Dyne Therapeutics Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2021

There are 10 speakers on the call.

Operator

Good day, everyone, and welcome to the Williams Second Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would Like to turn the call over to Mr. Danilo Giovanni, Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you, Lashana, 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 CEO, Alan Armstrong and our Chief Financial Officer, John Chandler, will speak to you this morning. Also joining us on the call today are 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.

Speaker 1

Also included in the presentation materials are non GAAP measures that will reconcile 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.

Speaker 2

Great. And thanks, Danilo, and thank you all for joining us today. Our long term strategy of connecting the fastest growing natural gas markets with The best supply areas continues to deliver solid financial results as demonstrated by our strong second quarter financials across our key metrics. Our stellar results this year were supported by equally strong fundamentals that demonstrate how sticking to this strategy has put us in an enviable position. As evidenced, Williams gas gathering volumes grew 6% in the first half of twenty twenty one, While the U.

Speaker 2

S. Natural gas production volumes actually declined by 0.4%, continuing to prove that our assets are in the low cost basins. We expect a constructive natural gas macro backdrop to continue to drive significant value for our business. Recent commitments to Transco market area expansions, coupled with producer commentary on Transco projects Such as our Leidy South and Regional Energy Access Projects are clear pathways to growth for our Northeast gathering volumes for years to come. We will walk through more details of our business in just a moment, but I want to first call attention to our 2020 Sustainability Report, which we just published last week.

Speaker 2

As this report details, we are making headway on critical ESG related fronts. For example, becoming the 1st North American midstream company to set a near term climate goal based on right here, right now footprint is well suited and adaptable to renewable energy sources like clean hydrogen and RMG blending. Williams' ongoing focus on sustainable operations positions us well to meet clean energy demand for generations to come. In fact, we are now up to 7 renewable natural gas sources flowing into our gas transportation systems, And we have 9 more that are in progress. I hope you can find some time to visit our website and read our new sustainability report.

Speaker 2

But right now, let me turn things over to John Chandler for a review of our 2Q and year to date results. John? Thanks, Alan. And a

Speaker 1

very high level summary, the quarter benefited from nice increases in profitability from our Northeast Gathering Systems, an uplift in revenues on our Transco from new projects that have been put into service over the last year and contributions from our upstream operations in the launch center. The positives were offset somewhat by slightly higher operating expenses resulting from increased incentive compensation expenses, reflective of the strong performance that is unfolding this year. And you can see the strong performance in our statistics on this page. In fact, once again, we saw improvements in all of our key financial metrics. First, our adjusted EBITDA for the quarter was up $77,000,000 or 6%, and we have seen a 9% increase in EBITDA year to date.

Speaker 1

We will discuss EBITDA variances in more depth in a moment. Adjusted EPS for the quarter increased $0.02 a share or 8%, And AFFO grew for the quarter similar to our growth in EBITDA. AFFO is essentially cash from operations, including JV cash flows and excluding working capital If you put our year to date AFFO of $1,940,000,000 up against our capital investments year to date Of $737,000,000 and our dividends of $996,000,000 we generate have generated about $250,000,000 of excess cash year to date. Included at the side note included in the capital investments is about $160,000,000 of maintenance capital. Also, you can see our dividend coverage based on AFFO divided by dividends is a healthy 1.96x year to date.

Speaker 1

This strong cash generation and strong EBITDA for the quarter, along with continued capital discipline, has led to our exceeding our leverage metric goal, We currently set at 4.13x debt to EBITDA. You will see later in our guidance update in this deck that we've moved our guidance for the year From being around 4.2x by the end of the year to now less than 4.2x debt EBITDA for the year. So really strong performance for the quarter the year, And the fundamentals are set up for a good second half of the year. So now let's dig a little deeper into our EBITDA results for the quarter. Again, Williams performed very well this quarter.

Speaker 1

Our upstream operations added $19,000,000 of incremental EBITDA this quarter, and this EBITDA was from our Wamsutter upstream acreage. Remember that we owned the BP Wamsutter acreage the entire quarter, but only owned the Southlake acreage for 1 month during the quarter. Production from the combined Lampsetter assets totaled 6.9 Bcf for the quarter. The Haynesville upstream acreage produced very little EBITDA Even it has only a small amount of PDP reserves, and therefore, it will take some time before we see new production and therefore new EBITDA coming from these assets. Now moving to our transmission in Gulf of Mexico assets, they produced results that were $31,000,000 more than the same period last year.

Speaker 1

New transmission pipeline projects added $25,000,000 in incremental revenues versus the Q2 last year, Including the South Eastern Trails project that went into service during the Q4 of last year as well as a portion of the Aligning South project that also went into service And you can see this evidenced in the growth in our firm reserve capacity, which is up 5% From the Q2 of 2020. In addition, our Gulf of Mexico revenues were up somewhat due to less shut in issues compared to the Q2 of last year. In addition, commodity margins for processing volumes for processing the Gulf of Mexico Gas were up about $5,000,000 due to higher NGL prices And higher volumes. These revenue increases were offset somewhat by a slight increase in operating expenses, again, mostly due to employee related expenses, A large part of which can be attributed to higher incentive compensation accruals. The Northeast G and P segment continues to come on strong, Contributing $46,000,000 of additional EBITDA this quarter.

Speaker 1

Collectively, total Northeast gathering volumes grew 7.50 Mcf a day or 9% this quarter versus the Q2 of last year, while processing volumes grew 33% and set a new record. The volume growth was predominantly at our JVs in the Bradford Supply Hub, where we benefited from a gathering system expansion on that system in late 2019 And at our Marcellus Stow supply basin, where we benefited from more productive wells at larger pads. And just to be clear, because we do not operate Blue Racer Midstream, Those volumes are not included in our volume statistics. As a result of this volume growth though, our EBITDA from our equity method improved by a little over $36,000,000 which also includes the benefit of additional profits that we do receive from Blue Racer Midstream due to the additional ownership we acquired in mid November last year. Now moving to the West GMP segment, it was down $21,000,000 compared to the prior year.

Speaker 1

However, remember that first, we did agree to reduce gathering rate in the Haynesville in return for receiving upstream acreage in the South Mansfield area of the Haynesville. Again, as I mentioned, we are not yet seeing benefit of those upstream assets, but we have just named an operating partner to begin developing that acreage. The impact of the gathering rate reduction was about a negative $15,000,000 for the quarter. In addition, this quarter, we also saw 9,000,000 EBITDA due to a deficiency fee that ONEOK paid us last year related to OPPL, which allowed them to pull volume that they had otherwise committed to OPPL last year. ONEOK does not have that volume obligation to OPPL this year, and therefore, we did not see the deficiency revenue this year.

Speaker 1

And finally, we did see a $9,000,000 decline in deferred revenue from our Barnett Shelf Gathering assets, which is a non cash step down in revenues. So other than those three negatives, namely the lack of efficiency revenue on OPPL, the Haynesville rate decline and the deferred revenue step down in the Barnett, Our West assets were otherwise up $12,000,000 versus the Q2 of last year. And this is in large part due to higher NGL margins Where once again our commodity marketing group is realizing more profit from elevated NGL prices. And while our overall gathered volumes in the West were down about 3.5% versus Q2 of last year, this was more than offset by better gathering rates, where in the Piazza and the Barnett, our contracted gathering rates are influenced by commodity prices. So now moving to year to date results.

Speaker 1

Year to date, our results show growth of $230,000,000 of EBITDA or roughly a 9 Growth in EBITDA, driven, of course, by the impact of winter storm Yuri in the Q1 and by many of the same positive factors that I just mentioned affecting second quarter growth. Combined between our commodity marketing activities and our upstream operations in the Wamshed Center, Winter Storm Yuri had combined positive impact of $77,000,000 In addition, our upstream operations otherwise have added an additional $27,000,000 year to date. Our transmission in Gulf of Mexico assets are up $22,000,000 year to date or about 2% better, with this increase being driven largely by additional transmission revenues from new projects That have been put into service and incremental revenue from Gulf of Mexico assets, largely due to lower downtime this year versus last year. These positives were partially offset by lower revenues from 1 less billing day on a regulated transmission pipeline and higher expenses where last Your expenses were delayed due some due to COVID and because this year's expenses again are higher due to higher incentive compensation expenses resulting from our strong performance. Our North G and P assets are up $78,000,000 almost entirely driven by profits from our JV investments, Namely from the Bradford Supply Hub Gathering System and our Marcellus South Gathering Systems.

Speaker 1

In addition, we benefited from the increased ownership in Blue Racer Midstream. In total, gathering volumes for the Northeast are up 10% versus 2020, while processing volumes year to date are up 24%. And then finally, the West, West CMC is at $23,000,000 versus the year to date last year, and this is on top of the 50 $5,000,000 that we earned from Winter Storm Uri. The $23,000,000 increase is driven by higher commodity margins and slightly lower operating costs offset by Lower Barnett deferred revenues, lower Haynesville gathering rates, which were exchanged for upstream acreage and lower OPPL deficiency revenues That I just mentioned in my 2 key remarks. Otherwise, we did see a 5% gathering volume decline year to date, but that again was more than offset by MPCs And higher gathering rates, as again, I mentioned in my second quarter remarks.

Speaker 1

Again, this is stacking up to be a very good year for us. I'll now turn the call back over to Alan to cover A number of key investor focus areas. Alan?

Speaker 2

Great. Well, thanks, John. And we're moving on here to the key investor focus areas here on Slide 4. First of all, regarding our financial expectations, we are on track to generate EBITDA closer to the high end of our guidance range That we just increased at the last earnings call. The resilience of our business has supported our financial results and helped us recently overachieve Against our previous leverage metric goal of 4.2x.

Speaker 2

As a result, we recently received a Moody's upgrade to Baa2 and now have a BBB equivalent credit rating amongst the 3 key rating agencies. Our free cash flow outlook for 2021 remains intact. And in fact, the long range plan unveiled during our most recent Board strategy Session forecasted continued steady growth in EBITDA and continued improvement in our credit metrics. Importantly, our long range plan also shows that even after funding these many growth opportunities, our business is Coised to generate significant excess free cash flows that will support a robust and multifaceted capital allocation approach That will enhance returns for our shareholders, including the potential for opportunistic share buybacks. So stay tuned on this front.

Speaker 2

Next, looking at our recent transactions and project development. First of all, the upstream JVs, Great effort on the organization here. As we announced last month, we were able to finalize an upstream joint venture with Crow Heart in the Wamsutter Basin, Consolidating our legacy BP, Southwind and Crow Heart upstream assets into one contiguous footprint Of more than 1,200,000 acres. So as we've mentioned before, this acreage was very I did and checkerboarded out here and so being able to consolidate these assets in a way that it can be developed at a low cost is really critical to the value Of the upstream business, important to us to the midstream business and taking advantage of the latent capacity we have out there today. And just recently, we inked a joint venture with Geo Southern in the Haynesville that provides us with the following benefits.

Speaker 2

First, it unlocks significant midstream value for Williams through Geo Southern's obligation to develop the South Mansfield acreage. Under this agreement, Geo7 will carry a portion of our drilling costs and will earn increased ownership in the leaseholds as they deliver on agreed to develop 2nd, it provides Williams with the opportunity to optimize all of the natural gas production in the area Through fixed fee agreements marketed by our Sequent business. And 3rd, with the South Mansfield Being in close with South Mantel being in close proximity to Transco, it provides Williams with future development opportunities, including the ability to source And deliver responsibly sourced natural gas into the growing LNG market. Importantly, Both of these recent JVs improved the value proposition in the Wamsutter and the Haynesville Basins as we're partnering with well positioned High performing local operators and the deals require development of the properties driving volumes to our midstream and downstream assets. From a project execution standpoint, we continue to deliver on multiple fronts, including bringing online key projects such as Leidy South, Which is on track for an early in service now before the winter heating season.

Speaker 2

And importantly, Transco growth opportunities remain highly visible, And we've recently received customer commitments for 2 new market expansion projects in the Mid Atlantic region. Transco also has ample runway to provide additional low risk growth through rate based modernization projects. In the Deepwater Gulf of Mexico, we continue to highlight the great growth continues to show for us out here and we've recently reached Definitive agreements for both the Shenandoah and the Whale projects, these will contribute to significant EBITDA growth beginning in 20 And then finally on sustainability. I mentioned our sustainability report at the top of the call, And we also filed our carbon emissions disclosure with the Carbon Disclosure Project last week. I'll just add that we continue to leverage our natural gas focused strategy in today's technology to deliver on immediate opportunities to reduce emissions.

Speaker 2

At the same time, natural gas and our infrastructure are enabling the next generation of clean energy technologies. The next wave of renewable power generation will be up against 2 key constraints, both the transmission And the storage of energy. No other energy infrastructure system integrates a reliable delivery network into critical population centers With a massive storage solution on the scale that natural gas transmission does, we believe our infrastructure We continue to advance our solar projects that were announced last year, And I'm pleased to share that we have 6 projects now awaiting approval from the grid operator with another 10 ready for the same regulatory approval by the end of 2021. In total, the 16 projects amount to about $250,000,000 in CapEx that should start to generate cash flows beginning in We are looking forward and anticipating future innovations and technologies that we can use on our key energy networks to deliver on our country's clean energy future. And in fact, in a partnership with the University of Wyoming, We recently awarded a $1,000,000 grant from the State of Wyoming to fund a feasibility study that would evaluate the Creation of a green hydrogen hub near our operations in Wyoming.

Speaker 2

And this really is another example of how we continue to leverage our existing assets So in closing, I'll reiterate that our intense focus on our natural gas based strategy has built a business that is steady and predictable. With continued growth, improving returns and significant free cash flows, this has translated into a strong balance sheet and a well covered And growing dividend. Our best in class long haul pipeline, Transco, Northwest Pipeline and Gulfstream are in the right place and the right markets. And by design, our formidable gathering assets are in the low cost basins that will be called on to meet gas demand as it Continues to grow. 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.

Speaker 2

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.

Operator

Your first question comes from the line of Jeremy Tonet with JPMorgan.

Speaker 1

Hi, good morning. Good morning, Jeremy. I was

Speaker 3

just wondering if you could start off a bit, expanding on your thoughts on the current gas macro And whether that backdrop drives the higher end of guide expectation? And how does this position your trajectory into 2022 at this

Speaker 2

Yes, sure. Jeremy, as you know, the pricing run up that we've had more recently and the continued Demand growth is really starting to obviously put pressure to kind of wake up the forward markets And certainly, we are seeing responses from our producers looking to take advantage of that. The Area that I would say that we'll see kind of the quickest response to is probably the Haynesville and tremendous amount of drilling activity that's gearing up in the Haynesville right now. But as well, you heard you probably followed the comments from Cabot on their earnings call, strong response there to price There as well. And of course, in the Southwest Marcellus and in the Utica as well, we're really seeing pretty strong response across So I think it's important to note that this is not just a production issue.

Speaker 2

Demand continues to grow. And so if you're looking at 2Q comparisons, we've seen against the 2019 2Q, we saw demand grow by 9% and against a 2Q of 'twenty, we saw it grow about 5.6 percent sorry, yes, about 5.6%. So continued really strong growth Going on, on the demand front and we're obviously seeing prices respond to that. But I think from our perspective, as we said all along, It really is demand that is going to drive our business and price will fluctuate as required to balance that, but It really is this demand continued steady demand growth that we're continuing to see. And obviously, as we saw last year, we don't expect The COVID or resurgence of COVID really to have any impact on that.

Speaker 2

We're continuing to see steady healthy growth Coming on the natural gas market. So as we look into 'twenty two, kind of hard to predict what gas demand will continue to do. But Right now, certainly, the fundamentals are looking strong, and we are seeing a healthy producer response.

Speaker 3

Got it. That's helpful. Thanks for that. And I realize I'm probably getting a little bit ahead of myself here, but as it relates to buybacks, Just wondering whether Williams has authorized a buyback plan and if not, what would it take to authorize it? And as you think about if you were going to pursue buybacks, Would something just generally opportunistic in nature make the most sense or something systematic where percentage of cash flow could be applied to that in a given year.

Speaker 3

Just wondering at this stage what your thoughts are on buybacks in those respects?

Speaker 2

Yes, Jeremy, thank you. I might as well get this Out of the way, I knew that question was coming. So I'll square up on this. So first of all, we did have A really important discussion with the Board last week. And I think probably what was most remarkable about That was the degree of free cash flows that continue to exist on top of funding growth capital, On top of continued deleveraging that comes with that growth in EBITDA and being able to fund Both rate based investments and new energy venture investments allowing for all of that, We still are showing a pretty significant excess amount of free cash flow.

Speaker 2

And so I think that's Probably the biggest takeaway. In terms of a program, we are in the process of detailing that out with our Board and putting some specific parameters around that. But I can tell you that the recommendation will be that it will be somewhat opportunistic, But it will have some framework to it in terms of what appropriate pricing levels and what those drivers would be. And I can tell you from my perspective, that will likely be a multiple of wherever our debt is trading. And if If you think about that, our debt has continued to stay very steady while stock prices whipped around.

Speaker 2

And certainly there will be those times where the market runs into its scarce like we saw in March and April of last year, but in reality, the debt markets have been very And yet prices whipped around quite a bit. And so we think that will point to when the right opportunities are To acquire stock. So it will have parameters around it. It won't just be perfect. It won't be random and it will have parameters in terms of size and the drivers for that.

Speaker 2

We likely won't announce those specific multiples on the debt Multiples, but that is how we're thinking about it right now. And we will be announcing we do intend to, I should say, announce the program once we get Details of that squared away with our Board.

Speaker 1

And Jeremy, I'm self evident here, but what Alan's really referring to is our dividend yield The comparison to where our debt trade is.

Speaker 3

Got it. That's very helpful. Thank you.

Operator

Your next question comes from the line of Shneur Gershuni with UBS.

Speaker 4

Hi, good morning, everyone. Maybe just to follow-up on Jeremy's question there a little bit. Alan, in your prepared remarks, you Put a comment out there about how your projections to the Board showed steadily increasing EBITDA and steadily declining leverage. Should we think about this as there's a new leverage target that needs to be achieved? Or should we think about it as This excess cash flow is going to a component of it is going to go towards leverage reductions that will continue to decline.

Speaker 4

And then a portion will be available for the buybacks, whether it's fifty-fifty or to be opportunistic. Is that the way we should be thinking about this and trying to square

Speaker 2

Yes. Well, I think the easiest way to think about it, Shneur, is that we With our EBITDA continuing to grow and we hold our debt where it is, obviously, that metric continues to improve. And so really should think about it in that fashion. And so that's the primary driver of that improved Credit metric. And I would just say that we will be able to balance that and make decisions on that as we see fit through the process.

Speaker 2

But there is So such a significant amount of excess cash flow coming off that we really feel like we can hit all of those Things that we'd like to do in terms of both continued dividend growth, continued credit metric improvement, Investment in our rate base and driving earnings through investment in our rate base and new energy ventures, We can do all of that and we still have pretty significant firepower left for Sure. Buybacks and when the opportunity is right. So really, the message we got folks ought to be getting is that the cash So it's very significant and it allows us to invest in all of those measures to continue to drive shareholder value.

Speaker 4

I appreciate the clarification there. Maybe to pivot a little bit, I was recently meeting your Sustainability report, you're talking about evaluating hydrogen and you sort of talked about that a little bit here. I'm just wondering where you see Williams' role in The hydrogen value chain, because you talked about both blue and green in the comments there. Do you sort of see Williams is really just in the transportation aspect And is that where you expect to invest? Will it be on the reformation side?

Speaker 4

Or do you actually see yourself participating Capital wise on electrolysis. I'm just trying to get a sense of how you're thinking about it because as I sort of think about your position in the Haynesville, It kind of seems like a blue hydrogen strategy would be very interesting where you could participate in creation and in the

Speaker 2

Yes. I would just say, and I'll let Chad, Zandran follow-up with some comments here if he likes. I would just start and say that what will be most obvious to you is that we're going to invest where we have competitive advantages Around our assets and so obviously that points to transportation, but we do believe that in places like Wyoming where we've got Such big land mass available and we have the transportation and we have the processing capabilities and the systems already set up, We don't think that's a stretch for us to at least study. So a couple

Speaker 1

of things. One, it is going to we're only going to

Speaker 2

be doing it where We're making decent returns and that means that we're going to have to be using competitive advantages to get returns that are over and above kind of what the market And then secondly, You should think about it in terms of us always making sure that we are not leaving an opportunity Where we have a competitive advantage, we're not going to let one pass it by. So we're not letting any we're not going to be taking any strikes at the plate And making sure that as we see opportunities that we're attacking those very quickly. So Chad, I don't know if you might add to that. Yes.

Speaker 5

I think you said it in your remarks. We operate an incredible energy transmission and storage Infrastructure, and we're very focused on ensuring that that infrastructure is part of the solution for the next generation Of energy, and so that's our primary focus. I would say it's early in the days of hydrogen, and we are working with The hydrogen production side of the equation to ensure that it can be economic and It can drive volumes to our infrastructure.

Speaker 6

So I think we will participate

Speaker 5

in a small way initially to ensure that, That technology develops in a way that complements our infrastructure, and then we'll evaluate whether or not we would invest On an ongoing basis, we're working on you mentioned the Haynesville. We've permitted our regional energy access project in a way that We've defined it compatible with hydrogen blending, and we're working on a hydrogen project, a pilot project On our Regional Energy Access project that will involve us participating in the production of hydrogen, it will be a very small Scale, but it will demonstrate that we can leverage our infrastructure, and we will earn an attractive return on that kind of investment. We're looking at that across our entire And as that scales up, I think it will be exactly what Alan said. It will be do our strategic capabilities and assets provide us with an Advantage, should we leverage that advantage into investing in hydrogen production or just be prepared to support that development and And drive those volumes to our assets and infrastructure. But I can tell you we're looking at it and we're at the table across our footprint

Speaker 4

Okay. I really appreciate all the details, Faye. Thank you very much and have a great day.

Operator

You have a question from the line of Praneeth Satish with Wells Fargo.

Speaker 1

Thanks. Good morning. So now that you've executed on the Wamsetter and Haynesville JVs, I was just wondering if you could help provide some clarity into the incremental Midstream EBITDA could pick up in 2022 and 2023 versus the upstream cash flow that's lost. I guess I'm just trying to figure out how accretive these transactions will be.

Speaker 2

Yes. I would start off with they are Surprisingly powerful anytime you start adding volumes to mostly latent capacity in an area It obviously comes on fast. So there's not any midstream permitting facilities are sitting there ready to go. So It is very powerful and that's why we've been so focused on this. So I think we're all very excited about that.

Speaker 2

I'll let Chad speak to kind of the metrics On what we look like for growth in those areas on the future.

Speaker 5

And I'll give a little more color on the Haynesville structure that I think will help Folks derive how much value that's going to contribute. But with Geo Southern, we're thrilled to announce that partnership. They're a well proven operator with a long track record of successful development. And with Geo Southern, there is a drilling commitment of over 400,000 lateral feet that they will be pursuing. And You think about our acreage, it's highly contiguous and you see a map.

Speaker 5

There's a map in our appendix that shows how it's complementary with Geo Southern's footprint. So there's a lot of Long lateral inventory at very economic returns. And so we expect them they're incentivized. There are penalties if they don't beat those drilling commitments, but beyond that, we expect them to outperform the drilling commitment because it's highly And as they perform, the initial economic splits have Geo Southern At 30% of the economics, Williams at 70% of the upstream economics, but they will carry us our capital for upstream development up to a Cap of $50,000,000 And once that cap is achieved, they will revert to having 75% of the upstream economics and Williams will have 25% of They're highly incentivized to continue that development. To give you an idea of how powerful that is for our midstream systems, that development we would expect to drive Somewhere around 4000 to 500000 dekatherms a day of volume to our midstream That's incremental volume from what we have today.

Speaker 5

And that ramp occurs relatively fast over the next 18 to 24 months. And all of that gas is committed to our midstream systems at a fee of $0.32 For gathering and treating, and as Alan mentioned, that is primarily available capacity that will be, you know, Extremely high margin for us. And on top of that, we then have the ability to market that gas and drive that gas towards Downstream opportunities, including integration with Transco. We talked about marketing through our newly acquired Sequin platform. We're going to be working on a well head to water responsibly sourced gas solution that we can offer to customers.

Speaker 5

And so just the base business alone has a lot We driven to our midstream assets in that area. And if you do the math, it will rapidly outpace what we gave up from a fee reduction perspective with Chesapeake. And so that gives you kind of a picture of the Haynesville. In the Wam Similar structure, a little bit different, but it's a very big asset that we were working on. And again, thrilled with Crowheart has our partner.

Speaker 5

They have been in the basin for several years. If you look at the map in our appendix, you can really see the industrial logic again of Partnering with Crow Heart, and we put together over 1,000,000 acres of now contiguous acreage. And with Crow Heart, there is a drilling of over 500,000 lateral feet. And as we have announced, there's a 75%, 25% initial With Crow Heart at 75%, Williams at 25%, but as they achieve performance across that 500,000 lateral feet of development, They have the ability to earn up to a fifty-fifty split. And so they're highly incentivized to drive volume growth.

Speaker 5

And in the Wamsutter Basin, again, we have latent capacity that's very high margin gathering and processing. It's dedicated to us. We gather and process for approximately $0.60 a dekatherm, so very high margin business In that basin, and we have today around 300,000,000 cubic feet a day of volumes. That system has over 700,000,000 cubic feet a day of capacity. So on top of the gas gathering and processing, we are now have we've dedicated all of the NGLs to Williams at a fixed Margin to Mount Belgy pricing, so we don't wear commodity price risk and we cover significant revenues for Overland Pass Pipeline for Bluestem Our downstream partnership with Targa.

Speaker 1

So that hopefully gives a little bit

Speaker 5

of color on how those will drive value to our Midstream and Downstream assets.

Speaker 2

Maybe just to give you a couple

Speaker 1

of numbers here real quick, because the Haynesville is different than the Launch Letter. The Launch Letter has very significant PDPs today and where Haynesville acreage doesn't. So we'll need to be drilling that up to produce The midstream value and the upstream value, and that will really start coming on in 'twenty two and early into 'twenty three. That Lamsa, on the other hand, with debt gas prices being quite a bit higher, It is significantly paid for itself. And I'm not going to give you exact numbers here, but I can tell you

Speaker 2

What we paid for the South

Speaker 1

for the acreage in Southland and for BP will be completely paid for in less than 2 years And with where we see gas prices and just PDP production. And of course, that development will occur, and you're going to see meaningful EBITDA uplifts coming in the future beyond We'll return our capital in a very significant way in a very short time frame. In Haynesville, as we look at total NPV value, yes, we did give up With Chesapeake and the Northern part of our system, they're bringing more rigs to work in that part of the system. But The value of that acreage as it's developed, when we look at that we won't give you the exact number, but when we look at NPV-ten, the value generation At least $300,000,000 actually higher than that over the life of this. And that's a combination of the upstream value and the midstream value uplift from the

Speaker 5

Yes. I think that's well for John. It's a I think also a great example of creating a win win for us and our customer. Chesapeake has been able to increase Activity, when we this time last year, Chesapeake was still not running rigs in Haynesville with the fee reduction And we offer they now have free rates running in their, Spring Ridge area. And so the fee reduction has incentivized Significant activity that will show up on its own as incremental earnings over time.

Speaker 5

But also, as John mentioned, the South Mansfield transaction, we see that Virtually tripling the value of that give from an NTV perspective. So really, With Chesapeake made the pie much larger, and we were both able to benefit from that transaction. Great. Super helpful. Thank you.

Speaker 1

Just kind of switching gears for a second. I was wondering if you could comment broadly on the RNG business. I know in the past you've been a little reluctant to invest in the actual RNG facilities, but now some of your peers Moving more aggressively into the space. So I'm just curious whether your views or strategy on RNG have changed at all. Thanks.

Speaker 5

Yes. This is Chad again. I think, you know, we've said that we are willing to invest in RNG Aggregation and processing, if it makes sense from an economic perspective. And again, similar to what we talked about, we have a strategic advantage. We have been looking at our footprint.

Speaker 5

We've been identifying sites that have potentially attractive economics from an RNG capture processing and delivery We think that that opportunity set is attractive economically, but relatively small in scale. We've talked about a couple of $100,000,000 Potential investment. We have a few projects that we are evaluating where we could Invest in the actual aggregation and processing of those volumes. The projects that we've done so far have Primarily, Ben, just interconnects into our existing infrastructure, but the technology required for those investments I will say it's one of the areas that we look at that is heavily dependent upon LCFS credits and RINs. And that is an area where, again, we're going to be disciplined in our investment.

Speaker 5

We're not going to develop our entire business strategy Around areas that require heavily subsidized economics. And so I think there's a place for it where we can drive significant value because of our TJ footprint, and I think we can invest at a level that's modest. And I would tell you, because of those LCFS credits and dependency on those Credit, we're identifying those opportunities in areas where we would have pretty rapid payback of those investments, so very attractive returns That would provide us with the confidence in those structures. Alan?

Speaker 2

Yes. I would just chime in on and Supplement the comment on the subsidies there and certainly the LCS, the low carbon fuel standard and the RINs are Really the big driver in those projects. And if you start looking at the weight on the LCFS program to California in I think that's something we certainly are going to be paying attention to is the degree of sustainability of some of these credits And subsidies that are out there and making sure that we're not over investing against that risk. So it's not to say that we won't Find ways to monetize that on the front end and let somebody else take that risk, but I do think that's a risk worth keeping your eye on given the if you add up all of the various Projects where there's CO2 carbon capture on ethanol

Speaker 5

Load that that's putting on there and

Speaker 2

the load that RNG starts to put on there, it starts to be a pretty big number. So I think that's an important thing to keep your eye on as an investor.

Speaker 1

Great. Thank you.

Operator

Your next question comes from the line of Christine Cho with Barclays.

Speaker 7

Thank you. Maybe if I could just get a clarification on the leverage. What is the long term ownership percentages for both Haynesville and Wamsutter? What sort of timelines are we thinking about? And how should we think about how the upstream contributions are factored into the leverage calculation?

Speaker 7

Is 4.2 still the right target? And is there any change to how the rating agencies do that?

Speaker 2

I don't think there's any change. I would just tell you, Christine, that The metrics are coming down again pretty naturally and the Cash flows start to roll from the upstream to the midstream pretty rapidly over the next 3 years. And so it does take a little bit longer in the WAM study, the development of the Haynesville is pretty quick. So It rolls over that pretty quickly and certainly the rating agencies are well aware of our strategies and design on how we get there. So John,

Speaker 1

No, I think that's right. Again, the Haynesville both deals are designed both structures We should be bigger for longer there. And so whether that ultimately transfers To our partner or get bought out who knows, we don't have a long term intent to be in the upstream business and intend just to do this to drive value in the So not sure exactly how longs

Speaker 8

are ultimately out of the

Speaker 1

long term and Haynesville is pretty clear that, that as long as the drilling occurs like We expect, as Alan said, in a 2 or 3 year timeframe, it converts over to midstream value. I mean, in the meantime, our credit metrics are so strong right now and our coverage of our dividend And coverage of cash flows, we've talked to the rating agencies about this, and I don't sense a concern at all about it. But again, as Alan pointed out in his opening comments, we do see growth coming in our business from EBITDA, which creates natural deleveraging and allows us Do a lot of incremental things in addition to what we're doing today and still see those metrics improve. So the rating agencies have seen numbers Show that as well. Yes, it is a

Speaker 2

good question. I think to really understand how that transitions, if you look at the cash margin That we make on the midstream side versus the cash margin on The E and P side, you can see that there's so much value driven to the cash flows on the midstream side That's really what makes this work and kind of transitions us out of the upstream piece of it and into the midstream So as we've said all along, our goal is to get those developed rapidly and get the cash flows moving on that. In the Haynesville, that's a shorter term issue and the lumpsetter, that's a longer term issue just because it's such an enormous field That will it's going to be providing it has such tremendous amount of inventory in that area. So but it really is the cash margin off Midstream business that is really powerful for us. Our cost side of that doesn't move very much at all on the Midstream side, but Cash flows go up pretty dramatically.

Speaker 7

Okay. Got it. And And if I could just move over to the Northeast, your processing volumes jumped quite a bit there quarter over quarter. Do you guys benefit from some short term volumes as a competitor outage? Or is that a new run rate we should go off of?

Speaker 6

No, Christine, this is Michael. Those outages that occurred, they were very short lived. And ironically, we were both the big operators up there were having some Operator challenges at the same time that were quickly resolved. So we didn't really benefit nor did our competitors at that same time. But I would say it is a new run rate for us just because our Oak Grove TXP III project came online in The Q1, obviously, we have built that up in the Q2 and are running at full tilt there on our OEM processing The most part.

Speaker 6

And so we are looking at opportunities to interconnect with our Blue Racer facilities And take advantage of some potential leasing capacity that they may have, but there's an opportunity to round rob a lot of gas there through our All facilities are UEO facilities that we acquired a couple of years ago as well as the Blue Racer facilities now that We are going to take full advantage of it. But I would say we're seeing very active producer activity up there from EQT and Southwestern As well as Encina is a private operator and they are chasing those liquid rich well pad drill outs right now and that's We're seeing a lot of activity there and really believe that our processing capacity is now full.

Speaker 7

Thank you.

Operator

Your next question comes from the line of Tristan Richardson with Truett Securities.

Speaker 8

Hey, good morning guys. Really appreciate all the comments around core level Capital allocation, but just thinking about the cash flow build next year against some of the project opportunities you've talked about, Particularly rate based investment, the new energy projects awaiting approval, Gulf of Mexico FIDs. Should we think CapEx in 2022 Could look similar

Operator

to this year as some

Speaker 8

of these opportunities kick off and dollars start to be put to work?

Speaker 2

Simple answer to that is yes. The one of the things that's driving Capital expense this year has been in some of the upstream acquisitions as well as the Sequent acquisition. And so we've had some Acquisitions that have are still included in that range that we put out. So that's driving us. Next year, Leidy South will be completed in Q4 of this year.

Speaker 2

Most of the capital spending obviously will occur Prior to that and then as we get into next year, hopefully we'll start spending towards the end of the year on regional energy access If we're fortunate on the permitting process, most of that spending will be in 2023. But In addition to that, as we get into 'twenty three, the spending for Whale will hit as well. So it's looking pretty levelized, Frankly, with this year being driven a little bit higher than we would have expected with some of the that we've done, but next year continued expansion in a lot of these projects That we've mentioned. So it's looks like a pretty relatively steady run That's kind of the current rate in capital spending.

Speaker 1

I appreciate it. I'd just say that the math is obviously pretty straight If you look at our if you just use our guidance midpoints as a starting point, other than capital, you will be at the higher end of the range Capital, we're generating we're spending, let's say, dollars 1,200,000,000 at the high end on expansion capital, dollars 500,000,000 on maintenance this year. So that's $1,700,000 still deleveraging. Next year, we see EBITDA growth. We're not giving explicit guidance on that today.

Speaker 1

But if you think about it, If we just put a 4x multiple against any EBITDA growth, that still allows for deleveraging from a 4.13 level today. And so any kind of reasonable amount of EBITDA growth adds substantially on top of that $1,700,000,000 that we're spending this year. So that's what you hear this kind of Confidence on our part that we've got a we see EBITDA growth coming and with that comes and it's obviously an expansion of that Vestable cash capital and still allowing for a deleverage from a ratio standpoint. No, I

Speaker 8

appreciate it, John. That's helpful. And then I guess just a quick follow-up on really the acquisition opportunity side. You guys have talked about Capital allocation across CapEx and the balance sheet and even the potential for repurchase. Curious on Asset packages out there, I think we've seen some activity in transmission and storage over the past year.

Speaker 8

Are there small bolt on opportunities

Speaker 1

out there either in the Northeast Or in the West, are

Speaker 8

there things that are attractive or even transactable when you look out across the landscape?

Speaker 2

I would say we certainly keep our eyes on that. And so far, I think folks that are more Depending on those acquisitions for growth or making those acquisitions and From our vantage point, we've got better investment opportunities right now than that and hopefully that will continue for a long period of time. We're Certainly looking that way right now, but I think that's kind of what's driving that market right now is whether people have growth or not. And for us, we have very substantial growth within our investments that are better return opportunities than what we've seen the broader At auction M and A market produced right now. So we'll certainly keep our eyes open, but it's going to be Deals that where we have a tremendous amount of synergies that can make those investment opportunities compete With our other investment opportunities, including share buybacks as well.

Speaker 2

So all of those go into that Calculus, but right. As we've demonstrated, we're going to be very patient And we're going to do deals that are where we're competitively advantaged to get a much higher return than the broad market would be able to realize.

Speaker 8

Thanks, Alan. Appreciate the perspective.

Operator

Your next question comes from the line of Spiro Dounis with Credit Please.

Speaker 9

Hey, morning team. Alan, first one for you. In the past, you've expressed interest And a willingness to work with the current administration on energy transition and emissions goals. Curious what receptivity you had early on In demonstrating natural gas's role in the transition and what you see is maybe still some of the hurdles or areas where there's a gap of opinion on how you approach reducing

Speaker 2

Yes. I think it's an interesting time right now because there is this Big drive to everybody is very focused on emissions reduction. They're starting to be a sobering, if you will, and a realization of what that means from a cost standpoint to consumers. And as a result of that, people are kind of pivoting back to, okay, well, what is SensiBull and what can we do that makes sense. And enter the likes of Senator Manchin with a great focus on Natural gas for the benefit of State of West Virginia and for our country and jobs, I would say, and a strong recognition on his part That we have to do this in a globally sustainable manner and it has to be economic, otherwise we're just Shipping jobs and industry off to other countries.

Speaker 2

And so I would just say there's kind of A reconciling going on, if you will, between and no pun intended there, by the way, Between the intense focus On carbon reductions and tackling that issue on the one hand and on the other issue doing it in a way that it actually is sustainable And we as the U. S. Can stay in control of our own destiny from an economic perspective. And so I think natural gas is extremely well positioned as those two things start to grind against each other And start to look for sensible intelligent solutions that we can really deliver on today. And so I would say I have seen some recognition start to go on as people start to actually think about what the cost Some of these solutions means both in terms of direct cost to consumer and in terms of reliability.

Speaker 2

And So the issues are starting to sober up a little bit as people really start to describe solutions. And So I think we're natural gas is even better positioned right now than I kind of thought it would be Because I am noticing that people are starting to pay attention to the impact on consumers.

Speaker 9

Understood. Helpful. Second question is just a follow-up on Sequin. I know you've talked about EBITDA generation and Sort of the $20,000,000 to $30,000,000 range annually, but I don't imagine that contemplates the uplift Sequin could provide to the entire asset network as a whole. So curious, Am I right in that assumption?

Speaker 9

And is there any way you can sort of help us quantify the potential benefit overall as Sequium starts to ramp up and integrate Into the system?

Speaker 2

Yes. Unfortunately, I don't think we're going to be able to provide you any specific numbers on that, but you are correct. And that is really the purpose of that acquisition was to drive further value and benefit. And I would tell you so far, We are even more excited than when we were looking at the acquisition originally In terms of synergies between what our Williams' existing customers want and we can provide services for And what Sequent has and that team has to offer. So tremendous synergies, really excited to see the team starting to work together And they're identifying a lot of opportunities here very rapidly.

Speaker 2

So, I would the honeymoon continues, I guess, I would say, and we continue to be very excited about what we're seeing from the Sequent team and their ability to drive value across our asset base.

Speaker 9

Great. That's all I had. Thanks for the time team.

Operator

Your last question comes from the line of Michael Lapides with Goldman Sachs.

Speaker 1

As 2 parter here, one, can you remind us What's the capital investment required for the deepwater projects for the 2 that you're kind of disclosing should come online by 2024, that's the first question. 2nd question is what's next step in terms of approval process for Regional Energy Access?

Speaker 2

Yes. I'll take the first part of that on the capital. We haven't disclosed specifics on that capital, but

Speaker 1

I would just tell you it's Just south of $500,000,000

Speaker 2

And so we haven't laid out anything in terms of detail on that. But we're really excited about the way that project has come together. And the capital team and the projects team has continued To find ways to take cost out of that project as well. And that and by the way, that includes an expansion for our gas system and a Connection of that and a significant expansion for the oil side system of that and which will A benefit for the future and as well an expansion of our Markham facility to be able to handle all of this rich gas. So Lots of lines of profits between the gas transportation, the oil transportation and the processing of that gas.

Speaker 2

And so we're really excited about And the way that area is paying off. And I would also add there's several other large prospects out there that are looking very fruitful as well. And so the story could get even better out there in terms of growth over time. So that has turned into Yes, a great project. And our deepwater construction team has really done a nice job.

Speaker 2

We're well into that project this point, as you know, we had a reimbursable agreement with Shell. So we're well into the details of engineering and in fact Already bought and have had all delivered all of the deepwater pipe for that project is now what was built in the U. K, but it's now here in the U. S. Great efforts by the team.

Speaker 2

Mike, do you want to take the Regional and Energy Access?

Speaker 6

Sure. Just as a reminder, Regional and Energy Access, we made that Filing back in March for the project, initially expected an environmental assessment to be completed for the project. But with The changing atmosphere at FERC. They're basically pushing all of the new projects that come in the door and even some that were already there Prior to Chairman Glick becoming Chairman to go to an environmental impact statement, which takes a little bit longer for us. It shouldn't have An appreciable impact on the overall project schedule.

Speaker 6

We would still expect to have a FERC certificate next year in 2022 and It could begin construction later that year. We still plan for a Q4 2023 in service date for the project as we stand today.

Speaker 1

Got it. Thanks, guys. Much appreciated.

Speaker 2

And Michael, I would just add on the deepwater on The well project, that pipe and a lot of the engineering has gone into that and a lot of the specialty fabrication It's already in this year's capital budget. So a lot of the materials and pipe has already been paid for Or is included in this year's budget. So don't pile it on to the next couple of years.

Speaker 1

Got it. Thank you.

Operator

At this time, there are no additional questions. I'll turn the call back over to Alan Armstrong from Williams.

Speaker 2

Okay. Well, thank you all very much. Continued great success here in 'twenty one. Teams continue to hit on all cylinders. And Importantly, even though we've got great growth here in 'twenty one, what we're really excited about is how we're positioned now for the future with a number of Very important drivers for growth here in the future that will show up in 'twenty two and beyond.

Speaker 2

So Really setting a nice platform for growth for our business for years to come. So we thank you for your attention today and the great questions And we'll speak to you again soon.

Operator

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.

Remove Ads
Powered by Quartr
Earnings Conference Call
Dyne Therapeutics Q2 2021
00:00 / 00:00
Remove Ads