Lower energy commodity prices impacted Williams exploration and production (E&P) and midstream segments and the company's earnings in 3Q2009, but overall results were improved compared to 2Q2009, the Tulsa-based producer said Thursday.

Williams net income was $143 million (24 cents/share) in 3Q2009, compared with $366 million (62 cents) in 3Q2008, a 61% decline.

Williams projected its full-year 2009 adjusted earnings to be 95 cents to $1/share. In September Williams lifted full-year 2009 adjusted earnings to 75-90 cents/share compared with an earlier forecast of 70-90 cents (see NGI, Sept. 14). The updated guidance reflects higher expected natural gas liquid (NGL) margins in midstream, as well as higher expected average net realized prices for natural gas and lower costs in E&P, Williams said.

"Forward market commodity prices are now above the midpoints of our 2010-2011 assumptions, which have us approaching our record-level of earnings from 2008 over the next two years," said CEO Steve Malcolm. "And this is in a much more sustainable and lower commodity price environment."

The company has slightly reduced its expected capital expenditures for 2009, reflecting the its continuing efforts to reduce operating and capital project costs.

Williams' E&P business includes gas production in the Rockies, San Juan Basin, Barnett and the Marcellus shales, along with gas development in South America. The business reported a profit of $106 million in 3Q2009, compared with $361 million a year ago. The decline was primarily due to much lower net realized average prices for natural gas, partially offset by higher production volumes and lower costs and expenses, including operating taxes. The higher production volumes, coupled with higher capital costs in prior years, resulted in higher depletion, depreciation and amortization expense during the quarter, Williams said.

Average daily gas output from U.S. properties during 3Q2009 was down 6% compared to 1Q2009, but it rose 5% from a year ago to 1,148 MMcfe/d from 1,096 MMcfe/d. The biggest output gains were in the Piceance Basin, where Williams produced 697 MMcfe/d, 6% ahead of 657 MMcfe/d a year earlier.

Net realized average prices for U.S. production were $4.18/Mcfe in 3Q2009, down 40% from the $6.97 realized in 3Q2008.

In August Williams said it would incrementally add drilling rigs to its Piceance Basin operations after buying almost 22,000 net acres from a private company (see NGI, Aug. 17). One drilling rig is to be added by the end of the year, followed by one more rig in 2010 and two more in 2011. Williams had been running eight gas rigs in the basin, where Malcolm believes there are opportunities enough to "double down with new investments" (see NGI, Sept. 28).

"We're planning on investing in significant growth opportunities over the next two years. The Piceance Basin, where we have continued to build scale, holds a vast inventory of low-risk, high-return projects across all of our businesses," Malcolm said.

Williams midstream business reported profits of $222 million, compared with $229 million a year ago. The decline was attributed to lower NGL and olefin prices, as well as lower NGL equity sales volumes, partially offset by lower production costs, the company said.

The pipeline segment, which primarily delivers gas to markets along the East Coast, to Florida and to the Pacific Northwest, reported net earnings of $157 million in 3Q2009, compared with $173 million in the year-ago period. The pipeline unit had higher operating costs in the period, which were partly offset by lower project development costs.

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