Williams Continues to Excel in Fourth Quarter; Delivers Strong 2023 Outlook

Williams’ WMB 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 continue to think Williams has nearly unparalleled visibility into investment opportunities across its asset base, as it previously outlined a decade of investments for its Transco network. Returns on invested capital have also improved materially over the past few years to over 7%, supporting the attractive allocation of capital Williams has been making with its new investments. Thus, we think higher spending in Williams’ case will likely benefit shareholders. Capital spending for 2023 is projected to be $2.35 billion at the midpoint ($1.55 billion growth spending with the remainder maintenance) versus our $2 billion forecast. We expect a chunk of that will be to support new acquisitions (Trace, NorTex, and MountainWest last week) and new connections at attractive rates of return.

The Trace Midstream deal already looks like a material winner as it is leveraging growth in the Haynesville play, and we’re now even seeing new areas of the Haynesville call for even more growth opportunities. Williams has tripled Hayesville gathering volumes (including Trace) since 2021, is connecting this growth to the market via the LEG expansion, and added additional value via a Chevron acreage dedication for more gathering volumes.