Company Reports

We think AI and data center demand offers a potentially sizable growth opportunity across our US E&P and US & Canadian midstream coverage list. We consider Chart Industries, Energy Transfer, Enbridge, Kinder Morgan, and TC Energy as undervalued ways to play this trend. Cheniere Energy and Williams are more fairly valued, while Antero, Range, and likely EQT (not covered) are obvious direct opportunities and appear expensive.

Williams’ first-quarter results generally met our expectations, and we will maintain our $38 fair value estimate and narrow moat rating. 2024 EBITDA guidance was reaffirmed by management as at the top of half of its $6.8 billion to $7.1 billion range, and we see our $7 billion forecast as reasonable. Overall EBITDA improved 8% year over year to $1.9 billion.

We think Williams is well positioned to benefit from clean energy investments as well as the need for AI and data centers to rely on gas and gas storage as a back-up to renewables. This is a positive for investors, creating a more stable financial profile and more high-return growth opportunities than most of its midstream peers. Clean energy investments could become a material growth area in the next few years, with the recent Orsted partnership a particularly attractive growth engine for its Northwest portfolio.

Williams Companies has shifted its strategy in recent years to focus on organic growth investments that improve its legacy assets' returns and competitive position. This is a positive for investors, creating a more stable financial profile and more high-return growth opportunities than most of its midstream peers. Clean energy investments could become a material growth area in the next few years, with the recent Orsted partnership a particularly attractive growth engine for its Northwest portfolio.

Williams’ fourth-quarter results met our expectations, with full-year EBITDA at $6.8 billion, which matched our forecast. 2023 EBITDA is up about 6% over 2022 levels primarily due to acquisitions-led growth from Mountain West and NorTex. Our 2024 and 2025 EBITDA forecasts of $7.1 billion and $7.3 billion also look realistic given Williams’ guided midpoints of $6.95 billion and $7.4 billion, respectively. We expect to maintain our $36 fair value estimate and narrow moat rating.

Williams Companies has shifted its strategy in recent years to focus on organic growth investments that improve its legacy assets' returns and competitive position. This is a positive for investors, creating a more stable financial profile and more high-return growth opportunities than most of its midstream peers. Clean energy investments could become a material growth area in the next few years, with the recent Orsted partnership a particularly attractive growth engine for its Northwest portfolio.

Williams announced it has agreed to acquire 115 billion cubic feet of natural gas storage capacity and related assets from Hartree Partners for $1.95 billion. We consider the valuation fair at a 10 times 2024 EBITDA multiple and do not expect to change our $36 fair value estimate or narrow moat rating. The storage assets are extremely well located in Louisiana and Mississippi for serving Gulf Coast liquefied natural gas demand and include connections to Williams’ Transco network, which is reflected in the relatively high multiple. As renewables increase as a percentage of the power generation mix, there is a corresponding need for new gas storage to serve as a backup battery, given renewables’ intermittency issues. The deal is expected to close in January 2024.

Williams' third-quarter results were very good, and after incorporating them into our model, we are increasing our fair value estimate to $36 per share from $32. Our narrow moat rating is unchanged. Overall EBITDA increased 1% to $1.7 billion over last year’s levels, with higher contributions from recent acquisitions MountainWest and NorTex more than offsetting weaker contributions from the modest upstream segment due to lower realized oil and gas pricing. Management raised 2023 EBITDA guidance by about $100 million at the midpoint to $6.7 billion, reflecting better-than-expected performance from the MountainWest and NorTex deals, in our view.

Williams Companies has shifted its strategy in recent years to focus on organic growth investments that improve its legacy assets' returns and competitive position. This is a positive for investors, creating a more stable financial profile and more high-return growth opportunities than most of its midstream peers. Clean energy investments could become a material growth area in the next few years, with the recent Orsted partnership a particularly attractive growth engine for its Northwest portfolio.

The U.S. Department of Energy, or DOE, recently announced $7 billion in funding for several key hydrogen hubs around the United States. These hubs are designed to help the U.S. administration achieve its goal of 10 million tons per year of hydrogen production by 2030. The effort was extremely competitive as nearly 80 bids were submitted in November 2022, before being whittled down to the seven eventual winners. The $7 billion for funding the hubs will now enter a negotiation stage. Collectively, the hubs are expected to produce about 3 million tons of hydrogen per year and eliminate 25 million tons of carbon dioxide emissions annually. None of our fair value estimates or moat ratings are affected.

Williams’ second-quarter results met our expectations, as the firm reaffirmed 2023 EBITDA guidance of a midpoint of $6.6 billion, matching our forecast. After updating our model, we will maintain our $32 per share fair value estimate and narrow moat rating. The diversity of the firm’s operations, in our view, really allows it to drive growth in just about any natural gas price environment, including the current weak environment. Quarterly EBITDA increased 8% to $1.6 billion from last year’s levels, primarily due to contributions from the MountainWest and NorTex acquisitions and higher revenues from its Northeast G&P systems (for example, the Ohio Valley Midstream joint venture, the Susquehanna supply hub, and the Blue Racer joint venture). At this stage, the ongoing contributions from new projects and organic volumes should more than offset the expected weaker contributions from gas marketing in the second half of 2023.

Williams Companies has shifted its strategy in recent years to focus on organic growth investments that improve its legacy assets' returns and competitive position. This is a positive for investors, creating a more stable financial profile and more high-return growth opportunities than most of its midstream peers. Clean energy investments could become a material growth area in the next few years, with the recent Orsted partnership a particularly attractive growth engine for its Northwest portfolio.

Historically, Williams has leveraged volume growth across its assets as well as new assets to drive EBITDA growth on a quarterly basis. Volume growth during the first quarter across many of Williams’ assets was down sequentially, no doubt affected by the mild winter in the U.S. and constrained LNG export capacity. Though, with the recent restart of Freeport, we expect improvements on the LNG front for the rest of 2023. We expect to maintain our $32 fair value estimate and narrow moat rating.

On March 30, the U.S. House of Representatives voted 225-204 to pass HR 1, the Lower Energy Costs Act. While Democrats in the Senate have indicated they will reject the legislation in its current form, we still consider this a positive step forward for oil and gas (and solar and wind) permitting reform in the United States.

Williams Companies has shifted its strategy in recent years to focus on organic growth investments that improve its legacy assets' returns and competitive position. This is a positive for investors, creating a more stable financial profile and more high-return growth opportunities than most of its midstream peers. Clean energy investments could become a material growth area in the next few years, with the recent Orsted partnership a particularly attractive growth engine for its Northwest portfolio.

Williams’ fourth-quarter results were quite strong, as adjusted EBITDA was up 15% over the prior year quarter, excluding winter storm Uri benefits. Results benefited from higher Haynesville volumes, helped by the Trace Midstream deal, and higher commodity margins, likely helped by the percentage of proceeds contracts. Results generally were higher than our forecasts. 2022 EBITDA results of $6.42 billion compared with our forecast of $6.39 billion, and 2023 EBITDA guidance, which implied a midpoint of $6.6 billion, compared with our $6.5 billion forecast. At first glance, we maintain our $32 per share fair value estimate and narrow moat rating.

We see Williams’ acquisition of the MountainWest system for $1.5 billion in cash and debt as a solid deal. While the assets are located in the Rocky Mountains and thus don’t offer direct linkages to Transco, the system offers additional investment opportunities for Williams to transport natural gas from a new major hub. We would expect these opportunities to mainly revolve around serving new LNG demand but also developing storage opportunities (MountainWest comes with 56 billion cubic feet of storage capacity) to serve as a backup for renewables intermittency. Those storage opportunities are increasingly valuable as a source of gas to market. Williams is bulking up its marketing effects, building on its 2021 Sequent deal with its recent joint venture with Sempra to market LNG globally.

Williams’ third-quarter results were quite strong, as the firm guided toward the top end of its $6.1 billion to $6.4 billion EBITDA guidance range for 2022. After updating our model, we maintain our $32 fair value estimate and narrow moat rating. The strength is broad-based across all parts of Williams’ business, with adjusted EBITDA up 15% year over year to $1.6 billion. Material contributors to the growth include higher commodity-based rates, improved Haynesville volumes due in part to the Trace Midstream deal completed earlier this year, and the Leidy South project entering service. With more than 20 billion cubic feet per day (bcf/d) in U.S. LNG export projects under consideration and within the Transco service corridor, Williams has ample growth opportunities over the next few years. Notably, Williams’ debt portfolio is entirely fixed rate at 4.8% on average with a maturity profile of just over 12 years, protecting it somewhat from higher near-term interest costs.

Williams Companies has shifted its strategy in recent years to focus on organic growth investments that improve the returns and competitive position of its legacy assets. We think this is a positive for investors, creating a more stable financial profile and more high-return growth opportunities than most of its midstream peers. Clean energy investments could become a material growth area in the next few years, with the recent Orsted partnership a particularly attractive growth engine for its Northwest portfolio.

Williams Companies has shifted its strategy in recent years to focus on organic growth investments that improve the returns and competitive position of its legacy assets. We think this is a positive for investors, creating a more stable financial profile and more high-return growth opportunities than most of its midstream peers. Clean energy investments could become a material growth area in the next few years, with the recent Orsted partnership a particularly attractive growth engine for its Northwest portfolio.