With only 8% of its Rockies-concentrated natural gas production basis priced in the last three months of 2007, Williams delivered a robust 53% jump in quarterly profit. Production, boosted by growth in the Barnett Shale and Piceance and Powder River basins, rose 21% in 2007 and averaged close to 1 Bcf/d.
Net profit in 4Q2007 totaled $225 million (37 cents/share), compared with $147 million (24 cents) in 4Q2006. Recurring income from continuing operations jumped 111% to $267 million (44 cents/share) from $163 million (27 cents).
“By almost any measure we had an outstanding fourth quarter…and an exceptional year,” CEO Steve Malcolm told financial analysts during a conference call Thursday. “With our business mixture and management of the Rockies basis done well, as I have said many times, we are a Rockies producer, not a Rockies price-taker.”
Strong performances in the company’s midstream, exploration and production (E&P) and gas pipeline businesses were the key drivers for the quarter, Malcolm said. Key factors included natural gas liquids margins “remaining at historically high levels, continued strong natural gas production growth and the positive effect of new rates on two pipeline systems.”
Williams’ performance was partially offset by a loss, primarily mark-to-market, of $166 million related to the sale of legacy natural gas contracts associated with its former power business. Williams last year agreed to sell substantially all of its power assets to The Bear Stearns Cos. Inc. (see NGI, Nov. 12, 2007; May 28, 2007).
While Rockies market prices were 30% lower in 2007 compared with 2006, Williams’ firm transportation contracts, which allow a significant portion of its Rockies production to be sold at more advantageous market points — as well as fixed-priced hedges and collars — contributed to the increase in net realized average prices.
Last year Williams’ net realized average price for U.S. production was $5.08/Mcfe, which was 15% higher than the $4.40/Mcfe realized in 2006.
Williams’ total 4Q2007 production was 979 MMcfe/d. Of that amount, 28% (271 MMcfe/d) was at Rockies prices before hedging and of the 271 MMcfe/d, 188 MMcfe/d was hedged. Seventy-two percent (708 MMcfe/d) of Rockies output was produced or transported to other price points. Only 83 MMcfe/d (8%) was priced in the Rockies.
“Our fourth quarter averaged net realized price after fuel use, transportation and hedge gains was $5.06,” said E&P President Ralph Hill. Rockies index 4Q2007 prices averaged $3.58/MMcfe at Colorado Interstate Co. and $3.46 at Northwest Pipeline, he noted.
In the final quarter of the year Williams increased its average domestic production by 18% from a year earlier. In the Piceance Basin of western Colorado, considered the cornerstone for the company’s output and reserves growth, average daily production jumped 30% for the year — 540 MMcf/d versus 416 MMcf/d. Gas output rose 25% in 4Q2007 from 4Q2006.
Total domestic gas production rose 21% for the year to 913 MMcf/d from 752 MMcf/d in 2006. Total U.S. and international output was up 20% to 960 MMcf/d from 803 MMcf/d.
Williams reported that year-end 2007 domestic proved U.S. gas reserves rose 12% to 4.14 Tcfe from year-end 2006 reserves of 3.7 Tcfe. Including its international interests, Williams had total proved natural gas and oil reserves of 4.3 Tcfe at the end of last year compared with 3.9 Tcfe in 2006. The company also added 776 Bcfe in net reserves, and it reported a 232% reserve replacement rate in 2007.
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