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Williams Ups '05 Earnings Forecast on Strong Quarter

With natural gas production and natural gas liquids (NGL) sales volumes 22% higher than a year ago, and average prices 31% higher, Tulsa-based Williams reported strong quarterly earnings on Thursday, with net income of $201.1 million (34 cents/share) versus $9.9 million (2 cents) in 1Q2004.

Recurring income from continuing operations, which excludes items of income or loss that the company characterizes as unrepresentative of its ongoing operations, was $198.4 million (33 cents/share) versus $4 million (1 cent) in 1Q2004.

Williams moved upward the range of recurring income from continuing operations it expects in 2005 to 65-90 cents/share from a previous range of 63-87 cents.

CEO Steve Malcolm said Williams' success "is marked by our ability to execute our strategic plan, sustain our financial discipline and capitalize on the competitive advantages of our businesses.

"The future for Williams is now," he said. "That's why we have seized an opportunity in the Piceance Basin to increase the pace of development beginning later this year. Our strategy for creating value is simple: make disciplined investments in natural gas-focused businesses that are located in key growth areas where we enjoy the competitive advantages of scale, a low-cost position or market leadership."

Williams' primary businesses -- Exploration & Production, Midstream Gas & Liquids, Gas Pipeline and Power -- reported combined segment profit of $513.8 million, versus combined segment profit of $277 million on a restated basis in 1Q2004.

"The improvement in year-over-year segment profit is primarily attributable to increased production levels and higher net realized average prices for production sold in Exploration & Production, along with favorable NGL margins and increased sales volumes in Midstream," the company said in a statement. Power results also include an increase in mark-to-market earnings.

Exploration & Production, which includes natural gas production and development in the U.S. Rocky Mountains, San Juan Basin and Midcontinent, and oil and gas development in South America, reported profit of $103.7 million versus $51.5 million for the same period a year ago. The year-over-year improvement reflected "significant" increases in both production volumes and net realized average prices for production sold, partially offset by higher lease operating expenses and depreciation, depletion and amortization.

The increased production primarily reflected higher drilling levels in the Piceance Basin. Also contributing to the increased segment profit was a gain of approximately $8 million on the sale of noncore undeveloped leasehold properties in Colorado.

Average daily production from domestic and international interests was 614 MMcfe/d, compared with 502 MMcfe in 1Q2004. Average daily production for the quarter was up only marginally from the 612 MMcfe reported in 4Q2004, which Williams blamed on inclement weather that impeded drilling progress in January. Increased development and production resumed in February and March.

Average daily production solely from domestic volumes increased 24% in the quarter to 568 MMcfe/d, compared with 457 MMcfe/d in 1Q2004.

Williams currently has 13 rigs operating in the Piceance Basin of western Colorado -- its cornerstone property for production growth. Average daily production from the Piceance Basin was 282 MMcfe/d, a 59% increase over year-ago levels.

The company now expects to have an average of approximately 20 rigs operating in the Piceance Basin in 2006 and an average of approximately 22 rigs there in 2007, following the company's agreement in March to contract 10 new rigs, each for a term of three years. Williams expects to begin deploying the new rigs on pace with the contracted delivery schedule of one per month, beginning in November.

As a result of the agreement for the new rigs, Williams has increased its planned capital spending in Exploration & Production in 2005 to a range of $530-605 million, an increase of $30 million from the previous guidance range of $500-575 million.

Midstream, which provides gathering, processing, natural gas liquids fractionation and storage services, reported segment profit of $128.6 million, up from $110.1 million on a restated basis in 1Q2004. The year-over-year improvement primarily reflected higher NGL production margins and sales volumes, and higher olefins production margins, partially offset by higher operating expenses.

"Midstream continues to benefit from favorable NGL margins, particularly in its western U.S. natural gas processing operations in areas such as Opal and Wamsutter in Wyoming," Williams said. The olefins business also benefited from favorable commodity prices associated with rising crude oil prices and additional demand for ethylene and propylene products.

Gas Pipeline, which primarily delivers natural gas to markets in the Northwest, along the Eastern Seaboard and to Florida, reported a segment profit of $167.4 million, compared with $147.4 million on a restated basis in 1Q2004. The increase was attributed to approximately $13 million in expense reductions related to prior periods and $7.7 million in higher equity earnings from Gulfstream, a joint venture in which Williams owns a 50% interest.

Power, which manages an approximate 7,000 MW portfolio, reported segment profit of $114.1 million, compared with a loss of $32 million a year earlier. The earnings were attributed to a $197.4 million increase in forward unrealized mark-to-market gains associated with power and natural gas contracts.

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