With quarterly exploration and production (E&P) profits more than doubling and midstream income rising 17.5% from a year ago, Williams has boosted its 2008 earnings guidance for the second time in less than two months.

The Tulsa-based company reported only a 1% gain in total 2Q2008 profit from the prior-year’s period, with net income of $437 million (73 cents/share), compared with $433 million (71 cents). However, E&P profit jumped 137% to $496 million from $209 million. Midstream profit climbed to $295 million, compared with $251 million in 2Q2007. The gas pipeline segment’s profits were flat from a year earlier.

“Strong performances in the company’s exploration and production and midstream businesses were the key drivers of the increase in the second quarter and year-to-date results,” said CEO Steve Malcolm, who helmed a conference call with energy analysts to discuss the company’s results.

Hesitant to discuss whether Williams may be eyeing some acquisitions, or whether it would continue to buy back stock, Malcolm said the company has identified $100-300 million in “potential future projects” for 2008. Another $200-500 million in potential projects are being considered for 2009.

“Natural gas is playing an increasingly vital role in our nation’s energy picture, and Williams operates a portfolio of natural gas assets that are best-in-class,” said Malcolm. “Our energy-producing businesses enjoy the competitive advantages of scale in established, growing production basins. Our pipelines connect those long-lived producing areas to fast-growing markets along the Eastern Seaboard, in Florida and in the Pacific Northwest.”

The CEO cited the “abundant slate of opportunities within our reach that expands almost every day.”

Increased development within the Piceance, Powder River and in the Barnett Shale basins drove the 24% jump in domestic gas production growth, and Williams surpassed 1.1 Bcfe/d in domestic production during the period.

The Piceance Basin of western Colorado — the company’s cornerstone for production and reserves growth — reported average output climbed 26%, to 659 MMcfe/d from 522 MMcfe/d. The Powder River Basin in Wyoming, the company’s second-largest production area, had 41% growth from a year earlier to 234 MMcfe/d from 166 MMcfe/d in the prior year’s period.

Williams’ other North American oil and gas production, which includes stakes in the San Juan Basin of New Mexico and the Barnett Shale of Texas, reported 4% growth overall, to 266 MMcfe/d from 257 MMcfe/d in 2Q2007.

Based on the strong E&P results and recent acquisitions in the Piceance region and Barnett Shale (see Daily GPI, July 22; May 9), Williams hiked its segment profit for 2008 and 2009. Williams now expects recurring segment profit in 2008 to range from $1.4 billion to $1.7 billion, which is above the June 25 guidance of $1.35-1.7 billion. For 2009 Williams now expects a range of $1.275 billion to $1.775 billion, updated from the earlier estimate of $1.250-1.75 billion.

In addition, Williams plans to spend more on its E&P program through 2009, Malcolm said. This year E&P spending is expected to be $1.975-2.175 billion, ahead of a spending forecast less than two months ago of $1.8-2 billion (see Daily GPI, June 26). Williams in 2009 now expects to spend $1.725-1.925 billion for the E&P segment, above the June guidance of $1.625-1.825 billion.

Williams’ gas pipelines, which primarily deliver gas to markets along the East Coast, in Florida and in the Pacific Northwest, reported quarterly profit of $179 million, compared with $180 million in 2Q2007. Meanwhile the company’s gas marketing business recorded a quarterly loss of $46 million, compared with a $63 million loss in 2Q2007. The loss was primarily attributed to derivative contracts with a future delivery date.

Williams is assuming unhedged natural gas prices in 2008 in the Rockies will average $7.30-8.10/Mcf, while in the San Juan/Midcontinent, prices are expected to average around $7.70-9/Mcf. Williams is pegging New York Mercantile Exchange (Nymex) gas prices to be $9-10.50/Mcf in 2008. Oil prices in 2008 are forecast at $100-120/bbl West Texas Intermediate. For 2009 Williams is forecasting average Rockies prices at $6.60-8.10/Mcf; average San Juan/Midcontinent at $7-9; and Nymex at $8-10.50/Mcf.

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