Despite good performances by its natural gas production and pipeline businesses in the first quarter, The Williams Cos. reported flat profits from a year ago due to heavy losses suffered on the power side.

The Tulsa, OK-based energy company posted net income of $134 million, or 22 cents per share on a diluted basis, for the first quarter, up slightly from the $131.9 million, or 22 cents per share, in the same period a year ago. Williams earnings missed analysts’ projections of 34 cents/share for the quarter. The company’s stock closed last Thursday at $29.20, down 68 cents a share.

Williams said it experienced increased natural gas production in the first quarter, along with higher net realized average prices for gas sales. Average daily domestic production rose 28% compared with the first quarter of 2006, while production in the Piceance Basin in western Colorado jumped 37%, the company noted.

Its pipeline segment also had a profitable quarter, thanks in large part to higher rates on both Transcontinental Gas Pipe Line and Northwest Pipelines. But the company’s power business had $70.6 million in unrealized mark-to-market losses, compared with a $43 million unrealized mark-to-market gain in the first quarter of 2006.

Williams’ exploration and production segment, which includes production and development in the U.S. and South America, reported a first quarter profit of $188.1 million, up from $147.6 million for the same period last year. During the quarter, combined average production from U.S. and international operations was up 25% to approximately 891 MMcfe, compared with 714 MMcfe in the first period of 2006.

Daily production solely from operations in the United States rose 28% to about 845 MMcfe in the first quarter, up significantly from the 661 MMcfe that was recorded in the same quarter last year. Domestic production realized net average prices of $5.32/Mcfe in the quarter, 13% more than the $4.71/Mcfe that was realized for the same period in 2006.

Williams also reported that its total proved, probable and possible reserves increased slightly to 10.8 Tcfe from its previous estimate of 10.7 Tcfe, after producing 0.3 Tcfe in 2006.

The company’s pipelines, which deliver gas to markets along the eastern seaboard, the Northwest and Florida, posted a first quarter profit of $149.7 million, compared to $134.7 million a year ago. Williams said the hike was largely attributable to increased revenue resulting from the Northwest Pipeline and Transco rate cases. Northwest’s higher rates went into effect on Jan. 1, while Transco’s new rates took effect on March 1.

For 2007, Williams said it continues to expect $585 million to $655 million in profit from its pipeline operations.

Williams’ midstream operations, which include gathering, processing and natural gas liquids (NGL), turned in a profit of $154 million for the three-month period, up slightly from $151.5 million in the first quarter of 2006. The slight improvement in midstream’s results was due to NGL sales margins remaining at historically high levels, the company said. However, higher expenses and reduced volumes from the deepwater Gulf of Mexico partially offset the benefit of the strong NGL margins, it noted.

The company’s power business had a disappointing quarter, posting an overall loss of $81.1 million compared to a loss of $22.5 million in the first quarter of 2006. The wider loss in the first quarter reflected a $70.6 million unrealized mark-to-market loss.

Williams raised the lower end of its 2007 guidance range to $1.15-1.50 per share from its previous $1.10-1.50. “In raising its guidance, it increased its expectation regarding [the] midstream segment profit,” said analyst Michael C. Helm of A.G. Edwards. “We are maintaining our earnings estimate of $1.20 per share at this time.”

For the year, Williams said it expects a range of $1.95 billion to $2.4 billion in consolidated segment profit. The ranges for consolidated and per-share profits assume unhedged gas prices between $7 and $8.30/Mcfe (Henry Hub), adjusted for basis differential; NGL margins consistent with an oil-to-gas price ratio of 7.4 to 9.6 (West Texas Intermediate crude to Henry Hub gas); and an assumption for crude oil pricing in the range of $53 to $73 a barrel.

In 2008, the company said it anticipates consolidated segment profit of $2.13 billion to $2.98 billion on a recurring basis, adjusted for the effect of mark-to-market accounting. The projected improvement over 2007 is primarily due to an expected increase in natural gas production, it noted.

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