Williams

Williams announced and closed the $5.5 billion acquisition of Momentum Midstream, a Haynesville G&P and transmission service provider. The purchase was financed with $2 billion in equity with the remainder in cash.

Why it matters: Haynesville offers supply growth for both regional LNG and power demand. The acquisition allows Williams to boost its gathering capacity to 7.65 bcf/d (up to 8.4 bcf/d in 2028 with the announced expansion) from 1.65 bcf/d. Haynesville is not a high-quality basin relative to Appalachia. Well breakevens are consistently higher than Appalachia, and growth has been stymied by low-cost Permian gas. It is, however, necessary to meet the incipient wave of demand. We had already anticipated organic growth for the segment tied to growing LNG demand, but the acquisition and announced expansion further boosted our expectations for volumes flowing through the operation.

The bottom line: We are raising our fair value to $69 from $67. In addition to incorporating the acquisition, we also included the previously disclosed joint venture. The primary driver of the increase was the acquisition and associated expansion projects. We see shares as fairly valued, trading in 3-star territory. Our narrow moat, Standard Capital Allocation, and Medium Uncertainty ratings are unchanged.

Key stats: The Blackstone JV, which includes the power supply deals, allows leverage ratios to be comfortably maintained even if more power deals emerge. We had seen Williams' balance sheet improving as the power deals rolled off in 2028 and onward, but we now see substantial capacity emerging in 2027. This will allow Williams to invest aggressively in large projects, should they emerge.

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We are raising our fair value estimate to $69 per share from $67. The primary driver was the acquisition of Momentum Midstream. The assets will now make up about 70% of Williams' Haynesville gathering and processing operations and are immediately competing for capital with an expansion of the G&P and transmission assets.

We expect EBITDA of $8.4 billion in 2026 and $10 billion in 2027. Growth will be driven by new projects entering service and improved rates. Gathering assets in the Northeast and Haynesville are primed to benefit over the next several years from increased drilling activity. Consolidated assets have been underutilized over the last several years as producers focused on liquids-rich acreage. As natural gas prices rebound and new out-of-basin capacity enters service, producers will boost activity. This is all enabled by increased pipeline capacity connecting the basin to demand, which will also benefit Williams' Transco asset.

Williams earns a narrow Morningstar Economic Moat Rating due to the efficient scale of its transmission and Northeast gathering and processing operations.

The Transmission and Gulf segment earns a narrow moat.

This segment’s largest operation is the Transco pipeline, with smaller contributions from Western transmission lines. The second-largest contributor serves offshore production platforms, gathering at the well, and landing and processing the gas onshore. The segment will also house power supply agreements in 2026 and 2027.

We believe that natural gas transmission is an inherently moaty activity, benefiting from contractual structures and cost of service agreements regulated by the Federal Energy Regulatory Commission. Further regulatory protection and brownfield cost advantages benefit incumbents, allowing them to grow capacity incrementally. Earnings are subject to some volume exposure, but most revenue is tied to long-term fixed-capacity arrangements. In exchange for a monthly fee, consumers of natural gas are guaranteed a certain amount of the pipeline’s capacity. Regardless of their actual demand, they will pay this fee.

Williams’ crown jewel, the Transco pipeline, very likely has a wide moat. It connects the lowest-cost and largest natural gas-producing region to the fastest-growing demand regions of the United States. It delivers natural gas to New York City and the surrounding metro from the Gulf Coast. With demand pull and supply push likely to last more than 20 years, this asset deserves a wide moat.

The segment operates offshore gathering and processing assets for Gulf oil and gas platforms. Offshore gathering has greater protection than the broader industry, as the wells remain in place far longer and are more technically complex. Operators are unlikely to switch service providers, as any disruption would cause massive issues. Onshore wells, especially shale wells, provide most volumes and returns over two years, while offshore typically takes 10 years or more. As a result, we also expect this activity to support rather than weaken the segment’s narrow moat.

Unregulated power supply agreements will demand substantial capital and come online in 2026, 2027, and 2028. These agreements are extremely lucrative and reflect the current challenges of securing power supply for data centers. Ten- to 12-and-a-half-year terms provide certainty over the narrow moat horizon.

The Northeast G&P segment earns a narrow moat.

The Northeast G&P segment earns an efficient scale narrow moat on the strength of its footprint. In 2024, it handled more than 30% of all gas produced in the basin through wholly owned or equity affiliates. Given Williams' dominant market position in the largest natural gas-producing basin, a competitor would need substantial investment to meaningfully displace it.

Williams’ Northeast segment serves the Appalachian market, one of the lowest-cost sources of gas in North America, with decades of inventory remaining. Acute pipeline shortages connecting the basin to demand markets have caused producers to constrain activity, benefiting G&P operators. Returns accelerated not just because of reduced capital requirements, but also due to aggressive cost-cutting and efficiency programs.

We expect the segment to require higher levels of capital as new takeaway capacity in the basin enables increased production. As the basin pivots back to growth, due to both new transmission and in-basin demand, Williams will have to invest to retain its dominant position and prevent competitors from taking market share.

The West segment earns no moat.

The West segment comprises the remaining onshore gathering and processing assets, along with natural gas liquids fractionation and pipelines. Operations span the production of basins in Texas, Louisiana, Colorado, Wyoming, and Oklahoma. We do not see a moat in the segment. Historically, the segment has returned well under its cost of capital. Unlike other segments where operations are concentrated and close to other critical company assets, West is dispersed and in basins with substantial competition.

Gathering is the closest to the field level and requires constant investment to connect to new wells as they are brought online. Only in narrow sets of circumstances can we see the activity as moaty, like the Northeast’s dominant position. Even with contracts, they are not as solid as they appear, as terms are regularly revisited before expiration.

Marketing services and other operations earn no moat.

We view marketing operations as having no moat, despite impressive returns. The function relies on time or location arbitrage. The largest profit driver for the segment involves purchasing natural gas in the low demand seasons, then storing and selling in the first quarter when demand is highest. If it is a warm winter or storage rates are elevated, the arbitrage could be greatly diminished. As a result, the segment’s year is usually made in the first quarter, while costs are incurred during the lead-up to winter. We do not anticipate returns to dip below the cost of capital, but we cannot be certain how productive the segment will remain.

Williams also has limited exploration and production activities. These are sometimes incidental, such as acquired out of a customer bankruptcy, but the overall strategy is to divest from them. Williams takes on operations so they can be developed, sold, and then serviced by the core midstream business. This cycle was completed in Louisiana’s Haynesville but is still nascent in the Wamsutter basin in Wyoming.

In 2025, Williams took a 10% stake in Woodside's Louisiana LNG and an 80% operating stake in the pipeline feeding the facility. The pipeline will link to other Williams pipelines and be supplied by their marketing arm. This represents potential upside, as the marketing arm can use Williams’ asset footprint to optimize deliveries. Williams will also have a proportional amount of LNG offtake from the facility.

The Transco pipeline is irreplaceable and will attract substantial growth capital as natural gas demand grows in its path.

Power supply agreements are extremely lucrative and throw off substantial cash for reinvestment or distribution.

Although natural gas is volatile, natural gas transmission is cost of service, offering a more stable way to engage with increased demand.

Natural gas pipelines are being built at a record pace, risking overcapacity should demand turn over.

Williams is focused on natural gas with little diversification. This is currently to its benefit but leaves it vulnerable should growth stall.

Substantial gathering and processing operations demand constant capital without meaningfully improving their competitive position.