Marketing and risk management losses in the third quarter more than offset an earnings increase from ongoing core businesses, Williams Companies said Thursday. The company recorded an unaudited third quarter 2002 net loss of $294.1 million, or 58 cents per share, compared with restated net income of $221.3 million, or 44 cents per share, for the same period last year.

Despite the swing to a loss for the quarter, shares of the company on the New York Stock Exchange finished strongly on Thursday, climbing nearly 15% to close at $2.79/share.

Its energy marketing and risk management business posted a $387.6 million segment loss for the quarter, compared with a segment profit of $356.9 million during the third quarter 2001.

Williams, which has divested numerous assets in recent months, also received a big vote of confidence earlier in the week when the company reached a settlement agreement resolving all the proceedings and investigations of it at the state level in California (see Daily GPI, Nov. 12).

There was another breath of good news for the company Thursday. Williams said it has received notice that the U.S. Department of Justice antitrust division has closed its 18-month investigation of a capacity agreement between Williams and The AES Corp. and will take no action. The investigation was not associated with Williams’ California settlement or the request for information subpoena the company is responding to from the U.S. attorney in the Northern District of California.

Williams’ 3Q2002 results also included 22 cents per share for income from discontinued operations, compared with 5 cents per share for the same period last year. These items include the after-tax results of operations, gains from sales and impairment charges for certain assets that have been sold or were approved for sale in the third quarter, including Central, Mid-America and Seminole pipelines and the soda-ash operations. Williams noted that prior-year results have been restated to conform to current-year reporting for discontinued operations. Dismissing discontinued items, the company reported an unaudited recurring third quarter net loss of 40 cents per share, compared with restated net income of 59 cents per share in the same period last year.

“Our third quarter consolidated financial results reflect difficult market conditions and the impact of actions we’re taking to strengthen our company,” said Steve Malcolm, Williams CEO. “They also illustrate the scale of the opportunity we are working to capture by reshaping our company’s business platform to significantly reduce our financial risk and liquidity requirements. While we’re intently focused on strengthening our company, it’s important to recognize that the ongoing businesses that are core to Williams’ future recorded a significant increase in period-over-period segment profit for the third quarter.

“Since July 1, we’ve made significant progress on a couple of fronts that are important to our future,” Malcolm noted. “Earlier this week, we executed a settlement agreement with California and other parties in the West that would solidify our long-term contracts to sell energy, preserve the substantial value of those contracts, and resolve related state and private litigation as well as state investigations. All of those outcomes improve our opportunity to sell or assign all or a portion of our California portfolio.”

Hammered out on Monday, the global, multi-billion-dollar deal could ultimately include two other states and more than a dozen local governments, along with a series of class action plaintiffs. It involves California getting more control of its long-term power contracts and up to $417 million in separate payments from Williams. The settlement is subject to various conditions, including certain court and Federal Energy Regulatory Commission approvals, and the completion of due diligence by the California attorney general.

Malcolm added that the company’s restructuring plan has also included the “sale of assets — two liquids pipelines, a wholly owned natural gas pipeline and an interest in two others, certain exploration and production properties, an LNG facility, a natural gas gathering system, an interest in a Lithuanian oil complex and retail TravelCenters — that are expected to generate $2.6 billion in cash.”

During the quarter, Williams recorded a $408.7 million loss from continuing operations. The loss includes pre-tax impairment charges of $432.6 million associated with certain Petroleum Services assets and an additional $22.9 million writedown of amounts due from WilTel Communications Group, whose federal bankruptcy court-approved reorganization plan went into effect in October. The company partially offset those amounts with a $143.9 million pre-tax gain from the sale of certain Exploration & Production properties and a $58.5 million pre-tax gain from the sale of its interest in a Lithuanian oil complex. The third quarter of 2001 included a $94.2 million pre-tax writedown of investments that were deemed to be other than temporary.

Despite all of the asset divestitures, Malcolm said, “We still have work to do. Chiefly, we are marketing other non-core assets, and we are continuing the process of selling or joint-venturing parts of our energy marketing and risk management business, but there is no new information to share on either front today.”

A lot has happened since the company’s last earnings report. In that time, Williams has realigned its organization to create increased focus on its Exploration & Production and Midstream Gas & Liquids businesses. Those two units, along with Gas Pipeline and the company’s investment in Williams Energy Partners, serve as the foundation of Williams’ business. “As prominent drivers in Williams’ future, it’s appropriate to structure our organization in a way that should facilitate increased focus on our core businesses,” Malcolm said. “This move demonstrates the important contribution that we expect Exploration & Production and Midstream Gas & Liquids to make.”

By elevating those two businesses, the company eliminated the Energy Services organizational and reporting structure under which Petroleum Services and International also reported. If it is successful in executing its planned asset sales and/or assignments, those units, as well as Energy Marketing & Trading, would cease to exist in their current forms.

Tied in with its restructuring, Williams named Phil Wright as chief restructuring officer, a new position with accountability for selling assets and reducing costs. Wright previously served as president and CEO of the Energy Services business group. Wright reports directly to Malcolm, as do the senior vice presidents of Exploration & Production, Ralph Hill; Midstream Gas & Liquids, Alan Armstrong; and Gas Pipeline, Doug Whisenant.

The company’s Gas Pipeline segment contributed profit of $172.6 million vs. $101.8 million for the same period last year, while the Exploration & Production segment posted the largest profit increase, from $65 million for 3Q2001 to $231.8 million for the quarter just ended. Williams’ Midstream Gas & Liquids segment chipped in profit of $104 million vs. a restated segment profit of $69.5 million for the same period last year. Williams Energy Partners, which has a corporate structure independent of Williams, reported third quarter segment profit of $13.4 million vs. $27.1 million during 3Q2001.

Going forward, Williams also laid down some guidance for its ongoing businesses — Gas Pipeline, Exploration & Production, Midstream Gas & Liquids and the investment in Williams Energy Partners. The company said it continues to expect recurring segment profit from $1.4 to 1.5 billion for 2002 and from $1.1 to 1.3 billion for 2003.

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