Riding a broad stock market rally fueled by investors looking for bargain-basement deals, Williams Cos. Inc.’s stock shot up nearly 88% to close at around $1.99 a share Monday, in spite of the company’s report earlier in the day of a major net loss for the second quarter due mostly to its floundering energy marketing and trading business, which lost nearly half a billion dollars for the period. The sharp bounce in the company’s stock, which had opened at $1.06 a share, suppressed speculation about possible bankruptcy.

Some market observers believed Wall Street also was reacting to the upbeat news released by Williams late Friday — that the company had reached a tentative agreement to resolve all claims, lawsuits and refunds for power overcharges with California and other parties, including Washington and Oregon. FERC also had signaled Friday it probably would not strip Williams of its license to sell electricity at market rates. In addition, Williams announced that it entered into agreements with its former subsidiary, Williams Communications Group, and the official committee of creditors in WCG’s Chapter 11 bankruptcy case, settling all issues between the two companies. Subject to bankruptcy court approval of WCG’s Chapter 11 case, Williams will receive $325 million, including $225 million in cash and a $100 million note, and Williams’ ongoing involvement with WCG will be substantially terminated.

The Tulsa, OK-based energy company said its unaudited net loss for the quarter was $349.1 million, or 68 cents per share, compared with a net profit of $339.5 million, or 69 cents a share, for the same period a year ago. For the first half, Williams posted a loss of $225.9 million, or 58 cents a share, against income of $695.7 million, or $1.42 cents share, for the six-month period in 2001.

Excluding one-time charges, Williams said its loss for the second quarter from recurring operations was 34 cents a share, compared to a gain of 57 cents for the comparable period in 2001. Analysts surveyed by Thomson First Call had projected that the company would post a loss in the range of 45 cents to 34 cents, with an average estimated loss of 38 cents.

Williams had scheduled a conference call for Monday to discuss its second-quarter results, but it postponed it until later in the week. The company gave no reason for the delay.

The biggest drain on earnings came from Williams energy marketing and trading business, which reported a second-quarter loss of $497.5 million, compared to a profit of $262.2 million a year ago. The loss stemmed from a significant decline in the forward mark-to-market value of the segment’s portfolio, brought on by the unit’s limited ability to exercise hedging strategies as market liquidity deteriorated and spark spreads lowered, as well as declining conditions for the energy trading sector.

In addition, energy marketing and trading recorded about $82 million of accrued losses due to commitments for certain power projects that were terminated, and a $57.5 million partial impairment of goodwill linked to worsening market conditions during the quarter.

Second-quarter results for the gas pipeline business were a bit more favorable, but still below a year ago. The sector posted a profit of $156.7 million compared to $181 million for the same period in 2001. During the quarter, Williams wrote off costs of approximately $20 million for its investments in the failed Independence Pipeline and Western Frontier gas pipeline projects and paid an additional $11.2 million for an early retirement program, but the write-downs were offset by a completion fee of $27.4 million that the company received for the Gulfstream gas pipeline, which went into operation in May.

The pipeline sectors’ results for the second quarter also were bolstered by $42.5 million due to the sale of Williams’ interest in Northern Border Pipeline and the reversal of a regulatory reserve, the company said.

Williams’ energy services sector, which provides a wide range of energy products and services, reported a second-quarter profit of $131.8 million, down from $263.9 million during the same period a year ago.

The exploration and production sector more than doubled its earnings for the quarter, posting a profit of $95.4 million compared to $45.2 million in the comparable period in 2001. Williams said the improvement was primarily due to higher gas production volumes, reflecting a strategy of low-risk development drilling with a focus on tight-sand and coal-seam areas, and the acquisition of Barrett Resources during the third quarter of 2001.

Second-quarter earnings for Williams midstream gas and liquids segment were up to $84.6 million compared to $64.5 million for the same period a year ago. The company credited the gain to higher equity earnings, primarily from its Discovery pipeline, the contribution of a Venezuelan gas compression facility that was put in service last year, and higher margins and volumes for natural gas liquids (NGL).

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