Williams Earnings: Marketing Takes a Turn As the Star Amid Tepid Volume Performance

Historically, Williams WMB 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.

This time, its marketing unit, Sequent, was the star of its first quarter. The unit was able to capitalize on gas already held in storage when Opal prices spiked during the quarter, hurting natural gas liquids margins elsewhere at Williams, but generating substantial marketing profits. The sequential contributions of $82 million in EBITDA represented the majority of Williams’ sequential improvement in EBITDA to $1.8 billion, helping offset weakness in the upstream and West (which was negatively affected by the Opal price spike) portions of the business. Clearly, Sequent has worked out for Williams since its purchase in 2021 for just $50 million plus working capital adjustments.

The firm reaffirmed 2023 EBITDA guidance at a midpoint of $6.6 billion, matching our forecast, while upping its growth capital midpoint $200 million to $1.75 billion, reflecting an acceleration in its Regional Energy Access project, which obtained approval to move forward ahead of schedule. While the MountainWest purchase for $1.5 billion earlier this year has more than consumed all of Williams’ excess cash flow, stock buybacks of $74 million during the quarter were material for a firm that has historically issued equity and ignored buybacks, and well-timed, given we see the stock as undervalued.