Williams Companies, Inc. (The) (WMB)

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Williams Companies Inc. (WMB)

Q4 2009 Earnings Call

February 19, 2010 09:30 am ET

Executives

Travis Campbell - Head, IR

Steve Malcolm - Chairman, President and CEO

Ralph Hill - President, E&P

Don Chappel - SVP, CFO

Phil Wright - President, Gas Pipeline

Alan Armstrong - President, Midstream Gathering & Processing

Analysts

Craig Shere - Tuohy Brothers Investment Research

Faisel Khan - Citigroup

Mark Caruso - Millennium Partners

Jessica Chipman - Tudor, Pickering & Holt

Yves Siegel - Credit Suisse

Carl Kirst - BMO Capital Markets

Presentation

Operator

Good day, everyone and welcome to the Williams Companies fourth quarter year end 2009 earnings release 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

Thank you and good morning everybody, welcome to our fourth quarter call this morning. As always thanks for your interest in the company. As we've done in the last few quarter, Steve Malcolm will review a few slides. Be aware though, that all of our business unit heads and Don Chappel are available here to take questions which we will do right after Steve's remarks. Also as usual, we've put together our data book that includes the information that we typically provide each quarter. So, this morning, on our website williams.com, you should be able to find the slides, the data book and press releases that were issued earlier today. Those press releases are the release detailing our 2009 results as well as an additional release reporting our 2009 natural gas reserves.

Last evening, I'm sure you also saw the release announcing the completion of the asset contribution between Williams and Williams' Partners WPZ. I should note that post that transaction WPZ is a significant part of Williams. WPZ will be having their 2009 earnings call this morning at 10 a.m. Eastern. At that time WPZ management will be available to talk more about their results and their future. It might be worthwhile to tune in for that call as well.

At the beginning of the slide deck are the forward-looking statements and disclaimer on oil and gas reserves. Those are important and integral to our remarks, so you should 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

Thank you Travis. Welcome to our fourth quarter earnings call. Thank you for your continuing interest in our company and as Travis said we are going to use the same format that we've used in our last few earnings call. I will be the sole presenter but the entire team is on hand to answer any questions. We continue to get good feedback on that approach and we will continue it today.

So starting with slide 4, this slide talks a little bit about our 2009 results, recent developments, let me tick through the list here fairly quickly. 2009 recurring adjusted income was $552 million or $0.94 a share for 2009. I think most importantly we completed our asset contribution transaction with WPZ which is clearly designed to drive growth and value creation for our shareholders.

Our year end 3P US and International reserves are up 14%. We continue the expansion of our Marcellus Shale position with a new long-term agreement with a major producer which will expand our business in the Marcellus, allow us to construct a new 28 mile natural gas gathering pipeline which will move gas into Transco. Construction on that project is expected to begin in the latter part of 2010 and is expected to be placed into service during 2011. We also brought other expansion projects into service on Transco and Northwest. I am speaking here about the Sentinel Expansion Phase II which is a little over 100 million a day of additional capacity which went into service in the fourth quarter of '09.

The Colorado Hub Project which increases access to the Piceance Basin for our northwest pipeline customers that went into service, fourth quarter 2009. And our Eminence Storage Enhancement Project, which was placed into service in October 2009. As well, we recorded peak day delivery records on all three of our pipelines this winter. It's good to see that our pipes are getting a strong usage during peak days.

Next slide is slide five. This is a slide that investors have appreciated in the past and so I'll spend a few minutes on this slide. It shows the reconciliation of how our domestic reserves grew during the year. So starting with that first bar there, we ended last year with 4.34 Tcf of proved reserves. We added a 159 Bcf through the Piceance acquisition that we closed in the third quarter. Our wellhead production was 435 Bcf.

Then we go the next three bars, which show how the new SEC rules for reserves blow through our numbers, and so this year the rules call for using at the 12-month average price for the year rather than the year-end price and this resulted in a base in price of just over $3, which is a 33% drop from the price used for our year end 2008 proved reserved. And so at the lower price, we had 336 Bcf of price related revisions.

Also the new SEC rules are much more specific about what undeveloped locations can be counted as proved. The rules restrict development time to five years and require for the first time that we consider the conversion ratio of probable to proved locations in our drilling program. This rule requires we reclassify 496 Bcf from proved back to probable. On the plus side of the new SEC rules for the first time allow us to count undrilled locations that are more than 1 offset way from a producing well as proved where we have a reasonable certainty of production.

Read the rest of this transcript for free on seekingalpha.com