In response to recent mild temperatures and tame storagewithdrawals, natural gas spot prices are expected to fall further,possibly as low as $5.50/MMBtu by the next reported index,according to analysts with UBS Warburg. The level is far below the$7.00 mark the firm predicted in January.

In its latest Natural Gas Research Note, UBS said that eventhough its near-term pricing forecasts are currently “under water”due primarily to ongoing mild weather, the company is not yetconcerned with its overall $5.75/MMBtu full-year forecast. Thecompany also pointed out that, according to the American GasAssociation, the year-on-year deficit is decreasing with eachwithdrawal. With just last week’s 105 Bcf draw, the deficit wentfrom 534 Bcf to 426 Bcf. The firm said it expects the margin togrow even smaller with next week’s pull, but after that it couldbegin to increase again.

The deficit could increase after next week because the followingthree withdrawals last year were 136, 74 and 37 Bcf pulls, thecompany said. UBS also pointed out the fact that industrial gasdemand is on the rise because of falling spot prices.

Also in the company’s report, the analysts highlighted WilliamsCos. as an “ongoing enormous earnings power” within its energymarketing and trading segment. Williams posted its strong financialresults earlier in the week, which significantly surpassed Wall Streetexpectations for the fourth quarter and the year (see Daily GPI, Feb. 6).

Thursday, Williams also released its financial goals for 2001and beyond. The Tulsa-based company said that recurring energy-onlyfinancial performance in 2001 is expected to produce $1.60 to $1.80per share, and compound annual growth from 15% to 20% in the yearsthat follow. UBS concurred with the company’s energy-only EPS,raising its estimate from $1.65 to $1.80.

Williams said its gas pipeline segment is expected to achieve2001 profit results of $750 million to $765 million, while energyservices is expected to bring in $1.2 billion to $1.4 billion, ofwhich, energy marketing and trading would account for $500 millionto $1 billion. UBS also agreed almost across the board with thecompany’s other segment profit predictions. The firm estimates a1-3% increase in pipeline segment profit for 2001 to $765 million,a 31% increase in exploration and production to $88 million, andanother strong year from energy marketing and trading with $800million.

Keith Bailey, CEO of Williams, said that annual capital spendingis expected to sustain growth projections from $2 billion to $2.5billion, with $2.4 billion budgeted for 2001.

The analysts said they expect the company’s 12-month pricetarget to be $58 per share. “We arrive at this target by taking our$31/share Energy valuation and adding onto it an assumed $27/sharevalue for WMB’s (Williams) 85% holdings of WCG (WilliamsCommunications Group),” UBS said.

UBS said despite Williams’ recent strength, they suggest anongoing accumulation of WMB shares at current levels, and rates thecompany a buy. The firm currently rates El Paso Energy, Enron, AESCorp., Calpine and Atmos Energy as strong buys.

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