment. It appears that there's some near-term tailwinds to support natural gas and LNG infrastructure permitting. I was curious if you could comment on this evolving environment. I'm curious if Williams is considering adding new Transco growth projects for FERC approval for the docket that may have not have been pursued in the last year, the beginning of this year. Thanks.

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Well, I would just say, first of all, we have a long list within that six projects that are under execution, and we are encouraged in our discussion with the FERC and their clear desire to see good projects that reduce emissions in the markets they serve. And so I would say we're very fortunate to have a number of projects that actually reduce emissions in the markets they serve. And so we certainly are seeing a support out of the FERC and obviously, they've been moving projects through pretty quickly. On the increment, I would say nothing's really changed that much for us. It's just kind of a steady beat right now of continued demand from customers and RFPs that we're responding to and working with customers on. So I will say that I think on the one hand, you kind of have this popular notion that gas demand is not increasing. And on the other hand, the reality is it is increasing, and we're certainly seeing that through RFPs coming from our various customers on the demand side. So we're pretty excited about the way the future is shaping up on that front. And we do think, particularly at FERC level, that they are being supported, particularly of projects that we can demonstrate, reduce emissions in the markets we serve, and we have a great track record of working with the FERC in a constructive manner and we expect that to continue.

[Operator]

Your next question comes from the line of Chase Mulvehill from Bank of America. Your line is now open.

[Chase Mulvehill, Analyst at Bank of America]

Say, Good morning. I guess first question is just really on LEG. It sounds like that you guys are getting close to -- by being that. Could you talk about, I guess, how much contracting that you still have left that you need to accomplish? And how much capacity would you expect like to be and maybe the total cost there as well? And I've got a follow-up after that.

[Chad J. Zamarin, Senior Vice President, Corporate Strategic Development at Williams Companies]

Hello, This is Chad. So LEG is at full capacity, 1.8 Bcf a day project. We have over half of that contracted today, and we would expect to achieve a sufficient level of commercial contracts over the next couple of months to FID the project. We see a pretty significant need for volumes that are growing in the Haynesville to get to Gulf Coast markets. And so we feel pretty good about that big gun. Mike, I don't if you want to talk about the capital on the projects.

[Micheal G. Dunn, Executive Vice President and Chief Operating Officer at Williams Companies]

Yes, I'd say the capital cost estimates are really pretty much in line with the other projects that we've been executing on the large diameter type activities. We're not ready to disclose the actual capital investment opportunity there. But I would suffice to say that the returns are very nice. And the fact that we also have options on the pipe right now really tells us that we are locking in on what we think the cost will be just because the volatility of steel prices right now are pretty uncertain. And that's been going on for quite some time now, and we were able to acquire some options on some surplus pipe from canceled projects. We can apply that towards the LEG project. So we feel good about the material costs right now that we have in the budget and certainly feel pretty good about the capital cost that we'll take to constructive based on what we know today.

[Chad J. Zamarin, Senior Vice President, Corporate Strategic Development at Williams Companies]

Yes, it's important to just remember that when we executed on the Trace acquisition, Quantum did, and we announced that Quantum would be an equity partner in the project. So that will reduce our capital load a bit. And it could be that we bring in an additional equity partner in the project. So we will, I think, derisk a portion of the capital, but get the benefit of creating that full value chain from truly wellhead-to-water across our infrastructure and we'll work with our partners on the project to optimize the entire value chain.

[Chase Mulvehill, Analyst at Bank of America]

Okay. All right. Perfect. The quick follow-up is just directly on that strategy of wellhead-to-water. We do get questions from investors about Midstream and if they would ever consider LNG export facilities. Obviously, we've got one of your peers out there that's obviously considering this. So I guess my question to you is, would you ever consider building an LNG export facility?

[Chad J. Zamarin, Senior Vice President, Corporate Strategic Development at Williams Companies]

Yes. I'll start and Alan follow up. I'd say for the Haynesville strategy, the wellhead-to-water, there's a pretty good existing footprint of LNG export facilities that we're focused on connecting to. We are the largest infrastructure provider to the LNG terminals across the entire footprint. So for the near term, our focus is on making sure that our customers can access those LNG terminals and also, we can connect our customers to the very best markets, whether those are domestic or international. So I think our strategy of building that full value chain is not dependent upon us building and operating LNG terminals. And so our strategy today is to serve as a reliable supplier to LNG export terminals and then increasingly provide access to our customers to those LNG markets. I don't know if Alan...

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Yes. No, I think, you said that very well, Chad. I think obviously, there's a lot of project that's utilized in that space today that gets those down to some pretty low cash-on-cash returns that we think is a great way to make sure there's plenty of capacity to get out. If we determine that there wasn't going to be plenty of capacity to get out, and we might consider that. But as it sits today, it looks like there's plenty of new capacity that is trying to get built and at low cost. And fairly low returns given the project financing is being applied to this project. So we see better places that we can put our capital to use better today in there. And so that keeps us focused on the areas we have very strong competitive advantages, as Chad pointed out.

[Chase Mulvehill, Analyst at Bank of America]

Alright. I appreciate the caller. I'll turn it over to the caller. Thanks Allan.

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Thank you.

[Operator]

Your next question comes from the line of Praneeth Satish from Wells Fargo. Your line is now open.

[Praneeth Satish, Analyst at Wells Fargo & Company]

Thanks. Good morning. Just sitting on the Haynesville, there's a lot of midstream companies now that are evaluating takeaway projects, including you guys. I guess my question is how competitive is it to secure contracts for a new pipeline? I mean I know you have a head start on LEG because of the Trace deal, but do you think you can generate the same return on LEG as you would on Transco projects? Just trying to get a sense of competitiveness.

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Yes, that's a great question. I would say, generally, probably not just because our returns on Transco are -- have gotten to be very much higher than the normal projects. And thanks to the efforts of the environmental opposition of making pipeline permitting so difficult in the areas that we operate, that's allowed us much higher returns in that space than the normally be allowed. So yes, it's definitely more competitive. We like it because we've got follow-on business upstream and downstream with Transco. So it makes the kind of total incremental return on those projects attractive, but it is not as high as kind of bolt-on expansions that we see on Transco today just because of our strong competitive position in those areas.

[Praneeth Satish, Analyst at Wells Fargo & Company]

Got it. And then maybe if you could just give us an update on producer activity in the Northeast. It sounds like you're positive, given the gathering expansions you've announced. But do you see the potential for a more meaningful volume increase in 2023? And then maybe tied to that, where do you stand in terms of NGL volumes versus frac capacity? Do you see the need to expand frac capacity at any point over the coming years?

[Micheal G. Dunn, Executive Vice President and Chief Operating Officer at Williams Companies]

This is Michael. I'll take the Northeast question. We saw in the first quarter this year really a convergence of several things that impacted volumes in the Northeast, really across the entire basin. And a lot of that was driven by production increases that occurred in the fourth quarter of '21, where a lot of producers accelerated their well pad connections early in order to hit great exit rates for the end of 2021, which was great for our systems, and we saw a lot of peaks on our systems in 2021. But that obviously hurt '22 performance in the first quarter with all of that early execution and then the decline that occurs from those new wells. So we saw that. And we saw really significant winter weather in the Northeast this year, something that we haven't seen in several years of this magnitude. And that did impact a lot of the production from the producer freeze-offs. And not only just on our systems and the producers on our systems, but the production that was gathered by others that would be brought to our processing facilities, we also saw some impact there.

So we did see some intellectual plan volume decline because of that. And then finally, we had a producer that had some well pads that came online that had significant levels of condensate, which is good for them from a production standpoint, but it overwhelmed their facilities. And so they weren't able to bring those volumes to us until they rectify that situation. And so that's been fixed, but that did impact some significant volumes from that producer in the quarter. So we had certain big items that impacted that. And as Alan, we expect an acceleration of volume coming on between now and the end of the year. And we have talked about the volumes in the Northeast being somewhat flat this year from some of the producers talking about being in maintenance mode. But we do see 2023 shaping up pretty well with the four expansions that we have underway across all of the dry and rich basin in the Northeast.

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

And just to be clear, when we say we're talking about flat volumes, that we're saying flat to '21. So it'd be a growth point from where we are here in the first quarter for sure.

[Praneeth Satish, Analyst at Wells Fargo & Company]

Got it. Thank you.

[Operator]

Your next question comes from the line of Gabriel Moreen from Mizuho. Your line is now open.

[Gabriel Moreen, Analyst at Mizuho]

Hey, Good morning everyone. With some of the gathering contracts now, it sounds like being off the minimum from a, I guess, commodity price standpoint. I was wondering if there's a possibility for getting enterprise rise rule thumb for sensitivity to nat gas prices overall. And I'm also just curious what gas price forecast you're using in your guidance now?

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Yes. Gabe, thanks for the question. I don't think we've released that sensitivity on price. We have said the contracts that we have there are around our Laurel Mountain Midstream business with EQT in the Marcellus has that feature as well as the Barnett gathering contract with Total in -- or Total and the Barnett shale. So those are the kind of the two primary areas of exposure to those. There's lot of areas and smaller ones, but in terms of any significance, those are bigger ones. But we have not provided that. In terms of the pricing that's in there, I would just tell you it's -- we're not counting on the kind of current pricing that we have, obviously, for the balance of the year. And so we're being, I would say, a bit conservative about what we expect for the balance of the year because we do think, given the kind of growth that we're seeing in both the Haynesville and that's gearing up in the Marcellus and the Utica that we're exposed to. We can't very well on one hand see the kind of growth that we see coming on there and expect prices to remain at these levels. And so I would say that, that those two things have to be considered jointly, and we do so.

[Gabriel Moreen, Analyst at Mizuho]

And maybe if I can just ask one follow-up on the Haynesville. After, hopefully, like FIDs in the not-too-distant future, just how you're feeling about your current footprint there relative to kind of where you want to be. Clear there's some other assets, I think, that are out there on the market. So maybe if you could just kind of speak to that as your balance sheet has kind of given you more room here, I think to play some more offense?

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Yes. I would just say we're -- as usual, we're going to be patient and picky and we've done that, and it's served us well. In the case of Trace, we kind of caught that at -- from a timing standpoint, I think we caught that at a great timing. And we had unique considerations that we had to offer Quantum and Rockcliff there, both in terms of access to the LNG markets via our LEG and Transco systems as well as an interest in LEG for Quantum, which was valuable for them. So we'll continue to look for those kind of unique opportunities as they pop up where we've got significant value that we can add between us and buyers. So wouldn't say we're not going to look at everything because probably will, but I think we'll remain fairly patient and picky about how we choose our points of growth.

[Gabriel Moreen, Analyst at Mizuho]

Thanks Allan.

[Operator]

Your next question comes from the line of Jeremy Tonet from JPMorgan Securities. Your line is now open.

[Jeremy Tonet, Analyst at JPMorgan Securities]

Hi, Goodmorning.

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Good morning Jeremy.

[Jeremy Tonet, Analyst at JPMorgan Securities]

Just wanted to touch on Appalachia a bit more, and I guess the production outlook there. And given how egress constraints impacts production, just wondering, now that you have Mariner East online, you have the Shell cracker coming here. With higher, I guess, egress or demand for NGLs, are you starting to see any more pivot towards liquids-rich areas? Or is it really focused still on dry gas more given the higher prices? Just wondering how your conversations with producers are going now? And when do you -- how do you think that shifts -- could growth materialize this year or next year, do you think? It seems like it's...

[Micheal G. Dunn, Executive Vice President and Chief Operating Officer at Williams Companies]

Jeremy, it's Michael. We are seeing growth expectations increasing for '23 and both sides of the rich and the drive. We've got an expansion in Northeast PA underway that comes online in 2023, unlocking additional volumes through our gathering systems. And the other expansions that we spoke of are really done in the bridge area. So we're working with Encino who's the producer that bought the acreage from Chesapeake years ago. They have access to both rich and dry and the Flint Cardinal gathering systems that we have, and they can balance those rigs both between the dry and the rich. So they have that benefit being in close proximity there. And so they're just taking advantage of capacity when it becomes available. And we have some interconnects that we're increasing capacity on as well to put additional volumes into Texas Eastern and Rover from those systems. And so those will come online this year. But that just unlocks more capability to move gas out of the system and then take advantage of latent capacity that's available in those interstate pipeline.

So I would say we're seeing pretty exciting growth coming in '23 from definitely the rich side with the support of NGL and condensate prices that are tied to WTI. And right now, we're seeing our processing complex, and the OEM system is full, where we had some impacts, as I said earlier, from the winter weather with production being able to get into those systems. We are back to full now, and we're working on our interconnect between our OEM system and the Blue Racer system so that we can utilize latent capacity there when it's available and vice versa, ultimately. And so that will certainly unlock some additional opportunities there to continue to grow those rich volumes.

[Jeremy Tonet, Analyst at JPMorgan Securities]

Got it. And just want to touch on higher nat gas prices, a little bit more, if I could. And whether these higher prices impacts your thoughts on monetizing Wamsutter, Haynesville, E&P assets, given the strong price in gas here. And at the same time, higher prices, more volatility, leading to a wider basis differential. Do you see this kind of maybe driving more upside in -- due to the Sequent operations in the near term given this backdrop?

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Yes. Great question, Jeremy. And I would tell you, I've been really impressed with the way our commercial teams have been working together on Sequent. So I'm going to answer the back -- the end of your question first. Really, if you think about Sequent and the way that they run the business of optimization, being in a basin that is starting to get crowded from a transport standpoint and start to have volatility in the basis and allows us to capture and aggregate supplies into then turning that into an infrastructure solution is exactly what we bought Sequent for and that's turning in to be a pretty powerful tool for us. And probably while I certainly expected over time for us to get there have been very impressed how quickly the teams have come together to materialize some opportunities on that front.

So really excited about that. And I think not just the nice performance that we got out of Sequent here in the first quarter, but as well just seeing strategically what it's doing for us in terms of intelligence in the basin and dealing with volatility in basin as markets grow. And optimization of capacity becomes critical as you get up near the limits of the basin's capacity to export. Again, that allows us then to aggregate those supplies that need optimization. And then that, of course, gives us a front seat as it relates to infrastructure solutions for that. So really, that has gone according to plan and then some, I would say. On the question of monetization of the E&P business, remember that first on the Wamsutter, our primary goal and the real value there is for us to build -- getting those volumes built up. And so the structure that we have today there with Crowheart, which incents them to -- and very powerful incentive to dramatically grow volumes.

And then that cash margin of that kind of regardless of pricing environment, that cash margin that flows back to us through the Midstream assets is exactly what we're looking for, which is obviously a much more durable solution than depending on high prices here in the current environment. So that strategy remains intact, and we remain very focused on getting the volumes built up in that basin before we would think about the next step of monetization, which may be a welcome there. On the Haynesville side, somewhat similar, except that in that structure the undeveloped, not the existing producing reserves, but the undeveloped acreage does transfer over as the development is done by GeoSouthern. And they are just doing an incredible job.

I want to give them a lot of credit here on the way they've been managing as an operator out there on the drilling operations, and we're really excited to see what that's going to mean for us, both in terms of responding to this very strong pricing environment we have on gas here in the near term, but as well the volumes and the cash margin that we'll get from the downstream assets in the longer term. So both of those are going extremely well, but the Haynesville obviously, is going to be a much more near-term catalyst for growth just given the ability to very quickly attack and drill out the acreage there in the Haynesville. But some of that value will be transferred in the undeveloped acreage, not in the producing acreage, but in the undeveloped acreage will transfer over to GeoSouthern overtime Anything to add to that, Chad?

[Chad J. Zamarin, Senior Vice President, Corporate Strategic Development at Williams Companies]

Just that at the pace they're currently -- there are three rigs that GeoSouthern is running in the Haynesville on our position. And at that pace, we would see that reversion of interest on the undeveloped occur sometime in early 2023. So it's kind of self-fulfilling in the Haynesville. So that will happen naturally.

[Jeremy Tonet, Analyst at JPMorgan Securities]

Got it. I'll leave it there. Thank you.

[Operator]

Your next question comes from the line of Michael Lapides from Goldman Sachs. Your line is now open.

[Michael Lapides, Analyst at The Goldman Sachs Group]

Hey guys. Thank you for taking my question. One modeling one and one kind of siting and permitting longer-term one. Just on the modeling one. Can you remind us -- I want to make sure I caught this correctly. What was the Sequent contribution in the first quarter? And what do you expect for the full year?

[John D. Porter, Senior Vice President, Chief Financial Officer at Williams Companies]

Yes. We're speaking to a run rate in our overall combined marketing business of Sequent and our legacy NGL and gas marketing at $50 million to $70 million for on a normal run rate. What we said though is that the $65 million that, that segment produced in the first quarter given the strong start that we've seen and the price outlook for the rest of '22 means that we'll likely exceed that range for '22. But $50 million to $70 million is what we're targeting is sort of a normal run rate for our overall marketing business, which is now combined Sequent and our legacy gas and NGL business.

[Michael Lapides, Analyst at The Goldman Sachs Group]

Got it. And then on the permitting front, I know there's lots of discussion in D.C. about doing things that can make development of gas infrastructure assets easier over time. But we just saw the administration in the last couple of weeks revised some of the NEPA-related requirements for gas infrastructure, which strikes me that would actually make it a little more onerous in the siting and permitting process. And we just saw yesterday a challenge to a license amendment for a Louisiana LNG project that already has an EIS. Just curious kind of from your thinking longer term, what do you think the messages that are coming out across the board or in terms -- either from policymakers, environmental groups or others in terms of the desire, but more importantly, the process for siting and permitting gas infrastructure?

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Yes. Michael, great question. Moderately we study a lot. And I would just say, first of all, that is not a well-oiled machine we're talking about there. And I'm not sure sometimes the right-hand those with the left-hand doing in that regard. And certainly, the FERC got some very clear instruction from the Energy and Natural Resources Committee. So I think that was very helpful in terms of getting the FERC lined out, the CEQ activity that you spoke about was certainly a step backwards. But frankly, really the previous path that Trump administration set on CEQ was helpful, but it really hadn't had that much impact yet on NEPA. But it definitely was a step backwards. I wonder if that was a little better communication within the administration, I kind of wonder if that would have come out given the need for and the desire for natural gas infrastructure to get permitted, but it certainly was a step in the wrong direction.

I don't really have a comment yet on the EIS and relicensing issue that you mentioned, not familiar enough with that, but if I comment on that. So anyway, I would just say yes, we think there's a desire from the administration and certainly from some of the key Senate committees to streamline permitting but I'm not sure that everybody is moving in lockstep with that amongst the various agencies just yet. But I'm very hopeful given the direction that the FERC responded to, I'm very hopeful that we'll see that with other agencies as well.

[Michael Lapides, Analyst at The Goldman Sachs Group]

Got it. When you're referring to the FERC, you're just call them the changes to the policy statement making it draft and taking comments, etc/, or something else along those lines?

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Well, I would say a couple of things there. I mean, yes, certainly, that's positive. But as well, we saw a lot of certificates get issued that have been pending for some time there pretty quickly as well post the hearing that the Senate Committee held. And so we thought that was very constructive. And frankly, our discussion with various commissioners indicate that they really are serious about trying to get good projects that have the ability to reduce emissions and are being done in permitted responsibly, including very intense stakeholder engagement. They're serious about getting those permitted, and we think that's a very positive sign.

[Michael Lapides, Analyst at The Goldman Sachs Group]

Got it.Thank you. Much appreciated.

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Thank you.

[Operator]

Your next question comes from the line of Jean Salisbury from Bernstein. Your line is now open.

[Jean Salisbury, Analyst at Sanford C. Bernstein]

Hi, Good morning. How close do you think the Haynesville is turning out of capacity today? Do you think that it will actually run out and you'll see blowouts before the next wave of projects come on beginning with Gulf run or it's like not that close, but maybe next year?

[Chad J. Zamarin, Senior Vice President, Corporate Strategic Development at Williams Companies]

Jean, this is Chad again. Good question. I think that the things will -- it does have takeaway capacity that we see providing relief through probably in the next couple of years. I would just note though that the traditional annual capacity wasn't necessarily built to the markets that need the gas today. So it's not the most efficient path for getting gas to the growing markets, which is why our Louisiana's Gateway project, we think makes a lot of sense. We are targeting that project to move directly from the Haynesville south to growing LNG and industrial markets along the Gulf Coast. So we do see capacity that will allow the Haynesville growth to continue over the next couple of years, but we see a need for projects to come online in the 2023, 2024 -- sorry, 2024 time frame.

[Jean Salisbury, Analyst at Sanford C. Bernstein]

Great. That makes a lot of sense. And then sort of a related follow-up. We're obviously kind of getting tied on gas takeaway from all of the major Tier one gas basins. Are you starting to see any increase in interest or planned activity from the so-called Tier two basins like the Barnett or the Piceance at the current gas trip?

[Micheal G. Dunn, Executive Vice President and Chief Operating Officer at Williams Companies]

Yes. Jean, this is Michael. We are capacity -- we've got a lot of capacity available at the Rockies, for example. So I would say you'll see some uptick in activity out of the Rockies through gas out there with those pipes that were built historically that Rockies gas. So there is definitely opportunity to continue to increase from those basins that you call Tier two. We have a large footprint there, certainly in the Rockies. So we're pretty optimistic about that. We're seeing some drilling activity in the Barnett as well, but most of that is keeping production flat to slightly growing on our systems there. A lot of that's been drilled out, and it's a more tough environment to drill in with mostly being urban there. But we are seeing some activity that's very pleasing to us with the rate structure that we have there in the Barnett. So I think where you see producers with takeaway capability and available, you're going to see some increased activity if these prices continue as they have been.

[Jean Salisbury, Analyst at Sanford C. Bernstein]

Great, That's helpful. Thank you.

[Operator]

Your next question comes from the line of Sunil from Seaport Global. Your line is now open.

[Sunil, Analyst at Seaport Global Securities]

Yes, hi and good morning. And thanks for all the clarity on the call. So I just wanted to go back to the venture capital fund, which was mentioned for clean energy and clean house gas monitoring. I was curious if you could talk about the investment opportunity in there in terms of the size and the threshold on returns on that?

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Sure. I would just say we are being pretty modest in those investments. We have a pretty tight screening process in that regard, and we're not putting large amounts of capital to work right now on that. But it is important capital because we do think that, that a long term be a differentiator. And we've been very clear with ourselves that we want to think about where the puck is going in that regard. And we do think that reducing methane emissions and overall greenhouse gas submissions from our natural gas value chain is absolutely essential for natural gas to be the powerful tool and be considered the most powerful tool at reducing and the impact of positively climate change. So we are dead serious about making sure that on the QMRV front and our ability to, in an unassailable way, certify responsibly sourced gas. We think that's going to be very important in the long run. And so that's not super expensive because it's not big capital, but we are certainly engaging our organization and making sure that we don't sit around and wait for really good solutions to be developed.

We think there's a lot of efforts going on, on that front. But we think at the end of the day, those are going to have to be really strong, unassailable solutions that people can trust and whether they're an NGO or they're a gas producer that it can be trusted. And so we're very focused on that, and we want to be there on the front line of that. But that is not big capital that we're investing in that space right now. In terms of the return component, the areas that we are investing more sizable amounts of capital like in our solar business, we are targeting mid-teen returns on those projects. Obviously, that's not available in the merchant space around renewables today, and we're well aware of that. But given the fact that we've got our own load to serve there, and we've got a lot of the essential facilities already in place that reduce the capital load on that. That's what drives the higher returns here. So Chad, you've got anything to add?

[Chad J. Zamarin, Senior Vice President, Corporate Strategic Development at Williams Companies]

Yes, I would just add that on the venture capital front, we have been a big smart investing alongside proven venture capital investors. That's not our core business. And so we've made some small investments in a couple of existing funds. On the contact class investment, we're actually investing alongside through [Indecipherable] Energy Partners. They are the largest investor in that platform, which, again, we really like, a highly credible investor and our relatively small minority investment, though, does allow us to have significant impact over how that technology will get developed and deployed. And we want to make sure that we can help bring the market the very best decarbonization solutions. And so I think the strategy of finding really promising technologies, partnering with investment platforms that understand these markets and know how to put good money to work and then having our seat at the table to influence the direction of the technology so that it achieves the goals that we're all trying to achieve. And so that's how we're approaching the investment strategy.

[Sunil, Analyst at Seaport Global Securities]

Got it. And just one follow-up. I think you mentioned about the gas prices. And I was curious how is the E&P production that you have exposure to hedged for, let's say, remainder of 2022 or for 2023?

[John D. Porter, Senior Vice President, Chief Financial Officer at Williams Companies]

Yes. Yes. So Sunil, thank you for the question. As we discussed at Analyst Day, our upstream hedging program, we've been pretty much focused on supporting our original Street guidance and the underlying capital investments that we're making in those Upstream businesses. And so as such, we've continued to expand the hedges that will protect the planned Upstream gross margin. And those have been at favorable prices versus the original guidance. Couple of points, though, because a good portion of our production volumes is really dependent on future production, we generally don't hedge more than about 70% of our expected exposure for the year. Also in this environment with the strong current pricing that we're seeing, we do expect that operators will push for volumes beyond what those original plans were. But until we see those volumes really materialize, we don't intend to hedge more than really 70% of those originally expected volumes. We do -- as we've already discussed, we do have significant contracts with direct exposure to prices as well above a floor, especially at the Barnett and in the Marcellus. So those contracts also provide us with exposure to gas prices beyond the upstream JVs.

[Sunil, Analyst at Seaport Global Securities]

Ok, Thanks alot. That's all.

[Operator]

Your next question comes from the line of Alex Kania from Wolfe. Your line is now open.

[Alex Kania, Analyst at Wolfe Research]

Great, Thanks. Maybe just a follow-up from earlier discussions on policy, but from the administration, you've talked about the agencies, but also do you think that there's a chance that we may be able to see some sort of kind of legislative kind of work being done that maybe is kind of sort of an all of the above sort of strategy, coupling clean energy, incentives with kind of more focus on natural gas? And then maybe on a related question on policy. Are you seeing kind of this Department of Commerce review on solar kind of impacting your -- I guess, the $100 million or so of placeholder that you've got for solar this year or kind of whether it's impacting? Any thoughts for future years?

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Yes, I'll take the first part of that, and I'll hand the solar question off to Chad. First of all, I would just say on the policy question. Normally, my immediate response to that would be, boy, it's a crowded field of issues, and would be harder to get any movement on energy policy. But Senator Manchin has been very well seated and very well positioned to drive some of these solutions. And he has been putting forward some thoughts on energy policy, and I'm very, very thankful for that because I think the timing is right to get some attention to that and to actually come up with an energy policy, people would -- I think all of us would question whether we've actually had an energy policy or not. And so I think the timing is right for that. And I think getting some clarification on that would really benefit our country and hopefully set legislation in place that puts aside some of the ways that we continue to stand in our own way in the country using our natural gas resource as both a powerful economic driver for us, which I think in the next year or so, we're going to wish we had as well as a powerful geopolitical tool, obviously. And so I think the timing is right. And I think we've got a really good advocate for that in Senator Manchin. So I would just say we're very hopeful on that front. And I'll turn the solar question over to Chad.

[Chad J. Zamarin, Senior Vice President, Corporate Strategic Development at Williams Companies]

Yes, I would just say that we are watching proposed tariffs. We are watching the discussions regarding incentive structures for solar. I'd remind you that our solar program is primarily focused on installing solar at facilities where we utilize power that, in many cases, is more expensive than stand-alone solar that we can install. And so we're -- the economics of our investments are primarily driven by our ability to install solar projects that, frankly, compete even without incentives and almost irrespective of some of the cost pressures that we're seeing. So as it relates to the $100 million that we've talked about for this year, I'd say not so much affected by the policy issues. But I will say that we have said we're keeping a close eye on supply chain issues. We are under no time demand to install our solar facilities by a date certain. And so we are going to make sure that we time those projects appropriately. We don't get caught subject to higher prices than we need to pay for materials because of kind of supply constraint issues. And so we're keeping a close eye on the supply chain side, which has a much bigger impact, we think, at least for the projects that are currently underway than kind of the policy issues that we're keeping an eye on.

[Alex Kania, Analyst at Wolfe Research]

Great, Thank you.

[Operator]

And I would like to turn the call over to your President and Chief Executive Officer, Mr. Alan Armstrong. Please go ahead.

[Alan S. Armstrong, President and Chief Executive Officer at Williams Companies]

Thank you very much and appreciate everybody tuning in today and appreciate the great questions. I just want to reiterate here on the back end that the drivers for the growth for the balance of the year are really powerful and really across our base business, the Marcellus and the Utica. As we discussed, obviously, the Haynesville growth is powerful, and I think people are starting to see strong evidence of that. Deepwater business, we've got a couple of really nice tie-in projects this year that will add the value towards the end of this year. And alongside later this year is our drilling operations pick up out there towards the very end of this year. We'll see volumes in the Wamsutter that, of course, will be driving the base business as well out there. And then finally, as I mentioned earlier, the Haynesville, we really haven't even seen the power of that yet on the E&P side. So first quarter was definitely not driven by that because that's really a balance of the year and into '23, to really attractive earnings coming out of that area as well. So a lot of -- great quarter, but a whole lot of fire power left here to drive growth for balance of the year and into '23. And with that, I thank you for your attention today and look forward to talking to you soon.

[Operator]

[Operator Closing Remarks]