Good day, everyone and welcome to the Williams Third Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introduction, I would like to turn the call over to Mr. Danilo Juvane, Vice President of Investor Relations. Please go ahead.

Thanks. 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, Allan Armstrong, and our Chief Financial Officer, John Chandler, will speak to this morning. Also joining us on the call 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 materials, you'll find a disclaimer related to forward-looking statements. This disclaimer is important and integral to our remarks and should be reviewed. Also included in the presentation materials are non-GAAP measures that reconcile to generally accepted accounting principles, and these reconciliation schedules appear at the back of today's presentation materials. So with that, I'll turn it over to Allan Armstrong.

Great. And thanks, Danilo, and thanks to all of you for joining us today. We do have a lot of good news to share with you today, but let me just start by saying that our long-term strategy of connecting the fastest-growing natural gas markets with the best supply areas continues to deliver exceptional financial results, as demonstrated by these higher-than-expected third quarter financials. As John will walk through just a moment, we achieved all-time record results in the third quarter with our adjusted EBITDA up 12% compared to the same period last year, driven by growth across all three of our major business segments. Given our robust performance today and continued strong fundamentals, we are raising our 2021 EBITDA guidance midpoint for the second time this year to a level that is now 8% above our realized 2020 result, which I'll remind you, came in above expectations last year in a very challenging backdrop. Not only did we deliver more on our financial performance this quarter than we expected, but we continue to make strides in executing on key projects and transactions that give us a clear line of sight to sustain growth for many years to come. We'll talk a little bit about that today, but for right now let me turn it over to John to provide you some insight into the drivers of this all-time record quarter for Williams. John?

Thanks, Alan. First of all, we had an outstanding quarter, and here's a brief overview. The quarter saw significant increases in profitability from our Northeast Gathering systems and a rise in revenues from our Transco pipeline due to new projects that began operating over the last year. Our upstream operations in Wamsutter and the rise in commodity prices in our West segment contributed positively, although there was a slight increase in operating expenses from higher incentive compensation expenses related to strong performances throughout the year. You can see this strong performance reflected in our financial metrics. Our adjusted EBITDA for the quarter rose by $153 million or 12%, setting a new record, with a 10% year-to-date increase in EBITDA. We'll examine these EBITDA changes in more detail shortly. Our adjusted EPS for the quarter was up by $0.07 per share or 26%. AFFO also saw significant growth for the quarter, increasing by $217 million or 25%. Remember, AFFO represents cash from operations, including joint venture cash flows and excluding fluctuations in working capital. For year-to-date, our AFFO stands at $3 billion against capital investments of $1.2 billion and dividends of $1.5 billion, indicating that we generated over $300 million of excess cash. Among those capital investments, $307 million was for maintenance capital. Our dividend coverage ratio, based on AFFO divided by dividends, is a healthy 2.17 times for the quarter. This strong cash generation and solid EBITDA for the quarter, combined with our ongoing capital discipline, has led us to surpass our leverage metric goal, now at 4.04 times net debt to EBITDA. Later in our guidance update, you’ll see that we adjusted our year-end guidance from under 4.2 times to around 4 times. This has been a strong quarter and year overall, setting up well for a promising fourth quarter and a successful 2022. Now, let’s move to the next slide to take a closer look at our quarterly EBITDA results. Williams performed exceptionally well, achieving a $153 million or 12% increase in EBITDA. Our upstream operations added $55 million to adjusted EBITDA this quarter, mainly from Wamsutter upstream acreage production. The output from Wamsutter totaled 232 million CFEs a day for the quarter. Although the Haynesville upstream acreage produced little EBITDA due to minimal existing PDP reserves, we expect it to take some time before new production and EBITDA arise from those assets. Our Gulf of Mexico transmission assets performed $8 million better than the same period last year, while new pipeline projects contributed an additional $24 million in revenue compared to the third quarter of 2020. This includes income generated from the Southeastern trails project, which began operating in the fourth quarter of last year, as well as part of the aligning South project that also launched in the fourth quarter of last year. The growth in our firmed reserve capacity was up 4% since last year’s third quarter. Some offset came from Gulf of Mexico revenues, which declined due to impacts from hurricane shut-ins during this quarter, particularly from Hurricane Ida, in comparison to last year. The negative impact was approximately $5 million compared to Q3 last year. Furthermore, the increase in transportation revenue was somewhat counterbalanced by a minor rise in operating costs, primarily from employee-related expenses, with much of it related to higher incentive compensation accruals. The Northeast G&P segment remained robust, contributing an additional $46 million to EBITDA this quarter. Total Northeast gathering volumes increased by 470 million a day, or 5%, compared to the third quarter of 2020, and processing volumes rose by 20%. The volume growth mainly came from our joint ventures in the Bradford supply hub, aided by a gathering system expansion in late 2019, and from our Marcellus South supply base, which benefitted from improved well productivity. It’s important to clarify that since we do not operate Blue Racer Midstream, those volumes are not included in the statistics mentioned. Due to the increased JV volumes, our EBITDA from equity method investments improved by $45 million, including added profits from Blue Racer Midstream, owing to the additional ownership acquired in mid-November last year. In the Northeast, while revenues from higher processing volumes rose, they were partially offset by increased expenses, many related to higher incentive compensation accruals. In the West segment, we saw an increase of $48 million compared to the previous year, primarily due to higher commodity margins linked to rising natural gas and NGL prices. The remainder of the EBITDA increase stemmed from reduced operating costs resulting from lower maintenance fees and the absence of legal costs and minor asset write-offs from the third quarter of last year. Revenues for the West only saw a slight increase from the same period last year. There are various significant factors affecting revenues that I'd like to emphasize. For example, we reduced our gathering rates in Haynesville this year in exchange for undeveloped upstream acreage from Chesapeake in the South Banfield area. The resulting drop in gathering revenue this quarter was offset by rate increases in Barnett and other regions where gathering contracts allow us to benefit when prices rise. Last year, our partner on Overland Pass Pipeline was paying us deficiency fees to allow them to reduce volume off OPPL. These deficiency fees are absent this year, but prior gathering volumes are providing a form of offset. Overall, gathering volumes in the West grew by 1%, with increases in Haynesville and Piceance balanced out by lower volumes in Wamsutter and Barnett. Lastly, the Sequent segment showed nearly flat adjusted EBITDA for the quarter. Sequent typically earns a large portion of its profits in the initial quarters of the year during winter, which affected this quarter’s results. Sequent has a significant amount of its transportation capacity hedged with basis swaps, as well as storage inventory hedged with NYMEX positions, leading to the large unrealized mark-to-market loss of $277 million this quarter, as prices rose and basis differentials widened in some markets. This circumstances significantly increased the intrinsic value of our storage and transportation positions, and much of that value will be realized in the first half of 2022. Now, let's examine the year-to-date results, which showed solid growth of $383 million or 10% in adjusted EBITDA. Numerous profitable factors span across our segments. Firstly, Winter Storm Uri contributed $55 million to profits in the West and $22 million to upstream profits. Additionally, our upstream operations contributed an extra $83 million year-to-date, mainly from Wamsutter properties. Our transmission and Gulf of Mexico assets increased by $30 million or 2%, predominantly driven by additional revenues from new transmission projects and higher revenues from Gulf of Mexico assets due to reduced downtime this year compared to last year. However, these positives faced partial offsets due to lower revenues from a Transco rate place decline following the rate case final settlement in mid-2020 related to select markets, although a majority of our Transco rates rose in 2019. Higher expenses year-to-date were also observed due to increased incentive compensation costs tied to our strong performance. The Northeast G&P saw a $124 million increase for the year, mainly attributed to profits from our JV investments from the Bradford and Marcellus South gathering systems and the increased ownership in Blue Racer Midstream. Total Northeast gathering volumes grew by 8% compared to last year’s third quarter, while processing volumes rose 22%. In the West, our business grew by $71 million, in addition to the $55 million from Winter Storm Uri. This $71 million hike was primarily driven by higher commodity margins, increased gathering rates in other areas where we benefit from commodity upside, and lower operating costs. These positives experienced slight offsets from reduced deferred revenue in Barnett, lower gathering rates in Haynesville due to the exchange for upstream acreage, decreased profits from Overland Pass Pipeline resulting from lower volumes, and the removal of deficiency payments received in 2020. Although we noticed a 4% reduction in year-to-date gathering volumes in the West, it was largely balanced by minimum volume commitment payments. Overall, this is shaping up to be an impressive year for us. I want to highlight that we received feedback from some analysts regarding our increased operating costs, and we did not adequately provide details on our other operating segment where our E&P upstream operations are included. When we review our financial statements, operating expenses did rise by $73 million, with $12 million attributed to Sequent, which was mostly offset by their profits. E&P costs increased by $51 million, but since they are generating considerable EBITDA, they are covering those costs with their revenues. The remainder of the increase was due to bonus expenses. Therefore, when excluding Sequent, E&P, and the bonus-related costs, our expenses are in fact in line with contract increases and are not experiencing significant increases outside of those bonus-related expenses. I hope this clarifies the situation. Now, I will turn the call back to Alan to discuss several key areas of interest for investors.

Great. Well, thanks John. And we'll move on here to slide 4 covering key investor focus areas. Our natural gas focused strategy is delivering even better results than we expected in this high commodity price environment. Demand for natural gas in the third quarter was surprisingly inelastic against this higher-than-expected pricing environment. And while we would prefer more moderate natural gas prices for our business over the long haul, the recent demand resilience highlights the near- and long-term role that natural gas will play as a complement to growing demand for renewable energy and emission reduction in general. The past 18 months have demonstrated the benefits of our high-quality portfolio of contracts through which we've thoughtfully built a business that is durable in the down cycles but exposed to upside potential when it is available. This quarter's results show how meaningful that upside can be even after excluding our upstream results. Along these lines, we also have contracted our business over the years to be protected from an inflationary environment, and we see additional upside potential in our G&P businesses due to contract terms that adjust our rate for inflation. In short, our business and its contractual portfolios are set up with the long-term investor in mind and are positioned to thrive through these cycles. So looking at our financial strength and focus on long-term shareholder value here, we are increasing our '21 financial guidance for the second time this year, as we've mentioned, with our EBITDA midpoint now residing at $5.525 billion. And that is 8% higher than last year's strong $5.105 billion of EBITDA, and of course that was a feat by itself in the environment that we're in. So we're really excited to show our durability in the down-cycle and our exposure here on the positive side is well coming through. And while the past few years have been characterized by lower commodity prices and reduced producer customer activity, among other challenges, our updated '21 EBITDA and EPS guidance, the midpoint translates into a three-year average of 6% on the EBITDA and 17% on the EPS. So a three-year average on our EPS now is 17% at that midpoint. And of course, this is proving up our ability to produce reliable and growing earnings under a variety of market conditions. Our financial results in '21 continue to de-risk our balance sheet, which is now at about 4.0 leverage. And also of note, we recently issued $1.25 billion of 10-year and 30-year bonds at the most attractive interest rates ever issued here at Williams. This is significant because we are now positioned to allocate capital to a variety of options that will provide compounding value to our long-term shareholders. To this end, we've continued to grow our stable quarterly dividend through our investors and remain steadfast in maintaining the long-term security of the dividend. And most recently, we unveiled our long-term capital allocation priorities, including a $1.5 billion opportunistic share repurchase program that has the potential to enhance shareholder returns beyond the dividend. And perhaps most unique to Williams as we think about capital allocation, is the option we have to grow dependable earnings by investing in the modernization of our regulated transmission systems, which will both grow earnings and reduce emissions across our footprint. Next here, looking at growth, from a project execution point, we continue to deliver on multiple fronts, including bringing online key projects such as lighting South, which we are targeting to bring into full service earlier than projected and importantly, before the winter heating season. While projects such as REA remain in the execution phase, we've continued to receive first-in-demand full projects on the Transco system. Our two recently announced Mid-Atlantic expansions will add a little more than 500 million a day of capacity on the system. And in the coming weeks, we expect to secure precedent agreements for another system expansion, bringing a total of three incremental expansion projects on Transco just during the last half of '21. Our natural gas fundamentals are not only supportive of our transmission assets, but also our G&P business and our gathering volumes continue to grow at a rate of nearly 10 times the Lower 48 U.S. gas production volumes. This supports were led by the Marcellus growth where we are also growing at a rate that is almost double that of our competitors. You can see the layout of that in some slides we put in the index. With projects like Leidy South and REA providing takeaway out of the basin, we expect our gathering volumes in the Northeast to remain resilient. In fact, we expect to announce a system expansion in the basin soon, underscoring that we don't see takeaway constraints as a near-term deterrent to volume growth in our systems there in our Northeast gathering area. And finally on sustainability, as we think about sustainability both today and into the future, our highly reliable natural gas infrastructure is extremely well positioned to continue replacing higher carbon fuels while supporting the growth of renewable energy and responsibly sourced natural gas for LNG export. Looking forward and anticipating future innovations and technologies that we can use on our key energy networks to deliver on our country's clean energy future. To this end, we are pursuing emerging opportunities like a hydrogen hub near assets in Southwestern Wyoming and are evaluating a large-scale co-development of wind energy, electrolysis, and synthetic gas in the state of Wyoming as part of our recently announced MOU with Orsted. Our solar initiative continues to move forward as we now advance the execution of now 12 projects on our systems, and those are, as we've mentioned before, large solar arrays that will provide power for our fairly large loads on our compression and processing. So now, looking at our renewable natural gas efforts, we set a 2021 goal of adding an incremental 5 million a day of renewable natural gas. We now expect to exceed that goal. We recently signed an interconnect that should enable up to 10 million cubic feet per day of the new source of renewable supply, bringing our entire portfolio close to 25 million cubic feet per day with in-service projects in the '22 through '23 timeframe. A lot is going on on that front, and we are doing a great job of making sure that we're capturing opportunities in and around our assets there. We do remain steadfast in the view that natural gas will play a role in the world's clean energy future. Our latest efforts to advance responsibly sourced gas through the value chain will provide transparency on the sustainability of our operations and help to solidify the role of natural gas in reducing emissions. We're also pursuing sustainable investment opportunities and are pleased to be partnering on two strategies with energy impact partners and investment firm that makes venture and growth investments in companies that are optimizing energy consumption and improving sustainable energy. Williams is among the first Midstream investors in the platform, and we're expecting to facilitate diverse investment opportunities that reduce emissions and advance our ESG goals. Finally, our ongoing focus on sustainable operations continues to deliver strong results that are being recognized by our key rating agencies in this state. Williams sits in the top quartile for our industry with rankings that reflect the dedication of our team towards doing the right thing from an ESG perspective. So here in closing, a lot of really positive things to report on this quarter, demonstrating that our intense focus on our natural gas-based strategy has built a business that is steady and predictable with continued growth, improving returns, and significant free cash flows. This has translated into a strong balance sheet and a well-covered and growing dividend. Our best-in-class long-haul pipes, like Transco and Northwest Pipeline, and Gulfstream, are in the right place and in the right markets. By design, our formidable gathering assets are in the low-cost basins that will be called on to meet gas demand as it continues to grow. The triple-punch of benefits provided by American-sourced natural gas must not be understated as we work to accelerate our clean energy future around the world. As we work to balance sustainability and climate goals with growing energy demand, natural gas will remain a key component of the fuel mix and should be prioritized as renewables complement the more aggressively displaced, more carbon-intensive fuels around the world. Natural gas does provide right here, right now, emissions reduction solutions that are economically viable and can keep industry and manufacturing here at home. Williams’ transmission and storage networks are extremely well positioned to aggregate and bring to scale multiple emissions reduction opportunities, taking out higher carbon fuels while supporting renewable energy and emerging opportunities like hydrogen and carbon capture. So in closing, we produced tremendous third quarter results. More importantly, we have an unmatched platform to continue to deliver growth and lower emissions simultaneously. We look forward to helping our customers and stakeholders meet their goals in an environmentally and financially sustainable manner. And with that, I'll open it up for your questions.

Thank you. We will now start the question-and-answer session. Please hold on while we prepare the Q&A list. Your first question is from Jeremy Tonet at J.P. Morgan. You are now on the line.

Hi, good morning.

Good morning, Jeremy.

I wanted to discuss the strong results from this quarter and how we should view them moving forward. Looking at the guidance increase, it seems that not all the advantages realized in the third quarter will carry over into the fourth quarter. I'm curious about the sustainability of this growth and whether this level can serve as a foundation for EBITDA in 2022. I’m trying to gain a better understanding of what aspects of this quarter's strength are recurring.

Yes, we accrued bonuses for the year, including long-term incentive compensation. While many companies adjust these amounts out of their EBITDA, we do not. This means our long-term compensation and annual bonus, influenced by our performance, impacted the quarter negatively. However, we also experienced a pricing increase of about $24 million on our NGLs and inventory. If NGL prices remain stable, this could mitigate the negative impact observed this quarter. So, we have a mix of both positive and negative factors at play. We closely monitor future pricing in our forecasts and guidance, which are based on past data. Moving forward, we expect similar outcomes for our E&P business, though it’s not a major revenue driver for us currently. However, as we develop the Haynesville in 2022, our sensitivity to gas prices will increase, which can be beneficial. We recognize this was a strong quarter for pricing, but we aren’t building our business solely around high commodity prices, as reflected in our forecasts. While we appreciate the gains when they occur, our business strategy remains cautious and sustainable. If high prices persist, we will certainly benefit from that.

And Jeremy, just as it relates to this year's guidance, obviously, I think by our mainstream probably now we're somewhat conservative on how we do things. That's probably a bit of that embedded there. But also, we left ourselves some flexibility that relates to the fourth quarter if we wanted to accelerate, for example, gifts to our foundation, we've dealt with things like that, that would be expenses from otherwise.

Moving along here, I guess the next question I have is in the Build Back Better bill here. Just wondering what implications do you see for your business here? It seems like it could be different things that 45Q and some other energy transition initiatives in a bill, and at the same time, a 15% minimum tax. Just wondering if you could walk us through some of the pluses and minuses that you see. The bill, if passed as written, how would it impact your business?

Well, certainly we would keep our eyes on the alternative minimum tax, and I'll let John speak here in a minute to that. I think as it relates to things like the increasing to 45Q amount, obviously, that would be positive for us, particularly as we think about utilizing our infrastructure for carbon capture and in places like the Gulf Coast, where we have a pretty sizable footprint that extends out to some of those water drive reservoirs that are the key targets for carbon sequestration. So lots of positives I think in that area on the methane emissions issue. We are really encouraging that to be done in a way that rewards those who reduce methane emissions. We think it's smart to continue to put focus on methane emissions reductions, and we're extremely well-positioned for that. But we would much prefer one that rewards the good actors, here and that, and not just a pure tax, but one that does motivate those that have been working to reduce their emissions. We think we stand out in that regard and we think that would be a net positive for us if it's positioned that way. Obviously, we think that makes sense when you're talking about the lowest carbon content hydrocarbon. It seems a little bit odd that you would just put a pure tax on that when it has such an ability to help reduce emissions around the world. So we're hopeful that we'll get to a wide place on that, but we think that actually could be positioned in a way that could be somewhat of a positive force. So we will look forward to that. So I think that's, I don't know, Chad or...

Yeah, Jeremy. This is Chad. Regarding the hydrogen topic, the current incentives for hydrogen would complement our existing strategy well. We have been closely engaged in this area because it aligns with our objectives.

Regarding the alternative minimum tax, there are still many aspects to uncover. Overall, we clearly favor a lower corporate tax rate alongside an alternative minimum tax rather than the opposite. The alternative minimum tax mainly involves the timing of tax payments, resulting in higher tax rates indefinitely. If this becomes the final outcome, the focus will shift to how we can utilize our net operating losses (NOLs) under the previous tax structure. Previously, you could use up to 80% of your NOLs for calculating the alternative minimum tax. The current legislation leaves this unclear. From our perspective, if we can access 50% of our income through NOL usage, the impact of the alternative minimum tax would not be as significant. We believe we could manage it with our excess cash flow. However, to clarify, there are still numerous uncertainties regarding the future use of NOLs. Can we utilize 50%, 80%, or any at all? This remains to be clarified. Additionally, we are carrying forward $4 billion in NOLs.

Understood. Thank you.

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

Thank you. Good morning. Maybe with the out-performance this year and tracking below your target, how should we think about the execution of the buyback that you announced a couple of months ago?

Thank you for your question, Christine. I anticipated we would address this. We have been clear about our approach, which is linked to the cost of our 10-year debt and the market rates for that. You can observe that the spread has widened. Consequently, yields have decreased, and this has impacted that multiple since we announced the buyback. However, we believe that whether we invest in buybacks or earnings, both strategies will enhance our credit metrics, leading to a reduction in the 10-year debt costs and improving our share price, which in turn would decrease the yield we are considering for investment. It seems reasonable to expect this process to unfold naturally. As our credit metrics improve, we anticipate our 10-year rates to continue to enhance, which would further lower the yields and bring us to a point where we might pursue buybacks. We are ready to capitalize on that opportunity should the price reach that level. Overall, our free cash flow is growing and accelerating, but aside from that, our situation this quarter has not changed significantly since the announcement.

And you would be okay with just having your leverage trend below 4 times if the opportunity to buy back presents itself?

That's right. And I will just say, though, as we've mentioned before, obviously the one kind of unique option we have is continued investment in the right base in a way that modernizes this and reduces emissions on our system. And so that's not a hair-trigger, so to speak, because we have to plan for that and that permitting process that we don't snap the fingers at. That's something that takes time, but that's obviously another place that money will flow through our capital allocation costs.

That actually was my follow-up question around the modernization program. Can you just remind us how this works? How much do you spend per year, the return how quickly you can earn on the spend, and then I guess as you mentioned, what regulatory process we're looking at?

Hi Christine, it's Micheal. We're working on both fronts with Northwest Pipeline customers as well as Transco customers and working to enact a tracker. If we can get to a position with them. If we can't, we would go through our normal rate case process to seek recovery of those emissions reduction projects. We believe we've got a worth of about $2 billion or so that we could invest between both Northwest and Transco on those projects that could be a very long-term program, over maybe six years or so. So would you start doing the math on that, that's $300 to $500 million a year potentially that we could deploy there, depending on the spend profile and how many projects we want to take on at a time.

If you don't come to an agreement with your customers, would you have to recover it through a rate case or is there something quicker?

No, we would have to go through the rate case process and that's obviously one of the reasons why we would like to have a tracker to accelerate that recovery and not have to go through the thrust and the rate case and the disruption that occurs with the customer base there. But we're prepared to do that if we need to, but we would certainly like to do it through a tracker mechanism, very similar to what many of our customers are doing in their jurisdictions.

And the returns?

Returns would be very similar to what our regulated returns would be on either Transco and Northwest Pipeline once those rate case outcomes are known.

Great. Thank you.

And Christine, I want to remind everyone that when we file those rate cases, we do raise our rates. We don't have to wait for the settlement in the rate case once we file the rates. So that is something we hold in reserve sometimes. However, we do have the authority to charge higher rates.

Right. Thank you.

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

Hi, good morning, guys. I wanted to start off a little bit here. You've had a strong performance last year, strong performance this year, or heading into the end of the year, you should be based on your guidance. You've had a growth target in the 5% to 7% range. The question I have is, does any of the performance in this year take away from next year? But at the same time, you've announced several Mid-Atlantic projects. You intimated that there's another one potentially coming in your prepared remarks. I was just wondering if you can share some detail about the return expectations of these new projects, and are they high enough to help drive growth forward? Is there a backlog of more of these projects that we can see more announced over time?

Thank you, Shneur. Regarding our projects, I want to highlight that our returns are generally improving. As we've mentioned before, there are challenges in building projects, which have affected the country and the industry as a whole. However, if you are already established with existing infrastructure, you can expand those projects in brownfield areas, effectively enhancing your return potential. The returns for the mid-Atlantic projects we are discussing are at least comparable to or even better than those of Atlantic Sunrise. We regularly update the slide in our appendix that tracks the number of projects in development. While it may seem repetitive, we are actively transitioning projects from development to execution and continually bringing new projects into the pipeline, keeping it very robust. We anticipate continued opportunities to expand our transmission systems, which will enable us to capture low-cost gas from reducing areas. Despite any perceived concerns from the media, there is no indication of hesitation among clients to make long-term commitments to our transmission systems, as they understand the necessity for supplies, whether for backup renewables or base loads. Our customers recognize that building these projects takes time and requires long-term commitments, and this trend is expected to continue.

Really appreciate the color there. Maybe if we can return to the return of capital priorities. In your response to Christine's question, I think you were fairly clear in terms of you were looking for the opportunities to execute, but at the same time, your balance sheet is obviously doing better than expected. There's a priority over growth, how we discussed in the last question here. Just curious if one of the other arrows in the quiver shall we say, would be around the dividend. Are there any thoughts around a dividend step-up, or specials, or is there a different payout ratio that we should be thinking about as part of your return of capital strategies?

Yes, while I never want to rule anything out, I want to emphasize that we are focusing on steady growth that aligns with our cash flow increase, while also maintaining a strong coverage of the dividend. So, you shouldn’t anticipate any extraordinary actions related to an asset sale; there’s no plan for anything like that. Right now, you can expect our dividends to grow steadily and sustainably. We have built a durable business, and our dividend yield continues to perform well. Given its security and growth, we believe it stands out in comparison to both the utility sector and our competitors. Ultimately, we expect to be recognized for this.

So all else equal, buybacks are probably the preferred option at this point if you hit investor returns section?

Well, again, I mean we've laid out the options. The market will tell us whether we need to buy back shares because it's presenting an opportunity or not. And if it presents itself, we'll be all over it. And if it does, the value will continue to generate through these other notes.

Your next question comes from the line of Praneeth Satish with Wells Fargo. Your line is open.

Thanks. Good morning. You touched on this earlier, but if we assume that the Biden administration passes for policies on emissions, what exactly could that mean for your business? I guess, how further ahead are you than peers, and do you think this helps you win new customers or pull volumes from competitors?

Yes. I don't know exactly where we stand up against peers. I know where we stand on the One Future measures, and we're almost orders of magnitude lower than what's required for our elements of the sector. So again, that One Future is a 1% all the way from the E&P space all the way through the delivery to burner tips. So we're excited to be a part of that, but there's a certain percentage of that 1% that's allocated to our sectors of the business. In those cases, we are way below, and as I said, orders of magnitude below that. So we think we stand well, but we really don't know exactly where other competitors might stand on that. Therefore, what kind of advantage might exist, but I do believe that we need good, honest, reliable operators in this space that are going to be focused on methane emissions reductions. Ernest Moniz, back when he was Secretary of Energy, really made it clear to the gas industry that, hey, I love this industry, I think it has a lot to offer from an emissions reduction standpoint. But you guys have got to get your methane emissions under control. That's going to be your Achilles' heel if you don't go after this. We've been on a mission to reduce that, and I think we're extremely well positioned if the methane emissions are incentivized correctly. Frankly, I think it's a real positive to make sure that we're reducing flaring, emissions, and VOCs from tanks in the field. I think all these things are very positive for our industry, and we certainly intend to continue to be a leader in that space.

Got it. And I'm wondering if you could just give us a sense of how large the projects are that you're working on with Orsted as part of that JV or MOU? On an absolute dollar cost basis, just trying to get a sense of how big the projects are. And then just tied to that, the hydrogen subsidies that are part of the reconciliation bill, will that accelerate your hydrogen development plans?

Yes, it is in Chad, thanks for the question. Starting with your last inquiry, the incentives will help accelerate project opportunities. As we've mentioned, hydrogen really needs an incentive structure to get projects off the ground. It's still early days for hydrogen; we're in the pilot stage. In terms of project opportunities, our ambitions depend on whether the costs continue to decrease, which we expect, and if incentives are approved in places like Wyoming. There is potential for developing an energy hub in Wyoming in collaboration with Orsted and others. You could envision a substantial wind power production facility, ranging from 300 to 500 megawatts, or even larger, given the significant wind resources in Wyoming that remain underutilized due to the challenges of building the electric infrastructure needed to deliver that power to markets outside the state. We have the pipeline infrastructure to send that energy to other regions of the country. We can create a significant wind power generation platform linked to hydrogen production that we can distribute via our existing infrastructure to customers across our service area. Those are ambitious goals. I will tell you again, it's very early innings, but the pieces are coming together, and we're very hopeful. We're going to start by crawling before we walk and put some projects online that I think will demonstrate the feasibility, but that gives you just one example and they are looking at others across our footprint, but that's one example of where we think we can get to scale.

Great. Thank you.

Your next question comes from the line of Spiro Dounis with Credit Suisse. Your line is open.

Good morning. First question, just on inflation from two different angles. First, just curious if you guys are seeing or do you expect to see any sort of impact on the cost side? Alternatively, imagine a lot of your contracts, such on the G&P side, probably had some sort of escalators in there tied to CPI or PPI. So curious how should we think about any sort of upward pressure on fees as we head into next year in this environment?

Good morning. This is Micheal. We are watching with supply chain issues and the inflation issues very closely. We got in front of the supply chain concerns early on with treating chemicals and lube and things of that nature to make sure that we had what we need to operate the business. I do expect we are seeing price increases; fuel, diesel, gasoline prices are up through this small component of what our overall expenses are in business. We could likely manage appropriately. As you mentioned, the bulk of our gathering and processing agreements do have escalators in them, so we are protected there on the gathering and processing side. On the transmission side, we could obviously take advantage of rate cases if we need to. But we've done a really good job managing our costs for several years now. So we've been in very good shape for a number of years in managing that. I suspect our teams will continue to do a great job at that. Going forward to the year, I take advantage of opportunities where we can to control our costs, but we will see some increased costs and there’s no doubt about that. The escalators that we have are various escalators that we use in the gathering and processing agreements. I believe that would definitely cover the expense increases that we'll see.

Got it. Thanks for that color, Mike. Second question just switching gears slightly to the Permian. I know you are all focused on gas basins, and that has certainly served you well. But I know at one point you had considered Blue Barnett as a pipeline out of the basin. And obviously, I think we're seeing that basin tighten a lot faster than we all are expected with some of your peers talking about another pipeline, potentially as early as 2024. Just curious on any interest levels in the Permian in general and how you're thinking about Blue Barnett and your competitive nature there?

Yeah. We've certainly positioned ourselves well there to take part in projects that come up. And I would just tell you, so far, we like the risk mitigation that we get out of the kind of projects that we do with two or more market or unit and not seven and ten-year kind of contracts that are just basis differential pipeline; those contracts that, once that basis differential slides, they come out of the mines. And with a number of pipelines in the market today that fit that bill, every year getting written down or struggling for re-subscription. Not yet in the Permian, but I would say it’s always about risk-adjusted return and those are big risks on the back end of pipeline that are easy to use more on the front end, but hard to ignore on the back end. And we think about our business on a very long-term sustainable basis. So it tends to drive us towards longer-term contracts, ones that we know that the value will be there for the transportation for the long haul. I'm not telling you that we will be looking to take part, but with the returns would certainly have to be better than our other projects that we see within our capital stack.

And it's jagging, and we have been expanding the capabilities of Transco to receive volumes from the Permian. You think about our project strategy. If you look at the projects that we approve, we focus on connecting directly to demand. And that is a very strong, sustainable, I think strategy. As Alan mentioned, typically the demand contracts are very long-tenured. We'll keep an eye on Permian opportunities as you mentioned, unless we can tie those projects to long-term contracts or to demand that we know will be sustainable. Then we will probably fit that bill.

Got it. Appreciate the color guys, and John, congrats on the upcoming retirement.

Thanks.

Your next question comes from the line of Colton Bean with Tudor Pickering Holt. Your line is open.

Morning. So just circling back briefly on the Wyoming energy hub, is that an area we're willing to look to own a stake in the wind and electronic facilities? Would you prefer to lease the surface acreage or set and then participate further downstream on the transportation side?

I think we're considering various options and will focus on our strengths and capabilities. Our strategy is to be involved in energy systems not just for the next 10 to 20 years, but for the next century, playing to our strengths. We plan to partner with capable companies like Orsted and others. We will set goals for skills and infrastructure to enable these projects. We want to ensure that we engage in opportunities that make sense, but it's still early to determine where we will invest. Clearly, after the announcement with Orsted, we are not a wind power company or a technology provider for those areas of the value chain. We will be ready to invest if it proves to be a wise decision. Our current focus is on solar and specific research and growth opportunities. However, it's still early to see how all these elements fit together, and we are continuously evaluating our options.

And then just briefly in the West, it looks like NGL transportation volumes stepped up a bit more than NGL production. Are you seeing a rebound in volumes coming into Overland Pass from the north, is there anything else to point to there?

Yes, we are already observing some increases in production from our assets. I won't delve too much into the involvement of third parties, but we're experiencing significant improvements from processing plants. Recovery has been inconsistent throughout the summer, and as we transition into fall, we see an opportunity to incorporate more ethane into our systems.

We were able in the Wyoming area, even though this should have showed up in production volumes coming out on the C3. I think it's always a good thing to pay attention to the C3+ volumes, as obviously the ethane comes in and out based on pricing. C3+ is kind of a better indicator of what's available on a regular basis. But I would say that the Patrick Draw Facility in Wyoming that we picked up earlier in the year, which was an adjacent plant to Echo Springs, shows up and those volumes came directly into our system as well. We also picked up some volumes off the competitor pipeline there during the bankruptcy process from South Glynn. Those volumes flowed into this as well. So there at Echo Springs and our Wamsutter facility have really been able to pick up the equity volumes that are coming to us. Some of that equity would have gotten produced, some of it would have gotten on a competitor pipeline. All of that is now coming into our pipeline. That's some of that pickup you see.

Okay. I appreciate that.

Your next question comes from the line of Chase Mulvehill with B of A. Your line is open.

Good morning, everybody. I guess you spoke briefly about responsibly sourced natural gas during the prepared remarks, but just a quick follow-up here. And I'd like to ask if you're seeing more interest from LNG liquefaction operators or really more interest from utility customers. And then I guess if you look at this, responsibly sourced natural gas, what's really the constraint to seeing quicker market adoption of responsibly sourced natural gas?

Hey, this is Chad. Thanks for the question. What I would say is that we are seeing strong interest from both LNG off-takers and utility customers. We have a wellhead-to-water and a wellhead-to-market of strategy with respect to responsible sourced gas, and we have been extremely focused on our plans. As Allan mentioned, we have a very credible solution in place. I would tell you that we're clearly seeing a need within the marketplace to demonstrate not only within our footprint but working with our upstream partners and with our downstream customers to really track the full life cycle emissions footprint of the gas that flows through our systems. We will be announcing several solutions that we are going to be focused on delivering for our customers. We have been in discussions with several of our customers where we think we can marry the solutions that we're developing with our producing partners efforts, as well as our LNG customers and our utility customers. We want to be able to shine a very credible light on the gas that we move versus drive down as admissions over time, and just circling back to Alan's comments. Also, the Transco system is the largest, most flexible pipeline system in the United States. We have the benefit of having multiple lines and our right of way. We can do a lot with that system to demonstrate a lower emissions footprint today. And to show a continually decreasing emissions footprint over time, we want to make sure we can do that in a very credible manner. I do truly believe we're working with the Sequent team to market responsibly sourced products, and we are seeing a real intense focus on that front to the point where we've even had meetings with utility customers that have told us they are looking at the midstream providers to understand the emissions footprints of their potential gas supply. They're going to factor that into their decisions with respect to how they source their gas. We think that sets up very well for us because we've got, I think, the most modern, most efficient system in the United States.

And some quick follow-up on Sequent, I guess, first on responsibly sourced natural gas, are you seeing responsibly sourced natural gas get a premium out in the market today? If not, what do you think will be the catalyst where responsibly sourced natural gas will actually start getting a premium out in the market?

I wouldn't consider it in terms of premium. I believe the demand for our space will continue to drive responsibly sourced gas, regardless of whether you view it as a premium or eventually as a competitive cost. This will be reflected in natural gas prices and the demand for it. There have been a few marketed responsibly sourced gas products, and they may seem attractive at a small premium. However, I should note that no one has yet effectively tagged a responsibly sourced gas product from wellhead to water in a way that can be credibly marketed. We don't think about it in terms of premium; instead, we see it as beneficial for us, differentiating our offerings to customers and supporting both their goals and our emissions targets.

In the current environment, it's important to consider that someone will commit to a long-term supply, even if it's based on indexed pricing that competes in the market. They will want assurance that the supply is viewed positively. I believe when it comes to long-term contracts at index pricing, people will be asking relevant questions. Right now, there seems to be a shift toward responsibly sourced gas, especially if there is proof or demonstration that it can be verified. This concept has gained traction, and there is considerable support across the industry to make it a significant factor in marketing. We definitely want to be involved in this initiative, but it must be credible, dependable, and backed by strong data that could eventually be tradable. That's our focus.

It all makes sense. Appreciate the color. I'll turn it back over.

And our final question comes from the line of Sunil Sibal with Seaport Global. Your line is open.

Good morning, folks. And thanks for squeezing me in. My first question related to the $1.2 billion of high return growth projects that you've highlighted in your capital allocation framework. I was just curious. I think you talked about some big projects in Gulf of Mexico and then, obviously, on the gas side, about the Atlantic projects. Are there any other big projects we should be thinking of when we think about that $1.2 billion annual spend?

I think that pretty well got it captured. I think the $1.2 billion on normal capital spend is going to go first to the big projects on Transco, some of which we've mentioned today, our continued gathering system expansions. Even though those are more limited. We're really excited about the dollars we're investing right now in the deep-water Gulf of Mexico to support big clients like the Well Prospect. So the deep-water Gulf of Mexico is going to be a real driver of growth as you look out three years. And then beyond that, as we've mentioned, many times, investing in the modernization of our rate base, which will come with emissions reduction along our systems. About $400 million of solar projects that we are moving rapidly through the development stage right now and starting to move towards execution on those projects. Those are the primary drivers that haven't really changed a whole lot. I would say some of the projects on Transco are moving up from our development list into the execution list. But other than that really not a whole lot has changed since we laid out our capital allocation footprint.

Okay. Got it. And then one thing related to that, so is 3.5 to 4 times kind of leverage level the right way to think about the additional debt, which could come with those kinds of capital spend?

I would say that our decisions will be influenced by the relationship between our stock price and the cost of our debt. If our stock price declines or yields increase in relation to our 10-year debt, funds would likely be directed towards buying back stock, allowing us to operate at the higher end of that leverage range. Conversely, if that situation doesn’t materialize, you might see a decrease in that range depending on how much we invest in the modernization projects we discussed. These are the main factors we'll be managing. I want to emphasize that the impact is significant as our EBITDA grows and we continue investing in profitable projects. As our EBITDA increases, it positively affects our debt metrics, and these changes can happen quickly. This isn't just a projection; we're currently experiencing real-time improvements in our debt metrics alongside our EBITDA performance.

Okay, got it. And then once again related to that. So when I think about your 10-year bonds you use versus the market, obviously this year, it's kind of come in a fair bit. But what do you think is a normalized kind of metric to look at when you think about your stock buyback decisions?

From a debt yields standpoint, it feels like we're probably going to be hovering in this 2.5% to maybe 3% range for a while on the one hand feels like treasury rates start to move a little bit now. So we'll have to see what happens on that front. Credit spreads though, I think we're performing obviously very well and I think the sector is performing fairly well as we've seen. Credit spreads tightened a little bit. We just saw that in our recent bond yields, incredible demand for our mid-part papers. So I don't think we expect long-term rates, 10-year rates with the 2.5% range, but it doesn't feel like probably going to be 3.5% or 4%. So that's the first part of your question. How do we see rates? Probably 3%. The other part of your question might be getting what's the multiple? And we're not disclosing that if that's your question on dividend yields relative to that 10-year rate. We feel smart really to signal to the market with that point is.

Got it. I thought I would try anyways. Thanks for all the color.

Fair enough.

I will now turn the call back over to Alan Armstrong for closing remarks.

Okay. Well, great. Thank you all very much for joining us. Really excited to present for the benefits of all the hard work of our employees around the company that produced such a terrific quarter, both through continued great operations as well as a lot of the transactions that we've executed this year that are driving some of these. It's a real pleasure to talk about great performance that the organization has produced. We look forward to doing that in the future many times more, so thank you all very much for joining us.

This concludes today's conference call. Thank you for participating. You may now disconnect.