Williams maintains a “more conservative” trading philosophy than many of its peers, Chairman Keith E. Bailey told analysts Monday, saying short term volatility in spark spreads and commodity prices have had much less impact on results since the company tends toward longer, structured transactions and is “much more fully hedged” than most.

Bailey, announcing second quarter results that exceeded Wall Street estimates, responded in a conference call to a number of questions from financial analysts who were concerned about the downward trend in commodities prices. He said about 70% of Williams short term power trading is hedged over the next three years. Williams also has significant wellhead hedging of its own natural gas production, including hedging over the next three years for a “substantial majority” of production of Barrett Resources, which Williams is acquiring. The Barrett transaction should be completed by the end of this week, he said.

The Williams CEO pointed out that a balance of revenue streams from diverse operations, such as pipelines and energy services, made it less susceptible to lower commodity prices. In fact, the lower prices tend to help the company, since they could stimulate an economic recovery and more gas would flow through its pipelines creating additional pipeline revenue.

Nor are all the Williams’ future eggs in one basket, Bailey said. The company’s growth strategy also is balanced, and aimed at a 20% yearly rate.

Responding to questions about the California situation, Bailey said it had improved with the recent decision by FERC Judge Curtis Wagner, which put the dialogue on overcharges to California on a much more factual basis and expanded it to include a number of other companies beyond the four, including Williams, which California politicians have constantly harangued. He worried, however, that “this still is not doing much to solve the long term supply concerns of California and the western region.”

Williams second quarter earnings were led by improved refining volumes and margins, higher natural gas production prices and a gain on the sale of convenience stores. The company reported unaudited 2Q income from continuing operations of $339.5 million, or 69 cents per share on a diluted basis. This compares with $286.4 million, or 63 cents per share on a diluted basis, during the same period a year ago. The second quarter 2001 sale of the convenience stores improved earnings by 9 cents per share.

As a result of current performance and outlook for the remainder of the year, Bailey said he now is comfortable with increasing previous earnings guidance for the full year to approach the current Wall Street consensus estimate of $2.32 per share.

The gas pipeline group reported second-quarter 2001 segment profit before special items of $165 million, compared with $151 million before special items, during the same period a year ago.

Energy Services, which provides a full spectrum of traditional and leading-edge energy products and services, reported second-quarter 2001 segment profit of $524.8 million, compared with $413.5 million during the same period a year ago. Within Energy Services the Energy Marketing & Trading unit reported second quarter segment profit of $273.2 million vs. $272.6 million for the same period last year. Natural gas and power trading was up $20 million over last year, but natural gas liquids, crude oil and refined products trading was down.

At June 30, Williams had net accounts receivable of approximately $302 million from power sales to the California Independent System Operator and the California Power Exchange Corporation, compared with $252 million at March 31 of this year. Williams said FERC’s July 25 order regarding refunds is not expected to have a materially adverse impact on Williams’ results from operations.

Midstream Gas & Liquids, also part of Energy Services, reported second quarter segment profit of $40.8 million vs. $71.1 million for the same period last year. The decrease primarily was due to lower domestic liquids margins and volumes.

Petroleum Services, which includes refining, travel centers, petroleum products transportation and terminals, bio-energy and olefins production, reported second quarter segment profit of $160.2 million vs. $57 million for the same period last year, with the gain primarily due to a $72.1 million gain on the May sale of Williams’ 198 convenience stores in the Lower 48.

Exploration & Production, reported second quarter segment profit of $40.3 million vs. $10 million for the same period last year. The improvement primarily was due to increased prices for natural gas production volumes and equity earnings from Barrett Resources, reflecting Williams’ acquisition of 50% of Barrett’s common stock in mid June.

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