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Williams Moves into Profit Column in Fourth Quarter

Natural gas pipeline owner Williams Cos. moved into the financial win column in the 2004 fourth quarter from the year-earlier period due to a gain associated with an insurance arbitration award and reduced debt levels.

The Tulsa, OK-based energy giant reported net income of $73.4 million, or 13 cents per share, for the fourth quarter of last year, up significantly from a net loss of $53.7 million, or a loss of 10 cents per share, for the same period in 2003. Williams outperformed analysts' projections of 11 cents per share for the company in the fourth quarter.

The fourth-quarter 2004 results included a $103 million pre-tax gain and related interest associated with an insurance arbitration award at the company's Midstream Gas & Liquids segment, while the same period in 2003 included impairment charges of $89.1 million for Williams' power business, according to the company.

For the full year, Williams said it had unaudited net income of $163.7 million, or 31 cents per share on a diluted basis, compared with a net loss of $492.2 million, or a loss of $1.01 per share, for 2003. The company's 2003 results were impaired by an after-tax charge of $761.3 million, or $1.47 per share, to reflect the cumulative effect of adopting the mandated accounting standard for contracts involved in energy trading and risk management activities, Williams noted.

"Over the past year, we have rapidly increased our drilling and production, dramatically reduced our debt and nearly doubled our net cash provided by operating activities," said President and CEO Steve Malcolm.

Williams reduced its debt by $4 billion in 2004 to $8 billion at the end of the year, the company said. The company had unrestricted cash and cash equivalents of about $930 million at year-end 2004, and $881 million in unused and available revolving credit facilities, it said.

The company's primary business -- exploration and production, midstream gas and liquids, gas pipeline and power -- reported combined segment profit of $419 million in the fourth quarter, up significantly from $161.1 million for the same period in 2003 on a restated basis. For the entire 2004, the businesses combined had segment profit of $1.45 billion compared to $1.29 billion on a restated basis for 2003.

Exploration and production posted a profit of $70.9 million during the fourth quarter of 2004 versus $50.1 million for the same period in 2003. The increased profits were the result of higher production volumes and higher net realized average prices, the company said.

For the entire year, however, exploration and production took a hit, reporting profits of $235.8 million in 2004, compared to $401.4 million in 2003, according to Williams. The poorer results were due primarily to the absence of $95 million in gains on the sale of assets in 2003, $24 million in lower income on derivative instruments that did not qualify for hedge accounting, and a $15.4 million loss provision in 2004 regarding an ownership dispute on prior period production, the company said.

Williams reported that average daily production volumes had increased by 25% to 612 MMcfe of natural gas at the end of 2004 from 491 MMcfe of gas during the fourth period of 2003.

The company said year-end 2004 proved U.S. natural gas reserves were 3 Tcfe, up 10.5% from year-end 2003. Including its international interests, Williams reported that it has total proved gas and crude oil reserves of 3.2 Tcfe. Domestic reserve net additions of 451 Bcfe exceeded last year's 408 Bcfe in net additions.

In 2004, Williams noted it had a drilling success rate of approximately 99%. The company drilled 1,395 gross wells, of which 1,384 were successful. The company had a 99% success rate in 2003, drilling 900 gross wells, of which 891 were successful.

The company reported it plans to invest $500-$575 million in capital spending in exploration and production in 2005; $525-$625 million in 2006; and $525-$675 million in 2007.

Williams' midstream segment posted a profit of $235.7 million in the fourth quarter, up significantly from $63.8 million for the same period in 2003. The company credited the improved results to higher natural gas liquids and olefins production margins, as well as to the $93.6 million gain on the insurance arbitration award. For the entire year, the midstream operations saw a profit of $549.7 million compared to $197.3 million on a restated basis for 2003.

For the current year, Williams said it expects lower profits of $350-$430 million for its midstream operations on the assumption that gas liquids margins will be lower than those achieved in 2004.

Midstream plans to invest $120-$140 million in capital spending in 2005; $110-$130 million in 2006; and $100-$130 in 2007 to attract new volumes to the company's assets and further expand its midstream systems in existing basins, according to Williams.

Williams' gas pipeline segment reported a profit of $156.8 million in the fourth quarter compared to $148.2 million in year-end 2003. The increase reflected the benefit of expansion projects and higher equity earnings from the company's investment in the Gulfstream pipeline in Florida. For the year, the pipeline segment turned in a profit of $585.8 million compared to $555.5 million a year ago. In 2005, the company said it expects to generate a profit of $545-$585 million from its gas pipeline operations.

Williams plans to invest $370-$420 million in capital spending for gas pipelines in 2005; $475-$550 million in 2006; and $250-$325 million in 2007.

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