Williams Companies, Inc. (The) (WMB)

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The Williams Companies, Inc. (WMB)

Q3 2009 Earnings Call

October 29, 2009 9:30 am ET

Executives

Travis Campbell - Head of Investor Relations

Steve Malcolm - Chairman, President and Chief Executive Officer

Don Chappel - Senior Vice President, Chief Financial Officer

Ralph Hill - President, Exploration and Production

Analysts

Jonathan Lefebvre - Wells Fargo

Jessica Chipman - Tudor, Pickering, Holt

Faisel Khan - Citi

Holly Stewart - Howard Weil

Harry Mateer - Barclays

Presentation

Operator

Good day, everyone and welcome to the Williams Companies Third Quarter 2009 Earnings Conference Call. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Travis Campbell, Head of Investor Relations. Please go ahead, sir.

Travis Campbell

We do have a few slides to go over in our presentation this morning. Steve Malcolm will be going through those in just a minute. Be aware though, that all of our business unit heads are available for any questions. Also as usual, we've put together our data book that includes all the information that we provide each quarter. So, this morning, you should be able to find the slides, data book and press release that were issued earlier today on our website, Williams.com.

At the beginning of the slide deck of the forward-looking statements and the disclaimer on oil and gas reserves. Those are important and integral to our remarks, please review those. Also included are various non-GAAP numbers that have been reconciled back to Generally Accepted Accounting Principles. Those schedules are available and follow the presentation.

So with that, I'll turn it over to Steve Malcolm.

Steve Malcolm

As has been the case with our last few earnings calls, I'll be the only presenter today, but the entire team is here to answer any of your questions. We've got a lot of good feedback on this approach and we'll continue it today. So slide four, please. We enjoyed a strong third quarter. We like the earnings growth trajectory that we're showing on this slide.

In the third quarter, we grew recurring earnings per share 25% over our second quarter, and we're on track to deliver earnings for the second half of '09 that are 33% higher than the first half of the year. We're raising our guidance today for full-year 2009 to a range of $0.95 to $1.00. We're calling the midpoint of that $0.98, and that's 18% higher than when we last updated guidance, which was when I spoke at Barclays and BofA conferences in September.

We've noted the key drivers of our strong third quarter and of our higher expectation for the full year in the upper left quadrant of slide four. Commodity prices have improved. Our net realized price for natural gas production was $4.18 in the third quarter; that's up 6% from the second quarter. We are continuing to benefit from lower operating cost and I'll cover that in more detail here in a minute.

NGL margins are making significant improvements. The progression of $0.20 in the first quarter, $0.35 in the second; $0.45 in the third. That's a nice upward trajectory. We've seen the Rockies basis differential cease to be an issue. Following production levels combined with expanding takeaway capacity have tamed the differential. In fact at times recently, we've seen markets be higher for Rockies gas than at the Henry Hub. These are the key drivers in our ability to build that strong upward trend for earnings growth.

Slide five, please. As you can see here, we expect earnings growth to continue in very strong fashion. Our earnings growth engine is certainly alive and we're rapidly regaining our ability to create significant value for shareholders. Yes, the improving energy/commodity prices play an important role in that earnings growth through 2011, but as you can see from these arrows, we expect our earnings growth to be significantly greater than the improvement in commodity prices during that period.

The green arrow shows 91% growth in our adjusted earnings per share from 2009 to 2011. The $1.87, at the midpoint of our guidance range for 2011 would move us close to the record high earnings that we produced in 2008. We're basing that expectation of sharply higher earnings on commodity price assumptions that showed crude prices improving less than 40%, and natural gas moving up just over 50%. We're not relying on $100 oil and $9 gas to get back to where we need to be.

Slide six, please. Here we take a look at the 2009 to 2011 growth and how it looks from a segment profit standpoint. Overall, we expect to increase total recurring adjusted segment profit by nearly 50% from '09 to '11. A quick overviews of the drivers in E&P. We expect to see better than 80% growth in our E&P segment profit, based largely on higher commodity prices and by 2011, increased production volumes.

In midstream, we're expecting about a 60% increase in our midstream segment profit. Key drivers are the higher NGL margins and the effect of new fee business projects like Willow Creek in the Piceance; like Blind Faith in the Gulf that have now come online. And we expect our gas pipeline business to continue to deliver strong, steady results as we meet market demand, primarily through expansion projects on our strategically located systems.

Slide seven. This slide shows maintenance capital and growth capital by business unit from 2009 through 2011. The key takeaway here is, we continue to be opportunity rich. We're investing in excess of $4 billion in growth projects during the period 2009 to 2011. So, we're adding fuel to our earnings engine, we're investing in the rich opportunities that are created by our unique business strategies and our best-of-class assets. We're making these investments with a continuing commitment to live within our means.

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