Williams credited strong results in all of its core gas businesses and the absence of a $248.7 million litigation charge in 2Q2006 for substantially improved second quarter results. Net income was $433.1 million (71 cents/share) compared with a net loss of $76 million (-13 cents/share) in 2Q2006.

Keys to the improvement were continued strong gas production growth, high natural gas liquids (NGL) margins and the positive effect of new rates on two of its pipelines, the company said. For the first half of the year Williams reported net income of $567.1 million (93 cents/share) compared with $55.9 million (9 cents/share) for the first half of 2006.

“Williams had a tremendous second quarter; our core natural gas businesses delivered very strong performances across the board, with a 36% increase in recurring adjusted segment profit,” said CEO Steve Malcolm. “We’ve updated our earnings outlook for this year to reflect these results and our confidence that our businesses will continue to deliver.

“Our natural gas production continues to increase, NGL margins remain at historical highs and new rates are in effect on both of our major pipeline systems. This quarter demonstrated the value in our integrated natural gas business portfolio.”

In May Williams announced an agreement to sell substantially all of its power assets to Bear Stearns in a transaction expected to close before the end of the year (see Daily GPI, May 22). Williams restated prior-period earnings to reflect certain parts of its former power segment as discontinued operations. Restated results also reflect formation of a new gas marketing services segment. The company has retained its gas marketing and risk management functions, which were previously in the power segment, in continuing operations. These functions are now being reported as a new business segment, gas marketing services.

The exploration and production segment, which includes gas production and development in the U.S. Rocky Mountains, San Juan Basin and Midcontinent, and oil and gas development in South America, reported second-quarter 2007 profit of $209.4 million, a 75% increase over the $119.8 million reported for the same period in 2006. For the first six months of 2007, exploration and production reported profit of $397.5 million, compared to $267.4 million for the same period last year.

Daily production solely from interests in the United States was approximately 898 MMcfe in 2Q2007, up from 738 MMcfe in 2Q2006. U.S. production realized net average prices of $5.39/Mcfe in the second quarter, 29% higher than the $4.18/Mcfe realized in the same period a year ago. Expiration of some out-of-the-money hedges contributed to the increase in realized prices.

In the Piceance Basin of western Colorado — the company’s cornerstone for production and reserves growth — 2Q2007 net production was 522 MMcfe/d — a 26% increase over the 2Q2006 level of 413 MMcfe/d. Williams has 25 rigs operating in the Piceance Basin, and the company said it plans to continue a program of upgrading to new-generation rigs in the basin.

The company is updating the range of its 2007 segment profit guidance for exploration and production to $750-950 million. Previous guidance for 2007 segment profit was $700-975 million. Williams is also increasing its 2007 capital expenditure guidance for the segment to $1.4-1.5 billion. Previous guidance was $1.3-1.4 billion. The increase relates to the recent acquisitions of properties, primarily undeveloped leasehold, in the Piceance Highlands and Fort Worth basins.

Williams’ midstream segment reported second quarter profit of $249.6 million compared to $131 million reported in the second quarter of 2006. For the first half of the year midstream reported profit of $403.7 million, compared with $282.3 million for the same period in 2006. The growth was primarily due to record-level NGL margins driven by low gas prices in the West and favorable market commodity pricing on NGLs. The 2006 period also included a nonrecurring charge of $68 million related to the Gulf Liquids litigation.

The company is increasing capital expenditure guidance for midstream for both 2007 and 2008. The new ranges are $650-700 million in 2007 and $525-575 million for 2008.

The gas pipeline segment reported second-quarter segment profit of $174.3 million, compared with $122.7 million for 2Q2006. For the first half of 2007 the gas pipeline segment reported profit of $324 million, compared with $257.4 million for the same period last year. Increases were due largely to new rates on the Northwest Pipeline and Transco systems.

Northwest’s new, higher rates went into effect on Jan. 1. On March 30, the Federal Energy Regulatory Commission approved Northwest Pipeline’s stipulation and settlement agreement that resolved all outstanding issues in its rate case.

Transco’s new, higher rates went into effect, subject to refund, on March 1. Transco and its customers have reached an agreement in principle on all substantive issues in its rate case.

As a result of the strong year-to-date earnings, Williams updated its 2007 profit guidance for the gas pipeline segment to $625-655 million. Previous guidance was $585-655 million. The company also increased its 2007 capital expenditure guidance for gas pipelines to $460-565 million from the previous range of $425-535 million.

The gas marketing services segment reported a 2Q2007 loss of $63.5 million, compared to a loss of $65.6 million in 2Q2006. For the first half the segment reported a loss of $93.3 million, compared to a loss of $88.7 million in the 2006 period. Results for the first half of 2007 reflect unrealized mark-to-market losses primarily caused by legacy natural gas contracts and positions. The company intends to manage or liquidate a substantial portion of these legacy contracts by the end of the year in order to reduce risk and mark-to-market volatility.

For 2007, Williams expects gas marketing segment results to range from a loss of $75 million to a loss of $50 million, absent any future unrealized mark-to-market gains or losses. On a basis adjusted for the effect of mark-to-market accounting, Williams expects segment results from break-even to $25 million in recurring segment profit.

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