Williams climbing out of money hole

With upstream providing more punch, company shows quarterly profit of $270 million, though some is asset sales

Allen Baker

Petroleum News Contributing Writer

Williams Cos. continues to climb back toward financial stability, with the upstream gas-producing segment taking more prominence as other assets are shed.

For the second quarter, the company reported earnings of $269.7 million, against a loss of $349 million a year ago. From continuing operations, the profit was $118 million, compared with a restated $332 million in red ink for those businesses a year ago.

The Tulsa, Okla., company is staking its future on what it calls its integrated natural gas businesses. Those businesses are its upstream exploration and production operations, midstream gas and liquids, and the pipelines that carry the gas. For those businesses together, profit rose 21 percent to $345 million for the recent quarter.

E&P operations contributed more than half of that, or $178.7 million, though $92 million of that came from profits on major sales of gas properties, one to XTO Energy, that netted Williams more than $400 million this year.

Still, subtracting the sale profits, upstream operations provided nearly $87 million, compared with profits of $92.4 million in the same quarter a year ago. Williams’ production slid 11 percent for the quarter, but that came after disposition of about 16 percent of reserves, so existing properties are producing well.

More drilling in Rockies

On the more conventional side, the Colorado Oil and Gas Conservation Commission earlier this year gave Williams permission to space its wells in the Piceance Basin closer together. The 10-acre spacing will allow Williams to recover up to 80 percent of the gas, rather than 40 to 45 percent available on 20-acre spacing. The company plans to add more than 550 gas wells on its 11,000 acres there over the next decade.

Making big exploration investments might have been seen as out of reach a year ago, when Williams was skating dangerously close to bankruptcy court.

But asset sales have totaled about $2.5 billion so far this year, and that has cut a big chunk out of Williams’ debt. With added financial muscle, the company has recently been able to issue new, lower-cost financing.

“Now that our finances have improved considerably, we have added flexibility with regard to timing of asset sales,” said CEO Steve Malcolm in a statement with the earnings announcement. “We’ve been very successful in executing our strategy of selling assets — and we’re very nearly done. We expect to complete what we’ve already identified for sale, then stop.” Williams’ Alaska refinery and its other assets in the state are a big chunk of what’s left in the sale bin.

Another welcome sign for Williams this last quarter was the end of the bleeding from its energy marketing and trading operations. With the demise of Enron, followed by the collapse of Williams’ debt rating, that segment had been bleeding cash at a rapid rate.

But in the recent quarter, those operations brought in profits of $348 million, compared with a loss of $497 million a year ago.