Oklahoma-based Williams Cos. reports Q2 net income of US$227M, up 23% from year ago, on improvements in Williams Partners and Midstream Canada & Olefins segments, partially offset by lower results from Exploration & Production business

Rachel Carter

TULSA, Oklahoma , August 3, 2011 (press release) – -- Net Income is $227 Million, $0.38 per Share for Second Quarter 2011

-- Adjusted Income from Continuing Operations is $0.39 per Share, Up 39% in 2Q

-- Strong Performances Across All Businesses Drive Improved 2Q Adjusted Results

-- 2011 Adjusted EPS Guidance Midpoint Increased $0.05 to $1.60

-- IPO, Spinoff of Exploration & Production Business on Schedule

Williams (NYSE: WMB) announced unaudited net income attributable to Williams, for second-quarter 2011 of $227 million, or $0.38 per share on a diluted basis, compared with net income of $185 million, or $0.31 per share on a diluted basis for second-quarter 2010.

Improvements in the company's businesses, described more fully below, drove the increase in net income for second-quarter 2011.

Year-to-date through June 30, Williams reported net income of $548 million, or $0.92 per share, compared with a net loss of $8 million, or a net loss of $0.01 per share for the same period in 2010.

In addition to the strong business performance, the significant improvement in results for year-to-date 2011 is primarily due to the absence of $645 million of pre-tax charges incurred during first-quarter 2010. The charges were in conjunction with the strategic restructuring that transformed Williams Partners L.P. (NYSE: WPZ) into a leading diversified master limited partnership. The year-to-date 2011 period also benefited from a first-quarter $124 million income tax benefit associated with federal settlements and an international revised assessment, both pertaining to prior periods.

Adjusted Income from Continuing Operations

Adjusted income from continuing operations was $231 million, or $0.39 per share, for second-quarter 2011, compared with $163 million, or $0.28 per share for second-quarter 2010.

For the first six months of 2011, Williams' adjusted income from continuing operations was $443 million, or $0.74 per share, compared with $371 million, or $0.64 per share for the same period in 2010.

The 42-percent increase in the adjusted results for the second quarter was due to improved results in all of the company's businesses. The 19-percent increase in the year-to-date adjusted results was due to improvements in the Williams Partners and Midstream Canada & Olefins segments, partially offset by lower results from Exploration & Production. There is a more detailed description of the business results later in this press release.

Adjusted income from continuing operations reflects the removal of items considered unrepresentative of ongoing operations and the effect of mark-to-market accounting and is a non-GAAP measure. Reconciliations to the most relevant GAAP measure are attached to this news release.

CEO Comment

Alan Armstrong, Williams' president and chief executive officer, made the following comments:

"On the heels of an outstanding second quarter – with adjusted EPS up 39 percent – we are increasing our full-year earnings outlook based on continued strong performance across all of our businesses.

"We are executing our strategy to unlock shareholder value on a number of fronts. We are on track for a third-quarter IPO of WPX Energy, our exploration and production business, followed by a tax-free spinoff of our remaining interest to Williams shareholders no later than first-quarter 2012.

"We also are taking steps that clearly define Williams as a high-growth, high-dividend energy-infrastructure company. In June, our shareholders enjoyed the first payout of a quarterly dividend at a new, 60 percent higher rate. And we certainly expect to deliver more strong increases in our dividend.

"Our asset portfolio provides a clear line of sight to delivering significant shareholder value. We are extremely fortunate to have assets and market positions that continue to generate compelling, large-scale growth projects with attractive returns.

"Williams has the ability, the financial capacity and the track record to develop these projects and deliver value for investors and customers. Importantly, Williams also has an MLP structure that fuels our ability to pay high dividends while we are funding significant growth with cost-advantaged capital and maintaining the investment-grade credit that is a key tenet of our financial strategy.

"We also will continue to pursue disciplined acquisition and investment opportunities that are consistent with our business and financial strategies."

Earnings Guidance Increased for 2011, Unchanged for 2012

Williams is increasing its 2011 guidance for adjusted earnings per share at the midpoint by $0.05, up to $1.60 per share. Higher expected olefin and NGL margins are driving the increase in earnings guidance.

Capital expenditure guidance in 2011 for Williams Partners is being reduced $150 million at the midpoint to reflect somewhat slower spending.

Please note that 2011-12 earnings and capital expenditure guidance does not reflect the company's previously announced plans to separate into two stand-alone, publicly traded companies.

Williams' assumptions for certain energy commodity prices for 2011-12 and the corresponding guidance for the company's earnings and capital expenditures are displayed in the following table.


Business Segment Results

Williams' business segments for financial reporting are Williams Partners, Exploration & Production, Midstream Canada & Olefins, and Other. The Williams Partners segment includes the consolidated results of Williams Partners L.P.; Exploration & Production includes the domestic exploration and production business, gas marketing, and the company's controlling interest in Apco Oil & Gas International Inc.; Midstream Canada & Olefins includes the results of Williams' Canadian midstream and domestic olefins business.

Consolidated Segment Profit


Williams Partners

Williams Partners is focused on natural gas transportation, gathering, treating, processing and storage; natural gas liquid (NGL) fractionation; and oil transportation.

For second-quarter 2011, Williams Partners reported segment profit of $471 million, compared with $361 million for second-quarter 2010. Year-to-date through June 30, Williams Partners reported segment profit of $908 million, compared with $785 million for the same period in 2010.

Higher NGL margins and higher fee-based revenues in the midstream business, as well as improved results in the gas pipeline business, drove the significant improvement in both the second-quarter and year-to-date periods.

There is a more detailed description of Williams Partners' interstate gas pipeline and midstream business results in the partnership's second-quarter 2011 financial results news release, which is also being issued today.

Exploration & Production

Exploration & Production is focused on developing its significant natural gas reserves and related NGLs in the Piceance Basin of western Colorado, as well as its growing positions in the Bakken Shale oil play in North Dakota and the Marcellus Shale in Pennsylvania. The business also has domestic operations in the Powder River Basin in Wyoming and the San Juan Basin in the southwestern United States and international investments in Argentina and Colombia.

Exploration & Production reported segment profit of $94 million for second-quarter 2011, compared with $73 million for second-quarter 2010. This 29-percent increase in second-quarter segment profit is due to higher production volumes and revenue from oil production in the Bakken Shale and higher realized average prices, partially offset by increased costs and expenses associated with Bakken crude oil production and higher gathering fees. Higher production volumes and new agreements associated with the transfer of the Piceance gathering assets to Williams Partners in late 2010 drove the higher gathering fees in the quarter.

Average daily domestic production in second-quarter 2011 was up 9 percent over second-quarter 2010. It was also up 4 percent over first-quarter 2011. During second-quarter 2011, the realized average price for domestic production was $5.58 per thousand cubic feet of natural gas equivalent (Mcfe), compared with $5.06 in second-quarter 2010 – an increase of 10 percent. Most of this is due to improved oil and NGL prices in second-quarter 2011, while natural gas prices were also slightly higher.

Williams expects average annual daily production to increase by 9 percent and 11 percent at guidance midpoints in 2011 and 2012, respectively.

Year-to-date through June 30, Exploration & Production reported segment profit of $145 million, compared with $226 million for the same period in 2010. Certain higher segment costs and expenses, partially offset by higher production revenue, drove the lower year-to-date segment profit. These expenses included higher gathering and processing charges and higher depreciation, depletion and amortization.

Williams is currently operating three rigs in the Bakken shale and expects to double its level of drilling activity to six rigs by early 2012. Second-quarter 2011 production in the Bakken more than tripled over the first-quarter 2011, from approximately 1,800 to 5,500 barrels of oil equivalent per day.

In the Marcellus shale, the company is currently operating four rigs and expects to increase its level of drilling activity to eight or nine rigs by the end of 2012. In Susquehanna County, the company has approximately 70 MMcf/d of production waiting on the expected September 2011 completion of the Laser pipeline.

In the Piceance basin, which is Williams' largest area of concentrated development, wellhead production includes approximately 25 million gallons of NGLs recovered each month..

Midstream Canada & Olefins

Midstream Canada & Olefins reported second-quarter 2011 segment profit of $72 million, compared with $61 million for second-quarter 2010. For the first six months of 2011, Midstream Canada & Olefins reported segment profit of $146 million, compared with $81 million for the same period in 2010.

Higher Canadian NGL margins from butylene/butane mix products helped drive the improvement in the second-quarter and year-to-date results. The separate products produced by the company's Canadian butylene/butane splitter placed in service in August 2010 provide a higher combined per-unit margin than the butylene/butane mix product sold previously.

Higher per-unit margins on Geismar ethylene also contributed to the improved results in the year-to-date period.

Quarterly Materials to be Posted Shortly; Presentation, Q&A Webcast Scheduled for Next Week

Williams' second-quarter 2011 analyst package and data book should be available shortly at www.williams.com.

The investor presentation on the quarterly results and outlook, including a recorded commentary with CEO Alan Armstrong, will be available at www.williams.com after the close of market on Monday, Aug. 8. The company will host its second-quarter 2011 Q&A live webcast on Tuesday, Aug. 9 at 9:30 a.m. EDT. Participants are encouraged to access the webcast at www.williams.com.

A limited number of phone lines also will be available at (888) 208-1812. International callers should dial (719) 325-2138. Replays of the second-quarter webcast in both streaming and downloadable podcast formats will be available for two weeks following the event at www.williams.com.

Management set the dates for release of Williams' second-quarter earnings package and investor presentation in coordination with other scheduling commitments. The result is slightly different from the company's traditional timeline.

Form 10-Q

The company plans to file its second-quarter 2011 Form 10-Q with the Securities and Exchange Commission this week. Once filed, the document will be available on both the SEC and Williams websites.

Non-GAAP Measures

This press release includes certain financial measures, adjusted segment profit, adjusted earnings and adjusted per share measures that are non-GAAP financial measures as defined under the rules of the Securities and Exchange Commission. Adjusted segment profit, adjusted earnings and adjusted per share measures exclude items of income or loss that the company characterizes as unrepresentative of its ongoing operations and reflects mark-to-market adjustments for certain hedges and other derivatives in Exploration & Production. These measures provide investors meaningful insight into the company's results from ongoing operations and better reflect results on a basis that is more consistent with derivative portfolio cash flows. The mark-to-market adjustments reverse forward unrealized mark-to-market gains or losses from derivatives and add realized gains or losses from derivatives for which mark-to-market income has been previously recognized, with the effect that the resulting adjusted segment profit is presented as if mark-to-market accounting had never been applied to these derivatives. The measure is limited by the fact that it does not reflect potential unrealized future losses or gains on derivative contracts. However, management compensates for this limitation since derivative assets and liabilities do reflect unrealized gains and losses of derivative contracts. Overall, management believes the mark-to-market adjustments provide an alternative measure that more closely matches realized cash flows for these derivatives but does not substitute for actual cash flows.

This press release is accompanied by a reconciliation of these non-GAAP financial measures to their nearest GAAP financial measures. Management uses these financial measures because they are widely accepted financial indicators used by investors to compare a company's performance. In addition, management believes that these measures provide investors an enhanced perspective of the operating performance of the company and aid investor understanding. Neither adjusted segment profit, adjusted earnings nor adjusted per share measures are intended to represent an alternative to segment profit, net income or earnings per share. They should not be considered in isolation or as substitutes for a measure of performance prepared in accordance with United States generally accepted accounting principles.

About Williams (NYSE: WMB)

Williams is an integrated natural gas company focused on exploration and production, midstream gathering and processing, and interstate natural gas transportation primarily in the Rocky Mountains, Gulf Coast, Pacific Northwest, Eastern Seaboard and the Marcellus Shale in Pennsylvania. Most of the company's interstate gas pipeline and midstream assets are held through its 75-percent ownership interest (including the general-partner interest) in Williams Partners L.P. (NYSE: WPZ), a leading diversified master limited partnership. More information is available at www.williams.com. Go to http://www.b2i.us/irpass.asp?BzID=630&to=ea&s=0 to join our e-mail list.

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