Non-cash impairment charges in its exploration and production (E&P) unit drove Williams to a 2010 net loss of nearly $1.1 billion ($1.88/share) compared with net income of $285 million (49 cents/share) in 2009.
The charges were due to a decline in forward natural gas prices and included pre-tax charges of about $1 billion for an impairment of goodwill and $678 million related to certain proved and unproved gas properties, primarily in the Barnett Shale. Pre-tax costs of approximately $648 million in conjunction with the restructuring of Williams Partners LP also contributed to the net loss.
Adjusted income was $760 million ($1.28/share) compared with $552 million (94 cents/share) for 2009. The improvement was driven by increases in the company's Williams Partners and "other" segments, partially offset by lower results in E&P.
Late Wednesday Williams announced its plan to split the company in two, spinning off its E&P operations (see Daily GPI, Feb. 17). During a conference call to discuss earnings CEO Alan Armstrong said he and other executives could not discuss the pending reorganization.
Williams Partners is focused on gas transportation, gathering, treating, processing and storage; natural gas liquids (NGL) fractionation; and oil transportation. For 2010, Williams Partners reported segment profit of nearly $1.6 billion, compared with about $1.3 billion for 2009. The 20% increase is primarily due to higher per-unit NGL margins. Slightly higher NGL equity volumes and new fourth-quarter production capacity, also contributed to the improved results.
"The continued demand for large-scale infrastructure to serve the growing resource plays will continue to provide new investment opportunities throughout 2011 and beyond," Armstrong said.
The company's E&P unit primarily develops gas reserves in the Piceance, Powder River and San Juan basins, the Marcellus and Barnett shales; oil reserves in the Bakken Shale; and internationally in Argentina and Colombia. The business reported a segment loss of more than $1.3 billion for 2010, compared with segment profit of $391 million for 2009 due to charges and impairments. E&P adjusted profit was $321 million, compared with $483 million in 2009.
The decline in segment profit on an adjusted basis is due primarily to lower gas production, higher gathering, processing and transportation expenses, in addition to higher operating taxes and lease operating expenses, Williams said. These items were partially offset by higher net realized average prices for natural gas.
Total U.S. production increased 4% from third quarter to fourth quarter 2010. Williams said it expects average annual daily production to increase by 9% and 10% at guidance midpoints in 2011 and 2012, respectively.
During 2010 Williams' net realized average price for U.S. production, including hedging gains, was $5.23/Mcfe, which was 8% higher than the $4.85/Mcfe realized in 2009.
Williams said its proved natural gas and oil reserves at year-end were about 4.5 Tcfe, including international reserves of approximately 0.2 Tcfe. About 94% of total proved reserves are gas, with about 59% proved developed and 41% proved undeveloped, reflecting a continuation of the increase in the ratio of proved developed to undeveloped.
Williams added 528 Bcfe through 2010 U.S. drilling activity for an adjusted proved developed domestic reserves replacement cost of $1.87/Mcfe. Year-end proved, probable and possible (3P) reserves increased by 7% to 15.9 Tcfe from 14.8 Tcfe at year-end 2009.
"Our new positions in the Bakken and Marcellus turned 2010 into a transformational year," said Ralph Hill, president of Williams' E&P business. "We diversified both geographically and in terms of our product slate. We have significant scale in these areas now, similar to the framework we established in the Piceance and Powder River basins."
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