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Williams Turns in Improved 2Q Profits, But Falls Shy of Analysts' Projections

The Williams Cos. last Thursday reported significantly improved second quarter net earnings compared to the red ink it posted in the year-earlier period, but it still fell shy of Wall Street profit projections.

The Tulsa, OK-based pipeline and production company posted net income of $41.3 million, or seven cents a share, for the second quarter, up from a net loss of $18.2 million, or a loss of three cents a share, for the same quarter in 2004. For the first half, Williams said its net income was $242.4 million, or 41 cents a share, compared to a loss of $8.3 million, or a loss of two cents a share, a year ago. Williams, however, failed to meet Wall Street analysts' projection of 21 cents a share for the company in the second quarter.

Williams CEO Steve Malcolm credited the company's exploration and production (E&P), gathering and processing and pipeline businesses for the improved second-quarter results. "We are especially delighted with the rapid volume growth we're seeing in our natural gas production business. Our total production is up 20% compared with the first half of last year," he said.

"And during the quarter, we raised our estimated domestic reserves by 21% following a careful study that added 1,600 new drilling locations in the Piceance Valley" in western Colorado, Malcolm said (see related story). "In E&P, we also entered the [Barnett Shale play in the] Fort Worth Basin and reduced our risk around natural gas prices by executing additional hedges."

Moreover, "we're also continuing to realize strong results in our gathering and processing business, as well as solid performance in gas pipeline and performance as planned in power," he noted.

Because of these results, Williams has raised its earnings projection for 2005 from continuing operations to 70-90 cents a share, from its previous projection of 65-90 cents a share.

Williams' E&P business reported a second quarter profit of $118.3 million, up from $43.3 million for the same period a year ago. The company attributed the improved profits to increases in both production volumes and net realized average prices for production sold.

Average daily domestic production was 604 MMcfe, which was 18% higher than the domestic volumes of 511 MMcfe for the same quarter in 2004. The bulk of Williams increased production came from the Piceance and San Juan basins.

Williams saw net domestic average wellhead prices of $4.16/Mcfe during the second quarter, up 35% from the $3.09/Mcfe that it realized in the same period a year ago, according to the company.

The company has raised its expectation for E&P segment profit in 2005 to $410-485 million from its previous estimate of $400-475 million. The projected increase is the result of the Fort Worth Basin entry and the floor price of new hedge collars which are above the company's assumed unhedged prices, it said.

Williams' midstream business, which provides gathering, processing, natural gas liquids fractionation and storage services, also reported improved profits in the second quarter, rising to $109.1 million from $98.5 million in the same period in 2004. This was due primarily to a $16 million increase in natural gas liquids production margins in the West and the Gulf Coast and a $9 million hike in gathering revenues and processing fees.

The company's gas pipeline segment posted a profit of $164.5 million for the second quarter, up from $132.8 million in the comparable period in 2004. As for individual pipeline operations, it reported that the Gulfstream system was benefiting from several recently executed transportation agreements (totaling 400,000 Dth/d), which provide service in central Florida to customers on its 110-mile Phase II expansion that began operation in June. Williams said that approximately two-thirds of Gulfstream's 1.1 billion Dth/d of total capacity is now contracted on a firm basis.

Williams' Transcontinental Gas Pipe Line system has begun construction of an expansion to add 105,000 Dth/d of new firm service in central New Jersey and initiated an open season for up to 150,000 Dth/d of incremental firm transportation capacity to serve the greater Washington, DC area. The central New Jersey project is expected to be put in service in November of this year. The service to DC is anticipated to be available in November 2007, subject to the approval of the Federal Energy Regulatory Commission, the company said.

Transco reported it also continues to proceed with the permitting of its Leidy-to-Long Island expansion project to transport 100,000 Dth/d of natural gas. The project is expected to be placed into service in November 2007.

Williams said it has raised its expectations for profit from the pipeline segment in 2005 to $590-615 million from its previous estimate of $555-$585 million.

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