Good day, everyone, and welcome to The Williams Companies Fourth Quarter and Full-Year 2019 Earnings Call. Today’s conference is being recorded. At this time for opening remarks and introductions, I would like to turn today’s call over to Mr. Brett Krieg, Director of Investor Relations. Please go ahead, sir.

Thanks, Carey. Good morning, and thank you 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, will speak to momentarily. Joining us on the call today are our Chief Operating Officer, Micheal Dunn; our CFO, John Chandler, our General Counsel, Lane Wilson; and our Senior Vice President of Corporate Strategic Development, Chad Zamarin. In our presentation materials, you will find the disclaimer related to forward-looking statements. This disclaimer is important and integral to all remarks and you should review it. Also included in our 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. And so with that, I’ll turn it over to Alan Armstrong.

Okay, great. Thanks, Brett. Good morning, and thank you for joining us as we discuss our fourth quarter and the full-year 2019 financial performance and our key investor focus areas. So let’s move right into the presentation and take a look at our strong year-end performance. Here on Slide 2. 2019 was another year of strong predictable growth and solid execution. This is now the third year in a row we have exceeded the midpoint of our guidance range on key financial metrics. This highly reliable and predictable performance is the result of continuously improving execution by our operating teams on many fronts: capital project execution, reliable on-time services for our customers, safety performance, environmental stewardship, capital discipline and operating efficiency, all of these efforts circle around a deliberate strategy to deliver long-term shareholder value by accomplishing the following. First is our focus on being the very best at providing infrastructure services for natural gas as an economically and environmentally superior energy source. Second is to reduce direct commodity margin exposure and basis risk to focus on highly predictable fee-based revenues. And certainly, the reason that our business has become so predictable is largely focused on that one. And we’ve very much achieved what we’d hoped to accomplish in terms of that reduction. And third is to deliver the balance sheet to provide flexibility and unquestioned financial stability. These efforts grow predictable record results in 2019 across key performance metrics. The company produced record annual adjusted EBITDA of $5.02 billion and growth of 8% over the record 2018 performance of $4.64 billion. Distributable cash flow, also record grew by an impressive 15% to an amount of $3.3 billion and this financial performance was driven by continued growth in the very large volume of natural gas the company gathers from a…

Thank you. [Operator Instructions] Our first question will be from Jeremy Tonet with JPMorgan.

Hi, good morning.

Good morning.

Just want to start off with, I guess, some of the strategic transactions that you guys had done in recent years and kind of some sales and JVs. And I was wondering if you could comment, I guess, on the ability to kind of capture those type of opportunities going forward here and what that could mean for hitting kind of the 4.2 leverage ratio that you guys are targeting there? If you’re able to do that, I guess, it’s quicker, or if that doesn’t come together, how long do you think it would take you to hit kind of a target 4.2?

Yes. Jeremy, good morning, and thank you for the question. I would just say, first of all, we’re encouraged by the attraction to the kind of assets that we have, which have long histories of cash flow. And so that’s very different than some of the other assets out there that aren’t as well-positioned or more speculative in nature of cash flow. So we think, assets that are stable and have a long history of cash flow are pretty important in this market today. And so we’re very encouraged by that. I would just say, the growth that we have and the continued cash retention that we have in the business, right now, we certainly have our eyes on that 4.2 even without that. But we look at the further transaction as a way to accelerate ourselves towards that, and likely well under that with some – with any significance to the size of those transactions.

Got it, thanks. And just want to see, I guess, with regards to producer activity and kind of conversations with producers today versus where they stood at the Analyst Day, just wondering if you could help us think through a little bit more on how that has changed? Has it been notable, or not as notable? I guess, I’m trying to think how that translates into guidance. Should we be thinking about the midpoint, or does this kind of bring more towards the lower-end of guidance, or any color you could provide there would be helpful?

Yes. Great question, Jeremy, and thanks for asking that. I know that’s an issue on lot of people’s mind. First of all, I would just say, obviously, we have a very diverse business and some things go South on us and some things go positive. If you think back to last year and you think about the commodity price assumptions that we had versus how the year actually wound up, we outperformed as, again, good evidence of how things can go our way to offset other negatives that occurred during the year. So I would just say, we do have a large portfolio. I also, though, as I mentioned in my comments, and I think this is really important for people to understand. If you look, for instance, a lot of concern around the Northeast volumes and if you look and took the combined – took the average of the third quarter and the fourth quarter, you would see that if we – if all we did was repeat that, we would come in above our guidance level for the Northeast for next year, and I know there has been a lot of concern about that. If you took and just took four times the fourth quarter, assuming the fourth quarter held where it was and didn’t see growth – any growth at all, you’d see a – we would beat pretty significantly that guidance that we had laid out for the Northeast. And so that, I would say, combined with a couple of things, one is the fact that our fourth quarter did come in stronger than we were expecting for the Northeast. When we were laying guidance out in – at Analyst Day, we were working off a forecast that was actually exceeded for the fourth quarter. So we’re starting off better than we start than we expected to. Secondly, we’ve seen January and February volumes now. And so we’ve got pretty good confidence about where actual volumes are. And then finally, I would say, we took the cost that we took out that we’ve worked on and planned around during 2019, most of those costs and the impact of those costs actually started rolling out very late in the fourth quarter of 2019. So we will have the benefit of that working with us going into 2020. So I would just say a lot of positive things that are occurring as well with some deepwater production that’s coming on a little faster than we would have expected as well. And volumes actually, again, exceeding where we thought they would be at this point in time when we laid out at Analyst Day. So those are the things that have given us the confidence on our guidance being maintained as we sit here today.

Got it, great. That’s it for me. Thanks.

Thank you. Our next question will be from Spiro Dounis with Credit Suisse.

Good morning, everyone. Alan, I appreciate your comments around G&P being one of the more protective components of the value chain. But I guess, when we think about quantifying a potential impact, is there a way for you to help us quantify how much of your volumes or margin could be considered maybe above market or maybe subject to renegotiation? You’ve been pretty proactive on this front so far. So not sure how much your portfolio is, in theory, still at risk? And if you’re receiving any sort of inbound inquiry from customers to do a blend and extend?

No, we are not – I think we have – we’ve completed all negotiations that anybody has entertained with us on issues right now, particularly with Chesapeake. We settled that in the Eagle Ford, and I think you’ll see this year, I think you’ll see that some of the assumptions that were made by some of the analysts about where that was going are going to be proven very wrong about their assumptions on that for the Eagle Ford. And I would say this in terms of incenting further drilling, we’ve been working pretty actively. Our commercial teams have been working very actively in places like the Haynesville to incent drilling on acreage that’s dedicated to us, but not otherwise being drilled. And that does require us putting an incentive rate out for new drilling, but it doesn’t affect the rates of the existing business. So it’s just a way to attract new drilling dollars against acreage that Chesapeake, for instance, likely wouldn’t get to, if we weren’t out working transactions to help make that happen.

Understood. And then some of the common pushback we received from time to time just around the growth backlog and your ability to spend, I guess, enough to really on those demand pull projects to drive that 5% to 7% growth. And so in other words, I think people are struggling with maybe the scope of these projects and their ability to grow that $5 billion EBITDA base. And so are there opportunities beyond the ones you list that maybe we’re not appreciating, or is G&P actually still an ongoing major contributor to growth even at the lower CapEx levels?

Yes. I think, certainly, we had a great year of growth this last year and on an adjustment for both asset sales and margins, where our growth was a lot better than we would have just built into the plan in terms of volumes and fee-based rates last year, a lot of that came from good cost control and really good execution on our projects, bringing them on a little earlier than expected. But I would say, the things that I think the market tends to miss is the things like the DJ basin growth that continues to come on very nicely for us, the Bluestem project coming on for us, the deepwater, which is really coming back, I think, 95% of the rigs now available – floating rigs available are in under contract now in the deepwater. And so we are seeing a lot and expecting a lot coming from that area as well. So, these projects coming on in Transco are pretty powerful, but that’s not what we’re totally dependent on for our growth by any stretch of imagination.

Very helpful. Thanks, Alan.

Thank you. Our next question will be from Shneur Gershuni with UBS.

Hi, good morning, everyone. I’m just wondering if we can revisit the guidance commentary. It sounds to me that you’re fairly confident with the midpoint of your guidance, despite producers being shifting over to maintenance mode at this stage right now. You’ve talked about some of the pushes and pulls, including some of the cost reductions that you’ve put through that that gives you some confidence in that. If this were to – maintenance mode were to maintain itself into next year, are there any more levers that you can pull on the cost side and on the CapEx side to sort of maintain cash flow generation, where you expected to be this year or even potentially driving higher next year?

Yes. We certainly have quite a bit of capital still in plan. And despite the narrative that’s out there, we still have producers that are still pushing ahead with the growing plan, some of those based on hedges that they have and some based on contracts that they have. But we still have some pretty big obligations to keep up with that. I know, the market is – the narrative is very different than what you’re seeing. But in reality, right now, we do have that capital built in, because those producers are moving ahead right now with their activities, as they told us they would. And so – and those come with obligation on their part, so we have to be ready with that capital that’s in there. If that were to change for whatever reason, then that might shift that back. But I think we should be clear that we do have customers continuing to have growth and plan growth in the Northeast. And so, we’ll wait and see, obviously. But right now, it’s getting pretty late in the process for them to be pulling back from those plans that they’ve laid out for the year. And, again, I think a lot of that is based on hedges that they have in place that continue to support those activities. So I don’t want to get into each individual customers, because that’s up to them to lay out their plans and communicate that. But we are responding to the very detailed planning processes that we work within the customers, and we do have capital in the plan to help drive that. And so we – like we had last year, if we need to turn that back quickly, we certainly would. But there is quite a bit of activity that’s going on out there, despite what the narrative is.

And would you feel that you would have more flexibility on 2021, if this were to maintain itself?

Shneur, you’re breaking up just a little bit. Could you repeat that?

Sure. Yes, would you have more flexibility on capital and cost structure for 2021, if this trend sort of maintained itself? Obviously, it’s late in the year to be adjusting things for 2020, but I was more thinking about 2021? Do you have a lot of levers that you can still pull there if this environment maintained itself?

Yes, we certainly do. And I think part of our effort to combine the West and the Northeast G&P area is, because we do expect to move. I mean, that area has been growing grammatically. It sounds really easy for us to sit here in our offices and think about the kinds and talk about the growth off of spreadsheet. But the reality is the very, very hard work of our employees and the teams out there trying to keep up with all that growth. They’ve done a remarkable job on that. But it does take a lot of people and it takes – when you’re investing in the capital, it puts a lot of costs onto the operating teams as well, because there’s a lot of change going on that they’re having to manage. So the more mature in a slower growth environment absolutely allows us to go after and increase our operating margin in an area. And us combining our West and our Northeast from a management perspective is allowing us to get after some of that.

That makes great sense. And as a follow-up question, there’s some new PHMSA rules out. Just wondering if you’ve looked at it and whether this could kick off potentially a rate-based investment cycle, or do you constantly replace pipe and it’s really irrelevant to all these new rules?

Good morning. This is Micheal. I’ll take that one. So on our transmission systems, we’ve been ahead of the curve there for a long time and maintaining our commitment to keeping our assets safe and reliable. And I would say, with the timelines that have been laid out in the new rules, there’s a long runway to compliance there. So I think that’s going to allow not only ourselves, but the industry to manage that pretty well within our maintenance CapEx and our normal OpEx. And so I’m not too concerned about having that drive any additional rate cases.

Okay. And then one final question, Alan, in your comments about the NESE project, if that were to come to fruition, would that be considered a positive ESG benefit to Williams, given your comments about how many cars you take off the road?

Shneur, I’m sorry, you broke up, again. On which project were you asking that question?

With respect to NESE, you’d given a whole argument about how many cars who takes off the road and so forth. Just wondering like as we sort of think about ESG, is that something that would be viewed as a positive benefit?

I would certainly hope so. But it’s – I think there’s a lot of uncertainty right now within the rating systems within ESG as to where we get that. We would certainly pronounce that as a win, because it certainly is going to impact the environment, and we certainly would be taking a big part in making that possible. So we certainly would want to talk about that. I would say even – perhaps even larger than that and more directly related to that would be the emissions reduction projects on Transco that we still intend to follow through with some negotiations lingering post the rate case on that. But that would be very dramatic conditions – reductions. And it’s exactly the kind of thing that I think the whole industry certainly, Williams and the whole industry is really capable of reducing emissions dramatically. And if the focus got to be on actually reducing emissions, and not just trying to stop fossil fuels, there’s a lot to be accomplished by the energy industry in terms of emissions reductions, and we expect to play a big part of that.

All right, perfect. Well, thank you very much. I appreciate the color today, guys.

Thank you. Our next question will be from Tristan Richardson from SunTrust. Richardson, your line is live. Please be sure you’re not on mute. Al right. Next question will be from T.J. Schultz from RBC Capital Markets.

Great, thanks. Just first in the Gulf, you’ve got some big projects in 2023, 2024 timeframe. But you also listed off in the prepared remarks a number of projects that may be more near-term potentially. So just any tiebacks assumed in the next year or two, that may be additive to EBITDA, or could offset some slowing G&P growth?

Yes. T.J., great question. First of all, one of the impacts this year will be the growth in Appomattox. So remember, our Norphlet pipeline that we put online last year, that is finally starting to ramp up pretty dramatically as expected. Shell has got some big plans out there on Appomattox, so we’re really excited about that. So even though the construction work is there’s nothing new on that, the actual volume growth on that we expect to be pretty nice this year. On top of that, we tied in two prospects on discovery last year, that were kind of midway through the year. Those will contribute to discovery this year. And then finally, on Gulfstar, Hess’ Esox project was brought online well ahead of schedule. They did a great job of executing on that project, and really made for nice returns for both themselves. And, of course, we make nice fees on that business as well. So that was well ahead of our schedule, our plan as well. There’s also work going on by Kosmos around some of our areas with their Kodiak 2 well that they’re working on right now. So a lot of activity out there, and we’re very fortunate to have a lot of that activity directly around our assets out there.

Okay, great. Just for follow-up, maybe a question for John. You mentioned at the Analyst Day the ability to lower some interest costs. Just what are you seeing today as the ability to lower interest costs for maturities in 2020 and 2021 that get refinanced? And does your guidance assume that you pay down any of that maturing debt with cash, or is that more dependent on asset sales?

That’s more dependent on asset sales. Our guidance assumes a refinancing. But I will tell you, we do have $1.5 billion of our debt maturing in March at a net rate of 5.2%. We could refinance that today, for example, 10-year – at a 10-year rate of 3.3%. So we like the rate environment right now. I will tell you though, we’re holding tight and waiting you. I think it’s no secret that we’ve said we are looking at potential or opportunities for asset sales or selling interest in some of our assets. And I – we don’t want to get in front of that by paying down debt that otherwise could be paid down with cash received through one of those transactions. But I will tell you, our guidance and forecast didn’t include asset sales.

Perfect.

And so we could see interest savings just through the refinancing and obviously much more significant savings if we actually did pay that down through the – through an asset sale. Operator, are you still there.

Our next question comes from Colton Bean of Tudor, Pickering Holt & Co.

Good morning.

Good morning.

Alan, you had mentioned that the volume trends that you are seeing thus far in 2020, can you give us or just frame the activity levels that you’re seeing in some of those primary basins in the West? I know we spent a lot of time in the Northeast, but just how you’re seeing some of the West basins and maybe how that compares to your guidance that you laid out in December?

Yes. Micheal, do you want to take that?

Sure. We’re seeing really good results in the Eagle Ford right now coming in, starting the year as well as Haynesville are well ahead of where we thought they would be at this time of year. A little bit challenged in the Wyoming area with the weather. There has been some pretty severe weather in Wyoming this year that’s challenged the Wamsutter area as can typically happen at this time of year. But overall, I think, we’re going to see an increase of what we anticipated so far here in the first quarter from what our forecast should.

Yes. And so it sounds like the Rockies segment there hasn’t been impacted as much as you would have expected from the natural gas decline?

No, we’re still seeing good production coming out of the Piceance. For example, as Alan talked about earlier, we have some incentive rates out there with our customer, where they are continuing to drill in the Piceance, for example, and getting good results. And our DJ Basin is really performing very well with our Rocky Mountain midstream asset, and so we’re very pleased with that and also capturing the NGLs coming off the processing there that’s going down OPPL pipeline system.

Got it. That’s helpful. And then just on Leidy South, given some of the moving pieces around producer plans, has there been any discussions with anchor shippers that would impact that Q4 2021 timing, or is that solely contingent on the permitting process at this point?

No, it’s solely dependent upon the permitting process at this point, and we got our environmental assessment earlier than anticipated. So everything looks to be in good shape there, had no conversations at all about slowing that project down with our customers

Well said. I appreciate the time. Thank you.

Thank you. Our next question will be from Derek Walker from Bank of America.

Hi, good morning.

Good morning.

Alan, at the Investor Day, you mentioned a return on invested capital around 12% for projects over the last several years. And as you look to sort of allocate capital to the highest returning projects, it seems like it’s a – for this year, it’s a mix of Northeast, regulated transmission, also some deepwater, where you have some operating leverage. So I guess, relative to that 12% number, do you see at least in 2020 or at least over the next couple of years getting above that 12% number, or is it just going to be a mix, or how should we think about that relative to the 12% number you guys been able to achieve over the last several years?

Yes, great question. Well, first of all, I would remind you that our individual project returns are often – well, in fact, they are well above that number. But that’s working against things like deepwater declines, the declines in basins like the Barnett and certainly deferred revenue step down and things like that. So there is a natural decline in some pieces of the business that those returns have to offset. And – but I would say that our current returns on projects are as good or better than what we’ve had in our previous mix of projects as we’ve tightened the capital budget. Obviously, as you tighten the capital, you’re allocating stuff out. And so I would expect that number to continue to be as good or better than we’ve had on it on an overall number across the whole portfolio.

Thanks. That’s it for me.

Thank you. Our next question will be from Becca Followill with U.S. Capital Advisors.

Good morning. Alan, you’ve talked about that the Gulf of Mexico assets are well-positioned to win new business. Can you quantify what kind of EBITDA contribution you would expect over the next several years and what potential and the CapEx associated to get there?

Yes, Becca, good question. A lot of the capital, what we’ll start spending some this year, as we mentioned, on things like Whale. And so in some – versus an Anchor prospect, so I’m just going to give you the kind of ends of the spectrum here. On one hand, pretty significant capital required on Whale now, because the volumes came in a lot larger than we expected to and the producers wanted plenty of flexibility in their capacity. And so that project is going to take more capital. On the other hand, Anchor, we had laid a sled down, when we built that Keathley Canyon Connector, we had put sled down, so that we could make those connections fairly inexpensively and the producers generally are providing that capital. And so in that case – and – but we’re not going to make return on that investment capital. So we’re going to make an existing rate. So in one case, I would tell you, Whale, very significant revenue contributions and EBITDA contributions, that will be in the 10% to 15% just by itself across the whole deepwater. And then things like Anchor would be inside of that, because it’s not – smaller. You also, as we’ve also mentioned, we have Ballymore. It’s a very large prospect. That project that Chevron and their partners are trying to decide if it’s going to be so big, coupled with some other prospects that they have in the area, they have to put a new floater in. If they had to do that, then we would have to invest new capital. Best thing for us is that they find a way to fit that on to blind faith. And that would be pure incremental EBITDA without any new capital. So it’s still in the mix. But I can tell you based on both volume and EBITDA, we think it’s very significant. In terms of the total percentage increase in the deepwater, it is going to be a very significant step up from our current EBITDA levels in the area.

Alan, I asked the question, because it’s hard for us to give credit for that and evaluation when I have no idea what significant means in terms of EBITDA. I mean – or what the CapEx is to get there?

Agreed. And I think I would just be cautious on our part. What we have laid out, Becca – so I’ll be clear, what we have laid out is that our contracts allow us to get the existing rate on our current systems, plus a 12% after-tax return on any incremental capital that we spend. So that ought to give you a pretty good read, if you take the rate in the Gulf West areas, for instance, you ought to be able to see a pretty nice increase in that. Obviously, we don’t like to spell out exactly what our deals are with our customers. So we’re not trying to be elusive as much as we are respectful of the relationships that we have with those customers. But if you look at the volume, for instance, on Whale and what’s been quoted out there, you’ll see it looks very much like Perdido, which is what we already gather in the Gulf West. And so this would be effectively a doubling of what we get in the Gulf West there today. So it is very significant. But, again, we’re – we’ve got contracts in place that we’re not going to lay out exactly what those are. But if you look at total reserve additions versus our current reserves tied up that are out there, you would see that we’re – on both the Gulf East and the Gulf West that we’re coming close to doubling those connected reserves out there.

Thank you.

Thank you. Our next question will be from Danilo Juvane from BMO Capital.

Hey, Alan, good morning. Given that we are in an environment of slower EBITDA growth, how are you thinking about managing leverage and dividend growth? And at what point do you see those two converging longer-term?

Yes, great question. Certainly, as we mentioned this year, our coverage came up. And so we certainly – our DCF came in quite a bit stronger than we had planned. And certainly, those are the things that we’re looking at in terms of dividend growth. And certainly, our – as our debt comes down and our interest payments come down, we’ll see continued improvement in that as well. So I would say, the capital allocation question remains out there for us, as we look at some of these larger transactions that we’re going to look to. But the dividend coverage that we have today is allowing us to have excess cash. And so we don’t see anything really changing on that front. But as we get into some of these higher-growth areas as we get into 2022 and 2023 that are not requiring a lot of capital. That’s going to build some pretty nice coverage even further than what we have today. So I’m not going to give you a very direct answer on that, frankly, because that’s a Board level decision in terms of what our growth rate on the dividend is. And I would just say this year, the factors that were considered were how much our DCF had grown and the other uses of capital that were available to us.

Gotcha. I guess, my next question is for John. To the extent that you did have some impairments during the fourth quarter, any details on how much that impacts DD&A going forward?

Yes. So the biggest impairment we had in the fourth quarter was on constitution. We weren’t appreciating that at this point since it’s in construction. So that won’t really have an impact on our depreciation calcs.

Great. Thanks for that. Last one for me. To the extent that the Texas RRC came out with a report on flaring this week, do you guys have any thoughts on some of the commentary that they laid out?

No, I’m sorry. We couldn’t quite hear that on this thing. Could you try that again

Sorry, I was mentioning that the Texas RRC came out with a report on flaring earlier this week. It may have some implications for your systems in Texas. I wanted to see what your thoughts were on what they came out within the report?

Yes, thank you. Yes, we’ve actually been pretty engaged with the Railroad Commission on this issue and have attended several conferences, trying to come up with the right solution. And so, as always, we think the Railroad Commission is going to be very constructive. And work to address the concerns that are out there, I would tell you, the producer community, I think, for the most part, is being very responsible on that issue as well. And we were proud to see Chesapeake in there as one of the top producers in terms of limited flaring. And, of course, we provide those services to them. And so that indicates that our reliability is strong when they’re not having to flare, that tells you our reliability is strong on our service providing. And so we’re proud to see that when our customers are on that list. And so I would just say, we think that there’s going to be an effort to both at the regulatory level and both by producers themselves to continue to reduce flaring. And we think that’s important for the industry. And we are very supportive of that and we’ll continue to push the industry to do the right thing on that front.

Thank you. Those are all my questions.

Thank you. This is all the time we have for today’s questions. Thank you for your participation at this time. I’d like to turn the call back over to Alan Armstrong for closing remarks.

Great. Thank you. And just would close with saying we’re really pleased with the way the year ended up. We had a lot of headwinds, asset sales commodity prices that we overcame and delivered a great year. And I think that’s really attributable to the wide variety of services and businesses that we operate. And we’re very excited about the growth that is reemerging in several areas and the opportunities that we are working hard to capture. And so we appreciate your continued interest in the company, and thank you for joining us today.

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may now disconnect.