Williams Cos Inc (WMB) — Q1 2023 Earnings Call Transcript

Thanks, Abby, 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 the 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 Executive Vice President of Corporate Strategic Development. In our presentation materials, you will 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 the presentation materials are non-GAAP measures that we reconcile to generally accepted accounting principles, and these reconciliation schedules appear at the back of today’s presentation materials. So with that, I will turn it over to Alan Armstrong.

Thanks, Danilo, and thank you all for joining us today. Our natural gas-focused strategy continues to deliver steady predictable growth, and this past quarter was no exception—with our adjusted EBITDA up nearly 20% compared to the first quarter of ‘22. Let me remind you that last year was a record year for growth as we were up 14% on an annual basis, so really a big quarter for us on a tough comparison. We saw strong performance across all key financial metrics in the first quarter and set new records in our key operational stats as well, once again demonstrating our business's resiliency through commodity price swings. Beyond this obvious financial performance in the headlines, please don’t miss the importance of the accomplishments in this past quarter that will serve to produce growth in ‘24 and beyond. Let me start out by highlighting a few of these accomplishments that will continue to drive what has now been over 10 years of consistent year-over-year EBITDA growth. First, we closed the acquisition of the MountainWest Natural Gas Transmission and Storage business well ahead of our expectations, enhancing our position in the Western U.S. and expanding our services to key Rockies markets. We are very pleased with how the integration of MountainWest and The Williams has been progressing since we closed in February. We are already seeing several expansion opportunities that were not in our pro forma, proving this asset is best positioned to be optimized within The Williams platform. Our team also accelerated the timing on key deliverables for several other fixed fee-based projects supported by long-term contracts. This includes our Louisiana Energy Gateway project, Transco’s Southeast Energy Connector, and Transco’s Regional Energy Access project. Project execution is now in full swing on both Regional Energy Access and Louisiana Energy Gateway. As a result of the quick action by the FERC and our construction teams, we now expect to bring approximately half of this regional energy access capacity into service ahead of schedule and actually in the fourth quarter of this year—just in time to meet growing demand in the Northeast region ahead of the winter heating season. This will also provide a new market for producers on our Northeast Pennsylvania gathering systems, which is incremental to the returns on a project like that. We also executed several key agreements with Chevron to facilitate natural gas production growth in the Haynesville and the deepwater Gulf of Mexico. As part of those agreements, we gained a large dedication to our recently acquired Trace gathering system and a long-term capacity commitment on our Louisiana Energy Gateway project. This is a great example of Williams and Chevron working together to connect prolific domestic resources to expanding LNG export markets. We placed several large-scale gathering expansions into service this quarter. The Marcellus South gathering expansion in Southwest Appalachia increased our capacity by 100 million cubic feet per day from rich gas supplies in this area, and significant progress was also made on our build-out of the new and fully contracted capacity on our Susquehanna County gathering system in Northeast PA. We also added 100 million cubic feet per day of capacity this quarter as part of the second phase of our Haynesville Spring Ridge expansion, and we saw the first flow for the Taggart expansion project in the deepwater Gulf of Mexico across our Devils Tower platform. Importantly, this is the first of five significant expansion projects that are expected to come online over the next two years and will ultimately double our Gulf of Mexico earnings contributions. Finally, I will add that we are moving forward on a number of projects in our backlog, and our visibility to growth on the transmission side of the business is as good as we have seen. From a financial perspective, the strength of our assets across all areas is reflected in our solid first quarter results. In fact, our base business produced record contracted transmission capacity and record gathering volumes even after we exclude the contributions from acquisitions. The one underperforming area was in NGL processing margins, but more about this in a moment. This was a quarter in which we saw Sequent fully optimized assets in our base business, underscoring the balance and improved commercial competencies that the Sequent acquisition has delivered for the benefit of our natural gas strategy. For example, in the Northeast, we benefited from record gathering volumes and significantly outperformed the broader Marcellus production trends as Sequent provided takeaway markets uniquely for our producing customers in Ohio. In the transmission and Gulf of Mexico segment, we realized higher short-term firm sales on our pipes as Sequent helped to commercialize more business in that area. Now back to the big variance in our processing margins. In the West, our NGL processing margins on the legacy Williams business were negative due to abnormally high natural gas prices at Opal and throughout western markets. Normally, this would have shown up as a significant negative issue for the quarter. However, Sequent was able to capitalize on these large natural gas basis spreads in the West and more than offset the negative NGL margins, turning this volatility into a net positive for Williams. Our acquisitions continue to deliver as expected, proving that our capital allocation strategy to fund these transactions with excess Sequent and E&P cash flows is setting us up for continued reliable and predictable earnings growth. As the market continues to underappreciate and undervalue the strength and resilience of our business, we stand ready to utilize our repurchase program as we did during this first quarter. Overall, a great quarter has us set up for growth in ‘24 and beyond. And with that, John will walk us through the financial metrics for the quarter.

Thanks, Alan. Starting here on Slide 4 with a summary of our year-over-year financial performance, beginning with adjusted EBITDA. We saw a 19% year-over-year increase. As we will see on the next slide, our adjusted EBITDA growth included growth of over $100 million from our core large-scale natural gas transmission and gathering and processing businesses, including new records for both gathering and contracted transmission capacity. It also included strong performance from our Sequent gas marketing business, which dramatically overcame a perfect storm of severe winter weather impacts on our Wyoming businesses. Those Wyoming impacts included hits to both upstream and gathering and processing volumes as well as our Southwest Wyoming gas processing margins, which were much lower from a surge in January shrink replacement gas prices. Our adjusted EPS increased 37% for the quarter, continuing the strong growth we have had in EPS over the last several years. Available funds from operations growth was even better than adjusted EBITDA, at 22% year-over-year. Our dividend coverage based on available funds from operations was a very strong 2.65 times on a dividend that grew 5.3% over the prior year. Our balance sheet continues to strengthen with debt to adjusted EBITDA now reaching 3.57 times versus last year’s 3.81 times, even after closing the NorTex and MountainWest acquisitions and repurchasing $83 million of shares since last year. On growth capital expenditures, we see an increase over the first quarter last year, primarily reflecting the progress we are making on some of our key growth projects, including Regional Energy Access and Louisiana Energy Gateway. Before we move to the next slide and dig a little deeper into our adjusted EBITDA results for the quarter, we will provide a few updates to our 2023 financial guidance. We have not changed our consolidated adjusted EBITDA guidance of $6.4 billion to $6.8 billion, or any of our other consolidated financial performance metrics. Looking further into the year, our core transmission and gathering and processing businesses should see some additional growth from the first quarter level. For transmission in Gulf of Mexico, we will see some ramp from a full quarter of MountainWest Pipeline and some other smaller sequential improvements throughout the year that should allow for a strong finish to the year. In the Northeast, we are expecting a modest increase towards the end of the year from the first quarter EBITDA level, mainly from our higher margin liquids-rich systems. However, we are not counting on a lot of additional growth in the Northeast from this $470 million first quarter level, which was up 12% over the prior year. In the West, we expect some modest increases through the remainder of the year from the $286 million first quarter level, particularly reflecting improvement from some of the challenges we faced in the first quarter. For the marketing business, we have had a strong overall start to 2023, and importantly, hitting the midpoint of our guidance doesn’t rely on any additional EBITDA from Sequent at this point. Regarding the upstream joint venture EBITDA guidance, it’s been a tough start to our Wyoming operation with the extremely difficult winter weather significantly impacting producing volume and our drilling plans. Thus, we see this business likely trending towards the lower half of the $230 million to $430 million guidance range. However, to be clear, for our consolidated adjusted EBITDA, we are still focused on hitting at least the midpoint of our guidance range at $6.6 billion. We are increasing our growth capital expenditure by $200 million to reflect the acceleration of our largest Transco project, Regional Energy Access, which we hope to bring into partial service later this year. Early partial in-service for Regional Energy Access won’t significantly impact 2023, but it is just upside to our hitting the midpoint of our guidance for EBITDA. Let’s turn to the next slide and take a closer look at the first quarter results, which matched our expectations for a very strong start to the year with 19% growth over the prior year. Moving from last year’s $1.512 billion to this year’s record $1.795 billion, we start with our upstream joint venture operations that are included in our other segment, which were up only $3 million over last year. Our Haynesville upstream EBITDA was up about $32 million as there was very little production in the first quarter of last year. However, the Haynesville increase was offset by lower Wamsutter results due primarily to the historically difficult winter weather we saw in Wyoming this year. We estimate that overall weather-impacted volumes during the first quarter were probably about 3.5 times what we normally expect. That impact flowed through to our Wamsutter gathering and processing assets as well. Shifting now to our core business performance, our transmission and Gulf of Mexico business improved by $31 million or 4% due primarily from the partial contribution of the MountainWest Pipeline acquisition, which closed on February 14th, and a full quarter from the NorTex acquisition. Our Northeast Gathering and Processing business performed very well with a $52 million or 12% increase driven by a $73 million increase in service revenue. This revenue increase was fueled by a 7% increase in total volumes in the Northeast, concentrated in our liquids-rich areas where we tend to have higher per-unit margins than our dry gas areas. In the appendix, you will find a slide comparing our 7% volume growth to the overall basin growth of just under 2%. The West increased by $26 million or 10%, benefiting from positive hedge results and a full quarter of the Trace acquisition; however, it was significantly negatively impacted by the severe Wyoming weather and January processing economics at our Opal processing plants. Overall, gas processing margins were $44 million lower this year than last, primarily due to January conditions. All in, the West fell about 3% short of our plan, although the winter weather impact was much worse than we expected. Additionally, there was a $165 million increase in our gas and NGL marketing business. At our Analyst Day, we had pointed to a strong start for this business due to the economics surrounding our year-end Sequent transportation and storage positions. Ultimately, the $231 million for gas marketing was driven by positive transportation margins across all regions and strong storage margins that benefited from the lower-cost or market write-down we discussed in the fourth quarter review. Again, a strong start to 2023 with 19% growth in EBITDA, driven by core infrastructure performance with strength from our marketing business that overcame weaker-than-expected results from upstream joint ventures. With that, I will turn it back to Alan.

Great. Well, thanks, John. Now just a few closing remarks before we turn it over to your questions. First, I will reiterate our belief that Williams remains a compelling investment opportunity. We are the most natural gas-centric large-scale midstream company today. The integrated nature of our business—from our best-in-class long-haul pipes to our formidable gathering assets and our value-driving Sequent platform—is unique. Our combination of proven resilience, a 5-year EPS compound annual growth rate of 23%, coverage that is now approaching three times on our high-growth dividend, a strong balance sheet, and high visibility to growth is unique amongst the S&P 500 and within our sector. There is a reason we have stuck with our natural gas-focused strategy for so long. This strategy has allowed us to produce a 10-year track record of growing adjusted EBITDA through various commodity and economic cycles and continues to deliver significant growth in the current environment. The signals coming from the market indicate that it will also deliver substantial growth for the long-term. Natural gas demand continues to build, and the recent low prices will drive even more long-term growth in demand, as the combination of low prices, low emissions, and energy security is what the world will increasingly need. U.S. natural gas infrastructure is key to meeting not just today’s energy demand, but also the projected growth of electrification and renewable expansion in the future. Natural gas is the solution to the complex challenge of producing affordable and reliable energy while meeting our climate goals, and the United States is better positioned than any other country on this front. However, access to our abundant and low-cost natural gas reserves depends on having the appropriate infrastructure to move energy when and where it is needed. We are witnessing the impacts of inadequate infrastructure, with consumers suffering high utility bills, unnecessary blackouts, and energy-driven inflation. The good news is we have a readily available solution that will support global emission reductions, keep energy costs affordable, and grow our nation’s competitiveness. Enabling the efficient and unobstructed build-out of our energy infrastructure to ensure the delivery of natural gas is foundational to U.S. leadership on greenhouse gas emission reduction and energy security. Williams will continue to advocate for actionable energy policy solutions and permitting reform in the days and months ahead. With that, I will open it up for your questions.

Hi, good morning, everyone. John, appreciate the color in the prepared remarks on being able to hit your guidance with the base business without marketing. That said, marketing clearly showcased really strong results for the quarter. I was curious if you could provide an updated view on maybe an annualized EBITDA run-rate for the marketing segment, just given the recent acquisitions of NorTex and MountainWest? Thanks.

Yes, thanks, Brian. Since we bought Sequent about 18 months ago, they have demonstrated a great ability to capitalize on natural gas price volatility using a low-risk business model. However, we are not ready to take the $50 million to $70 million long-term run rate we discussed before up at this point. Some of the positions they utilize are short-term in nature, particularly the storage positions. A big reason they have performed so well has been the historically high natural gas price volatility, especially what we saw last year through the summer months and in the fourth quarter. We want to stick with the $50 million to $70 million long-term run-rate. Our current forecast shows that we do not need any additional EBITDA from Sequent this year to reach the midpoint of our guidance. Additionally, we saw Sequent counter the unfavorable results in gas processing margins.

Great. Thanks. Appreciate all that. A follow-up on the natural gas macro, Williams has highlighted that they can continue to show base business growth in a low natural gas environment. I was wondering if you could discuss two sides of the coin. One, how low natural gas prices are supporting increased demand for transmission projects in that 2025 plus timeframe, and then second, how low natural gas prices could impact volumetric headwinds on the gathering and processing side over the next 6 to 12 months? Thanks.

Yes. Thanks, Brian. First of all, April numbers indicate that power generation was already up about 2 Bcf a day on a previous 27 Bcf a day load for April of ‘22. So, we are seeing good growth based on price in the power generation sector. If prices stay low, I think we will see continued demand growth for capacity as we move through the summer, which is favorable for us. As for the impact on the gathering and processing business, we are paying close attention to that. Many of our big producers are well-hedged, and we see them continuing to produce. While we’re not expecting growth on average across the space, we are lucky to be in some lower-cost basins and have producers managing their operations well. Importantly, we see continued growth in rich gas and some condensate areas in the Marcellus and the Utica regions. Our Sequent team’s strategy has been to provide market access preferentially to our gathering customers, particularly in the Marcellus, where there is substantial value for our gas. We have diverse exposure across many basins, and thus, our volumes reflect demand changes. We are excited to see our Sequent team performing well, and overall we expect positive results.

Great. Appreciate all the color. I will leave it there. Thanks.

Hi, good morning.

Good morning, Jeremy.

I wanted to switch to natural gas and exports, LNG, if I could. Wondering about your wellhead to export strategy at this point. Specifically on the Sempra HOA, can you expand on your strategy and vision for that dynamic? How large could that become over time?

Yes, thanks, Jeremy. We continue to advance our wellhead water strategy since our Analyst Day update. Regarding the Sempra HOA, we consider the Sempra team highly and have engaged with them since the non-binding HOA we announced last year. We are evaluating several competing opportunities as well. Our discussions with producer customers and international LNG buyers show strong interest in both producers wanting access to international prices and international LNG buyers wanting access to domestic producers. We provide a unique solution and are building confidence around our ability to add LNG as an extension of our natural gas value chain, providing fixed margins for Williams while shifting international price exposure to producers and buyers. We expect to finalize a definitive arrangement with Sempra or an alternative LNG partner sometime in 2023.

That’s helpful. Thanks. I wanted to ask about the Regional Energy Access project and the timing for the partial service this winter. Do you think it unlocks growth for the Northeast gathering and processing, and what kind of EBITDA uplift could you see associated with the REA?

Hey, good morning, Jeremy, this is Michael. I want to take a moment to thank our project execution team for their tremendous job in preparing for construction on that project. The permitting environment is challenging, especially in the Northeast, and the team has designed this project to be permissible, allowing us to get through that quickly. We expect to achieve a partial in-service by the fourth quarter of 2023, contributing to 2023 EBITDA. While we won’t predict the exact in-service date yet, we plan for it to be before year-end. This will create additional opportunities in the gathering business, as producers are eager for this added capacity. We anticipate further growth in 2024, so we expect it to contribute significantly.

Got it. That’s helpful. I will leave it there. Thanks.

Hi, good morning. Can you unpack the weather impacts that affected the West segment during the quarter, particularly regarding volume and cost? What’s the underlying trajectory of that business for the rest of the year?

Yes, Marc, I will take that. The NGL margins were notably impacted, with detailed information available in the appendix to the press release; NGL margins decreased by $44 million year-over-year. This decline was primarily seen at the Opal processing plant; each factor was related to high January shrink costs, where natural gas prices reached approximately $50 per dekatherm. Since then, we’ve observed costs return to normal levels. The total impact from our upstream JV operations in Wamsutter, along with Wamsutter gathering and processing, together amounted to about $70 million lower than our anticipated first quarter expectations. We estimate around 12 Bcf of impacted volumes in the first quarter; in a typical year, this would be a bit more than 3 Bcf. While we are recovering now, the transition process has yielded high rivers and muddy roads, but we expect volume recovery and margin normalization as we move into the second quarter.

Got it. That was helpful. Regarding the domestic demand outlook, there is significant focus on the incremental LNG export capacity projected to come online in the next few years, but I’d like your view on domestic industrial demand in light of geopolitical developments.

Yes, thanks for the good question. Industries that heavily utilize gas are increasingly returning to the U.S. The U.S. is becoming a major exporter while expanding its exports. This guarantees lower natural gas prices globally, attracting industries such as fertilizers, along with many others that are heavy natural gas consumers. It’s likely that the LNG growth will exceed domestic industrial demand growth. Notably, recent estimates project around 23 Bcf of new expected on by 2032, up from approximately 10.9 Bcf a day in ‘22. There’s impressive growth in NGLs, of course. The power generation sector has two sides to it; when low gas prices are present, we will see a drop in baseload coal-fired power plants, something we witnessed recently. We anticipate that summer 2023 will demonstrate similar trends. From a Williams perspective, however, we focus on capacity rather than average annual gas demand, as utilities will increasingly depend on gas as backup power generation amid rising electrification. We are collaborating closely with our customers to meet the demand for this capacity. Our recent work has ensured that we are perfectly positioned to deliver on the infrastructure needed to meet these demands.

Got it. That’s very helpful. Appreciate your time.

Thanks. Good morning. A follow-up on Sequent—do you see it as a hedge against declining gas prices? Could Sequent generate higher results if gas prices drop?

Yes. Sequent performs well when there is volatility and basis dislocation. We monetize storage. Price movement across periods impacts our value, as well as dislocation and basis differentials when we own transportation between locations. It’s challenging to estimate extended periods without volatility due to the growing LNG demand, and occasions will arise where storage value is essential for addressing those demands. We’re excited for Sequent’s performance moving forward.

Got it. Can you comment on your joint venture with GeoSouthern and production outlook given current gas prices? Is there still an aim to achieve the goal of 800 million cubic feet per day by 2025, or will the progress moderate until prices improve?

Thanks. Our partnership with GeoSouthern continues to perform exceptionally well. They are currently maintaining production based on available midstream capacity. As you noted, the forward curve is constructive, and there is a strong desire to ensure volumes are readily available as demand increases. Expectations are for production to align with midstream capacity. We are also excited to connect GeoSouthern volumes with valuable markets through the Louisiana Energy Gateway project.

Thanks. I appreciate it.

Hi, good morning, everyone. Regarding share repurchases for the quarter, it seems you beat the average price for the buybacks. Should we perceive this as opportunistic, and is the $75 million figure what you think you can comfortably handle each quarter?

Thanks for the question, Gabe. Financial performance for the company remains very strong, and our balance sheet is in great shape. Regarding the buybacks, we maintain a returns-based approach as previously discussed at Analyst Day. We assess all of our investment opportunities in the company, and we find our lowest expected returns are typically associated with regulated rate base investments, which fall in the 11% to 12% return range. This year, we observed a significant decline in our valuation after natural gas prices fell, expanding our dividend yield to 6%, while maintaining confidence in our long-term growth rate of 5% to 7%. That made share repurchase an attractive opportunity for us, and we plan to continue this approach, monitoring conditions and evaluating opportunities as they arise.

Yes, Gabe, this is Alan. I would add that the $75 million isn't a hard limit; it represents how much we could buy at the price targets we've set based on dividend yield and expected growth versus our rate base returns.

Got it. Thanks, Alan. I have a two-parter on growth projects. What opportunities related to MountainWest have emerged recently? Additionally, are low gas prices impacting discussions with potential leg customers on that expansion or new projects?

Regarding Regional Energy Access, there’s a significant basis spread between the eastern MountainWest and Opal, creating strong demand for expansion. We're excited about the opportunity this presents. Additionally, in the Uinta area, we’re encountering capacity constraints due to limited gas takeaway capabilities. Also, the ongoing conversion from coal to gas from major western coal plants positions us well to capture these expansion opportunities. We’ve taken a conservative approach to this acquisition and feel thrilled with our team's work in identifying these opportunities.

Regarding the Louisiana Energy Gateway project, we believe it’s still on track to be online as expected this fall. The project is currently in the permitting process, and we do not foresee significant obstacles to achieving service in the projected timeframe. We’re in discussions with our producer customers, and the take-or-pay contracts reflect optimistic expectations, adding confidence to our timeline.

Thanks, everyone.

Hi, this is Jake Nivasch on behalf of Neal. Just a question regarding your gathering and processing fee-based contracts, given current commodity prices. Are your contracts at a fee floor, and if so, can you quantify that?

Yes, was that on our gathering contracts?

Yes. Some contracts have exposure to natural gas prices, as we have stated in the past. Some contracts are directly linked to NYMEX prices, while others have midstream floor provisions. Several Haynesville wells also demonstrate price escalations linked to natural gas prices. While we cannot publicize all details, we have opportunities to increase gathering rates when prices rise. We are comfortable with our guidance and with the triggers related to our gathering rates. Many contracts include escalators based on inflation as we've successfully managed our costs. This positions us well regarding low natural gas prices.

Additionally, most expansion structures we have mentioned are supported by either minimum volume contracts or backed by rate increases on base volumes. As a result, we are not overly exposed to volume increases for recovering capital for these expansions.

Perfect. Thank you.

Hey, guys. This is Tristan with Scotiabank. Can you hear me okay?

Yes, thanks, Tristan.

I appreciate your comments, Alan, on the Gulf of Mexico and bringing Taggart online, but I’d like a general update on progress for the big five projects expected online in ‘24.

No real changes on what we've published regarding our projects. We are making good progress on the Whale projects in the Western Gulf of Mexico. The offshore pipeline was installed last fall, and we recently completed modifications on the platform bringing gas and oil to shore. The work continues and we feel which well-prepared for our producers' timelines. For the Shenandoah project, the offshore work by producers is ongoing, and our onshore work has been fully permitted. Overall, our work is progressing smoothly, with minimal risk. It's crucial that producers finalize their schedules, but we are ready.

We also secured contracts with producers on the Chevron Ballymore project this quarter, a key achievement with minimal required capital from us. The offshore installation has gone smoothly, with most risks mitigated.

Thank you, Alan. And regarding the Louisiana Energy Gateway project, can you provide an update on the carbon side? Is primacy in Class 6 necessary for proceeding with that component?

Thanks. This is Chad. The project is progressing well alongside the gathering project. We see interest in the ability to move CO2 through that pipeline and subsequently remove and sequester it. While primacy would enhance efficiency in Louisiana, it is not essential for our project. We believe it can succeed regardless, but we are closely watching the potential for primacy to increase efficiency.

Great. Thanks, Chad. I appreciate it.

Thanks, operator. Good morning, team. My first question relates to upstream. Have you had any urgent discussions regarding monetizing those assets? And where does that process stand today, especially considering gas prices?

Yes, Spiro, it’s true we have been open to monetizing those assets. The Haynesville has proven its capabilities due to strong team performance in quickly developing that acreage. Our capital contributions have significantly reduced because of the ongoing reversion. We’re open to discussions if someone presents an attractive offer, but we’re not actively seeking to sell at market lows. For the Wamsutter, we need further development to reach optimal production levels, ensuring benefits for our midstream operations.

Thank you for the insights. One more follow-up on your guidance. Back at the Investor Day, you announced guidance that contemplated a producer slowdown, and some recent announcements indicate that. How does this track against your earlier expectations?

I can handle that, Spiro. We initiated our guidance with a sober outlook, so we embedded conservative estimates regarding our producer customers. After running a bottoms-up forecast, we still feel good about our guidance.

Perfect. Thank you, guys.

Hi, good morning, everyone. I have some questions regarding recent comments from the administration focused on gas infrastructure. Are you picking up on anything regarding discussions with the administration, and are there specific opportunities for Williams to capitalize on?

Yes, certainly! We were thrilled to see Secretary Granholm’s letter in support of the Mountain Valley Pipeline and her recognition of the vital role natural gas plays. We’ve noticed that utility companies, like Duke, have clearly articulated the need for more natural gas capacity to support electrification initiatives. Their messages reached the administration and have started to solidify our position. Senator Manchin also advocates for permitting reform. We are excited to see momentum building around natural gas recognition at both administrative and utility levels.

Understood. Transitioning to the LNG marketing strategy, will we see updates about that soon? Is that strategy more driven by supply or demand from international markets?

It's a combination of both. If international LNG buyers want U.S. LNG, they need access to competitive domestic prices, but they primarily must buy LNG indexed to domestic Henry Hub prices. Our producers have interest in selling part of their production into international markets and gaining access to better pricing. We can bridge the gap, allowing international LNG buyers to purchase U.S. sourced gas traded against international prices. This dual pull approach has been effective.

Additionally, we’re exploring significant FERC-regulated fee-based pipeline opportunities related to this wellhead water strategy that extend beyond the LEG project.

I want to clarify that the previous mismatch of contract durations between international and domestic parties remains largely unchanged, or has there been improvement in this area?

We aim to minimize significant open mismatches in positions. While some modest mismatches may remain across the portfolio of LNG transactions, we intend to mitigate speculative open positions and ensure adequate margins. Our goal is to target significant coverage across the portfolio.

Thank you very much for the clarification.

Hi, thanks for squeezing me in. I have a question about your Mid-Atlantic demand pull projects, specifically the Commonwealth Energy Connector, sell-side reliability enhancement in Carolina MarketLink. Will these create more capacity out of Transco 165 than exists today if MVP starts up, or are they kind of low CapEx, high return opportunities that you have referenced in the past?

Those projects are more on the low CapEx side currently. They include compression and small looping opportunities that yield healthy returns. In contrast, anything associated with NBP completion would involve more capital-intensive projects. We haven’t announced anything significant in that area yet, but we do see future opportunities if NBP moves forward.

Michael nailed that. We must make strategic decisions regarding NBP because the gas coming from there will seek new markets. Depending on whether NBP gets built, we’ll determine how to optimize capacity. If it doesn’t get built, we'll focus on expanding southbound capacity from Pennsylvania.

Great. Thanks very much.

Great. Thank you. Our team is excited to deliver the quarter we've produced, especially within the current commodity cycle. We're poised for future growth and are proud of the accomplishments achieved this quarter. We look forward to rewarding our shareholders with more growth in the future and feel optimistic about our positioning. Thank you for joining us today, and we look forward to speaking again soon.