Williams CEO Steve Malcolm said during a conference call with analysts Wednesday that despite the potential for $5 billion in asset sales this year, including the eight large assets still on the auction block, the company still will retain a major presence in the energy business, including a premier exploration and production operation in the Rocky Mountain region, a large midstream presence in the Rockies and Gulf Coast regions, 20,000 miles of interstate pipelines, a 54% stake in a profitable master limited energy partnership, and 60% of its former energy marketing and trading portfolio.

Williams executives outlined a plan of action Wednesday that is designed to return the company to an investment grade credit rating, which most likely won’t be achieved until 2004. The plan includes becoming a “smaller, more focused company” that lives “within our means,” selling off additional assets, reducing capital expenditures and achieving more than $200 million/year in savings.

Williams shares rose 29% Wednesday to $3.61 after the company reported that despite its $349 million net loss during the second quarter it still expects recurring segment profit of $630 million to $660 million from its interstate natural gas pipeline business and $780 million to $850 million from its energy services segment for full-year 2002.

It noted, however, that these estimates include the historical operating results for certain assets that have been sold, and those results will be reclassified to discontinued operations for financial accounting purposes. Williams also did not include expected results from its marketing and risk management business because its business platform is expected to change significantly before the end of the year. The company is in the process of taking bids on about 40% of its trading book, excluding its California portfolio. Company officials said portions of the marketing and trading book will either be sold or be taken up by a joint venture. Negotiations with potential joint venture partners and buyers are expected to be completed in 30 days.

The energy marketing unit had a second quarter loss of $497.5 million versus a segment profit of $262.2 million for the same period last year primarily because of a significant decline in the forward mark-to-market value of its portfolio. That resulted from its limited ability to exercise hedging strategies because of declines in market liquidity, lower spark spreads and increased credit and liquidity reserve requirements. The unit also recorded an $82 million loss because of terminated power projects and a $57.5 million partial impairment of goodwill resulting from deteriorating market conditions.

Many of those adverse conditions continue, and company officials said they could not provide an expected 2002 earning forecast for the trading operation or the company as a whole.

Nevertheless, Williams officials do expect oil and gas exploration and production profit to rise as much as 19% this year. Gas pipeline profit could gain as much as 8.2%. Williams said it expects expansions on Northwest Pipeline and Transcontinental Gas Pipe Line to more than offset the loss of returns from Kern River Gas Transmission, which was sold in March to MidAmerican Energy Holdings, and from Williams Gas Pipeline Central, which currently is on the auction block.

Williams still has eight major assets up for sale, including portions of its energy trading book, its Memphis and Alaska refineries (bids are due Sept. 2), Williams Gas Pipeline Central (bids due Aug 26), midstream assets in Western Canada (bids due in 4Q), its soda ash facilities (bids due in 4Q), bio energy assets (bids due Aug. 30), its travel centers (bids due Aug. 30) and its olefins plants (bids expected in 3Q).

The company’s financial situation greatly improved following a $3.4 billion financing package in July, in which Williams received a $700 million term loan, a $400 million credit facility, a $900 million credit on its E&P properties and $1.4 billion in asset sales. However, the $900 million Barrett assets loan is at 30% interest, which will propel Williams’ debt payments to a total of $2.2 billion next year from $684 million this year. Williams officials acknowledged the high cost of debt next year but said the company could cover it and said Williams would not be adding any new debt.

“There’s no question that Williams is undergoing the most dynamic restructuring in its history,” said Malcolm. “Progress has been made but clearly there is much more left to be done… I believe we have a clear path toward creating a much stronger company.”

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