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Williams Companies Inc (NYSE:WMB)
Q1 2021 Earnings Call
May 4, 2021, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to Williams' First Quarter 2021 Earnings Conference Call. [Operator Instructions] At this time for opening remarks, and introductions, I would like to turn the call over to Mr. Danilo Juvane, Vice President of Investor Relations. Please go ahead.

Danilo Juvane -- Vice President of Investor Relations

Thank you, Nikos, and good morning, everyone. Thank you for joining us, and 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; and our Chief Financial Officer, John Chandler will speak to this morning.

Also joining us on the call today, are Micheal Dunn, our Chief Operating Officer; Lane Wilson, our General Counsel; and Chad Zamarin, our Senior Vice President of Corporate Strategic Development.

In our presentation material, you'll find a disclaimer related to forward-looking statements. This disclaimer is important and integral to our remarks and you should review it. Also included in the presentation materials are non-GAAP measures that we reconcile, as Generally Accepted Accounting Principles. In these reconciliation, schedules appear at the back of today's presentation materials.

So with that, I'll turn it over to Alan Armstrong.

Alan S. Armstrong -- President and Chief Executive Officer

Great. Well thanks, Danilo, and thank you all for joining us today. Our natural gas focused strategy continues to deliver solid financial results in this past quarter was no different. Our base business performance was remarkably strong in the first quarter and the severe winter weather in February boosted marketing margins, but even without these weather benefit or those benefits, as John will detail later our adjusted EBITDA was up, reflecting strength in our base business.

Once again, well-positioned assets and reliable operations came through as we delivered another quarter of growth in almost all of our key operating metrics despite the severe weather. In fact, average daily firm contracts and transmission capacity, average daily transported volumes, average daily gathering volumes and average daily plant inlet volumes all increased on a quarter-over-quarter basis.

Extreme weather experienced in the first quarter really underscores the importance of having resilient and reliable energy network. Williams also stood out on this front, as no firm service was cut on any of our gas transmission systems during Uri, and in fact, our Northwest Pipeline hit another record-peak day for throughput during the storm. It demonstrates that affordable and dependable natural gas will be a very critical part of the energy mix, as we work to support growing economies and meet the key challenges we face around climate change, both in the U.S. and abroad.

We truly believe Williams' existing infrastructure is key to tomorrow's clean energy economy. I'll talk more about how we're planning for the future when we get the key focus areas, but in the meantime, John is going to go through our financial results. John?

John D. Chandler -- Senior Vice President, Chief Financial Officer

Thanks, Alan. At a very high level summary, the quarter benefited from the impact of winter storm, Uri, and to be clear, we have collected all receivable -- receivables relative to that event. But even beyond the winter storm impact we saw nice increases in profitability from our Northeast gathering systems, and uplift in revenues on our Transco pipeline from new projects that have been put into service last year and higher profits from our NGL marketing activity in our West segment. These profits were offset somewhat by higher bonus expense accruals reflecting the solid year that is unfolding and lower Gulf of Mexico revenues due to some downtime issues during the first quarter of this year. And you can see the strong performance in our statistics on this page. In fact, we saw improvements in all of our key financial metrics.

First, our adjusted EBITDA for the quarter was up $153 million or 12%, but even after excluding the impact of winter storm, Uri, our adjusted EBITDA was up 6%. We will discuss EBITDA variances in more depth in a moment. Adjusted EPS for the quarter increased 35%, simply reflecting the after-tax impact of the higher EBITDA, AFFO grew for the quarter similarly to our growth in EBITDA, and again AFFOs essentially cash from operations including JV cash flows, but excluding working capital fluctuations.

If you put AFFO up against our capital investments for the quarter of $277 million, of which we consider roughly $47 million of that to be maintenance capital, and you put it up against our dividends of $498 million you can see that we generated over $250 million in excess cash for the quarter.

Also, you see our dividend coverage on this page based on AFFO divided by dividends sets at a very strong 2.07 times. This strong cash generation and strong EBITDA for the quarter along with continued capital discipline has helped move us toward our leverage metric goal of 4.20 times. You will see later in our guidance update in this deck we've moved our guidance now for the year from around 4.25 times at the end of the year, now to around 12.20 times at the end of the year. I'm really proud of our success on this front.

So now, let's go to the next slide. Let's dig in a little deeper into our EBITDA results for the quarter. Again, Williams performed very well this quarter, but before we dive into each segment we believe it's important to isolate a few items that are not part of our core business. The first item is the net impact of winter storm Uri on our operations in the West.

That impact produced a $55 million net benefit and included the positive impact on our marketing operations offset somewhat by reduced revenues at our Piceance processing facility, whose rates are impacted by net liquid margins. We also had slightly lower volumes in the Mid-Continent Haynesville and collectively we estimate winter storm Uri impacted our West volumes by about 70 Mcf a day during the quarter. In addition, we also realized a $22 million Uri uplift in profits from the Wamsutter upstream assets that we acquired from BP in February, and that is on top of the $8 million from normal operations from these upstream assets.

So the total winter storm impact was about -- was a $77 million benefit. Again, with that benefit EBITDA was up 12% and even without the impact of winter storm Uri, EBITDA was up 6%. So digging into our core operations, our Transmission and Gulf of Mexico assets produced results that were about $9 million less than the same period last year. However, new transmission pipeline projects added $29 million in incremental revenues for the quarter, including the Hillabee Phase 2 project that came into service in the second quarter of last year, the Southeastern Trail project that went into service during the fourth quarter of last year, and a portion of the Leidy South project that went into service in the fourth quarter of last year.

You can see that evidenced in the growth in our firm reserve capacity, which is up 5% from the first quarter of 2020. These revenue increases were almost entirely offset by lower Gulf of Mexico revenues due to some production and downtime issues, lower revenues from lower rates and just a few Transco markets that went into effect upon closing the rate case last year, and one less billing day this year than last year given last year was a leap year which, believe it or not, has a $6 million impact on our transmission revenues.

So the reduced EBITDA results for this segment really have nothing to do with revenues and are largely due to higher operating expenses, which interestingly enough are being impacted by higher bonus accruals and equity compensation accruals given that we are off to such a strong start for the year. We traditionally do not increase those accruals until later in the year. In addition, we did see slightly higher compression expenses for this segment.

Now moving to the Northeast, that G&P segment continues to come on strong contributing $32 million of additional EBITDA this quarter. Collectively, total Northeast gathering volumes grew 920 Mcf a day or about 11% this quarter versus the first quarter of last year, while processing volumes grew 15%. The volume growth was predominantly at our JVs in the Bradford Supply Hub where we benefited from a gathering system expansion on that system in late 2019, and at our Marcellus South supply basins where we benefited from more productive wells at larger pads.

As a result, our EBITDA from equity-method investments improved by a little over $33 million, which also includes the benefit of additional profits from Blue Racer due to our increased ownership, which we acquired in mid-November last year.

Now moving to the West G&P segment, it was up $44 million compared to the prior year. And remember again, that this excludes the $55 million net benefit from winter storm Uri. So, of this $44 million improvement commodity margins from our marketing activities contributed a big part of that improvement and they were up $52 million versus the first quarter of 2020. And again, this excludes the $74 million benefit from winter storm Uri related just only commodities. These increased commodity margins were the result of a few things, all driven by higher NGL prices during the quarter. The first and most significant is it related to inventory in transit.

Last year, we saw prices declined and had a small loss, while this year we saw prices increasing during the quarter, and realized a gain on net inventory. The second relates to transfers of propane and other NGLs the higher net back markets, where we saw some real market differentials during the quarter and we're able to take advantage of that.

For example, the differentials between Conway and Mont Belvieu. Offsetting the higher commodity margins were lower profits from our JVs, we did see a $5 million JV benefit from the winter storm Uri on our Brazos JV. So if you exclude that our JVs were down about $8 million that can be mostly attributable attributed to OPPL where one Oak has pulled much of their volume and moved into their solely on system. Those items, namely higher commodity margins offset by lower JV profits again mostly explain the variance in the West, otherwise lower revenues were offset by lower expenses.

Revenues were down $14 million when you exclude a negative $23 million impact tied to winter storm Uri on West revenues, and again mostly that was in the PR related to net liquid margins. Volumes in Northwest were down 250 Mcf a day or if you exclude winter storm Uri about -- they were down about a 180 Mcf a day, with most of that reduction in the Haynesville and the Eagle Ford, which of course are running and Eagle Ford, we are protected by MVCs so that doesn't have revenue impact.

So really the biggest impact on revenues was the rate reduction in the Haynesville and a slight volume reduction and Haynesville. And I'll remind you that, we traded that rate reduction in the Haynesville in part for receiving the south Mansfield acreage from Chesapeake earlier this year.

Now again, offsetting the lower revenues or lower cost, including lower comp -- lower compression cost and no bad debt expense where during the first quarter of 2020, we did reserved for the Wamsutter in MVC, that are now realizing those MVCs as part of this settlement with South win.

I'll now turn the call back over to Alan, to discuss several important investor focus areas and updates to our 2021 guidance. Alan?

Alan S. Armstrong -- President and Chief Executive Officer

Well, thanks, John. And here moving on to the key investor focus areas on Slide 3. We're increasing the midpoint of our '21 EBITDA guidance range to $5.3 billion, which is up a $100 million. The increase in our guidance goes beyond the gains realized during the winter storm, as it also reflects confidence in the strength of our base business. Achieving this new midpoint we've produced a three year CAGAR of about 4.5%, even while we have continued to improve our balance sheet and produced free cash flow after capex and dividends.

Regarding the balance sheet, our deleveraging goal is now on an accelerated path as we've hit the targeted 4.2 this quarter, which obviously is earlier than we had forecasted earlier, and we're currently on positive watch at Moody's and hope to see a credit upgrade soon.

Given the accelerated achievement of key milestones on our balance sheet we will begin to evaluate various capital allocation alternatives. As you know, debt reduction has been our top capital priority, and now we will begin to evaluate the best use of free cash flow in '22 and beyond. So next on the list here is a few thoughts about the Sequent acquisition, as we announced last night, we recently reached an agreement to purchase Sequent Energy Management and Sequent Energy Canada from Southern Company Gas for a purchase price of $50 million plus working capital at close, and for several years we have been evaluating the best way to enhance our marketing capabilities at Williams in way that it could be well integrated, culturally aligned, and focused on driving fee-based revenues across our networks for several years. So this is something we've had in our strategic capabilities, and something we needed to build for several years, and so we're really excited to be taking this step to fill what's been a strategic capability gap.

The addition of Sequent including its talented workforce and industry-leading platform complements the current geographic footprint of our core pipeline transportation and storage business for perspective, we handle 30% of the nation's natural gas, which is approximately 30 Bcf per day. This acquisition increases our natural gas transport and storage optimization capabilities, up to 8 Bcf per day from 1 Bcf per day that we were doing previously in -- here within Williams.

So certainly bringing it more in line from a natural gas focused business as large as Williams. The scale of the combined company will not only allow for optimization of our existing assets, but it will also facilitate expansions in the new markets with opportunities to reach incremental gas-fired power generation, liquefied natural gas exports, and future RNG opportunities.

In discussing with both our existing and potential LNG focus customers, we are hearing a clear need to have wellhead to water natural gas supplies that can demonstrate and document responsibly produced low carbon supplies. We see this acquisition as a way to more effectively aggregate, transport and market these in-demand supplies. So we're really excited to welcome the Sequent team to Williams later this summer and finally, we don't expect the acquisition to have any dramatic impact on our current mix of business nor material impact for our '21 EBITDA or capex guidance.

So now moving on to project's execution here on Slide 3, still, we continued our pace of strong project execution in the first quarter placing on Southeastern Trail project in the full service in early January and making great progress now on the Transco Leidy South project to bring additional gas from Appalachian area and particularly Northeast PA to growing demand centers along the Atlantic Seaboard by next winter.

We filed our FERC application for the Regional Energy Access project, a low environmental impact project being designed in a manner that is acceptable to future renewable energy sources, like clean hydrogen and blend -- like clean hydrogen blending and RNG. So in today's environment, as we're all learning more and more existing infrastructure is more important and more valuable than ever and the Brownfield nature of Regional Energy Access in Leidy South and Southeastern Trails are all grate examples to that.

With the largest and most flexible gas transmission system in the nation, Williams conserves new demand primarily through Brownfield expansions. This means maximizing the use of established transmission quarters and facilities and resulting in reduced community and environmental impact while also enabling economic growth and the use of lower carbon fuels in those markets.

Next, onto the Gulf of Mexico opportunities here. We remain on track to executing on the four key Gulf of Mexico projects, which is Whale, Ballymore, Taggart and Anchor, these projects are progressing very well and we look forward to these projects coming online here now with the next few years. We also have a number of other smaller projects, but those are the ones that we continue to focus your attention on.

So next on the Northeast G&P project execution. Certainly, some of the producers in the Northeast remain in production maintenance mode, but our project execution team is busy trying to keep up with the increased demand for processing and fractionation services for their growing rich gas volumes in the Southwest Marcellus area. And as we've stated before, that rich gas volumes provide us with a much higher service fee and margin capture, so we're thrilled to see continued expansion in that area.

And finally, on sustainability here, we continue to focus on sustainable operations, and I'll remind you that last year Williams became the first North American midstream company to issue a climate commitment focusing on ready-now solutions to address climate change. And by setting a near-term goal of a 56% reduction in greenhouse gas emissions by 2030, as a part of our climate commitment, we are well in line with the Biden administration's recently announced Nationally Determined Contribution target of a 50% to 52% reduction by 2030. So we're really excited that we are actually ahead of that here and what's been said as an aggressive goal for the country.

We will continue to leverage our natural gas focused strategy in today's technology to focus on immediate opportunity to reduce emissions. At the same time, natural gas and our infrastructure are enabling the next generation of clean energy technology. There really is not another energy infrastructure system that integrates a reliable delivery network with a massive storage solution on the scale that the natural gas infrastructure across our nation does. We believe our infrastructure can be a critical part of both near and long-term solutions.

And on our near-term efforts we're focused on renewable natural gas, solar energy and our footprint is ideal for bringing in renewable natural gas to markets and solar projects in a supply mix. On the solar front, we've currently identified three additional projects and now have a total of 16 solar project opportunities that should start operating beginning in 2023.

On the emerging fuels fronts, such as green hydrogen and renewable natural gas we are -- we certainly expect that to play an increasing role in the clean energy future and both as a storage vehicle for excess renewable energy in the form of green hydrogen and as a net-zero emitting form of natural gas in the renewable natural gas. So we continue to make sure that we are on the front edges of those opportunities.

We are looking forward and anticipating future innovations and technologies that we can use on our key energy network to deliver on this next phase of the energy transition. In fact, in a partnership with University of Wyoming, we are currently pursuing a grant from the State of Wyoming to fund the feasibility study to pursue a pilot program that would evaluate in creation of green hydrogen hub near our operations in Wyoming.

The study will be presented to the Wyoming Energy authority and it could be an initial step for Williams to better understand the working of the hydrogen economy. I certainly want to keep that in context for you that simply is us filing for a study there to determine if we want to pursue a pilot there. So that is perhaps something I don't want to see people getting out over our skis on here. This is a step and we certainly are going to make sure that we stay in front of these kinds of opportunities. But we're a long ways from making any kind of big investment decisions on that.

We also recently joined the Clean Hydrogen Future Coalition that was launched to advance clean hydrogen as a key pathway to achieving global decarbonization and U.S. energy competitiveness. And finally, we are proud to be a founding sponsor of Houston's Greentown Labs, a green technology incubator to support climatetech start-up.

So in closing, I'll reiterate that our intense focus on our natural gas-based strategy has built a business that is steady and predictable with continued moderate growth, improving returns and an increasing amount of free cash flows. Our best-in-class long-haul pipes, Transco, Northwest Pipeline and Gulfstream are in the right place and right markets. And by design our formidable gathering assets are in the low cost basins that would be called on to meet gas demand as it continues to grow.

As evidence on a year-over-year basis, the lower-48 natural gas production here, of course, in United States is declined by 5% here in the first quarter at the same time, Williams' natural gas gathering volumes were up by 5%, indicating that our strategy of focusing on key low-cost natural gas basins is working. These gathering assets are irreplaceable and critical infrastructure within the natural gas value chain and the importance of this infrastructure was prudent in our recent ability to navigate to substantial customer bankruptcies in a way that actually improve the value proposition in the Wamsutter and the Haynesville basin.

This is a crystal clear example that even in the most dire circumstances our long-term approach and careful contracting allows us to turn negative such as producer bankruptcies in the net positive for Williams. We remain bullish on natural gas because we recognize the critical role it plays and will continue to play in both our countries and the world's pursuit of a clean energy future. Natural gas is an important component of today's fuel mix and should be prioritized as one of the most important tools to aggressively displace more carbon intensive fuels around the world. Our networks are critical to serving both domestic and global energy demand in a lower carbon and economically viable manner.

So with that, we thank you very much for joining us today. And I'll open it up for your questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Praneeth Satish with Wells Fargo.

Praneeth Satish -- Wells Fargo -- Analyst

Thanks. Good morning. I guess, just first question on Regional Energy Access. You mentioned that it's being designed to accept hydrogen or RNG blending. Just curious, what does that mean exactly? Are you taking any -- are you doing any different steps on this project? Can it take more hydrogen in other pipes? Just curious, if you could elaborate on those comments?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, Mike. Will you take that, please.

Micheal G. Dunn -- Executive Vice President and Chief Operating Officer

Yeah, good morning. We are looking at this asset and the footprint that it encompasses on existing write away, and talking to our customers about opportunities that they have to be to bring renewable natural gas into that pipeline system or utilization of solar facilities that contemplate that can possibly produce hydrogen in close proximity to the pipeline. And so, absolutely, the comments that you're seeing there is -- it's no exotic metals or anything of that nature in the pipeline system it will be typical if any existing pipeline system is in the country to be able to accommodate a hydrogen blend, but it's accommodating the ability of our customers that are participating that project to bring forward in partnership with us, essentially hydrogen sources into that pipeline system.

Praneeth Satish -- Wells Fargo -- Analyst

Great. And then just turning to the Northeast, that your new Oak Grove processing plant expansion up and running. How long do you think, it will take to fill that expansion up? And maybe tied to that where do you stand in terms of NGL volumes now versus frac capacity in the Northeast? Do you see the need to add any frac capacity? Maybe just one more to tie on to that, is there any opportunity to kind of integrate the Blue Racer in your other systems in the Northeast to kind of give yourself some synergies there?

Micheal G. Dunn -- Executive Vice President and Chief Operating Officer

Yeah, this is Micheal. I'll take that one again. So basically the processing capacity is virtually full to-date. The production that came on the line behind that processing facility was very robust to pass were developed by our customers there, primarily, you could see in South West and very prolific ag development they had there exceeding their expectations. And so we did an offload agreement with our customers there to make sure that we didn't impact any of their volumes in the first quarter, while we were finishing our TXP III in Oak Grove, that's now online.

And like I said earlier, virtually full. So we are seeing full processing there for the most part. And our fractionation facility at Harrison is also approaching the limits of capacity. And I suspect through the summer month, we will be at capacity on those facilities. And so we are contemplating opportunities with our Blue Racer ownership there where we can create a crossover pipeline systems to be able to transport some of those volumes over to them when they have particularly a spare capacity, and that system can be utilized bidirectionally in the future where one of us potentially have a capacity situation and we can offload to the other. And so that's a longer-term prospect project. But it's something we feel like we could have online potentially this year, and it's a very low cost project in comparisons to building it either a new fractionation or processing facility.

Praneeth Satish -- Wells Fargo -- Analyst

Great, thank you.

Micheal G. Dunn -- Executive Vice President and Chief Operating Officer

Thank you.

Operator

Your next question comes from the line of Christine Cho with Barclays.

Christine Cho -- Barclays -- Analyst

Thanks. I'd like to start off with the guidance. If we adjust first quarter to take out the storm impact it would imply some degradation in the future quarters to get to the midpoint of guidance. So just want to see if there is anything that we should be thinking about later in the year that would bring the numbers down from here or is the guidance just somewhat conservative?

John D. Chandler -- Senior Vice President, Chief Financial Officer

Yeah, this is John Chandler, I'll take that. First of all, I'd say there are a couple of other items in the first quarter, be on winter storm, Uri, I think you should think about. So let's start with the $1,415 million, which is what we made. Winter storm had a $77 million impact. We did made, I would call it outsized NGL margins during the first quarter relative to some of this inventory valuation. And just to put a number on that I think, we made probably $30 million more than we would normally make in the quarter.

So if you remember, in my commentary, I said, we made $52 million more in NGL marketing activity outside of winter storm Uri. We used a maybe $20 million to $30 million a quarter. And so if you back $77 million out, you back $30 million out for some outsized NGL margins. And then also, we did book an $11 million MVC accrual relative to Wamsutter, that once we close in the Southern properties we'll be our own customer we'll be charging ourselves an MVC. You take that out as well.

If you take those three numbers out, your rent -- you're little under $1.3 billion for the quarter. And if you normal -- if you take that times four add those items back, you'll get really close to our kind of 5.3 midpoint. And of course, I might say the Upstream will come in a little bit stronger to -- we made out -- without winter storm Uri, we made $8 million on the upstream times four that's $32 million, and we guided to around 1% of our EBITDA for the year. So there is certainly some uplift on the upstream too.

So I would say there's probably a little bit of conservatism in our number. I'm not going to try to say there isn't to that. Maybe I think, we obviously want to be sensed that, if we have a safe hurricane season or other things. But I think you've got to take those three things out, you're going to get really close to guidance. So our forecast remains very strong, our business performance remains really strong for the remainder of the year.

Christine Cho -- Barclays -- Analyst

Got it. Yes. That's helpful. And then I wanted to kind of touch on the purchase of Sequent. Your commentaries to source your thoughts on gas is notable. So, wondering if you could talk about what this exactly entails? What you're thinking here? And then natural gas marketing was a business that was much bigger pre-shell, and it's gotten much smaller over the last decade, but with utility -- I know that you guys mentioned LNG customers, but with the utilities coming out with net zero requirements as well and maybe more volatility to materialize in natural gas flows on a daily basis rather than what has historically been a seasonal basis. Could you talk about what this might mean for a pipeline recontracting? And how Sequent may or may not play a role?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, Christine, great question, and very thoughtful. I would just say, first of all, we -- as I mentioned earlier, we have been for the last couple of years really have been thinking, boy, this is a faster business. We touched a lot of gas, have a lot of customers that could use services, light gas marketing, but we have been very limited in our approach to that. And so the Sequent opportunity basically gave us an opportunity to buy a platform. And instead of contracts and asset management contracts and a great team that really knows this business as -- and has controlled risk extremely well. And so, really allowed us to fill a strategic gap.

However, so I would just say that is out there as need before the thought of low-carbon fuels and the volatility, and the value volatility that just got exposed in this last quarter even came along. But I will tell you that we entered this with even greater confidence in both the need and the value associated with because we do believe that the benefit of capacity management and risk management as it relate for utilities, as it relates to what happened during a winter storm Uri, certainly has made sure the space is wide awake relative to the risks around this issue. And we think this -- the team at Sequent has done a great job of managing that risk by the way through this.

And so we think there is value, and managing in a new value associated with managing that kind of risk, but we also just think -- just generally, we have a lot of customers that could really use the service. And as you say, it's really kind of faded away as the capability in a lot of companies, but we think it's really going to be an important tool for us. And being able to bring together low carbon supplies, all the way from the wellhead, and being able to document that and put that value chain together all the way to the water and to our utilities is clearly on the list right now, as a new opportunity for us to market to.

And we certainly have the assets, but we really don't have all of those contacts with people. We talk to customers about long-term capacity on a regular basis. We now are regularly, talking to them about how we manage the volatility in their business. And so this really gives us a great opportunity to do that and look forward. So, thanks for the question. And I would just say where it is. It's become more-and-more evident to us that this is something we needed to add to our capabilities at some of the changes that you've pointed out at the curve.

Micheal G. Dunn -- Executive Vice President and Chief Operating Officer

Alan, if I could add to that as well. The upstream properties that we now hold more potentially will almost the bankruptcy Court of Rules in Southern transaction in the Wamsutter to BP acreage in the Wamsutter and Haynesville acreage now gives us the ability to market that natural gas coming from those properties. And so we're going to find a way to work with our Sequent ownership ultimately that closes to find way to take those supplies, brand them as low carbon or net-zero and then market those to utilities and LNG facilities, as Alan mentioned.

Christine Cho -- Barclays -- Analyst

Got it. Very helpful, thank you.

Alan S. Armstrong -- President and Chief Executive Officer

Thanks, Christine.

Operator

Your next question comes from the line of Jeremy Tonet with J.P. Morgan.

Jeremy Tonet -- J.P. Morgan -- Analyst

Hi, good morning.

Alan S. Armstrong -- President and Chief Executive Officer

Morning.

Jeremy Tonet -- J.P. Morgan -- Analyst

Just wanted to see, I might have missed it here. But as far as the E&P acreage sale process is concerned. Would you be able to update us there? I guess, as far as timing, is it still kind of July or is anything kind of change in your thought process there?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, Jeremy. Thank you for the question. Yeah, we are in the process of working through, and I would say we're well into negotiations with two of the parties, one in the Wamsutter one is Haynesville and they're both local producers with adjacent acreage and very skilled operators in the area. And so, we're moving along on that. And probably the form of those transactions will be a situation where we've retained an interest and part of that is for credit protection as you can imagine to make sure that we haven't handed the keys over to that until the cash has been invested to increase the drilling acreage.

So you should think about that as -- as over time those cash flows being reinvested in the drilling and building up of the business and then a dilution of our interest over time, as that converts from upstream cash flows into midstream -- long -- long life midstream cash flows. So that's exactly what we're looking to accomplish. And I'll tell you, our team and Chad Zamarin, who's been leading that for us has just done a fantastic job of really coming up with win-win solutions with parties.

And we're really excited about the way that's going to turn out. We're much -- I would tell you much bigger value to us than even at very modest conditions, most bigger value coming to us, than we had ever kind of expected when we were preparing in the nego -- in the bankruptcy processes for that. So Chad, I don't know, if you have anything to add on that?

Chad J. Zamarin -- Senior Vice President, Corporate Strategic Development

Just one timing. I would expect that we finalize those transactions over the next 30 to 60 days. We're pretty far along with getting both scenarios. And I think, if you just put an emphasis on what Alan said, I mean, those will be structures that bring in a strong well-capitalized operator and the ownership structure that they'll be acquiring and we'll be structured the way that will require development of the asset and drive volumes to our midstream and downstream efforts.

And as Micheal said, we will, as part of both of those transactions have the marketing capability and the ability to aggregate supply for the benefit of our gathering systems, our downstream pipeline system. And now, with Sequent our marketing and optimization capabilities. So we think a it's a really great outcome for us and our partners. But I would expect to see something in both the one's that are in Haynesville over the next 30 to 60 days.

Jeremy Tonet -- J.P. Morgan -- Analyst

Got it. Thanks for that. And then, on the topic of energy transition, I was just wondering if carbon capture is on your radar. If you think that the current 45Q is sufficient to make projects economic specifically such as on processing plants, given the purity of the CO2 stream there or anywhere else, do you see that as a possibility for Williams her or do you see the potential for more I guess changes or support coming out or do you see that could enhance economics and make these projects more viable for Williams?

Alan S. Armstrong -- President and Chief Executive Officer

Chad, you want to take that?

Chad J. Zamarin -- Senior Vice President, Corporate Strategic Development

Yeah, I would tell you that we are looking at every opportunity to leverage our capabilities in infrastructure and carbon capture is one of those. We do have assets in both pipelines and storage facilities in areas where there may be the opportunity to aggregate significant carbon emissions and provide capture and storage. It's early days, much like with hydrogen, I would say, we're trying to set the table for us to be able to participate in those opportunities as they mature. I wouldn't expect to see something material as Alan mentioned on hydrogen in Wyoming, I wouldn't expect to see something material from an investment perspective in the near term. If I would tell you that if it's a viable opportunity, which we think it very well made we are looking at some of the actual projects today, but they are long-term in nature and require, I'd say a year plus of just valuation before we think about what an investment might look like. But we have multiple different opportunities that we're looking at across the carbon storage, capture the storage opportunities.

Jeremy Tonet -- J.P. Morgan -- Analyst

Great. That's very helpful. Thank you.

Operator

Your next question comes from the line of Shneur Gershuni with UBS.

Shneur Gershuni -- UBS -- Analyst

Hi, good morning, everyone. Alan, thank you for the update on capital allocation. I have two follow-up questions. First, just to go back to the upstream-related assets. In terms of JV structure and that you're going to be setting up are we -- think any learning from the bankruptcy process that you just went through in terms of upstream, gathering contracts with these two assets to protect Williams in the future? And in report that you see it -- you see yourself retaining the assets on a very long-term basis or do you sort of see eventually selling it down the road?

Alan S. Armstrong -- President and Chief Executive Officer

Shneur, we vaguely heard your question. You were cutting out quite a bit. Can you please repeat that?

Shneur Gershuni -- UBS -- Analyst

Sure. Just to repeat. So with the upstream assets and the JVs that you're looking to pursue at this point right now, are you going to be designing the midstream contracts to take advantage of the learnings that you had through the bankruptcy process to make sure that you're protected in a long-term basis. And do you plan to hold the assets for a very long-term or is the whole period more of a medium term?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, great question. And especially with some of the outcomes from the Delaware bankruptcy courts as it relates to gathering and whether those contracts on the land or not. So -- so we certainly are doing everything we can to improve our position on those. As we've said many times before, and it kind of proved out in these cases is not just the law or I mean certain of your contract need to be good as reported. But importantly, it is the physical nature of the asset and being all the way back to the wellhead, that gives you a lot of economic protection in that situation.

Having said all that, one thing that we are really depending on in these transactions is the fact that the other party is going to invest the dollars to develop the acreage and we're cutting the bargain on that basis. And so to get right to the point, we're going to entertain those interest until that -- until those capital dollars have been invested to prove to ourselves that, that money is going to be spent. And if that don't get spent, we still own the acres. And whatever money they've spent in developing we retain and increased interest in a more developed property.

So I would say, we certainly don't expect that. We know the partners that we're talking to here pretty well and they both are in very strong financial position. So in this case, we feel really good about situation. But I would say that we've got belts and some spenders on in terms of the form of the structure that we're staying, that is effectively bankruptcy proof, we've given our hold continued holdings until the dollars have been invested to develop the acreage.

John D. Chandler -- Senior Vice President, Chief Financial Officer

Yeah, I think before, Alan, that we didn't have a meaningful contract rejection sort of all of the bankruptcy that occurred last year. We have been very deliberate in investing in infrastructure that is absolutely critical to the upstream assets. So both of the Haynesville and Wamsutter at the end of the day, the bankruptcy process really wasn't all that relevant.

What is relevant was that, our infrastructure is absolutely critical. And without it the upstream assets can't deliver value, can't deliver volume and. And so we have a very strong position across our entire book. But I think we proved that last year, not a single bankruptcy proceeding led to a rejection of one of our contract because we'd invested in critical infrastructure that just by its nature protects against that risk. And then on the long-term investment, I think as Alan's made on additive, we are again very focused on structuring the transactions in a way that brings development back to high-quality acreage upstream of areas where we have existing available midstream capacity.

And so we're going to see these structures, a near term investment in these property that will deliver the ownership from a long-term perspective, primarily to our JV partner. We may have a small ownership interest that we retained for the long-term perspective, but we will like only hold the ownership interest as long as it takes to make sure the development gets back into the properties and drive the volumes for our midstream assets. So that's we are laser focused on that, that's our strategy not to just own upstream properties forever, it's to own them in a way that drives the development that we think will drive value to our midstream assets.

Shneur Gershuni -- UBS -- Analyst

Very thoughtful. Thank you for that. And maybe just as a follow-up to the Sequent acquisition. I appreciate everything that you've already laid out with respect to today. I'm try to understand the capabilities that come with the acquisition. Are you basically buying a team that is laser-focused on capacity management and so forth or does it come with -- are they data scientists and come with algorithms in technology that can do something that is well beyond your current capabilities, just given the fact that you've been in this business in the past?

Chad J. Zamarin -- Senior Vice President, Corporate Strategic Development

Yeah. No, I would just say no. It's Chad. I would say this is kind of a team that's really skilled at blocking, tackling and risk control and the positions you're taking are nothing exotic. It is simply looking to manage basis differential, manage contracts, reimburse contracts through asset management agreements with utilities, so this is this is a very low risk approach. But it does involve a lot of customer contact and a lot of opportunity to serve customers in the space, but it's basically basis and time value on storage versus physical inventory. So it's not been exotic and market-leading or market making activities.

John D. Chandler -- Senior Vice President, Chief Financial Officer

And, Shneur. We -- and Alan, said this earlier, we had intentionally been focused on expanding our capabilities on that for the last couple of years, and our team has done a great job. They've been growing their capabilities, so we grew from a very, very small level to still a very small level, but it's still been a lot of work on the team. This gives us much quicker to a larger scale capability on the back of more sophisticated systems. They have a more -- we have a quality risk control process internally within Williams, they have a very high quality risk control system.

And so we pick up the benefits of a very well thought out structure form risk control, accounting systems, trade -- marketing systems. We just -- it helps move us forward that much quicker, and something that we would have probably spent the next four, five years trying to build, we get there more quickly.

Alan S. Armstrong -- President and Chief Executive Officer

Yeah. And I would just say in addition to that, we looked at a lot of different opportunities in this space. And the reason we got so comfortable with this transaction as the Southern companies has done a fantastic job of really keep them the screws turned down from a risk control standpoint and really building a culture around that. And so this is a very well controlled business, and we've been very impressed with the time and efforts that southern companies has invested in making let's say heavily trustable business.

But at the end of the day Southern companies doesn't have all the big long-term external customers on both the upstream and the downstream, the way we do. And so this is a great fit for us. I totally understand where they're coming from in terms of their cell, but for us, this is really an important capability for a company that handles 30% of the nation's natural gas. Really complementary.

And I think, we've got a lot to offer vaccine as well in terms of new opportunities to work around our customers, and assets as well off those services.

So it really, this is a really I think attractive transaction between two companies that know each other well and done a lot of business together, and really excited about to bring in this team.

John D. Chandler -- Senior Vice President, Chief Financial Officer

Yeah, I think about it. Really simply we leave with pipeline and storage optimization platform owned by utility. We are a pipeline and storage company and we'll now move on the pipeline and storage optimization platform. This is not speculative marketing trading, this is taking -- understanding pipeline and storage fundamentals, and optimizing infrastructure.

And we think about the areas we just left, area of expansion and construction, we move into an era of realizing the value of existing infrastructure, a platform focused on optimization of the existing infrastructure is going to be really valuable. And so we see that's accelerator of capabilities across our core business. And we're going to be exploring a lot of different ways I think to create opportunity with the addition of the Sequent team.

Shneur Gershuni -- UBS -- Analyst

Perfect, thank you very much for that. Appreciate the color, and have a great day.

Alan S. Armstrong -- President and Chief Executive Officer

Thanks.

Operator

Your next question comes from the line of Tristan Richardson with Truist Securities.

Tristan Richardson -- Truist Securities -- Analyst

Hi, good morning guys. Just a question on capital in 2022. I think in prior calls. Alan you just emphasized that once the leverage is at the long-term target priorities like further investing in the rate base, and in emissions reduction projects or the initiatives or are the priorities for capital allocation. Just wanted to get your views on that versus further delevering or as you suggested in prepared comments, thinking about returning cash to shareholders?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah. Thank you very much. I would just say, we are -- we remain look -- and we will look at all those options, as we enter into next year. Obviously, once we've committed to capital projects then that option has been eliminated once you start down that road obviously, but we certainly up until the time that we take a look at those investment opportunities up against wherever price of our stock is and where we think the best value is. But the good news is we're sitting here in '22 with a modest amount of free cash flow, that gives us flexibility.

But as we get into '22, it don't take a rocket science to run math and realize that that starts to build on us. And so we will have quite a bit of opportunity there. And I wouldn't say that we're committed to making those emission reduction projects happen yet until we get down to see in what stock price is, what returns look like, but that is certainly one of the options. And I think on the further debt reduction obviously, if we become convinced that further debt reduction would add value to our shareholders then that's where we could continue to pull on as well.

And so I would just say, it's hard to predict what the markets will look like nine months from now, but we certainly are to the point now, as we continue to engage the Board on this discussion. This is becoming a more prevalent topic if you will at Board meetings in terms of what's the best use of the extra free cash flow as we get into '22 and beyond.

Tristan Richardson -- Truist Securities -- Analyst

That's helpful. And then just quick follow-up. I think there should be activity you're seeing on both G&P segments, possibly looking stronger in the second half and combined with some of the Northeast projects like Oak Grove. Should we be optimistic for growth in 2022 in both of the G&P businesses where we sit today?

Alan S. Armstrong -- President and Chief Executive Officer

Well, I would say things are looking pretty favorable right now. I mean if you look at gas prices, NGL prices here through the summer months and starting to look out into the forward markets, certainly, the market is starting to put a call on gas. And these areas, whether it's the Northeast PA, the Southwest PA, the Utica or the Haynesville, they're all well positioned to make pretty good margin in this kind of pricing environment that you're seeing now with an almost $3 somewhere gas price.

So, yes, if that continues, that will drive activity on those assets and will drive growth. So I like how it's set up for the balance of the year. Obviously, as John said, we're being reserved, and how we're putting that into guidance, but that looks good. And I would say obviously -- if you think about really what drives in those decisions and a lot of times it is the forward market for a lot of our customers that drives this decision. And so, they will start to look at what forward strip looks like and start to lay in hedges and that's been a drive the activity frankly in terms of how much -- how many drilling commitments they make in an area.

So I would just say keep your eyes focused on kind of the forward markets for both gas and NGLs, then that'll be a pretty good indicator of what kind of activity we should expect across those areas.

Tristan Richardson -- Truist Securities -- Analyst

Appreciate it. Thank you, Alan.

Alan S. Armstrong -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Alex Kania with Wolfe Research.

Alex Kania -- Wolfe Research -- Analyst

Hi, good morning. Maybe just to follow up on the Sequent questions. Just looking back on Southern's comments on their call. They did talk about it having a significant amount of balance sheet or current rental guarantee or support required, as well as maybe some volatility in terms of the results there. I guess, maybe my questions are just, are you looking to be any synergies that maybe the company has that might try to minimize some of the parental guarantees that might be required maybe relative to Southern? And the other one is just talking about overall the volatility there. On an average by maybe $40 million of net income, I think is what they said. But is there a -- is there maybe a sense that you might be able to make that more stable and predictable under the broader platform that you have?

John D. Chandler -- Senior Vice President, Chief Financial Officer

Well, yeah, I know. So this is John Chandler. First on the guarantees, I think you need to understand, we guarantee a lot of our subsidiaries to, and a big part of that number that we're talking about just simply the guarantees they make for monthly transactions at Sequent. I think if you look at Sequent their revenues are somewhere in the $7 billion range. And if you divide that by 12, I mean all this happening is the parent was guaranteeing its subsidiary, who is doing purchase transactions under the AMA or just general marketing activities with very low risk. They have very tight risk control process. So there's not risk on those trades. So they're just guaranteeing their subsidiary, just like we guarantee one of our subsidiaries. That $400 million to $500 million of guarantees, and so that number was a little bit flashy, but it's not anything of substance. It's not like a guaranteeing some risk asset. Hopefully, that makes sense.

And so beyond that, really the transport fees, most regulated pipelines have maximum of 90 days requirements, if you fall below investment grade. If you're investment grade, you don't have any requirements. But if you fall below investment grade, you have obligations, but only 90 days. So that's a much smaller part of that guarantee. So again, I would just say $5 00 million to $600 million -- or really $600 million to $700 million of that guarantee number that you may have heard Southern talked about well it's just simple monthly or quarterly guarantees for monthly guarantees of their sincere rate but very little risk, because there's really no changes to that.

That's just a normal course business activity. One thing we haven't talked much about EBITDA generation. We see a pretty consistent in their history, a pretty consistent I think Southern talked about this, EBITDA generation of $20 million to $30 million from this business and we expect it to stay somewhere under our -- there will be an occasional market dislocation like we just saw. But generally, $20 million to $30 million of EBITDA generation that doesn't mean the earnings will be consistently that way, we will be doing adjusted -- adjustments to our EBITDA where some quarters it may be quite a bit bigger some quarters less, but over a year it would average out of that $20 million to $30 million. So hopefully, that answers your question. But there is not huge credit exposure for us as a company other than the just normal ongoing business activities of Sequent.

Alex Kania -- Wolfe Research -- Analyst

Great. That was helpful. Thanks.

Operator

Your next question comes from the line of Gabriel Moreen with Mizuho.

Gabriel Moreen -- Mizuho Securities -- Analyst

Hey, good morning. Well, most of my questions have been asked and answered. I'm just curious on the additional solar projects that were identified. Just kind of where you think are in the $400 million I think bogey that you put out there during the ESG Day, does that -- how much closer that takes you to that?

Chad J. Zamarin -- Senior Vice President, Corporate Strategic Development

Yeah. Thanks. This is Chad. We've got pretty good line of sight to what we showed in our ESG Investor Day and potentially even more than that. Of the 13 projects that had, what we consider advanced beyond date one over half of those are now filed with utility regulators in order for us to advance those projects, which means we have locked in scope, we have locked in land, we have a commercial construct that we're comfortable with and those will go beyond what we call gate two in the near term, which is effectively in FID stage.

So out of the 16 now project that we have, it's over $250 million of investment opportunity. We would expect to, and we have a goal for at least half of those projects to achieve we're considering FID this year. That said, I'm pretty confident that all those projects will get where we need to be. But the primary initial gating item is making sure we've got sufficient land and that's really what drives the ultimate size and scope of the project. And so that's what we're spending the most time on, on the front end of the year. But, I'd say we still have pretty strong line of sight to scale that we identified during our Investor Day.

Gabriel Moreen -- Mizuho Securities -- Analyst

Thanks, Chad. And then maybe just a quick follow-up. I noticed that Northeast Supply Enhancement filed for an extension at the FERC. Is that project still being worked? I mean, I'm just core curious kind of how that project fits in the portfolio now? Is that all considering Regional Energy Access?

Micheal G. Dunn -- Executive Vice President and Chief Operating Officer

Hi, Gabe. This is Micheal. Yes, we had an exploration and that certificate is upcoming and so through just a normal course, requested an extension on that. We still have a proceeding agreement basically a contract with our customer there, they've not cancelled the project as yet and obviously, they are still struggling getting their other projects off the ground from a permitting standpoint that we're going to supplement in the near term.

Their ability to serve the customers, increase usage of natural gas. So we thought it was prudent to go ahead and ask for the extension and other than that we're not working the project with the exception of having conversations with our customers this time. We still think there's a great need for natural gas in that market, there is still a great opportunity to take fuel oil out of that market and improve the emissions profile in the Northeast, and we're still ready to serve that market when the customer and the regulatory jurisdictions see to it too, allows us to do that.

Gabriel Moreen -- Mizuho Securities -- Analyst

Thanks, Micheal.

Micheal G. Dunn -- Executive Vice President and Chief Operating Officer

But we have enough capital allocated to the project, at this time. Just to be clear.

Gabriel Moreen -- Mizuho Securities -- Analyst

Got it. Thank you.

Operator

Our final question for the day comes from the line of Becca Followill with U.S. Capital Advisors.

Becca Followill -- U.S. Capital Advisors LLC -- Analyst

Just following up on Tristan's question. You talked at beginning that you're beginning to review how to allocate capital given that you've reach our leverage target? Would you make that the capital allocation decisions or some type of plan public maybe in 2022 when you finish that review?

Alan S. Armstrong -- President and Chief Executive Officer

Becca, I think it will probably just come out in form for instance if we commit to the most emission reduction projects that drive our capital budget for '22 higher then that's kind of where we would announce that. And if we, if we haven't done that and it would then the two options to that would be further debt reduction just naturally or buybacks of shares as another alternative. So I think as we start to formulate our 2022 capex budget and our strategy sessions with the Board and then which -- which then rotate into budget meetings toward the end of the year that's when really when we'll be making the decisions on whether that money will go to investments in capex or let those other two alternatives.

And I would think that by the first of the year then we would be in a position to say what we would expect to do, if it wasn't going toward further capital investment.

Becca Followill -- U.S. Capital Advisors LLC -- Analyst

Great. Thank you. That's all I had.

Alan S. Armstrong -- President and Chief Executive Officer

Thanks, Becca.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Danilo Juvane -- Vice President of Investor Relations

Alan S. Armstrong -- President and Chief Executive Officer

John D. Chandler -- Senior Vice President, Chief Financial Officer

Micheal G. Dunn -- Executive Vice President and Chief Operating Officer

Chad J. Zamarin -- Senior Vice President, Corporate Strategic Development

Praneeth Satish -- Wells Fargo -- Analyst

Christine Cho -- Barclays -- Analyst

Jeremy Tonet -- J.P. Morgan -- Analyst

Shneur Gershuni -- UBS -- Analyst

Tristan Richardson -- Truist Securities -- Analyst

Alex Kania -- Wolfe Research -- Analyst

Gabriel Moreen -- Mizuho Securities -- Analyst

Becca Followill -- U.S. Capital Advisors LLC -- Analyst

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