Williams

TULSA, Okla., Oct. 28 /PRNewswire-FirstCall/ -- Williams (NYSE: WMB) announced an unaudited net loss attributable to Williams, for third-quarter 2010 of $1,263 million, or a loss of $2.16 per share on a diluted basis, compared with net income of $143 million, or $0.24 per share on a diluted basis for third-quarter 2009.

The net loss for third-quarter 2010 was primarily the result of significant non-cash impairment charges at the company's Exploration & Production segment. These included pretax charges of approximately $1 billion for an impairment of goodwill and $678 million related to certain proved and unproved natural gas properties, primarily in the Barnett Shale. There is a more detailed discussion of these charges at the end of this news release.

Year-to-date through Sept. 30, Williams reported a net loss of $1,271 million, or a loss of $2.17 per share, compared with net income of $113 million, or $0.19 per share for the same period in 2009.

The year-to-date net loss was due to the previously noted non-cash impairment charges in the third quarter, as well as first-quarter charges in conjunction with the strategic restructuring that transformed Williams Partners L.P. (NYSE: WPZ) into a leading diversified master limited partnership.

All prior-period comparisons in this news release are based on recast 2009 results. The recast results reflect the company's structure following the strategic restructuring with Williams Partners L.P.

Adjusted Income from Continuing Operations

Adjusted income from continuing operations, including removing the effect of mark-to-market accounting, was $131 million, or $0.22 per share, for third-quarter 2010, compared with $147 million, or $0.25 per share for third-quarter 2009.

The decline in the adjusted results in the third quarter was primarily due to lower results in Exploration & Production.

For the first nine months of 2010, adjusted income from continuing operations, including removing the effect of mark-to-market accounting, was $501 million, or $0.86 per share; compared with $392 million, or $0.67 per share, for the first nine months of 2009.

The improvement in the year-to-date results was driven by increases in the Williams Partners and Other segments. These results are detailed later in this press release.

Adjusted income from continuing operations reflects the removal of items considered unrepresentative of ongoing operations and is a non-GAAP measure. Reconciliations to the most relevant GAAP measure are attached to this news release.

Williams Agrees to Sell Piceance Gathering & Processing Assets to Williams Partners

In a separate announcement today, Williams Partners announced it has agreed to acquire Williams' gathering and processing assets in Colorado's Piceance Basin for $782 million. Williams Partners' total consideration for the assets will include $702 million in cash and $80 million in WPZ limited-partner and general-partner units.

The assets include the Parachute Plant Complex, three other treating facilities with a combined processing capacity of 1.2 billion cubic feet per day (Bcf/d), and a gathering system with approximately 150 miles of pipeline. There are more than 3,300 wells connected to the gathering system, which includes pipelines ranging up to 30-inch trunk lines. The transaction also includes a life-of-lease dedication from Exploration & Production.

CEO Comment

"Year-to-date, our businesses have delivered steady and improved adjusted earnings results," said Steve Malcolm, chairman, president and chief executive officer.

"We continue to project steady earnings growth and seize opportunities to expand our businesses," Malcolm said. "For example, the drop-down transaction that we announced today provides attractive fee-based growth for Williams Partners while providing Williams with additional cash."

Guidance Update

Williams' assumptions for certain energy commodity prices for 2010-12 and the corresponding guidance for the company's earnings and capital expenditures are displayed in the following table.

The commodity price assumptions and 2010 earnings guidance are unchanged from guidance issued on Sept. 16, with the exception of 2010 NGL margins and the NGL to Crude Oil relationship. Capital expenditure guidance for 2010-12 has been updated to reflect expected changes in the timing of certain 2010-11 capital spending.

Business Segment Results

Williams' business segments for financial reporting are Williams Partners, Exploration & Production, and Other. The Williams Partners segment includes the consolidated results of Williams Partners L.P.; Exploration & Production includes the results of the former Gas Marketing segment; and the Other segment includes the company's Canadian midstream and domestic olefins businesses and a 25.5-percent interest in the Gulfstream interstate natural gas pipeline system. The 2009 results have been recast to reflect the new reporting structure.

Williams Partners

Williams Partners is focused on natural gas transportation, gathering, treating, processing and storage; natural gas liquid (NGL) fractionation; and oil transportation.

For third-quarter 2010, Williams Partners reported segment profit of $343 million, compared with $347 million for third-quarter 2009.

The slight decline in Williams Partners' segment profit for the third quarter is primarily due to lower NGL equity sales volumes and slightly lower fee-based revenues in the partnership's midstream business. The decline in NGL equity sales volumes for the third quarter was due to a number of temporary items, including lower gas deliveries in the Gulf region due to disruptions in third-party production unrelated to the drilling moratorium.

Higher per-unit NGL margins in the midstream business, as well as improved results in the gas pipeline business partially offset the negative effect of the lower NGL equity sales volumes in the third quarter.

Year-to-date through Sept. 30, Williams Partners reported segment profit of $1,103 million, compared with $884 million for the same period in 2009.

The 25 percent increase in year-to-date segment profit is due to significantly higher per-unit NGL margins in 2010 compared with 2009.

There is a more detailed description of Williams Partners' interstate gas pipeline and midstream business results in the partnership's third-quarter 2010 financial results news release, which is also being issued today.

Exploration & Production

Exploration & Production includes natural gas production and development in the U.S. Rocky Mountains, San Juan Basin, Barnett Shale, Marcellus Shale, and oil and gas development in South America.

The business reported segment loss of $1,603 million for third-quarter 2010, compared with segment profit of $100 million in third-quarter 2009.

The segment loss for third-quarter 2010 resulted from the previously noted non-cash impairment charges for impairments of goodwill and certain proved and unproved properties, primarily in the Barnett Shale.

Exploration & Production's adjusted segment profit for third-quarter 2010 was $65 million, compared with $96 million in third-quarter 2009 on the same adjusted basis.

The decline in segment profit on an adjusted basis is due primarily to higher exploration expenses associated with the company's activities in the Paradox basin and higher operating taxes. These items were partially offset by higher net realized average prices for natural gas.

During third-quarter 2010, Williams' net realized average price for U.S. production, inclusive of hedging gains, was $4.35 per thousand cubic feet of natural gas equivalent (Mcfe), which was 4 percent higher than the $4.18 per Mcfe realized in third-quarter 2009.

The chart below details Williams' average daily natural gas production for third-quarter 2010.

Williams expects fourth-quarter 2010 natural gas production volumes to be higher than the prior year comparable period. The company's total third-quarter 2010 production was 2 percent higher than the second-quarter 2010 total. Overall average annual daily production for 2010 is expected to be consistent with 2009 volumes. Additionally, Williams expects average annual daily production to increase by 3 and 7 percent at guidance midpoints in 2011 and 2012, respectively.

For the first nine months of 2010, Exploration & Production reported segment loss of $1,354 million, compared with a segment profit of $290 million for the first nine months of 2009. The previously noted non-cash impairment charges related to goodwill and the carrying value of certain proved and unproved properties drove the segment loss for the year-to-date period.

Exploration & Production's adjusted segment profit for year-to-date 2010 was $316 million, compared with $326 million for year-to-date 2009 on the same adjusted basis.

The year-to-date decline in adjusted segment profit was primarily due to lower natural gas production volumes in the 2010 period. Higher operating taxes and higher gathering, processing, and transportation expenses also contributed to the lower adjusted results.

These negative effects were nearly offset by an 11 percent increase in net realized average domestic prices on production in year-to-date 2010.

Other

The Other segment reported third-quarter 2010 segment profit of $80 million, compared with segment profit of $31 million for third-quarter 2009.

Higher NGL and olefins production margins and a $30 million third-quarter gain on the previously announced sale of the company's Accroven interest drove the significant increase in segment profit for the third quarter.

Williams previously announced that it sold its 50-percent interest in Accroven to PDVSA Gas (PDVSA) for $107 million, including $13 million in cash received at closing in June. Williams is recognizing the gains on the sale as cash is received. Williams expects to recognize any further gain on the sale as it receives future cash payments from PDVSA.

For the first nine months of the year, Other's segment profit was $186 million, compared with a segment loss of $13 million for the first nine months of 2009.

The significant improvement in the Other results for the first nine months of the year is due primarily to the favorable impact of higher NGL and olefin production margins from much higher average per-unit margins and the net impact of recognizing $43 million in gains on the Accroven investment in 2010 while recording a $75 million impairment charge on that investment in 2009.

Impairment of Goodwill and Natural Gas Properties

During the third quarter of 2010, forward natural gas prices through 2025 experienced significant declines.

Because of these price declines, management conducted an impairment evaluation of $1 billion of goodwill at Exploration & Production related to its domestic natural gas production operations, which arose from the 2001 acquisition of Barrett Resources. As a result of the evaluation, the company recognized a full $1 billion impairment charge related to this goodwill.

Also as a result of significant declines in forward natural gas prices during the third quarter of 2010, Williams assessed Exploration & Production's natural gas-producing properties and acquired unproved reserve costs for impairment. The assessment performed at Sept. 30, 2010, identified certain properties with a carrying value in excess of their calculated fair values – primarily natural-gas producing properties in the Barnett Shale and unproved reserves in the Piceance Highlands that were acquired in 2008. As a result, the company recognized a $503 million pretax impairment charge on the Barnett Shale properties and a $175 million pretax charge on the Piceance Highlands properties.

There is a much more thorough discussion of these impairment charges in Williams' third-quarter Form 10-Q, which it plans to file with the Securities and Exchange Commission today.

Today's Analyst Call

Management will discuss the third-quarter 2010 results and outlook during a live webcast beginning at 9:30 a.m. EDT today. Participants are encouraged to access the webcast and slides for viewing, downloading and printing at www.williams.com.

A limited number of phone lines also will be available at (877) 681-3378. International callers should dial (719) 325-4843. Replays of the third-quarter webcast in both streaming and downloadable podcast formats will be available for two weeks following the event at www.williams.com.

Form 10-Q

The company plans to file its third-quarter 2010 Form 10-Q with the SEC today. The document will be available on both the SEC and Williams websites.

Non-GAAP Measures

This press release includes certain financial measures, adjusted earnings and adjusted segment profit that are non-GAAP financial measures as defined under the rules of the Securities and Exchange Commission. Adjusted earnings and adjusted segment profit exclude items of income or loss that the company characterizes as unrepresentative of its ongoing operations. Both measures provide investors meaningful insight into the company's results from ongoing operations. This press release is accompanied by a reconciliation of these non-GAAP financial measures to their nearest GAAP financial measures. Management uses these financial measures because they are widely accepted financial indicators used by investors to compare a company's performance. In addition, management believes that these measures provide investors an enhanced perspective of the operating performance of the company. Neither adjusted earnings nor adjusted segment profit are intended to represent an alternative to net income or segment profit. They should not be considered in isolation or as substitutes for a measure of performance prepared in accordance with United States generally accepted accounting principles.

Certain financial information in this press release is also shown including mark-to-market adjustments for certain hedges and other derivatives in Exploration & Production, such as adjusted income from continuing operations including mark-to-market adjustments and the related per share measures. This press release is accompanied by a reconciliation of these non-GAAP financial measures to their nearest GAAP financial measures. Management uses the mark-to-market adjustments to better reflect results on a basis that is more consistent with derivative portfolio cash flows and to aid investor understanding. The adjustments reverse forward unrealized mark-to-market gains or losses from derivatives and add realized gains or losses from derivatives for which mark-to-market income has been previously recognized, with the effect that the resulting adjusted segment profit is presented as if mark-to-market accounting had never been applied to these derivatives. The measure is limited by the fact that it does not reflect potential unrealized future losses or gains on derivative contracts. However, management compensates for this limitation since derivative assets and liabilities do reflect unrealized gains and losses of derivative contracts. Overall, management believes the mark-to-market adjustments provide an alternative measure that more closely matches realized cash flows for these derivatives but does not substitute for actual cash flows. We also apply the mark-to-market adjustment and the adjustments to present measures referred to as adjusted segment profit or income from continuing operations including mark-to-market adjustments.

About Williams (NYSE: WMB)

Williams is an integrated natural gas company focused on exploration and production, midstream gathering and processing, and interstate natural gas transportation primarily in the Rocky Mountains, Gulf Coast, Pacific Northwest, Eastern Seaboard and the Marcellus Shale in Pennsylvania. Most of the company's interstate gas pipeline and midstream assets are held through its 77-percent ownership interest (including the general-partner interest) in Williams Partners L.P. (NYSE: WPZ), a leading diversified master limited partnership. More information is available at www.williams.com. Go to http://www.b2i.us/irpass.asp?BzID=630&to=ea&s=0 to join our e-mail list.

Our reports, filings, and other public announcements may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We make these forward looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. You typically can identify forward-looking statements by various forms of words such as "anticipates," "believes," "seeks," "could," "may," "should," "continues," "estimates," "expects," "forecasts," "intends," "might," "goals," "objectives," "targets," "planned," "potential," "projects," "scheduled," "will" or other similar expressions. These forward-looking statements are based on management's beliefs and assumptions and on information currently available to management and include, among others, statements regarding:

• Amounts and nature of future capital expenditures;
• Expansion and growth of our business and operations;
• Financial condition and liquidity;
• Business strategy;
• Estimates of proved gas and oil reserves;
• Reserve potential;
• Development drilling potential;
• Cash flow from operations or results of operations;
• Seasonality of certain business segments; and
• Natural gas and natural gas liquids prices and demand.

Forward-looking statements are based on numerous assumptions, uncertainties and risks that could cause future events or results to be materially different from those stated or implied in this announcement. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from results contemplated by the forward-looking statements include, among others, the following:

• Availability of supplies (including the uncertainties inherent in assessing, estimating, acquiring and developing future natural gas reserves), market demand, volatility of prices, and the availability and cost of capital;
• Inflation, interest rates, fluctuation in foreign exchange, and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on our customers and suppliers);
• The strength and financial resources of our competitors;
• Development of alternative energy sources;
• The impact of operational and development hazards;
• Costs of, changes in, or the results of laws, government regulations (including proposed climate change legislation and/or potential additional regulation of drilling and completion of wells), environmental liabilities, litigation, and rate proceedings;
• Our costs and funding obligations for defined benefit pension plans and other postretirement benefit plans;
• Changes in maintenance and construction costs;
• Changes in the current geopolitical situation;
• Our exposure to the credit risk of our customers;
• Risks related to strategy and financing, including restrictions stemming from our debt agreements, future changes in our credit ratings and the availability and cost of credit;
• Risks associated with future weather conditions;
• Acts of terrorism; and
• Additional risks described in our filings with the Securities and Exchange Commission ("SEC").

Given the uncertainties and risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forward-looking statements. We disclaim any obligations to and do not intend to update the above list or to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.

In addition to causing our actual results to differ, the factors listed above may cause our intentions to change from those statements of intention set forth in this report. Such changes in our intentions may also cause our results to differ. We may change our intentions, at any time and without notice, based upon changes in such factors, our assumptions, or otherwise.

Investors are urged to closely consider the disclosures and risk factors in our annual report on Form 10-K filed with the SEC on Feb. 26, 2010, and our quarterly reports on Form 10-Q available from our offices or from our website at www.williams.com.