Williams Reports Third-Quarter 2011 Financial Results

TULSA, Okla., Nov. 1, 2011 /PRNewswire/ -- Williams (NYSE: WMB) announced unaudited net income attributable to Williams, for third-quarter 2011 of $272 million, or $0.46 per share on a diluted basis, compared with a net loss of $1,263 million, or a loss of $2.16 per share on a diluted basis for third-quarter 2010.

Year-to-date through Sept. 30, Williams reported net income of $820 million, or $1.37 per share, compared with a net loss of $1,271 million, or a net loss of $2.17 per share for the same period in 2010.

The significant improvement in net income during the third-quarter and year-to-date 2011 periods was primarily due to the absence of approximately $1.7 billion in non-cash charges during third-quarter 2010. These included a charge of approximately $1 billion for an impairment of goodwill and pre-tax charges of $678 million related to certain proved and unproved natural gas properties, primarily in the Barnett Shale.  The year-to-date period also benefited from the absence of $645 million of pre-tax charges incurred during first-quarter 2010 that were in conjunction with the strategic restructuring that transformed Williams Partners L.P. (NYSE: WPZ) into a leading diversified master limited partnership.

Adjusted Income from Continuing Operations

Adjusted income from continuing operations was $236 million, or $0.40 per share, for third-quarter 2011, compared with $131 million, or $0.22 per share for third-quarter 2010.

For the first nine months of 2011, Williams' adjusted income from continuing operations was $679 million, or $1.14 per share, compared with $502 million, or $0.86 per share for the same period in 2010.

The significant increase in the adjusted results for the third-quarter and year-to-date periods was due to improved results in all of the company's businesses.  There is a more detailed description of the business results later in this press release.  

Also, the third-quarter 2011 adjusted results were lower than the third-quarter 2011 reported results largely because the reported results included the benefit of a favorable revision to the company's estimate of deferred income taxes associated with foreign operations.  This benefit was excluded from the adjusted results.

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

Alan Armstrong, Williams' president and chief executive officer, made the following comments:

"Our businesses performed exceptionally well across the board in the third quarter, driving a 48-percent increase in our adjusted segment profit.  

"All of our recent growth projects are beginning to deliver on their potential – from our projects in the Marcellus to Transco expansions along the Eastern seaboard to the deepwater Gulf of Mexico.

"We're also executing on our plan to unlock shareholder value.  The E&P separation is on track, and our December dividend will be double the level we paid at this time last year.  And we continue to plan on increasing the dividend by 10-15 percent annually.

"Looking ahead, there's a growing urgency for new infrastructure that will enable the value of the vast new supplies of natural gas in the United States to be fully captured.  Williams is well-positioned to benefit as we continue to expand our large-scale infrastructure businesses.  

"Our strategy is clear – we'll be one of the premier energy infrastructure companies in North America and we'll be a leader in delivering high growth and high dividends."

Guidance for 2011-13 Updated

Williams' assumptions for certain energy commodity prices for 2011-13 and the corresponding guidance for the company's earnings and capital expenditures are displayed in the table below. These assume the planned separation of the company's exploration and production business on Dec. 31, 2011.

Williams is updating its adjusted segment profit guidance for 2011-13 to reflect somewhat lower expected crude oil and natural gas prices.  The company also expects higher interest expense due to the assumed absence of initial public offering proceeds that would be used to retire debt.

Capital expenditure guidance is also being updated for 2011 to reflect timing in capital spending.  Capital expenditure guidance is being updated for 2012-13 to reflect timing changes, as well as the addition of the Geismar expansion project at Midstream Canada & Olefins and the proposed Keathley Canyon project at Williams Partners.

Business Segment Results

Williams' business segments for financial reporting are Williams Partners, Exploration & Production, Midstream Canada & Olefins, and Other. The Williams Partners segment includes the consolidated results of Williams Partners L.P.; Exploration & Production includes the domestic exploration and production business, gas marketing, and the company's controlling interest in Apco Oil & Gas International Inc.; Midstream Canada & Olefins includes the results of Williams' Canadian midstream and domestic olefins business.

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 2011, Williams Partners reported segment profit of $471 million, compared with $371 million for third-quarter 2010.  Year-to-date through Sept. 30, Williams Partners reported segment profit of $1,379 million, compared with $1,156 million for the same period in 2010.

Higher NGL margins and higher fee-based revenues in the midstream business, as well as improved results in the gas pipeline business, drove the significant improvement in both the third-quarter and year-to-date periods.

There is a more detailed description of Williams Partners' interstate gas pipeline and midstream business results in the partnership's third-quarter 2011 financial results news release, which is also being issued today.

Exploration & Production

Exploration & Production is focused on developing its significant natural gas reserves and related NGLs in the Piceance Basin of western Colorado, as well as its growing positions in the Bakken Shale oil play in North Dakota and the Marcellus Shale in Pennsylvania. The business also has domestic operations in the Powder River Basin in Wyoming and the San Juan Basin in the southwestern United States and international investments in Argentina and Colombia.

Exploration & Production reported segment profit of $48 million for third-quarter 2011, compared with a segment loss of $1,630 million for third-quarter 2010.  

The significant improvement in segment profit during the third-quarter was primarily due to the absence of approximately $1.7 billion in non-cash charges recorded during third-quarter 2010. These included charges of approximately $1 billion for an impairment of goodwill and $678 million related to the impairment of certain proved and unproved natural gas properties, primarily in the Barnett Shale.

Exploration & Production's adjusted segment profit for third-quarter 2011 was $92 million, compared with $33 million for third-quarter 2010.  A 13-percent increase in production volumes sold and a 6-percent increase in realized average prices reflecting all products drove the significant increase in third-quarter 2011 adjusted segment profit.

During third-quarter 2011, the realized average price for domestic production was $5.41 per thousand cubic feet of natural gas equivalent (Mcfe), compared with $5.09 in third-quarter 2010 – an increase of 6 percent.  The increase in realized average price was primarily due to higher oil and NGL production.

Williams expects annual average daily production to increase by 9 percent and 11 percent at guidance midpoints in 2011 and 2012, respectively.  

For the first nine months of 2011, Exploration & Production reported segment profit of $193 million, compared with a segment loss of $1,404 million for the same period in 2010.  The significant change in the year-to-date period was due to the absence of the previously noted impairment charges in third-quarter 2010.

Exploration & Production's adjusted segment profit for the first nine months of 2011 was $253 million, compared with $248 million for the same period in 2010. Higher production volumes and higher realized average prices, partially offset by increases in certain segment costs and expenses, drove the increased adjusted segment profit in year-to-date 2011.

Williams is currently operating four rigs in the Bakken shale, with a fifth rig expected to be active in fourth-quarter 2011.  Williams has contracted for a sixth rig, which is expected to be operating by mid 2012.  Third-quarter 2011 production in the Bakken more than tripled over first-quarter 2011, from approximately 1,800 to 6,200 barrels of oil equivalent per day.

In the Marcellus shale, the company is currently operating four rigs and expects to increase its level of drilling activity to six or seven rigs by the end of 2012.  Third-quarter 2011 production levels in the Marcellus have more than tripled over third-quarter 2010.  In Susquehanna County, the company has approximately 80 MMcf/d of production that is has been waiting on the final completion and subsequent start up of the Laser pipeline system.  The company began flowing its first well into Laser in late October, and expects to connect several more wells to the system soon.

In the Piceance basin, which is Williams' largest area of concentrated development, wellhead production includes approximately 25 million gallons of NGLs recovered each month, or 19,600 barrels per day.

Midstream Canada & Olefins

Midstream Canada & Olefins reported third-quarter 2011 segment profit of $73 million, compared with $42 million for third-quarter 2010.  For the first nine months of 2011, Midstream Canada & Olefins reported segment profit of $219 million, compared with $123 million for the same period in 2010.

Higher Canadian NGL margins from butylene/butane mix products helped drive the improvement in the third-quarter and year-to-date results.  The separate products produced by the company's Canadian butylene/butane splitter placed in service in August 2010 provide a higher combined per-unit margin than the butylene/butane mix product sold previously.

Higher per-unit margins on Canadian propane and propylene and Geismar ethylene also contributed to the improved results in both 2011 periods.

Quarterly Materials to be Posted Shortly; Q&A Webcast Scheduled for Tomorrow

Williams third-quarter financial results package should be posted shortly at www.williams.com.  The package will include the data book and analyst package, and the investor presentation with a recorded commentary from CEO Alan Armstrong.  

The company will host the third-quarter Q&A live webcast on Wednesday, Nov. 2 at 9 a.m. EDT. Participants are encouraged to access the webcast at www.williams.com.   A limited number of phone lines also will be available at (877) 548-7906. International callers should dial (719) 325-4798.

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 2011 Form 10-Q with the Securities and Exchange Commission this 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:

• Plans to separate our exploration and production business into a stand-alone, publicly traded corporation;
• 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:

• Our ability to complete the separation of our exploration and production business into a stand-alone publicly-traded corporation or to complete the separation on the timeline or terms we have announced;
• 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 regulation 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. 24, 2011, and our quarterly reports on Form 10-Q available from our offices or from our website at www.williams.com.

SOURCE Williams