EUR 850.00 For Business Accounts Only

Morningstar | Williams Reports Steady 3Q; Atlantic Sunrise In-Service Adding $420 Million in Annual Revenue

Williams reported a steady third quarter, and we expect to maintain our $28 fair value estimate and narrow moat rating. Broadly, the results reflect the steadiness of Williams' business, but we expect results to accelerate over the coming years as capacity expansions come online. Overall adjusted EBITDA increased 7% from last year's levels to $1.2 billion, mainly due to higher fees from Transco expansions projects turned on, and higher Marcellus gathering volumes, partially offset by a significant decline in contributions from the deepwater Discovery joint venture. These Discovery volumes are being driven by ExxonMobil's Hadrian field, which has seen sharp production declines. We don't expect a near-term recovery at the Discovery joint venture, but it's possible that Williams could redevelop the asset to better serve another offshore field longer term.

William's near-term prospects look reasonably positive. The Atlantic Sunrise was placed into service Oct. 6, adding 1.7 bcf/d of capacity to Transco and $420 million in annual revenue. The firm announced the Leidy South expansion for Transco, which will add 580 mmcf/d in capacity, be in service in late 2021, and is one of a number of projects Williams has on the drawing board. We also think Williams has some interesting opportunities with its recent entry in the DJ Basin, as it's already noted opportunities with producers not considered prior to the acquisition. With Proposition 112 coming up for vote on Nov. 6, we'll be watching the results, as if passed, it would essentially shut down drilling in Colorado and thus impact DJ Basin. Williams noted that it had already obtained permits for 100% of the wells forecast to be drilled through 2020 and 67% in 2021.

Finally, the firm outlined its expectations for 15% G&P volume growth from 18-21, where recent growth has been more around midsingle digits despite the presence of the huge Marcellus/Utica basins. Given our expectations for significant volume growth out of the Marcellus in the next few years, we think this type of growth is achievable, but it speaks to likely a sustained growth capital expenditure program on G&P assets. With its Transco capacity already contracted, we think producers would have already designated their acreage for the pipelines and thus signed contracts already for G&P providers. As a result, we do hope that this additional G&P capacity is feeding Transco's efforts versus being more speculative investment.