Williams Companies Reports Healthy Second-Quarter 2010, Despite Drop in Natural Gas Production

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Researched by Industrial Info Resources (Sugar Land, Texas)--Williams Companies (NYSE:WMB) (Tulsa, Oklahoma), an integrated natural gas firm, showed strong profits in the second quarter of 2010 as a result of improvements in product margins and prices, despite a dip in natural gas production. Net income for the quarter stood at $185 million, a 30.28% increase from the same period last year.

Commodity prices improved during the first half of the year, strengthening realized average domestic natural gas prices, while margins for natural gas liquid and olefins improved as well. These gains were offset partly by declines in each segment of Williams' daily natural gas production.

Williams officials pointed out that removing the effects of mark-to-market accounting, which mostly pertains to hedges and other derivatives in the Exploration and Production segment, results in net income of $162 million for the second quarter, which is a 39.66% improvement when using the same adjustment for second-quarter 2009.

The company also benefited from the $107 million sale of its 50% interest in Venezuelan natural gas company Accroven to Petróleos de Venezuela S.A., $13 million of which was recongnized this quarter.

"The business development opportunities are extraordinary," said Steve Malcolm, the chairman and chief executive officer of Williams, in a conference call. "We're benefiting from increases in the Williams Partners distributions, and we've increased some of our cash flow certainty with some new Exploration and Production hedges. We've taken some risk off the table.

Williams has two major segments: Exploration and Production, which focuses on natural gas production and development in the Barnett Shale, Marcellus Shale, Rocky Mountains and San Juan Basin, as well as oil and gas development in South America; and Williams Partners, which focuses on natural gas gathering, processing, storage, transportation and treating. Results for the two major segments, as well as other segments combined, are as follows:

• Exploration and Production reported a profit of $87 million, a 23.68% decline from second-quarter 2009. The segment saw a drop in every major U.S. sector for daily natural gas production:
• The Piceance Basin produced a daily average of 651 million cubic feet equivalent of natural gas during the quarter, a 7.4% decline from the same period last year.
• The Powder River Basin produced a daily average of 228 million cubic feet equivalent of natural gas during the quarter, a 5.79% decline.
• Other U.S. basins produced a total daily average of 231 million cubic feet equivalent of natural gas during the quarter, a 1.7% decline.
• International interests produced a total daily average of 58 million cubic feet equivalent of natural gas during the quarter, a 9.43% increase.
• Williams Partners reported a profit of $346 million, a 21.4% increase from the same period last year.
• Other segments reported a total of $79 million, compared to only $16 million in second-quarter 2009.

Williams is revising the company's guidance for full-year 2010 to reflect numerous factors, including new acquisitions in the Marcellus Shale; increased ownership of the Overland Pass Pipeline Company, LLC, in which Williams plans to up its holdings from the current 1% to 50%; and negative effects from a six-month moratorium on deepwater drilling in the Gulf of Mexico. Total capital expenditures, which were expected to be $2.63 billion for 2010 at the end of the first quarter, are now expected to be $3.73 billion; total adjusted profits, which do not include the effects of mark-to-market accounting and were expected to be $2.19 billion at the end of the first quarter, are now expected to be $2.11 billion.

"Marcellus is becoming a bigger part of the mix," Malcolm said in the conference call. "By 2013, it will be our second-largest producing basin; by 2015, we would expect Marcellus would be producing an excess of 500 million cubic feet equivalent per day."

Industrial Info is tracking 52 active Williams projects in North America that are worth a total of more than $2.6 billion, including a $375 million addition to the Echo Springs gas processing train in Wamsutter, Wyoming. The project involves the expansion of a natural gas liquids processing train to a capacity of 30,000 barrels per day. For more information, visit Industrial Info's North American Oil and Gas Production Database.

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