Williams announces first-quarter recurring earnings of 51 cents per share

April 25, 2002 — Led by improved performance of its exploration & production, midstream, gas pipeline and other energy infrastructure businesses, Williams on Thursday announced unaudited recurring first-quarter 2002 earnings of 51 cents per share vs. a restated 77 cents per share during the same period last year. The company on March 8 said it expected a range of 40 to 45 cents per share.

Williams reported first-quarter 2002 net income of $107.7 million, compared with $199.2 million for the same period a year ago. Income from continuing operations includes a $232 million pre-tax charge to reduce the carrying value of certain receivables from Williams Communications Group (WCG). The first-quarter 2002 loss from discontinued operations of $15.5 million represents the after-tax results of operations from and the loss on the sale of the Kern River pipeline, which was sold on March 27. The first-quarter of 2001 loss from discontinued operations includes both Kern River and WCG.

Earnings on a diluted basis for the first quarter of 2002 were 7 cents per share, which includes the effect of a 13 cent-per-share, non-cash reduction from the accounting for a beneficial conversion feature included in a preferred stock offering that was completed during the first quarter. This compares with 41 cents per share for the first quarter of 2001. Accompanying this release are a reconciliation of income from continuing operations to recurring earnings, an unaudited consolidated statement of income and related notes for the first quarter of 2002.

“It’s rewarding to post improved segment profit from our asset-based energy businesses during the same time frame that we also made significant accomplishments in strengthening our balance sheet,” said Steve Malcolm, president and CEO of Williams. “This is a great start to a new base year from which we plan to deliver at least 15 percent annual earnings growth.

“This quarter’s operating results demonstrate how well a balanced suite of assets can perform in energy market conditions that are significantly different than at this time last year,” said Malcolm, who will lead a conference call to discuss earnings at 9 a.m. Eastern today. “We are confident that the performance of all our businesses, combined with our ongoing effort to expand productive capacity while improving our financial strength and flexibility, will allow us to deliver 2002 recurring earnings in the range of $2.15 to $2.30 per share.”

In addition to turning in solid financial performance, Williams has:

* Completed transactions involving two pipelines and sold non-core production property and gathering assets, realizing more than $2 billion in cash and debt reduction while concurrently reducing the need for capital spending.
* Issued $1.1 billion in publicly traded equity-linked securities and $1.5 billion in a 144-A private debt offering.
* Trimmed 2002 planned capital spending of $4 billion by nearly half. — Eliminated nearly all of the so-called “triggers” from its major on-and off-balance sheet financial structures, including the successful resolution of more than $2 billion in liabilities related to WCG.

“These and other actions clearly demonstrate that over the first few months of this year we have acted decisively to achieve significant improvements in our balance-sheet,” Malcolm said.

Energy Marketing & Trading, which provides energy commodities marketing and trading and price-risk management services, reported first-quarter 2002 segment profit of $281.1 million vs. $484.5 million for the same period last year.

Segment profit declined primarily due to lower earnings from proprietary natural gas and power trading activities, reflecting the successful hedging of first-quarter 2001 positions at significantly higher spark spreads. Partially offsetting were significantly favorable origination activities in petroleum products. The natural gas and power trading decline includes the favorable recognition of approximately $42 million from cash collected for prior-period power sales in Western markets.

Gas Pipeline, which provides natural gas transportation and storage services through systems that span the United States, reported first-quarter 2002 segment profit of $190.2 million vs. $176.7 million on a restated basis for the same period last year.

The improvement was due to higher equity earnings from new projects, primarily comprised of interest capitalized on internally generated funds per Federal Energy Regulatory Commission guidelines, and the benefits of new transportation rates on the Transco system.

Energy Services, which provides a wide range of energy products and services, reported first-quarter 2002 segment profit of $233.9 million, compared with $117.1 million during the same period last year.

Results of the major business segments within Energy Services are:

Exploration & Production, which includes natural gas exploration, development and production in basins within the Rocky Mountain, San Juan and Mid-continent areas, reported first-quarter 2002 segment profit of $105.7 million vs. $54.2 million on a restated basis for the same period last year.

The improvement primarily was due to increased natural gas production volumes, reflecting a strategy of low-risk development drilling with a focus on tight-sand and coal-seam areas, and a $3.9 million gain on the previously announced sale of production properties. Production volumes sold increased 202 percent during the first quarter of 2002 over the same period of 2001. A major portion of the increases can be attributed to the acquisition of Barrett Resources in the third quarter of last year.

Midstream Gas & Liquids, which provides gathering, processing, natural gas liquids transportation, fractionation and storage services, reported first- quarter 2002 segment profit of $69.4 million compared with $37.8 million for the same period of last year.

Segment profit improved primarily due to average liquids margins that were 4 cents per gallon higher than the same period a year ago, reflecting more favorable processing economics. Also contributing to the increase were higher transportation revenues. The improvement was partially offset by processing rates and volumes that were lower than the same period a year ago.

Petroleum Services, which includes refining, retail petroleum, bio-energy and olefins production, reported first-quarter 2002 segment profit of $31.9 million vs. $14.7 million on a restated basis for the same period a year ago.

The improvement primarily is due to the absence of a $11.2 million write- down that was recognized in the first quarter of last year and improved operating results in retail petroleum and bio-energy. While slightly less profitable than the year-ago period, Williams’ refining operations remained solidly profitable.

Williams Energy Partners (NYSE: WEG – news), which now includes segment profit associated with a large petroleum products pipeline and terminal system acquired from Williams’ petroleum services unit earlier this month, reported first-quarter segment profit of $26.9 million vs. $22.8 million on a restated basis for the same period last year. The increase primarily was due to lower operating expenses associated with the acquired pipeline system.

Also included in Energy Services’ results is an International unit. It reported a nominal segment profit for the first quarter of 2002 vs. segment loss of $11 million for the same period last year.

About Williams
Williams, through its subsidiaries, connects businesses to innovative, reliable energy products and services. Williams information is available at www.williams.com .

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