Williams Companies, Inc. (The) (WMB)

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Williams Companies, Inc. (WMB)

Q3 2010 Earnings Conference Call

October 28, 2010 9:30 AM ET

Executives

Travis Campbell – Head, IR

Steve Malcolm – Chairman, President and CEO

Alan Armstrong – President, Midstream Gathering & Processing

Ralph Hill – President, Exploration and Production

Don Chappel – SVP and CFO

Phil Wright – President, Gas Pipeline

Analysts

Craig Shere – Tuohy Brothers Investment Research

Lasan Johong – RBC Capital Markets

Ted Durbin – Goldman Sachs

Carl Kirst – BMO Capital Markets

Jonathan Favreau – Wells Fargo Securities

Steve Maresca – Morgan Stanley

Faisel Khan – Citi

Holly Stewart – Howard Weil Incorporated

Kevin Smith – Raymond James

Yves Siegel – Credit Suisse

Presentation

Operator

Please stand by, we’re about to begin. Good day, everyone, and welcome to the Williams Companies’ Q3 2010 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, and welcome to our Q3 call this morning. As always, thanks for the interest in the company. Steve Malcolm, our President and CEO, is going to review a few slides that we have prepared for this morning, but be aware though, as always, all of our business unit heads – Alan Armstrong, Ralph Hill, Phil Wright – as well as Don Chappel, the CFO, are here in the room ready for questions that we’ll take after Steve’s remarks.

This morning on our website, Williams.com, you should be able to find the slides, the data book, the press release which were all issued this morning. The Q3 10Q will also be available today and you’ll be able to access that on the website as well. At the beginning of the slide deck are the forward-looking statements and the disclaimer on oil and gas reserves. Those are both very important and integral to the remarks, so you should review those. Also there are various non-GAAP numbers that have been reconciled back to generally accepted accounting principles. Those schedules are available and they follow the presentation.

So with that I’ll turn it over to Steve.

Steve Malcolm

Thank you, Travis. Welcome to our Q3 earnings call and thanks for your interest in our company. Let’s just dive into the slides.

Slide 5 shows the key financial results. Of course adjusted earnings per share from continuing operations is $0.22 for the Q3; year to date of $0.86 is 28% higher than 2009. Our 2010 through ‘12 earnings guidance is relatively unchanged. We’ll go into some of the tweaks that we’ve made here a little later. And we did record a $1.7 billion non cash impairment due to the recent decline in natural gas prices.

Slide 6 please. Some of the major highlights from the quarter. We did reach agreement to sell our Piceance Basin gathering and processing assets to WPZ. I have a slide later that goes into more detail on that transaction.

Secondly, we’re very excited about the progress that we’re making to grow out businesses in the Marcellus Shale, and let me just offer some color on that. In the E&P space, we’re now operating three rigs. That number will be increasing to six by the Q4 of 2011. Current returns are greater than 30%. We have seen and expect significant continued improvements as Williams becomes operator and as we proceed with the large Susquehanna drilling program. As you know, we now have 100,000 net acres at an average cost of less than $7000 an acre, gross production near 20 million a day at the end of the Q3 and the Westmoreland County Slavic Trust wells have been the best performing to date.

As well, good growth in the mid-stream space. We’re rapidly expanding the Laurel Mountain mid-stream gathering system. Projects there will ultimately provide over 1.5 Bcf a day of gathering capacity, and 1400 miles of gathering lines including 400 new miles of large diameter pipe. As well construction has begun on our Shamrock Compressor Station, where we’ll have an initial capacity of 60 million a day, but is expandable to 350 million a day. And that Shamrock Station will likely be the largest central delivery point out of the Laurel Mountains System.

As well we have the Springville System and we now have all of the right of way. We expect to begin construction in the Q1 of 2011, in service in 2011. And given the demand from customers we’ve upped the project size from a 20-inch to a 24-inch diameter pipeline. So a lot of really exciting things going on in the Marcellus.

Moving back now to talk a little bit more about the highlights on the slide. We did close and finance the Overland Pass pipeline transaction, and there was strong demand for the WPZ share offering. We did complete the restructuring transaction with the PZMZ merger. We’re prepared for a November startup of Sundance Trail. We brought the new Echo Springs TXP4 into full operation at the end of the Q3. And just to remind you, the TXP4 plant adds about 350 million a day of processing and 30,000 barrels per day of natural gas liquids production and capacity, roughly doubling what we already had there at Echo Springs.

We increased the WPZ distribution by 1.5₵ and did announce as you well know the leadership secession plan effective January, 2011, which has Alan coming on board as President & CEO.

Slide 7 please. This slide just gives the guidance range and midpoints for Henry Hub and Rockies net gas prices, crude oil, and NGL margins and our assumed NGL to crude oil relationship. I think there are just two points I want to make here: one, these are unchanged from the commodity price assumptions that we gave you at Barclays; and I guess the second point is yes, we have seen natural gas prices fall since then but we’ve run the numbers. And if you used strip prices you would really see the minimalist impact on our earnings per share for ‘11 and ‘12.

Slide 8 please. Steady growth even on expected low nat gas prices. This shows adjusted EPS, adjusted segment profit, cash flow from operations and capital. And just the key points here: earnings per share reflects some tightening of ranges in ‘11 and ‘12. Segment profit reflects tightening in ‘11 and a slight increase in the range in ‘12. CFFO tightens the range consistent with earnings. 2011 CAPEX, we’re seeing some carryover from 2010; as well as PZ, with its Laurel Mountains and Piceance growth, that’s added a little capital. 2012 capital as well is up a little bit as a result of Laurel Mountains and Piceance growth.

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