Williams Reports First-Quarter 2011 Financial Results

TULSA, Okla., May 4, 2011 /PRNewswire/ -- Williams (NYSE: WMB) announced unaudited net income attributable to Williams, for first-quarter 2011 of $321 million, or $0.54 per share on a diluted basis, compared with a net loss of $193 million, or a loss of $0.33 per share on a diluted basis for first-quarter 2010.

The significant improvement in results for first-quarter 2011 is primarily due to the absence of $645 million of pre-tax charges incurred during first-quarter 2010.  The charges were in conjunction with the strategic restructuring that transformed Williams Partners L.P. (NYSE: WPZ) into a leading diversified master limited partnership. 

First-quarter 2011 also benefited from a $124 million income tax benefit associated with federal settlements and an international revised assessment, both pertaining to prior periods.

Adjusted Income from Continuing Operations

Adjusted income from continuing operations was $212 million, or $0.36 per share, for first-quarter 2011, compared with $208 million, or $0.36 per share for first-quarter 2010.  The first-quarter 2011 adjusted results were lower compared with first-quarter 2011 net income primarily because of the previously noted tax benefit in the quarter.

Improved results in the Midstream Canada & Olefins and Williams Partners segments were offset by lower results in the Exploration & Production segment in the first quarter.  There is a more detailed description of the business results later in this press release.

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

"We're off to a good start this year, and we're expecting an even stronger performance for the remainder of 2011 and 2012," said Alan Armstrong, president and chief executive officer.  "We've increased our earnings guidance 11 percent for both years, as we expect strong NGL and olefin margins in our midstream businesses.

"We continue to invest in and bring more value-adding natural gas and NGL infrastructure projects online.  With abundant supplies in the new shale plays and growing demand from natural gas-fired electrical generation, the need for natural gas infrastructure will continue to grow.

"When you combine our existing assets with $4.8 billion in growth capital planned for 2011 and 2012, Williams stands to play a major role in providing the infrastructure that will bring the vast natural gas and NGL supplies in North America to market," Armstrong said.

Earnings Guidance Increased 11%, High-Dividend Strategy Initiated

Earnings guidance for 2011-12 has been increased 11 percent to reflect higher NGL and oil prices and higher olefin margins.  Capital expenditure guidance has been updated for 2011 and increased for 2012 to reflect new midstream projects in the Gulf of Mexico, as well as updated timing of certain projects.    

Following through with its previously announced plan, Williams recently announced a 60 percent increase of its quarterly dividend.  The company continues to expect an additional 10 percent to 15 percent increase for the quarterly dividends it will pay beginning in June 2012.  Furthermore, Williams expects strong increases in its dividend payments beyond 2012.

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.

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.

Business Segment Results

Beginning in first-quarter 2011, the results of Williams' Canadian midstream and domestic olefins business are being reported in a new segment – Midstream Canada & Olefins.  Williams' other 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 exploration and production business, gas marketing, and the company's controlling interest in Apco Oil & Gas International Inc.; Other primarily includes a 25.5-percent interest in the Gulfstream interstate natural gas pipeline system for first-quarter 2011.  In subsequent quarters, Other will primarily include a 1-percent interest in Gulfstream.  Prior period segment results have been recast to reflect the new segment 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 first-quarter 2011, Williams Partners reported segment profit of $437 million, compared with $424 million for first-quarter 2010.

Improved results in the gas pipeline business, as well as higher fee-based revenues and higher per-unit NGL margins in the midstream business, mostly offset by higher operating expenses and lower NGL equity volumes, drove the slight improvement in the first-quarter 2011 results.  

The lower NGL equity volumes in the first quarter were primarily due to the change of a major contract in the Gulf Coast region from keep-whole to percent-of-liquids processing.

There is a more detailed description of Williams Partners' interstate gas pipeline and midstream business results in the partnership's first-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 $51 million for first-quarter 2011, compared with $153 million for first-quarter 2010.

The decline in first-quarter segment profit is primarily due to a 7-percent decline in realized average prices for domestic natural gas production, inclusive of hedge gains and losses.  During first-quarter 2011, the realized average price for domestic production was $5.34 per thousand cubic feet of natural gas equivalent (Mcfe), compared with $5.77 in first-quarter 2010.  The lower realized average price was partially offset by a 6-percent increase in production volumes sold during the quarter.

The slight decline in average daily production from fourth-quarter 2010 to first-quarter 2011 was primarily due to severe winter weather, which is typical for the first quarter.  The winter weather reduced first-quarter 2011 production volumes by approximately 25 MMcfe/d.

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

Williams also continues to expand its oil production activities in the Bakken Shale.  The company is currently operating three rigs and has plans to add two more rigs during the next six months.  Williams' current net production in the Bakken is approximately 4,000 barrels per day, roughly double the first-quarter 2011 average.

Certain higher costs and expenses also contributed to the lower first-quarter segment profit.  These costs and expenses include higher gathering and processing charges;  higher exploration expenses, resulting from charges related to amortization of undeveloped leasehold acreage to provide for future expirations; higher lease and other operating expenses primarily due to increased workover and maintenance activity; and higher selling, general and administrative expenses.

Midstream Canada & Olefins

Midstream Canada & Olefins reported first-quarter 2011 segment profit of $74 million, compared with $20 million for first-quarter 2010.

The significant increase in Midstream Canada & Olefins' segment profit is due to higher per-unit margins on Geismar ethylene, Canadian propane and propylene, and products produced from Canadian butylene/butane mix product.  The 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.  

Production volumes in Canada were also higher primarily due to the absence of the 2010 operational issues at a third-party facility that provides feedstock to our Canadian facility.

New Quarterly Presentation Format, Analyst Call/Webcast Tomorrow

Utilizing its new format for quarterly earnings and outlook, the first-quarter slide presentation, data book and analyst package will be available shortly for viewing, downloading, and printing at www.williams.com.  Williams will also be providing the quarterly presentation with audio commentary by CEO Alan Armstrong.

Management will be available to discuss the first-quarter 2011 results and 2011-12 outlook during a live analyst call/webcast call beginning at 9:30 a.m. EDT tomorrow.  Links to the live webcast will be available on Williams' web site.  A limited number of phone lines also will be available at (888) 516-2438. International callers should dial (719) 325-2190.

Replays of the first-quarter analyst call/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 first-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:

• 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. 24, 2011, and our quarterly reports on Form 10-Q available from our offices or from our website at www.williams.com.

SOURCE Williams

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