Williams Reports Fourth-Quarter and Full-Year 2010 Financial Results

TULSA, Okla., Feb. 17, 2011 /PRNewswire/ -- Williams (NYSE: WMB) announced an unaudited net loss attributable to Williams, for 2010 of $1,097 million, or a loss of $1.88 per share on a diluted basis, compared with net income of $285 million, or $0.49 per share on a diluted basis for 2009.

The net loss for 2010 was primarily the result of significant non-cash impairment charges at the company's Exploration & Production segment during the third quarter due to a decline in forward natural gas prices.  These included pre-tax 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.   First-quarter pre-tax costs of approximately $648 million in conjunction with the strategic restructuring that transformed Williams Partners L.P. (NYSE: WPZ) into a leading diversified master limited partnership also contributed to the net loss for 2010.  

For fourth-quarter 2010, Williams reported net income of $174 million, or $0.29 per share, compared with net income of $172 million, or $0.29 per share for the same period in 2009.

The slight improvement in the fourth-quarter results was driven by higher natural gas liquid (NGL) and olefin profits, partially offset by a lower net realized price on natural gas production.  

All prior-period comparisons in this news release are based on recast 2009 results. The recast results reflect the company's updated segment financial reporting following the first-quarter and fourth-quarter 2010 asset drop-down transactions with Williams Partners.

Adjusted Income from Continuing Operations

Adjusted income from continuing operations was $760 million, or $1.28 per share, for 2010, compared with $552 million, or $0.94 per share for 2009.

For fourth-quarter 2010, adjusted income from continuing operations was $259 million, or $0.44 per share; compared with $161 million, or $0.27 per share, for the fourth-quarter 2009.

The improvements in the full-year and fourth-quarter results were driven by increases in the Williams Partners and Other segments, partially offset by lower results in the Exploration & Production segment.  These results are detailed later in this press release.

The fourth-quarter adjusted results also benefited from $65 million of favorable revisions to the company's estimate of deferred state income taxes.

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

CEO Comment

"The portfolio of our businesses performed very well in the fourth quarter and drove a solid finish for 2010," said Alan Armstrong, Williams' chief executive officer. "In addition, our financial restructuring in 2010 allowed us to invest more than $4 billion dollars that will drive our expected earnings growth as demonstrated by our 2011-12 guidance.

"The continued demand for large-scale infrastructure to serve the growing resource plays will continue to provide new investment opportunities throughout 2011 and beyond," Armstrong said.

Guidance Update

Williams' assumptions for certain energy commodity prices for 2011-12 and the corresponding guidance for the company's earnings and capital expenditures are displayed in the following table.

Guidance has been updated to reflect higher NGL and oil prices and lower natural gas prices, as well as the previously announced Bakken Shale acquisition.  

Please note that 2011-12 earnings and capital expenditure guidance does not reflect the company's previously announced plans to separate into two stand-alone, publicly traded companies.  However, this guidance does reflect the company's plan to increase its quarterly dividend to shareholders by 60 percent to $0.20 per Williams share for the first-quarter 2011 dividend, paid in June.  An additional 10 to 15 percent increase is targeted with the June 2012 dividend payment.

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 domestic E&P business, gas marketing, and the company's controlling interest in Apco Oil & Gas International, Inc.; 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.

Williams Partners

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

For 2010, Williams Partners reported segment profit of $1,574 million, compared with $1,317 million for 2009.

The 20 percent increase in Williams Partners' segment profit for the year is primarily due to higher per-unit NGL margins.  Slightly higher NGL equity volumes, due to a full year of production at Willow Creek and new fourth-quarter production capacity at Echo Springs, also contributed to the improved results for the year.

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

Exploration & Production

Exploration & Production primarily develops natural gas reserves in the Piceance, Powder River and San Juan basins, the Marcellus and Barnett shales; oil reserves in the Bakken Shale; and internationally in Argentina and Colombia.

The business reported a segment loss of $1,343 million for 2010, compared with segment profit of $391 million for 2009.

The segment loss for 2010 resulted from the previously noted third-quarter non-cash impairment charges of approximately $1.7 billion for impairments of goodwill and certain proved and unproved properties, primarily in the Barnett Shale.

Exploration & Production's adjusted segment profit for 2010 was $321 million, compared with $483 million in 2009 on the same adjusted basis.

The decline in segment profit on an adjusted basis is due primarily to lower natural gas production levels, higher gathering, processing and transportation expenses, in addition to higher operating taxes and lease operating expenses.  These items were partially offset by higher net realized average prices for natural gas.

Sharply reduced drilling activity in 2009 because of the global recession caused full-year 2010 production to be 4 percent lower.  However, increased drilling activity in 2010 began driving quarter-over-quarter production growth in the second quarter.

Total U.S. production increased 4 percent from third-quarter to fourth-quarter 2010.  Additionally, Williams expects average annual daily production to increase by 9 percent and 10 percent at guidance midpoints in 2011 and 2012, respectively.

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

During 2010, Williams' net realized average price for U.S. production, inclusive of hedging gains, was $5.23 per thousand cubic feet of natural gas equivalent (Mcfe), which was 8 percent higher than the $4.85 per Mcfe realized in 2009.

During fourth-quarter 2010, Williams completed the acquisition of approximately 85,800 net acres for $925 million (not including closing adjustments predominantly due to additional drilling) in the Bakken Shale in North Dakota.

Williams' entry into the Bakken Shale play follows its entry into Pennsylvania's Marcellus Shale, where the company has accumulated approximately 100,000 net acres over the past year and a half.

In a separate announcement today, Williams announced that its total proved natural gas and oil reserves as of Dec. 31, 2010, were approximately 4.5 trillion cubic feet equivalent (Tcfe) – including international reserves of approximately 0.2 Tcfe.  Proved, probable, and possible (3P) reserves increased by 7 percent to 15.9 Tcfe from 14.8 Tcfe in 2009. See the separate news release from today for a more detailed discussion of year-end reserves.

Other

Other reported 2010 segment profit of $240 million, compared with a segment loss of $2 million for 2009.

The significant improvement in the Other results for 2010 is due primarily to the favorable impact of higher NGL and olefin production profits 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.

Today's Analyst Call

Management will discuss the year-end and fourth-quarter 2010 results and 2011-12 outlook during a live webcast beginning at 9:30 a.m. EST 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 (888) 298-3451. International callers should dial (719) 325-2313. Replays of the year-end webcast in both streaming and downloadable podcast formats will be available for two weeks following the event at www.williams.com.

Form 10-K

The company plans to file its 2010 Form 10-K with the Securities and Exchange Commission next week. Once filed, the document will be available on both the SEC and Williams websites.

Non-GAAP Measures

This press release includes certain financial measures, adjusted segment profit, adjusted earnings and adjusted per share measures that are non-GAAP financial measures as defined under the rules of the Securities and Exchange Commission. Adjusted segment profit, adjusted earnings and adjusted per share measures exclude items of income or loss that the company characterizes as unrepresentative of its ongoing operations and reflects mark-to-market adjustments for certain hedges and other derivatives in Exploration & Production.  These measures provide investors meaningful insight into the company's results from ongoing operations and better reflect results on a basis that is more consistent with derivative portfolio cash flows.  The mark-to-market 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.  

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 and aid investor understanding.  Neither adjusted segment profit, adjusted earnings nor adjusted per share measures are intended to represent an alternative to segment profit, net income or earnings per share. 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.

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 75-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, probable, and possible 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, natural gas liquids, and crude oil 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 and oil 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 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 announcement. 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.

The SEC requires oil and gas companies, in filings made with the SEC, to disclose proved reserves, which are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, under existing economic conditions, operating methods, and governmental regulations.  The SEC permits the optional disclosure of probable and possible reserves.  We have elected to use in this presentation, but not in our Annual Report on Form 10-K, "probable" reserves and "possible" reserves, excluding their valuation.  The SEC defines  "probable" reserves as "those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered." The SEC defines "possible" reserves as "those additional reserves that are less certain to be recovered than probable reserves."  Williams has applied these definitions in estimating probable and possible reserves. Statements of reserves are only estimates and may not correspond to the ultimate quantities of oil and gas recovered. Any reserve estimates provided in this presentation that are not specifically designated as being estimates of proved reserves may include estimated reserves not necessarily calculated in accordance with, or contemplated by, the SEC's reserves reporting guidelines. Investors are urged to consider closely the disclosure in Williams' Annual Report on Form 10-K for the fiscal year ended December 31, 2009, available from Williams at One Williams Center, Tulsa, OK 74172 (Attn: Investor Relations). You can also obtain this report from the SEC by calling 1-800-SEC-0330 or from the SEC's website at www.sec.gov.

The SEC's rules prohibit us from filing resource estimates. Our resource estimations include estimates of hydrocarbon quantities for (i) new areas for which we do not have sufficient information to date to classify as proved, probable or even possible reserves, (ii)  other areas to take into account the low  level of certainty of recovery of the resources and (iii) uneconomic proved, probable or possible reserves. Resource estimates do not take into account the certainty of resource recovery and are therefore not indicative of the expected future recovery and should not be relied upon. Resource estimates might never be recovered and are contingent on exploration success, technical improvements in drilling access, commerciality and other factors.

SOURCE Williams