Williams Cos. on Thursday posted a $1.26 billion loss for 3Q2010, which it blamed partly on significant impairment charges related to its Barnett Shale properties. The losses were a turnaround from the year-ago period when the Tulsa-based company had profits of $143 million (24 cents).

The latest quarter's losses all were within the Exploration & Production (E&P) segment, including pretax charges of about $1 billion for a goodwill impairment, as well as a $678 million loss related to proved and unproved gas properties that are primarily in the Barnett play. In 3Q2009 Williams reported $100 million in profits from the E&P segment.

Despite the earnings losses in the quarter, the company's total production in 3Q2010 was 2% higher sequentially from 2Q2010. In the Piceance Basin quarterly production was down 2% to 682 MMcfe/d from 697 MMcfe/d in the year-ago period, but it rose 5% sequentially. Powder River Basin output rose 6% year/year to 237 MMcfe/d from 224 MMcfe/d and was up 4% sequentially.

Williams' E&P unit includes natural gas production and development in the Rocky Mountains, San Juan Basin, Barnett Shale, Marcellus Shale. and oil and gas development in South America.

The segment's losses in the quarter mostly was attributed to a write-down in Barnett Shale assets. On an adjusted basis, the losses, said Williams were "due primarily to higher exploration expenses associated with the company's activities in the Paradox Basin and higher operating taxes." The charges were offset in part by higher net realized average prices for natural gas.

Williams' net realized average price for U.S. production, including hedging gains, was $4.35/Mcfe in 3Q2010, which was 4% higher than in the year-ago period when it received $4.18/Mcfe.

In September both Williams Cos. and the partnership reduced earnings forecasts and planned capital spending through 2012 to reflect lower expected gas prices and natural gas liquids margins (see Daily GPI, Sept. 17). Williams has been hit partly because of its restructuring charges in the past few months as it works to simplify its businesses and focus on E&P over midstream operations.

In light of its restructuring, it appeared to come as no surprise to analysts that Williams agreed to sell the Piceance Basin midstream operations to Williams Partners for $782 million. The partnership's total consideration for the assets is to include $702 million in cash and $80 million in partnership units. The assets include the Parachute Plant Complex, three other treating facilities with a combined processing capacity of 1.2 Bcf/d, and a gathering system with 150 miles of pipeline.

More than 3,300 wells are connected to the gathering system in Colorado, including pipelines that are up to 30 inches in diameter. The transaction also includes a life-of-lease dedication from the E&P segment.

"We continue to project steady earnings growth and seize opportunities to expand our businesses," said CEO Steve Malcolm said. "For example, the drop-down transaction that we announced...provides attractive fee-based growth for Williams Partners while providing Williams with additional cash."

For the final three months of this year gas production volumes are forecast to be higher than in 4Q2009, Williams said. Overall average annual daily production for 2010 is expected to be consistent with 2009 volumes. Additionally, Williams said average annual daily production at its midpoint is forecast to increase by 3% in 2011 and 7% in 2012.

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