The Williams Companies, Inc. (WMB) CEO Alan Armstrong on Q1 2022 Results - Earnings Call Transcript

The Williams Companies, Inc. (NYSE:WMB) Q1 2022 Earnings Conference Call May 3, 2022 9:30 AM ET

Company Participants

Danilo Juvane - Vice President of Investor Relations

Alan Armstrong - President and CEO

John Porter - Chief Financial Officer

Micheal Dunn - Chief Operating Officer

Chad Zamarin - Senior Vice President of Corporate Strategic Development

Conference Call Participants

Brian Reynolds - UBS

Chase Mulvehill - BofA Merrill Lynch

Praneeth Satish - Wells Fargo Securities, LLC

Gabriel Moreen - Mizuho Securities

Jeremy Tonet - J.P. Morgan

Michael Lapides - Goldman Sachs

Jean Salisbury - Sanford C. Bernstein & Co., LLC

Sunil Sibal - Seaport Global Securities

Alex Kania - Wolfe Research

Operator

Good day, everyone. And welcome to the Williams First Quarter 2022 Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. Danilo Juvane, Vice President of Investor Relations and ESG. Please go ahead.

Danilo Juvane

Thanks Sara, and good morning, everyone. Thank you for joining us and for your interest in the Williams Company. Yesterday afternoon, we released our earnings press release, and the presentation that our President and CEO, Alan Armstrong and our Chief Financial Officer, John Porter, will speak to this morning. Also joining us on the call today, 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 remark and you should review it. Also included in the presentation materials are non-GAAP measures that we reconciled to generally accepted accounting principles and these reconciliation scheduled appeared at the back the base presentation materials.

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

Alan Armstrong

Thank you, Danilo. Our natural gas focused strategy continued to deliver steady, predictable growth and this past quarter was certainly no exception. In fact, we posted yet another quarter of record EBITDA driven by growth across all four of our core business segments as well as our Upstream JV operations. We continue to set new records for contracted transmission capacity, and expect this record breaking performance to continue for many years to come as we execute on the six unique transmission expansion projects totaling 1.9 Bcf per day, and our GMP business remain strong with modest growth during the quarter expected to ramp up over the balance of the year. We continue to further advance our clean energy strategy through tightly aligned deals announced this quarter, including our acquisition of the Trace Midstream assets in the fast growing Haynesville region, which just closed this past Friday, and through our partnership with Context Labs, that I'll detail more when we get to our key investor focus areas.

Overall, we expect strong natural gas market fundamentals and steadfast project execution to drive additional growth for our business in ‘22. And as a result, we are raising financial guidance with expectations of another remarkable year of growth. Importantly, the midpoint of this new guidance is beyond the top of our previous range. So an impressive start to the year with a number of clear catalysts for growth for the balance of the year and into ‘23. And now I'll turn it over to John to go through the results for the quarter and our raised guidance. John?

John Porter

Thanks Alan. So starting here on slide 1 with a summary of our year-over-year financial performance. Overall, ‘22 is off to a strong start. We've seen 7% growth in EBITDA or 13% if you adjust last year to remove the favorable effects of last year’s severe winter weather, including winter storm Uri. And as we'll see on the next slide, our core natural gas focus transmission and gathering and processing businesses have fueled this EBITDA growth. Although, we have also enjoyed continued strength in our Upstream and marketing businesses. Our adjusted EPS increased 17% continuing the strong trend of double digit growth we've seen now for many years. Available Funds from Operations, AFFO grew a bit more than EBITDA continuing the trend of strong growth in this measure, up 16% year-over-year. As a reminder, AFFO is cash from operations including JV cash flows, but excluding working capital fluctuations. If you compare AFFO to our capital investments of $316 million, and our dividends of $518 million, you see that we generated over $350 million in excess cash for the quarter.

Also, you see our dividend coverage on this page based on AFFO continues to be very strong at 2.3x. Our debt to adjusted EBITDA metric continues to improve based on our strong growth and EBITDA and cash generation and our capital investment discipline. You see a nearly four tenths or 9% improvement in this measure in only a year.

So now let's move to the next slide and dig a little deeper into our EBITDA results for the quarter. Again, another strong start this year with 7% growth reflecting the combined effect of the performance of our core business, and upside in our upstream operation. Walking now from last year's $1.415 billion to this year's $1.511 billion we start by isolating those favorable effects from last year’s severe winter weather which were $77 million, and are shown here in gray.

Maybe just a quick opening comment regarding expense trends since inflation has been such a big topic lately, we've actually continued to see very solid cost control in our business. You may have noticed the $34 million increase in operating and maintenance expense on the face of our income statement. But this is really driven by a combination of higher reimbursable expenses that are offset in other fee revenue, new lease payments that were just the plan part of Transco’s Leidy South expansion project, and finally operating expenses associated with our new upstream operations. And related to the $31 million increase in SG&A on the face of the income statement, you should know that this is pretty much entirely related to the addition of the Sequent business. That also includes their bonus accrual and also an $8 million credit reserve related to a small customer bankruptcy.

Moving next to our upstream operations on the waterfall chart here included in our other segment, upstream operations were at $56 million, excluding the $22 million of winter weather benefits from last year. Importantly, our first new Haynesville production only began in April so really no contribution in this $54 million yet from Haynesville. So the full amount of the growth is attributable to our Wamsutter properties. And it's a bit of an apples to oranges comparison at that. As a reminder, last year, we owned 100% of the acreage we acquired from BP only for February and March. But in the first quarter of this year, we owned 75% of the Wamsutter upstream JV which now includes the combined BP, Southland and Crowheart acreage.

Shifting now to our core business performance. Our Transmission and Gulf of Mexico business improved $37 million, or 6%, primarily at Transco and largely from the Leidy South Expansion Project, which came online in phases last year. Overall, our average daily transmission volumes for Transco increased over 6% versus the prior year as we once again saw record winter natural gas demand. And Transco’s revenues are driven by reserve capacity, not actual throughput, but continued growth in actual throughput does highlight the criticality of Transco’s service. We also saw higher margins in our Gulf of Mexico business.

Our Northeast G&P business increased $16 million, or 4%, driven by top line gathering and processing revenue growth on slightly lower volumes. G&P rate growth was supported by a combination of factors including higher commodity base rate, annual fee escalation and other expansion related fee increases that more than offset lower cost to service rate at our Bradford franchise. The slightly lower year-over-year Northeast volumes in the first quarter were anticipated in our initial guidance, and we expect a continued quarterly increase for the remainder of the year compared to the first quarter of ‘22 levels. We continue to expect a gradual increase in overall Northeast volumes throughout the remainder of the year. But ultimately, our plan for the Northeast in ‘22 continues to see higher EBITDA versus ‘21 on pretty flat volumes.

However, we are well positioned to resume stronger volume and EBITDA growth in the Northeast in ’23 driven by several expansion and optimization projects underway that Alan will discuss in more detail.

Shifting out to the West, which saw an impressive $35 million or 17% improvement over ‘21. In the West, we continue to see upside from our commodity price expose rates in the Barnett, Piceance and Haynesville as well as substantially higher volumes in the Haynesville that drove an 11% overall increase in volumes for the West. In the West, we see a strong quarter-over-quarter growth trajectory throughout the rest of the year, and especially in the second half of the year, driven primarily by strong drilling activity in the Haynesville.

Next, you see a $30 million increase in our Gas and NGL marketing services business, which includes both our legacy gas and NGL marketing business as well as Sequent. This improvement was primarily caused by the addition of Sequent in July of last year. Overall, this segment produced $65 million of EBITDA. As a reminder, the first quarter of each year is typically when Sequent creates the majority of its EBITDA. And this was a strong performance for the team. While we expect to see $50 million to $70 million of annual adjusted EBITDA contribution for this combined segment, Sequent plus our legacy marketing business, this year we've gotten off to a stronger start than expected. And with the strong commodity price expectation for ‘22, we expect to exceed this $50 million to $70 million range. So again, another strong start to the year with 7% growth in EBITDA at over $1.5 billion, driven by core business performance and upside in our upstream and marketing operations.

Let's move to slide 3 to look at our latest financial guidance thoughts for full year ‘22. We are pleased to share a substantial improvement in our ‘22 financial guidance versus what we provided in February of this year. I won't go through each of these metrics, but we'll offer some commentary on the most pivotal numbers. Let's start with adjusted EBITDA where our midpoint is increasing $250 million, moving from $5.8 billion to $6.05 billion with the [tightened] (ph) range of plus or minus $150 million versus the original plus or minus $200 million. This substantial raise in EBITDA guidance is grounded in our confidence and the continued growth in our core business before considering the Trace acquisition. Specifically, we expect steady quarterly EBITDA in our Transmission and Gulf of Mexico business through the remainder of the year. The continued quarterly EBITDA and volume growth from our West and Northeast segments, with some level of acceleration through the second half of the year. Additionally, for the remainder of ‘22, we expect a growing contribution from the Trace acquisition, which closed last week as it moves towards the targeted approximately 6x acquisition multiple based on its ‘23 EBITDA.

And finally, with respect to our upstream operations, we are encouraged by the results we've seen thus far in ‘22 and remain confident in the fourth quarter exit rates we quoted at our Analyst Day. Shifting down the page now to growth CapEx you'll note a $1 billion increase in guidance from a combination of the $950 million Trace acquisition value and other Trace related CapEx. Note that we've closed the Trace acquisition using a combination of cash on hand and other sources of liquidity including our revolver and commercial paper. You see that our debt to adjusted EBITDA remained steady at 3.8x reflecting the balancing of our increase EBITDA with our increased growth capex portray. The remainders of the guidance items either changed in relation to the change in EBITDA that I just discussed or remain unchanged as in the case of maintenance CapEx. So again, a substantial increase in EBITDA dollars at the midpoint driven by continued growth in our core business as well as contributions from Trace acquisition and sustained expectations for our Upstream JV operations.

So with that, I'll pass it back to Alan to review our key investor focus areas. Alan?

Alan Armstrong

Okay. Well, thanks John. I am going to move on to key investor focus here on slide 4. Our natural gas focused strategy continues to play out with strong fundamentals that are driving incremental growth opportunities particularly as we continue to see increasing demand for US LNG exports along the Transco corridor, as well we’ve seen domestic demand for power and industrial sectors continue to grow despite much higher natural gas prices, admittedly, it has been somewhat surprising to us how inelastic the challenge ahead to meet this higher cost of supply is the infrastructure to connect some of the world's lowest cost supplies to this burgeoning demand. I'll point out that Transco delivered a record breaking 17.15 million dekatherms on January 3rd and while extreme winter day deliveries this volume record. It was due to growing demand in the Transco markets. And we expect this natural growth in demand to continue as we continue to see loads within our existing footprint. Our G&P business continues to thrive in the current environment, allowing us to capture the upside benefit of pricing and inflation adjusters in our rate that have been sitting on their floor for many years and we continue to execute our upstream JV strategy by realizing the near term benefits of its commodity price exposure while setting the stage for continued use of our latent midstream capacity in the longer term as these volumes grow.

And now I'm going to move on to our financial strength and stability. And as detailed earlier by John we increased our guidance midpoint to $6.05 billion driven by the following. First of all strong base business performance with volumes in the Northeast G&P business expected to rebound for the balance of the year. And of course this along with the higher rates that we're seeing in some of our consolidated assets is got to set up for a very strong performance for the balance of the year. Strong performance of our Gas and NGL marketing business in first quarter, and the growing volumes and our Upstream JV, which are enjoying higher than planned pricing is another driver.

And finally, incremental volume and earnings from the Trace acquisition as we've mentioned earlier, with our recent updated guidance, we expect to achieve a four year EBITDA CAGR now at 7% and an impressive EPS CAGR of 19% at our midpoint. On the whole, our business continues to fire on all cylinders, driving our financial strength and stability. And the picture actually just keeps improving, as we have been well positioned to capture the upside in this environment. Looking now at our exposure to growth, given the current strength of natural gas fundamentals in the US and abroad, we see a significant runway of growth opportunities for Williams. First of all, we now have 1.9 Bcf per day of high return Transco projects that have now moved into execution. This has been raised since our Analyst Day due to recently secured customer commitments to advance the Texas Louisiana Energy Pathway Project, which moved out of the development bucket index accusation and this project connects low cost South Texas gas supplies with LNG markets in Louisiana.

Second, in the Gulf of Mexico, we secured another customer agreement at Salamanca further building on growth momentum in the Deepwater Gulf of Mexico, which continued to deliver more and more opportunities in response to these higher oil prices. In the Northeast, we've reached agreements with our producing customers for significant gathering expansions in both the rich Utica and the rich Marcellus. And we now have four significant expansion projects under execution that will drive growth showing up later this year and in 2023. And our strategic bolt-on acquisition of assets from Trace Midstream close last week, and this now positions Williams as the second largest gas gather in the fast growing Haynesville. This is consistent with our long held strategy to seek a number one or number two position in the key basins in which we operate. With our Haynesville gas gathering capacity now about4 Bcf per day, we continue to crisply execute on our wellhead to water strategy. In fact, we are close to commercializing the Louisiana Energy Gateway project. And given significant interest by its various shippers, we do expect to announce a final investment decision on that project soon.

Our growth prospects don't stop with these projects however, we see more opportunities on the horizon even as we navigate in evolving regulatory environment. Importantly, we saw that FERC respond to concerns from both industry and legislators in a constructive manner this past quarter, and we are optimistic that regulators recognize the need for reliable permitting process to support natural gas infrastructure. Importantly, key legislative leaders have renewed their focus on streamlining permitting in our country to ensure we've got the necessary midstream infrastructure to support our country's LNG build out goals.

And finally, let's look at the developments related to our new energy ventures. Obviously, as we think about de-carbonization, there are a lot of opportunities to invest in energy innovation and new technologies. As part of our strategy to accelerate the next generation energy marketplace, Williams has established a Corporate Venture Capital Fund that is set up in a way to support direct investments in startups that leverage Williams’ assets for de-carbonization solutions, as well as limited partnership funds that specifically invest in low carbon technologies. A great example of how we're utilizing this VC fund is our recently announced partnership with Context Labs on a technology solution to support the gathering, marketing and transportation of responsibly sourced natural gas from wellhead to end user. And by leveraging the Context Labs technology, we will enable supply and delivery decisions that connect the cleanest energy sources to meet real time energy needs across the country. Also supporting our work in the space we just announced a collaboration with Cheniere Energy to implement a QMRV pilot that will further the development of advanced monitoring technologies to enhance clean energy supply and delivery for Williams and its customers. So lots of exciting things happening in this space and all positioned around supporting and enhancing our natural gas focus strategy.

So in closing, I'll reiterate that our intense focus on our natural gas focus strategy has built a business that is steady and predictable with continued growth, improving returns and free cash flow. Our best-in-class long haul pipes are in the right place serving the very best markets and 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. These gathering assets are irreplaceable and critical infrastructure within the natural gas value chain. And our Sequent platform that extends across the natural gas pipeline and storage industry is providing infrastructure optimization services that create value for Williams and our customers while mitigating downside risk. You've heard me say it before, but 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 priorities 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. And finally, as we look overseas to the energy crisis in Europe, and its ripple effects on energy security, the importance of affordable and reliable energy supplies on a global scale has now taken center stage. Williams is excited about the important role we will play in meeting the dual challenge of delivering increasing amounts of reliable affordable energy, while also continuing to decrease greenhouse gas emissions around the world. Utilizing our critical infrastructure that is connected to the best natural gas basins in the US to increasingly serve LNG export facilities. And growing US demand for clean affordable energy is a great place for our organization to start

And with that, I'll open it up for your questions.

Danilo Juvane

Operator, please open the Q&A line.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Brian Reynolds of UBS.

Brian Reynolds

Hi, good morning, everyone. Maybe to talk on the EBITA guidance a little bit, I was curious if you could provide a little bit more colors, the upside and downside of the EBITDA range. First look at apples-to-apples comparison seems like commodity exposure is really the main driver of guidance in addition to the Trace acquisition. I am just wondering if you have anything to add to that, in addition to that, if there are any volumetric assumption changes to the guidance update. Thanks.

Alan Armstrong

Yes, actually, the drivers are kind of primarily as you stated that the driver absolutely are based business. If you look at first quarter volumes in the Northeast, and you consider the rebound that we're seeing from very active drilling operations, a lot of that in the third and fourth quarter just due to infrastructure issues, but on our part, but that is the primary driver is just seeing a nice rebound in the Northeast. Actually, we're, I would say we're being pretty modest in our expectation of pricing. And in fact, if you look at this quarter, Haynesville really didn't even produce this quarter, other than the base level it's been producing at and certainly didn't contribute to EBITDA. So the upside that we have is really just from volumetrics, those with a pretty modest assumption on pricing for the balance of the year. So really the drivers, the primary driver for growth is first, our base business and second, the E&P in the Haynesville and that ramp up that is going very well at this point but did not contribute in the first quarter. And then finally, is the Trace acquisition in that order in terms of the value.

Brian Reynolds

Great, appreciate that color. And then maybe as a follow up on just the evolving regulatory environment, it appears that there's some near-term tailwinds and support natural gas and LNG infrastructure permitting. I was curious if you could comment on this evolving environment and curious if Williams is considering adding new Transco growth projects for FERC approval for the docket that may not have been pursued in the last year, the beginning of this year? Thanks.

Alan Armstrong

Well, I would just say, first of all, we have a long list within that six projects that are under execution. And we are encouraged in our discussion with the FERC. And their clear desire to see good projects that reduce emissions in the markets they serve. And so I would say we're very fortunate to have a number of projects that actually reduce emissions in the markets they serve. And so we certainly are seeing support out of the FERC and obviously, they've been moving projects through pretty quickly. On the increment, I would say nothing really changed that much for us, it's just kind of a steady beat, right now of continued demand from customers and RFPs that we're responding to and working with customers on. So I will say that, I think on the one hand, you kind of have this popular notion that gas demand is not increasing. And on the other hand, the reality is it is increasing. And we're certainly seeing that through RFPs coming from our various customers on the demand side. So we're pretty excited about the way the future is shaping up on that front. And we do think particularly at FERC level, that they are being supportive, particularly of projects that we can demonstrate reduce emissions in the markets we serve. And we have a great track record of working with the FERC in a constructive manner. And we expect that to continue.

Operator

Your next question comes from the line of Chase Mulvehill from Bank of America.

Chase Mulvehill

Hey, good morning. I guess the first question is just really on LEG. It sounds like that you guys are getting close to FID in that. Could you talk about I guess how much contracting that you still have left that you need to accomplish and how much capacity that you expect like to be in maybe the total cost there as well. And I'm going to follow up after that.

Chad Zamarin

Sure, hey, this is Chad. So LEG is at full capacity to 1.8 Bcf a day project, we have over half of that contracted today, we would expect to achieve sufficient level of commercial contracts over the next couple of months to FID the project. We see a pretty significant need for volumes that are growing in Haynesville to get to Gulf Coast markets. And so I would feel pretty good about that getting done. Mike Dunn is going to talk about the capital project.

Micheal Dunn

Yes, I would say so the capital cost estimates are really pretty much in line with the other projects that we've been executing on the large diameter type activities. We're not ready to disclose the actual capital investment opportunity there. But I mean suffice to say that the returns are very nice. And the fact that we also have options on the pipe right now really tells us that we are locking in on what we think the cost will be, just because the volatility of steel prices right now are pretty uncertain. And that's been going on for quite some time now. And we were able to acquire some options on some surplus pipe from cancelled projects, you can apply that towards the LEG project. So we feel good about the material costs right now that we have the budget and certainly feel pretty good about the capital costs that will take to construct it, based on what we know today.

Chad Zamarin

Yes, and important to just remember that when we executed on the Trace acquisition Quantum did, and we announced the Quantum will be an equity partner in the project. So that'll reduce our capital load a bit. And it could be that we bring in an additional equity partner in the project. So we will I think de-risk a portion of the capital budget and benefit of creating that full value chain from truly wellhead to water across our infrastructure and we'll work with our partners on the project to optimize the entire value chain.

Chase Mulvehill

Okay, all right, perfect. The quick follow up is just directly on that strategy of wellhead to water. We do get questions from investors about midstream and if they would ever consider LNG export facilities, obviously, we've got one of your peers out there that obviously considering this. So I guess my question to you is, would you ever consider building an LNG export facility?

Chad Zamarin

Yes, I'll start and then Alan follow up. I'd say for the Haynesville strategy, the wellhead to water, there's a pretty good existing footprint of LNG export facilities that we're focused on connecting to. We are the largest infrastructure provider to the LNG terminals across the entire footprint. So for the near term, our focus is on making sure that our customers can access those LNG terminals. And also we can connect our customers to the very best markets, whether those are domestic or international. So I think our strategy of building that full value chain is not dependent upon us building and operating LNG terminals. And so our strategy today is to serve as a reliable supplier to LNG export terminal and then increasingly provide access to our customers to those LNG markets. I don’t know, Alan, if --

Alan Armstrong

Yes, no, I think you said that very well, Chad, I think, obviously, there's a lot of project debt that's utilized in that space today that gets those down to some pretty low cash on cash returns that we think is a great way to make sure there's plenty of capacity to get out if we determined that there wasn't going to be plenty of capacity to get out. And we might consider that but as it sits today, looks like there's plenty of new capacity that is trying to get built and at low costs. And fairly low returns given the project financing things like this project. So we see better places that we can put our capital to use better today than they are. So that keeps us focused on the areas we have very strong competitive advantages, as Chad pointed out.

Operator

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

Praneeth Satish

Thanks. Good morning, just staying on the Haynesville. There's a lot of midstream companies now that are evaluating takeaway projects, including you guys. I guess my question is, how competitive is it to secure contracts for a new pipeline? I mean I know you have a head start on LEG because of the Trace deal. But do you think you can generate the same return on LEG as you would on Transco projects? Just trying to get a sense of competitiveness.

Alan Armstrong

Yes, that's a great question, I would say generally, probably not is because our returns on Transco have gotten to be very much higher than then the normal projects. And thanks to the efforts of the environmental opposition and making pipeline permitting so difficult in the areas that we operate, it's allowed us much higher returns in that space than would normally be allowed. So yes, it's definitely more competitive. We like it. Because we've got follow on business upstream and downstream with Transco. So it makes the kind of total incremental return on those projects attractive, but it is not as high as kind of bolt-on expansions that we see on Transco today just because of our strong competitive position in those areas.

Praneeth Satish

Got it. And then maybe if you could just give us an update on producer activity in the Northeast, sounds like you're positive given the gathering expansions you've announced, but do you see the potential for a more meaningful volume increase in 2023? And then maybe tied to that where do you stand in terms of NGL volumes versus frac capacity? Do you see the need to expand frac capacity at any point over the coming years? Thanks.

Micheal Dunn

Good morning, this is Michael, I’ll take the Northeast question. We saw in the first quarter of this year, really a convergence of several things that impacted volume in the Northeast, really across the entire basin. And a lot of that was driven by reduction increases that occurred in the fourth quarter of ‘21, where a lot of producers accelerated their well path connections early in order to hit great exit rates for the end of 2021, which was great for our systems. And we saw a lot of peaks on our systems in 2021. But that obviously hurt ‘22 performance in the first quarter with all of that really execution and then the decline that occurs from those new wells. So we saw that and we saw really significant winter weather in the Northeast this year, something that we haven't seen in several years of this magnitude and that did impact a lot of the production from the producer freeze off. And not only just on our systems and the producers on our systems, but the production that was gathered by others that would be brought to our processing facilities. We also saw some impacts there. So we did see inlet plant volume declined because of that. And then finally, we had a producer that had the well path that came online that had significant levels of condensate, which is good for them from a production standpoint, and it overwhelms their facilities. And so they weren't able to bring those volumes to us until they rectify that situation. And so that's been fixed. But that did impact some significant volumes from that producer in the quarter. So we had several big items that impacted that and developed and we expect an acceleration of volume coming on between now and the end of the year. And we have talked about volumes in the Northeast being somewhat flat this year, from some of the producers talking about being in maintenance mode, but we do see 2023 shaping up pretty well with the four expansions that we have underway across all of the dry and rich basin in the Northeast.

Alan Armstrong

And just to be clear, when we say we're talking about flat volumes that we're saying flat to ‘21. So it'd be a growth point from where we are here in the first quarter for sure.

Operator

Our next question comes from the line of Gabriel Moreen from Mizuho.

Gabriel Moreen

Hey, good morning, everyone, with some of the gathering contracts now it sounds like being off the minimums from I guess commodity price standpoint, I was wondering if there's a possibility for getting enterprise rise rules some for sensitivity to net gas prices overall. And I'm also just curious, what gas price forecasts are using in your guidance now?

Alan Armstrong

Yes, thanks for your question. I don't think we've released that sensitivity on price. We have said the contracts that we have, there are around our Laurel Mountain midstream business with EQT in the Marcellus has that feature as well as the Barnett gathering contracts in total and with total in the Barnett Shale, so those are kind of the two primary areas of exposure to those. There's a lot of areas of smaller ones, but in terms of any significance, those are bigger ones. But we have not provided that. In terms of the pricing that's in there, I would just tell you, it's, we're not counting on the kind of current pricing that we have, obviously for the balance of the year. And so we're being I would say a bit conservative about what we expect for the balance of the year, because we do think given the kind of growth that we're seeing in both the Haynesville and it's gearing up in the Marcellus and Utica that the workflows do, we can't very well on one hand, see the kind of prices to remain at these levels. And so I would say that those two things have to be considered jointly.

Gabriel Moreen

Got it. And maybe if I can just ask one follow up on the Haynesville. After, hopefully, like FIDs in a not too distant future just how you're feeling about your current footprint there relative to kind of where you want to be, clear there's some other assets, I think that are out there on the market. So maybe you could just kind of speak to that as your balance sheets kind of giving you more room here, I think to play some more offense.

Alan Armstrong

Yes, I would just say, we're as usual, we're going to be patient and picky and we've done that, and that served us well. In the case of Trace, we kind of caught that at from a timing standpoint. I think we caught that at a great timing, and we had unique considerations that we had to offer Quantum and Rockcliff they're both in terms of access to LNG markets via our LEG and Transco systems as well as an interest in LEG with Quantum which was valuable to them so we will continue to look for those kind of unique opportunities as they pop up where we've got significant value that we can add between us and environs, so I wouldn't say we're not going to look at everything because probably will, but I think we'll remain fairly patient and picky about how we choose our points of growth.

Operator

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

Jeremy Tonet

Hi, good morning. Just wanted to touch on Appalachia a bit more and I guess the production outlook there and given how egress constraints impacts up production, just wondering now they have Mariner East online, you have the shell cracker coming here. With higher I guess egress or demand for NGLs? Are you starting to see any more pivot towards liquids rich areas? Or is it really focused still on dry gas more given the higher prices? Just wondering how your conversations with producers are going now when do you think -- how do you think that shape through could growth materialize this year or next year do you think, seems like it's --

Micheal Dunn

Hey, Jeremy, it’s Michael. We are seeing growth expectations increasing for ’23 in both sides of the rich and the dry. We've got an expansion in Northeast PA underway that comes on line in 2023, unlocking additional volumes through our gathering system and the expansion that we spoke of are really done in the rich areas so we're working with [Ancino] who is the producer of [Indiscernible] acreage from Chesapeake years ago. They have access to both rich and dry and the Flint Cardinal gathering systems that we have and they can found those -- both between the dry and the rich so they have that benefit of being in close proximity there. And so they're just taking advantage of capacity when it becomes available. And we have some interconnect that we're increasing capacity to be honest, well, to put digital volumes and execution at Grover from those systems and so those will come online next year but in fact just been locked our capability to move gas out of the system and then taking advantage of latent capacity so they'll [Indiscernible] pipeline so I would say we are seeing pretty excited growth coming into ’23 from definitely the rich side with the support of NGL and condensate prices that are tied to WTI. And right now we are seeing our processing complex in the OEM as [Indiscernible] where we had some impact as I said earlier from the winter weather with production being hit into those systems. We are back full now and we're working on our interconnect between our OEM systems and the Blue Racer system so that we can utilize link capacity there when it’s available and vice versa, ultimately, and so that will certainly unlock some additional opportunities there to continue to grow rich volume.

Jeremy Tonet

Got it. Thanks for that and just wanted to touch on higher net gas prices a little bit more, if I could. And whether these higher prices impacts you thoughts on monetizing William Center, Haynesville, ENP assets given the strong price in gas here. And at the same time, higher prices, more volatility leading to wider basis differentials. Do you see this kind of maybe driving more upside in through the Sequent operations in the near term given this backdrop?

Alan Armstrong

Yes, great question, Jeremy. And I will tell you, I've been really impressed with the way our commercial teams have been working together on Sequent, so I'm going to go into the back -- to the end of your question for really, if you think about Sequent and the way that they run the business of optimization, being in a basin that is starting to get crowded from the transport standpoint and start to have volatility in the bases and allows to capture an aggregate supplies into then turning that into an infrastructure solution is exactly what we bought Sequent for. And that's turning in to be a pretty powerful tool for us and probably while I've certainly expected over time for us to get there, I've been very impressed how quickly the teams have come together to materialize some opportunities on that front. So really excited about that. And I think not just the nice performance that we got out of Sequent here in the first quarter, but as well, just seeing strategically what it's doing for us in terms of intelligence in the basin, and dealing with volatility in basin, as markets grow. And optimization of capacity becomes critical as you get up near the limits of the basins, capacity to export. Again, that allows us then to aggregate those supplies that need optimization, and then that of course, gives us a front seat as it relates to infrastructure solutions for that, so really that has gone according to plan and then some I would say.

On the question of monetization of the EMP business, remember that first on the long starter, our primary goal and the real value there is for us to build getting those volumes built up and so the structure that we have today there with Crowheart which incense them to, in very powerful incentive to dramatically grow volumes. And then that cash margin of that kind of regardless of pricing environment that cash margin that flows back to us through the midstream asset is exactly what we're looking for, which is obviously a much more durable solution than depending on high prices here in the current environment. So that strategy remains intact. And we remain very focused on getting the volumes built up in that basin before we would think about the next step of monetization, which may very welcome there. On the angel side, somewhat similar, except that in that structure, the undeveloped not existing producing reserves, but the undeveloped acreage does transfer over as that -- as the development is done by GeoSouthern and they are just doing an incredible job, I want to give them a lot of credit here on the way they've been managing as an operator out there on the drilling operations. And we're really excited to see what that's going to mean for us both in terms of responding to this very strong pricing environment we have on gas and here in the near term, but as well the volumes and the cash margin that we'll get from the downstream assets in the longer term. So both of those are going extremely well. But the Haynesville obviously is going to be a much more near term catalyst for growth just given the ability to very quickly attack and drill out the acreage there in the Haynesville, but some of that value will be transferred in the undeveloped acreage not in the producing acreage, but in the undeveloped acreage will transfer over to GeoSouthern over time. Isn't that Chad?

Chad Zamarin

Just that is the pace there. Currently, there are three -- at GeoSouthern is running in the Haynesville on our position and at that pace, we would see that reversion of interest on the undeveloped occur sometime in early 2023. So it's a kind of self-fulfilling in the Haynesville. So that'll happen naturally.

Operator

Your next question comes from the line of Michael Lapides from Goldman Sachs.

Michael Lapides

Hey, guys, thank you for taking my question. One modeling one and one kind of citing and permitting longer term one, just on the modeling one, can you remind us I want to make sure I caught this correctly, what was the Sequent contribution in the first quarter? And what do you expect for the full year?

John Porter

We are speaking to a run rate in our overall combined marketing business of Sequent and our legacy NGL and Gas marketing at $50 million to $70 million for -- on a normal run rate. What we said though, is that the $65 million that segment produced in the first quarter, given the strong start that we've seen, and the price outlook for the rest of the ‘22 means that we'll likely exceed that range for ‘22. But $50 million to $70 million is what we're targeting is sort of a normal run rate for our overall marketing business, which is now combined Sequent and our legacy gas and NGL business.

Michael Lapides

Got it. And then on the permitting front, I know there's lots of discussion in DC about doing things that can make development of gas infrastructure asset easier over time, but we just saw the administration in the couple of weeks, revised the some of the NEPA related requirements for gas infrastructure, which strikes me that would actually make it a little more onerous in the citing and permitting process. And we just saw yesterday, a challenge to a license amendment for a Louisiana LNG project that already has an EIS. I'm just curious kind of from your thinking longer term, what do you think the messages that are coming out across the board or in terms of either from policymakers, environmental groups or others in terms of the desire but more importantly, the process for citing and permitting the asset infrastructure?

Alan Armstrong

Yes, Michael, great question, that model that we study a lot. And I would just say, first of all, that is not a well-oiled machine we're talking about there and I'm not sure if sometimes the right hand knows what left hand doing in that regard and certainly the FERC got some very clear instruction from the Energy and Natural Resource Committee. So I think that was very helpful in terms of getting the FERC lined out. The CEQ activity that you spoke about was certainly a step backwards, but frankly, really the previous path that the Trump administration set on CEQ was helpful, but it really hadn't -- had that much impact yet on but it definitely was a step backwards. I wonder if that was a little better communication within the administration, I kind of wonder if that would have come out, given the need for that and the desire for natural gas infrastructure to get permitted, but it certainly was a step in the wrong direction. I don't really have a comment yet on that EIS and re-licensing issue that you mentioned, I am not familiar enough with that I'd like comment on that. So we have to just say, yes, we think there's a desire from the administration, and certainly from some of the key Senate committees to streamline permitting. But I'm not sure that everybody's moving in lockstep with that amongst the various agencies just yet, but I'm very hopeful, given the direction that FERC responded to. I'm very hopeful that we'll see that -- to see some work.

Michael Lapides

Here just following the changes to the policy statement, making a draft and taking comments, et cetera, or something else along those lines?

Alan Armstrong

Well, I would say a couple of things there. I mean, yes, certainly, that's positive. But as well, we saw a lot of certificates get issued that have been pending for some time there pretty quickly as well post the hearing that the Senate Committee held. And so we thought that was very constructive. And frankly, our discussion with various commissioners indicate that they really are serious about trying to get good projects that have the ability to reduce emissions that are being done within permitted responsibly, including very intense stakeholder engagement. They're serious about getting those permit and we think that’s very thoughtful --.

Operator

Your next question is from the line of Jean Salisbury from Bernstein.

Jean Salisbury

Hi, good morning. And how close do you think the Haynesville is turning out of capacity today? Do you think that it will actually run out [Indiscernible] before the next wave of projects come on? Beginning with go front or it's like not that close, but maybe next year?

Chad Zamarin

Yes, this is Chad, Jean. Good question. I think that the Haynesville, it does have takeaway capacity that we see providing relief through probably the next couple of years. I would just note though, that the traditional angel capacity wasn't necessarily built to the markets that need the gas today. So it's not the most efficient path for getting gas to the growing markets, which is why our Louisiana Gateway project, we think makes a lot of sense, we are targeting that project moved directly from the Haynesville south to grow in LNG in industrial markets on the Gulf Coast. So we do see the capacity that will allow the Haynesville growth to continue over the next couple of years. But we see a need for projects to come online in the 2023-2024, sorry 1.4x timeframe.

Jean Salisbury

Great. That makes a lot of sense. And then sort of a related follow up. We're obviously kind of getting tight on gas takeaway from all of the major tier one databases. Are you starting to see any increase in interest or planned activity from the so called tier two basins like the Barnett or the Flint set the current gas strip?

Micheal Dunn

Yes, Jean this is Michael, we are at capacity. We've got a lot of capacity available at the Rockies, for example. So I would say you'll see some uptick in activity out of the Rockies to move gas out of there with those pipes that were built historically to move that Rockies gas. So there's definitely opportunity to continue to increase from those basins that you called tier two. And we have a large footprint there, certainly in the Rockies. So we're pretty optimistic about that. We're seeing some drilling activity in the Barnett as well. But most of that is keeping production flat to slightly growing on our systems there, a lot of that's been drilled out and it’s more tough environment to drill in with mostly being urban there. But we are seeing some activity that's very pleasing to us with the rate structure that we have there in the Barnett. So I think for us, the producers with takeaway capability and available, you're going to see some increased activity if these prices continue as they happen.

Operator

Your next question comes from the line of Sunil Sibal from Seaport Global.

Sunil Sibal

Yes. Hi, good morning, folks. And thanks for all the clarity on the call. So I just wanted to go back to the venture capital fund, which was mentioned for clean energy and greenhouse gas monitoring. I was curious, if you could talk about the investment opportunity in there in terms of the size and threshold on returns on that?

Alan Armstrong

Sure, yes, I would just say, we're being pretty modest in those investments, we have a pretty tight screening process in that regard. And we're not putting large amounts of capital to work right now on that, but it is important capital, because we do think it has a long term be a differentiator, and we've been very clear with ourselves that we want to think about where the buck is going in that regard. And we do think that reducing methane emissions, and overall greenhouse gas emissions from our natural gas value chain is absolutely essential for natural gas to be the powerful tool and be considered the most powerful tool at reducing an impact and positively climate change. So we are dead serious about making sure that on QMRV front, and our ability to in an unassailable way certify responsibly sourced gas, we think that's going to be very important in the long run. And so that's not super expensive because it's not big capital. But we are certainly engaging our organization and making sure that we don't sit around and wait for really good solutions to be developed, we think there's a lot of efforts going on that front. But we think at the end of the day, those are going to have to be really strong unassailable solutions that people can trust. And whether they're an NGO, or they're a gas producer, that it can be trusted. And so we're very focused on that. And we want to be there on the front lines of that, but it is not big capital, that we're investing in that space right now. In terms of the return component, the areas that we're we are investing more sizable amounts of capital, like in our solar business, we are targeting mid-teens returns on those projects. Obviously, that's not available in the merchant space around renewables today, and we're well aware of that, but given the fact that we've got our own load to serve there, and we've got a lot of the essential facilities already in place. That reduced the capital load on that that's what drives the higher returns here. So Chad, again, if you anything to add?

Chad Zamarin

Yes, if you look at that on the venture capital fund, we have been smart investing alongside proven venture capital investors that's not our core business, and is couple of existing funds. On the Context Labs investment we're actually investing alongside -- Energy Partners they are the largest investor in that platform which again we really like a highly credible investor who and are relatively small minority investment so does allow us to have significant impact over and how that technology will get develop in deployment and we want to make sure that we can help bring to market the very best de-carbonization solution and so I think the strategy of finding really promising technologies partnering with investment platforms that understand these markets and know how to put good money to work and then having RC at the table to influence the direction of the technology so that it achieves the goal that we are all trying to achieve and so that’s how we're approaching the investment strategy.

Sunil Sibal

Got it. Thanks for that. And just one follow up I think you mentioned about the gas prices and I was curious how is that -- production that you have ex player to hedged thought end of 2022 or for 2023.

Micheal Dunn

Yes, So, Sunil thank for the question. As we discussed in Analyst Day our upstream hedging program we've been pretty much focused on supporting our original street guidance and the underlying capital investments that we're making in those upstream businesses protect the plan, upstream gross margin, and those have been at favorable prices versus the original guidance. Couple points, though, because a good portion of our production volumes is really dependent on future production. We generally don't hedge more than about 70% of our expected exposure for the year. Also in this environment with the strong current pricing that we're seeing, we do expect that operators will push for volumes beyond what those original plans were, but until we see those volumes really materialized, we don't intend to hedge more than really 70% of those originally expected volumes. We do as we've already discussed, we do have significant contracts that direct exposure to prices as well above a floor, especially at the Barnett and in the Marcellus. So those contracts also provide us with exposure to gas prices beyond the Upstream JVs.

Operator

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

Alex Kania

Great, thanks. Maybe just a follow up from earlier discussions on policy, but from the administration, you've talked about the agencies, but also do you think that there's a chance that we may be able to see some sort of kind of legislative kind of work being done that maybe kind of is kind of sort of an all of the above sort of strategy coupling clean energy incentives with kind of more focus on natural gas. And then maybe on a related question, on policy, are you seeing kind of this department of commerce review on solar kind of impacting your, I guess, the $100 million or so a placeholder that you've got for solar this year, or kind of whether it's impacting any thoughts for future years?

Alan Armstrong

Yes, I'll take the first part of that, and I'll hand the solar question off to Chad. First of all, I would just say on the policy question, normally, my immediate response to that would be void to a crowded field of issues, and would be hard to get any movement on energy policy. But Senator Manchin has been very well seated and very well positioned to drive to the solutions, and he has been putting forth some thoughts on energy policy, and I'm very, very thankful for that. Because I think the timing is right, to get some attention to that, and to actually come up with an energy policy. People would I think all of us would question whether we've actually had an energy policy or not. And so I think the timing is right for that. And I think getting some clarification on that would really benefit our country and hopefully, set legislation in place that puts aside some of the ways that we continue to stand in our own way as a country and using our natural gas resource as both a powerful economic driver for us which, I think in the next year or so, we're going to wish we had as well as a powerful geopolitical tool, obviously. And so I think the timing is right. And I think we've got a really good advocate for that in Senator Manchin. So I would just say, we're very hopeful on that front. I'll turn the solar question over to Chad.

Chad Zamarin

Yes, I would just say that we are watching proposed tariffs, we're watching the discussions regarding incentive structures for solar. And I will remind you that our solar program is primarily focused on installing solar and facilities where we utilize power that in many cases is more expensive than standalone solar that we can install. And so we are -- the economics of our investments are primarily driven by our ability to install solar projects that, frankly, compete even without incentives, and almost irrespective of some of the cost pressures that we're seeing. So as it relates to the $100 million that we've talked about this year, I'd say not so much affected by the policy issues. But I will say that we have, we're keeping a close eye on supply chain issues, we are under no time demand to install our solar facilities, by date certain and so we are going to make sure that we time those projects appropriately. We don't get caught subjected to higher prices than we need to pay for materials because of kind of supply constrained issues. And so we're keeping a close eye on the supply chain side of things, which has a much bigger impact, we think, at least for the projects that are currently underway, then kind of the policy issues that we're keeping an eye on.

Operator

And I would like to turn the call over to your President and CEO, Mr. Alan Armstrong. Please go ahead.

Alan Armstrong

Thank you very much, and appreciate everybody tuning in today and appreciate great questions. I just want to reiterate here on the backhand that the drivers for the growth for the balance of the year are really powerful and really across our base business, the Marcellus and Utica as we discussed, obviously, the Haynesville growth is powerful. And I think people are starting to see strong evidence of that. Deepwater business, we've got a couple of really nice tie in projects this year that will add to value towards the end of this year. And one set or later this year as our drilling operations pick up out there towards the very end of this year, we'll see volumes in the long side or that of course, will be driving the base business as well out there.

And then finally, as I mentioned earlier, the Haynesville, we really haven't even seen the power of that yet on the E&P side. So first quarter was definitely not driven by that, because that's really a balance of the year and into ‘23. And really attractive earnings coming out of that area as well. So a lot of great quarter, but a whole lot of firepower left here to drive growth for balance of the year and into ‘23. And with that, I thank you for your attention today and look forward to talking to you soon.

Operator

And, ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.