Williams Companies, Inc. (the) · NYSE:WMB
Williams Companies, Inc. (the) — The Williams Companies — Q4 2004 Earnings Presentation
101 slides from Williams Companies, Inc. (the)'s earnings presentation, Feb 23, 2005
Slide 1: Williams 2004 4th Quarter Earnings Release
Williams 2004 4th Quarter Earnings Release February 23, 2005
Slide 2: Forward Looking Statements
Forward Looking Statements Our reports, filings, and other public announcements might contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of the Private Securities Litigatio
Slide 3: Oil & Gas Reserves Disclaimer
Oil & Gas Reserves Disclaimer The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves. We use certain terms in this presentation, such as “probable and possible” reserves that the SEC’s guidelines strictly prohibit us from including in filings with the
Slide 4: Overview
Overview Steve Malcolm, Chairman, President & CEO
Slide 5: What You'll Hear: Strong 4Q performance
Overview What You’ll Hear Williams delivers strong 4Q performance Midstream sees record quarter due to continued strong margins and record volumes Exploration & Production production volume growth continues Gas Pipeline enjoys best quarter in last two years Power continues positive cash fl
Slide 6: What You'll Hear: Restructuring and litigation status
Overview What You’ll Hear Restructuring complete Debt now at $7.8B Debt to capitalization ratio of 61.6% Cash of $1.3B at February 19 Status of litigation and investigations Significant matters resolved in 2004 – California utilities’ refund claims against Williams – Gulf Liquids’ insura
Slide 7: What You'll Hear
Overview What You’ll Hear E&P growing Production up 25% for the year 248% reserves replacement rate with >99% success rate Total proved reserves 3.2 Tcfe Midstream phenomenal Record earnings and NGL production levels Deepwater projects performing well Strong free cash flow* Gas Pip
Slide 8: What You'll Hear: 2007 base case
Overview What You’ll Hear Providing 2007 base case by business unit Opportunities included in our numbers 12 rigs in Piceance; total production growth at 10-15% per year Increasing utilization of existing deepwater projects Rate cases improve segment profit in 2007 Selling megawatts prim
Slide 9: The Road Ahead
Overview The Road Ahead 2005 2006 2007 2008 & beyond Exploration Accelerate Piceance drilling Continue production growth & Production Powder River permits and dewatering CORE BUSINESSES Enhance competitive Growth position- Capture our share Midstream with consider MLP of new deepwater production Dis
Slide 10: 2004 Financial Results
2004 Financial Results Don Chappel, CFO
Slide 11: Consolidated Financial Results
Consolidated Financial Results Dollars in millions (except per share amounts) 4th Quarter Year 2004 2003 2004 2003 Income (Loss) from Continuing Ops.* $95 ($73) $93 ($57) Income (Loss) from Disc. Ops.* (22) 20 71 327 Effect of Accounting Change - - - (761) Net Income/(Loss)* $73 ($54) $164 ($492) Ne
Slide 12: Recurring Income from Cont. Operations
Consolidated Recurring Income from Cont. Operations 4th Quarter Year Dollars in millions 2004 2003 2004 2003 Income/(Loss) from Cont. Ops. $95 ($73) $93 ($57) Gains on Sale of Assets (10) (16) (10) (337) Impairments/Losses/Write-offs 31 106 70 357 Income (Expense) Related to Prior Periods 4 (9) 15 (
Slide 13: Recurring Income After Mark-to-Market Adjustments
Consolidated Recurring Income from Cont. Ops After Mark-to-Market Adjustments 4th Quarter Year Dollars in millions, except for per-share amounts 2004 2003 2004 2003 Recurring income/(loss) from cont. ops avail. to common shldrs $ 68 $ 58 $ 261 $ (16) Recurring diluted earnings/(loss) per common shar
Slide 14: Consolidated Net Income Components
Consolidated Net Income Components 4th Quarter Year Dollars in millions (except per share amounts) 2004 2003 2004 2003 Segment Profit* $398 $153 $1,406 $1,239 Net Interest Expense (170) (240) (828) (1,248) Debt Retirement Expense (30) (67) (282) (67) Other Income/(Expense) - Net (14) (15) (72) 13 In
Slide 15: Fourth Quarter Segment Profit
Consolidated Fourth Quarter Segment Profit Reported Recurring Dollars in millions 4Q04 4Q03 4Q04 4Q03 Exploration & Production $71 $50 $75 $50 Midstream Gas & Liquids(1) 236 64 151 64 Gas Pipeline 157 148 157 148 Power (44) (101) (44) 12 Other (22) (8) (10) (7) Segment Profit(2) $398 $153 $329 $267
Slide 16: 2004 Segment Profit
Consolidated 2004 Segment Profit Reported Recurring Dollars in millions 2004 2003 2004 2003 Exploration & Production(1) $236 $401 $251 $310 Midstream Gas & Liquids(2) 550 197 471 283 Gas Pipeline 586 555 595 582 Power(3) 77 135 77 (21) Other (43) (51) (13) (10) Segment Profit(4) $1,406 $1,239 $1,381
Slide 17: Major Changes in Quarter Recurring Segment Profit
Consolidated Major Changes in Quarter Recurring Segment Profit After Mark-to-Market Adjustments Dollars in millions Recurring Segment Profit after MTM Adj. 4Q2003 $207 Exploration & Production 25 - Higher production volumes +$20 million - Higher net realized price +$2 million - Favorable internation
Slide 18: Major Changes in Year Recurring Segment Profit
Consolidated Major Changes in Year Recurring Segment Profit After Mark-to-Market Adjustments Dollars in millions Recurring Segment Profit after MTM Adj. 2003 $891 Exploration & Production (59) - Higher production volumes +$14 million - Lower net realized price -$26 million - Higher operating costs -
Slide 19: Cash Information
Consolidated Cash Information Dollars in millions 4Q04 Year Beginning Unrestricted Cash * $976 $2,318 Cash Flow from Continuing Operations 404 1,473 Cash Flow from Discontinued Operations (3) 16 Asset Sales 40 1,053 Restricted Investments (LC Collateral) - 380 Debt Issuance (Transco) 75 75 Debt Reti
Slide 20: Debt Balance
Consolidated Debt Balance Dollars in millions Avg. Cost Debt Balance @ 12/31/03 * $11,978 7.7% Scheduled Debt Retirements & Amortization (831) Tendered Debt Retirements (2,991) Open Market Purchases (269) Debt Issuance (Transco) 75 Debt Balance @ 12/31/04 $7,962 7.4% Less: Scheduled January Retireme
Slide 21: 2004 vs. Guidance
Consolidated 2004 vs. Guidance Dollars in millions, except per-share amounts 2004 Nov. 4 Guidance Segment profit $1,406 $1,175 - $1,375 Net Interest Expense (828) (810) – (860) Early Debt Retirement Costs (282) (300) – (250) Other (Primarily General Corp. Costs) (72) (90) – (125) Pretax Income (Loss
Slide 22: EPS Metrics
Consolidated EPS Metrics 11/4/04 2004 1Q 2Q 3Q 4Q Total Guidance EPS $0.02 ($0.03) $0.19 $0.13 $0.31 $0.05 - 0.30 Recurring EPS 0.01 0.10 0.26 0.12 0.49 0.34 - 0.44 Rec. EPS after MTM Adj. 0.14 0.03 0.09 0.09 0.35 0.26 - 0.36 Average Shares (MM) 519 522 530 586 536 2003 1Q 2Q 3Q 4Q Total EPS ($1.59)
Slide 23: Business Unit Results
Business Unit Results Williams. ~~
Slide 24: Exploration & Production
Exploration & Production Ralph Hill, Senior Vice President
Slide 25: E&P Segment Profit
Exploration & Production Segment Profit Dollars in millions 4th Quarter Year 2004 2003 2004 2003 Segment Profit $71 $50 $236 $401 Non recurring: Ownership issue 4 - 15 - Gain on sale of assets - - - (91) Recurring Segment Profit $75 $50 $251 $310 4Q03 to 4Q04 increase includes Volume increase of
Slide 26: Strong 2004 Reserves Performance
Exploration & Production Strong 2004 Reserves Performance Domestic proved reserves up 10.5% to 3.0 Tcfe Total proved reserves 3.2 Tcfe 248% reserves replacement 99% success rate Moved 451 Bcfe to proven Transfers of Probable to Proved (Bcf) 2002 2003 2004 Total Total for retained basins 31
Slide 27: 2004 Accomplishments
Exploration & Production 2004 Accomplishments 4Q 2004 production up 25% or 121 MMcfed since 4Q’03 Recurring Segment Profit + Depreciation Strong reserves performance 140 $0.92 2004 F&D cost, much 120 better than industry average 100 Record capital program 80 successfully executed 60 Additi
Slide 28: Domestic Proved Reserves Reconciliation
Exploration & Production Domestic Proved Reserves Reconciliation 3,100 2,986 3,000 +451 2,900 2,834 -390 2,800 2,703 +23 -191 +408 2,700 2,600 Bcfe 2,500 +37 -186 2,400 2,300 2,200 2,100 2,000 YE Sold Acqu. Prod. Adds/ YE Acqu. Prod. Adds/ YE 2002 Rev. 2003 Rev. 2004 28 / Williams 2004 Fourth Quarte
Slide 29: Domestic Reserves
Exploration & Production Domestic Reserves 2004 Year End Proved, Probable & Proved Reserves Possible Reserves Mid-Cont. & Mid-Cont. Other & Other San Juan 3% 6% 14% San Juan 22% Piceance Piceance Powder 62% 53% River 10% Powder River 30% Total: 3.0 Tcf Proved* Total: ~7 Tcf Proved, Probable & Possib
Slide 30: Domestic Production Growth
Exploration & Production Domestic Production Growth 600 550 500 450 MMcfed 400 350 300 250 200 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 '02 '02 '02 '02 '03 '03 '03 '03 '04 '04 '04 '04 Retained Properties Sold Properties 30 / Williams 2004 Fourth Quarter Earnings Release / Wednesday, February 23, 2005 © 2
Slide 31: Growth Metrics
Exploration & Production Growth Metrics $1,000 $800 $600 $ Millions $400 $200 $0 2005 2006 2007 Volume Maint Capital Growth Capital Seg Profit + DD&A Note:Assumes mid-point of guidance range 31 / Williams 2004 Fourth Quarter Earnings Release / Wednesday, February 23, 2005 © 2005 The Williams Compani
Slide 32: U.S. Natural Gas Production
Exploration & Production U.S. Natural Gas Production MMcf/d Company 4Q 2003 4Q 2004 % Change BP 2,933 2,651 -10% ExxonMobil 2,038 1,810 -11% ChevronTexaco 2,110 1,618 -23% ConocoPhillips 1,469 1,377 -6% Shell Group (RD) 1,397 1,302 -7% Sub-total 9,947 8,758 -12% Devon Energy Corp. 1,748 1,620 -7% An
Slide 33: Finding & Development Cost Comparison
Exploration & Production Finding & Development Cost Comparison Williams’ 2004 F&D 3-yr Avg ('01-'03) F&D Cost * cost was $0.92 per $4.00 mcfe. The 3-yr Avg (’02-’04) was $0.78 $3.00 Industry rolling $/mcfe $2.00 average F&D cost through 2003 was $1.00 $1.42 per mcfe $0.00 Expect industry Devon
Slide 34: E&P 2005-2007 Guidance
Exploration & Production 2005-2007 Guidance Dollars in millions 2005 2006 2007 Segment profit $400 - 475 $450 - 525 $500 - 625 Annual DD&A $220 - 250 $250 - 290 $300 - 350 Segment Profit + DD&A $620 - 725 $700 - 815 $800 - 975 Capital spending $500 - 575 $525 - 625 $525 - 675 Production (MMcfe/d) 60
Slide 35: E&P Key Points
Exploration & Production Key Points Strong 2004 reserves performance Significant volume growth from existing positions Continuing to expand development drilling activity – Piceance is primary growth driver Decreased hedging increases upside Long history of high drilling success, low findin
Slide 36: Midstream
Midstream Alan Armstrong, Senior Vice President
Slide 37: Midstream Segment Profit
Midstream Segment Profit Dollars in millions 4th Quarter Year 2004 2003 2004 2003 Segment Profit $236 $64 $550 $197 Non recurring: Depreciable Life Adjustment 1 - 7 4 Impairments 17 16 17 109 Insurance Arbitration Award (94) - (94) - Gain on Asset Sales (9) (16) (9) (27) Recurring Segment Profit $15
Slide 38: 4th Quarter and 2004 Accomplishments
Midstream 4th Quarter and 2004 Accomplishments Record recurring earnings Recurring Segment Profit + Depreciation* Record domestic NGL 200 production: 180 2004 record year 4Q record quarter 160 December record month 140 Record number of well connects in 2004 (> 500) 120 Devil’s Tower st
Slide 39: Margins Above Average
Midstream Margins Above Average Domestic NGL Actual Average Net Margin and Volume by Quarter Margin Equity Volume by Quarter (Cents / Gallon) (MM Gallons) 2 5.0 0 4 50 400 2 0 .0 0 3 50 300 15.0 0 2 50 200 10 .0 0 150 5.0 0 10 0 50 0 .0 0 0 Q1'0 2 Q2 '0 2 Q3 '0 2 Q4 '0 2 Q1'0 3 Q2 '0 3 Q3 '0 3 Q4 '0
Slide 40: Fee-Based Bedrock of Earnings
Midstream Fee-Based Bedrock of Earnings Net Revenues 1100 1000 900 21% 20% 30% 21% 800 700 $ 000's 600 500 79% 80% 79% 70% 400 300 200 100 0 2004 2005 2006 2007 Fee Commodity Note: Total revenues less cost of goods sold. Reflects 5 year average (Jan ’00 – Dec ’04) margins in 2006- 2007 at mid-point
Slide 41: Deepwater Success-What to Watch For
Midstream Deepwater Success-What to Watch For Gunnison Devils Tower 41 / Williams 2004 Fourth Quarter Earnings Release / Wednesday, February 23, 2005 © 2005 The Williams Companies, Inc.
Slide 42: Midstream 2005-2007 Guidance
Midstream 2005-2007 Guidance Dollars in millions 2005 2006 2007 Segment Profit $350-430 $400-500 $400-520 $310 - $410 Annual DD&A $180-190 $185-195 $190-200 Segment Profit + DDA $530-620 $585-695 $590-720 Capital Spending $120-140 $110-130 $100-130 Note: - Guidance does not include any major deepwat
Slide 43: Strong Free Cash Flow
Midstream Strong Free Cash Flow Dollars in millions Seg Profit & DDA 800 Discretionary 700 Expansion 600 2004 Margin Uplift 500 Base 400 Capital Spending Historic 300 Expansion 200 Discretionary Expansion 100 Maintenance 0 Well Connects 2003 2004 2005 2006 2007 Capital Seg Capital Seg Capital Seg Ca
Slide 44: Midstream Key Points
Midstream Key Points Business generated record segment profit in 2004 Operational high marks set Continued strong free cash flows Deepwater cash flows: – Continued strength – Upside driven by drill-ship availability One-two punch Premier assets in growth basins Attracting volumes throu
Slide 45: Gas Pipeline
Gas Pipeline Phil Wright, Senior Vice President
Slide 46: Gas Pipeline Segment Profit
Gas Pipeline Segment Profit 4th Quarter Year Dollars in millions 2004 2003 2004 2003 Segment profit $157 $148 $586 $555 Includes: Write-off software project - - - 26 Severance accrual - - - 1 Write-off of previously capitalized cost for idled segment - - 9 - Recurring Segment Profit $157 $148 $595 $
Slide 47: Fourth Quarter Accomplishments
Gas Pipeline Fourth Quarter Accomplishments Everett Delta in-service Nov. 10, 2004 240 26-inch Replacement project 220 filed with FERC 200 Northwest receives Environmental Excellence 180 $ MM Award associated with the 160 Evergreen Project Transco set peak day 140 delivery record in December
Slide 48: Major Project Update
Gas Pipeline Major Project Update Northwest Pipeline Replacement Filed Certificate Application on November 29, 2004 Capital ≈ $333 million In-service date, November 2006 Central New Jersey FERC Certificate issued February 10, 2005 Capital ≈ $13 million In-service date, November 2005
Slide 49: Gulfstream Update
Gas Pipeline Gulfstream Update Phase II placed in-service February 1st 2005 Project specifics 109-mile, 30” extension to serve Florida Power & Light’s Martin plant 350 Mdth/d, long-term commitment by FPL Cost ≈ $225 million Capacity under long-term contract Today: 305 Mdth/d (28% of ca
Slide 50: Future Rate Cases
Gas Pipeline Future Rate Cases Northwest Next anticipated rate case effective 1Q07 – 26” capacity replacement primary driver Last rate case effective March 1997 No requirement to file Transco Next rate case effective 1Q07 Last rate case effective September 2001 Required to file 50 /
Slide 51: Accommodating Imported LNG
Gas Pipeline Accommodating Imported LNG Expansions on existing LNG Facilities WGP advantages Serves markets that are large, diverse, and growing Proximity to anticipated Gulf Coast LNG Delivery flexibility Low rates Challenges Maintaining gas quality Maintaining flexibility 51 / Wi
Slide 52: Proposed and Existing LNG Importation Facilities
Gas Pipeline Proposed and Existing LNG Importation Facilities 52 / Williams 2004 Fourth Quarter Earnings Release / Wednesday, February 23, 2005 © 2005 The Williams Companies, Inc.
Slide 53: Gas Pipeline 2005-2007 Guidance
Gas Pipeline 2005-2007 Guidance Dollars in millions 2005 2006 2007 Segment profit $545 - 5851 $515 – 5651,2 $575 - 6351,2 $525 - 575 $525 - 575 Annual DD&A 280 - 290 290 – 300 300 - 310 Segment profit + DDA 825 – 875 805 – 865 875 - 945 Capital spending 370 - 420 475 - 550 250 - 325 1) Duke has give
Slide 54: 2005-2007 Capital Spending Detail
Gas Pipeline 2005-2007 Capital Spending Detail Dollars in millions 2005 2006 2007 Normal Maintenance $145 - 165 $95 - 130 $95 - 130 Major Regulatory Compliance 160 - 170 95 - 115 85 - 105 NWP 26” Replacement 48 276 2 Expansion 20 - 30 10 - 20 70 - 90 Total $370 - 420 $475 - 550 $250 - 325 Note: - Ma
Slide 55: Gas Pipeline Key Points
Gas Pipeline Key Points Record segment profit in 2004 Rate case preparation in full swing Achieving substantial progress in compliance and reliability investments Transco expansions continue Focused on maintaining low-cost provider status Strong free cash flow generator Stable, low-ris
Slide 56: Power
Power Bill Hobbs, Senior Vice President
Slide 57: Power Segment Profit
Power Segment Profit 4th Quarter Year Dollars in millions 2004 2003 2004 2003 Gross Margin ($16) $40 $185 $238 SG&A & Other (24) (17) (79) (129) Op. Exp. & Other Inc / (Exp) (4) (124) (29) 26 Segment Profit ($44) ($101) $77 $135 Includes: Asset Impairments - 89 - 103 CA Refund & Other Accrual Adj. -
Slide 58: 2004 & Recent Accomplishments
Power 2004 & Recent Accomplishments Success in signing risk-reducing contracts Contracted re-sale of tolls of 550 MW with 1-3 year terms Sale of capacity of 650 MW in 2005 Realized significant free cash flow Reduced risk of portfolio Adopted hedge accounting, reducing earnings volatility
Slide 59: Segment Profit after MTM Adjustment
Power Segment Profit after MTM Adjustment Dollars in millions Combined Power Portfolio Estimated as of 12/31/04 4Q04 A 4Q04 F 2004 A 2005 F 2006 F 2007 F Net Revenues 68 41 582 281 364 435 Tolling Demand Payment Obligations (84) (84) (397) (395) (399) (404) Gross Margin (16) (43) 185 (115) (35) 31 S
Slide 60: Segment Profit to Cash Flow
Power Segment Profit to Cash Flow Dollars in millions 4th Quarter 2004 Power & Natural Gas Legacy* Other Total 2004 Gross Margin ($17) $1 ($16) $185 SG&A & Other (24) (24) (79) Oper Exp & Other Inc / (Exp) (4) (4) (29) Segment Profit ($41) $1 ($4) ($44) $77 MTM Adjustments: Reverse Forward Unrealize
Slide 61: Cash Flow Variance Analysis
Power Cash Flow Variance Analysis Undiscounted dollars in millions Combined Power Portfolio Actual Q4'04 v. Forecast Q4'04 4Q04 A 4Q04 F 2004 A 2004 F Tolling Demand Payment Obligations ($84) ($84) ($397) ($391) Resale of Tolling 39 39 144 143 Full Requirements 4 4 12 16 Long-term Physical Forward P
Slide 62: Power 2005-2007 Guidance
Power 2005-2007 Guidance Dollars in millions 2005 2006 2007 Segment Profit/(Loss) ($250) – (150) ($200) – (50) ($100) – 50 ($200) – (100) MTM Adjustments 300 250 150 254 269 Segment Profit after MTM Adj. 50 - 150 50 – 200 50 - 200 100 154 Cash Flow from Operations 50 - 150 50 – 200 50 - 200 Capital
Slide 63: Power Key Points
Power Key Points CFFO expected to remain positive Refocused efforts to offer risk management to customers -- deals getting done Continuing to see improvements in Market liquidity Spark spreads Williams credit Focus remains on reducing risk through longer-term sales Factors impacting
Slide 64: Consolidated Outlook
2005-2007 Consolidated Outlook Don Chappel, CFO
Slide 65: 2005 Segment Profit Guidance
Consolidated 2005 Segment Profit Guidance Dollars in millions 2005 Exploration & Production 400 - 475 Midstream 350 - 430 310 - 410 Gas Pipeline 545 - 585 525 - 575 Other/Rounding 5 - 10 15 - (10) $1,300 - 1,500 1,250 - 1,450 Power (250) - (150) (200) - (100) Seg. Profit before MTM Adj. $1,050 - 1,3
Slide 66: 2005 Interest Expense Guidance
Consolidated 2005 Interest Expense Guidance Dollars in millions 2005 Interest on Long-Term Debt $555 - 575 Amortization Discount/Premium and 25 other Debt Expense Credit Facilities: 30 - 40 (incl. Commitment Fees plus LC Usage) Interest on other Liabilities 20 - 30 Interest Expense $630 - 670 Less:
Slide 67: 2005 Forecast Guidance
Consolidated 2005 Forecast Guidance Dollars in millions, except per-share amounts 2005 Segment profit before MTM adjustment $1,050 - $1,350 Net Interest Expense (625) - (660) Other (Primarily General Corp. Costs) (90) - (125) Pretax Income 335 - 565 Provision for Income Tax (155) - (245) Income from
Slide 68: 2005-2007 Segment Profit
Consolidated 2005-2007 Segment Profit Dollars in millions 2005 2006 2007 Exploration & Production $400 - 475 $450 - 525 $500 - 625 Midstream 350 - 430 400 - 500 400 - 520 310 - 410 Gas Pipeline 545 - 585 515 - 565 575 - 635 525 - 575 $525 - 575 Power (250) - (150) (200) - (50) (100) - 50 (200) – (10
Slide 69: 2005-2007 Outlook
Consolidated 2005 - 2007 Outlook Dollars in millions 2005 2006 2007 Segment Profit Reported Seg. Profit $1,050 - 1,350 $1,200 - 1,500 $1,375 - 1,800 1,300 MTM Adjustment 300 250 150 After MTM Adjust. 1,350 - 1,650 1,450 - 1,750 1,525 - 1,950 1,300 – 1,600 DD&A 700 - 775 750 - 850 800 - 900 Cash Flow
Slide 70: Drivers
Consolidated Drivers Segment Profit CFFO Dollars in millions Low High Low High 2004 1381' 1381' 1,473 1,473 Interest Savings - - 220 260 Midstream - Lower NGL Margins (100) - (100) - - Deepwater Increase 30 50 30 50 Changes in Power 2 (325) (225) - 100 E&P - Price Changes 85 95 85 95 - Volume Increa
Slide 71: 2005-2007 Capital Expenditures
Consolidated 2005 - 2007 Capital Expenditures Dollars in millions 2005 2006 2007 Exploration & Prod. $500 - 575 $525 - 625 $525 - 675 Midstream 120 - 140 110 - 130 100 - 130 Gas Pipeline 370 - 420 475 - 550 250 - 325 Power - - - Other/Corporate 10 - 30 10 - 30 10 - 30 Total $1,000 - 1,200 $1,150 - 1
Slide 72: 2005-2007 Maintenance vs. Growth Capital
Consolidated 2005-2007 Maintenance vs. Growth Capital Dollars in millions 2005 2006 2007 Explor. & Prod. Growth 310 - 365 315 - 395 295 - 425 Maintenance 190 - 210 210 - 230 230 - 250 Total 500 - 575 525 - 625 525 - 675 Midstream Growth 60 - 75 60 - 75 50 - 70 Maintenance 60 - 65 50 - 55 50 - 60 Tot
Slide 73: 2004-2005 Return on Capital Employed
Consolidated 2004 – 2005 Return on Capital Employed Dollars in millions 2003 2004 2005FC Total Assets 27,022 24,070 24,100 Non-interest Bearing Liabilities 10,939 11,136 11,200 Capital Employed (Net Assets) 16,083 12,934 12,900 Average Capital Employed (Net Assets) 14,509 12,917 2004A 2005 Low High
Slide 74: Steady Improvement
Consolidated Steady Improvement . . . Cash Flow 1 Debt / Cap 2 $1,600 to 2,000 $1,450 $1,900 80% $1,300 to 75% to $1,750 1,800 $1,600 1,600 $1,473 70% 1,400 $ Millions 62% 1,200 60% 1,000 59% to 60% 57% 54% 800 to to 50% 59% 56% 600 588 400 40% 200 - 30% 2003 2004 2005 2006 2007 New Guidance 1 Cash
Slide 75: Guidance Trends
Consolidated Guidance Trends 2,200 $1,525 2,000 to $1,950 1,800 $1,450 1,600 to $1,350 $1,750 $1,375 to to $1,650 $1,800 $ Millions 1,400 $1,381 (recurring) $1,200 $1,050 to $1,263 $1,500 1,200 (recurring) to $1,350 $1,150 to 1,000 $1,000 $1,350 to $900 800 $790 $1,200 to $1,100 600 400 200 - New Gu
Slide 76: Financial Strategy/Key Points
Consolidated Financial Strategy/Key Points Drive/enable sustainable growth in EVA®/shareholder value Maintain a cash/liquidity cushion of $1.0 billion plus Continue to steadily improve credit ratios/ratings; ultimately achieving investment grade ratios Reduce risk in Power segment Increase
Slide 77: Summary
Summary Steve Malcolm Williams. ee
Slide 78: Key Points
Key Points Restructuring complete, seeking growth with discipline Opportunities are identified Some already in our guidance Need to bring others across the goal line Will be executing our game plan Measure our success in the upcoming months through updates on our progress 78 / Williams 2
Slide 79: Q&A
Q&A Williams. ee
Slide 80: Non-GAAP Reconciliations
Non-GAAP Reconciliations Williams. ee
Slide 81: Non-GAAP Disclaimer
Non-GAAP Disclaimer This presentation includes certain financial measures, EBITDA, recurring earnings, free cash flow and recurring segment profit, that are non-GAAP financial measures as defined under the rules of the Securities and Exchange Commission. EBITDA represents the sum of net income (loss
Slide 82: Non-GAAP Reconciliation Schedule
Non-GAAP Reconciliation Non-GAAP Reconciliation Schedule 2003 2004 (Dollars in millions, except for per-share amounts) 1st Qtr * 2nd Qtr * 3rd Qtr * 4th Qtr * Year * 1st Qtr * 2nd Qtr* 3rd Qtr* 4th Qtr Year (1) Income (loss) from continuing operations ($52.2) $50.0 $18.0 ($73.3) ($57.5) $0.0 ($18.5)
Slide 83: Non-GAAP Reconciliation Schedule
Non-GAAP Reconciliation Non-GAAP Reconciliation Schedule Reconciliation of Segment Profit (Loss) to Recurring Segment Profit (Loss) (UNAUDITED) 2003 2004 (Dollars in millions) 1st Qtr * 2nd Qtr * 3rd Qtr * 4th Qtr * Year * 1st Qtr* 2nd Qtr * 3rd Qtr * 4th Qtr Year Segment profit (loss): Power** $ (1
Slide 84: Non-GAAP Reconciliation Schedule
Non-GAAP Reconciliation Non-GAAP Reconciliation Schedule Dollars in millions except for per share amounts 2004 2003 1Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year Recurring income from cont. ops available to common shareholders $ 4 $ 54 $ 136 $ 68 $ 261 $ (53) $ (18) $ (2) $ 58 $ (16) Recurring diluted earnings
Slide 85: EBITDA Reconciliation
Non-GAAP Reconciliation EBITDA Reconciliation Dollars in millions 4Q04 2004 Net Income* $73 $164 Income from Disc. Operations 22 (71) Net Interest Expense 170 828 DD&A 173 669 Provision for Income Taxes 88 131 EBITDA* $526 $1,721 * Includes gains and impairments on asset sales and prior period adjus
Slide 86: 4Q 2004 Segment Contribution
Non-GAAP Reconciliation 4Q 2004 Segment Contribution Dollars in millions E&P Midstream Gas Pipeline Power Corp/Other Total Segment Profit (Loss) $71 $236 $157 ($44) ($21) $398 DD&A 51 47 67 5 3 173 Segment Profit before DDA $122 $283 $224 ($39) ($18) $571 General Corporate Expense (35) Investing Inc
Slide 87: 2004 Segment Contribution
Non-GAAP Reconciliation 2004 Segment Contribution Dollars in millions E&P Midstream Gas Pipeline Power Corp/Other Total Segment Profit (Loss) $236 $550 $586 $77 ($42) $1,406 DD&A 192 178 264 20 15 669 Segment Profit before DDA $428 $728 $850 $97 ($27) $2,075 General Corporate Expense (120) Investing
Slide 88: 2005 Forecast EBITDA Reconciliation
Consolidated 2005 Forecast EBITDA Reconciliation Dollars in millions 2005 Net Income $175 – 325 Income from Disc. Operations 5 – (5) Net Interest 625 – 660 DD&A 700 – 775 Prov. (Benefit) for Income Taxes 155 – 245 Other/Rounding (10) – 0 EBITDA – Reported & Recurring $1,650 – 2,000 MTM Adjustments 3
Slide 89: 2005 Forecast Segment Contribution
Non-GAAP Reconciliation 2005 Forecast Segment Contribution Corp/ E&P Midstream Gas Pipeline Power Other Total Segment Profit (Loss) 400 - 475 350 - 430 545 - 585 (250)-(150) 5 – 10 1,050 - 1,350 DD&A 220 - 250 180 - 190 280 - 290 10 - 20 10 - 25 700 - 775 Segment Profit before DDA 620 - 725 530 - 62
Slide 90: 2005 Forecast Guidance Reconciliation
Non-GAAP Reconciliation 2005 Forecast Guidance Reconciliation Dollars in millions, except per-share amounts 2005 Net Income $175 – 325 Less: Discontinued Operations 5 – (5) Income from Continuing Ops $180 – $320 Recurring Income from Cont. Ops $180 – $320 Recurring EPS $0.31 - $0.56 Mark-to-Market A
Slide 91: Appendix
Appendix Williams. ee
Slide 92: 2004 Effective Tax Rates
Consolidated 2004 Effective Tax Rates Dollars in millions Combined Continuing Ops. Disc. Ops. Fourth Quarter 2004 Federal $64 35% $64 35% $0 0% State 17 9% 16 9% 1 500% Foreign 19 10% (2) (1%) 21 10500% Other 10 5% 10 5% 0 0% Tax Provision $110 46% $88 48% 22 11000% Total Year 2004 Federal $107 35%
Slide 93: 4Q 2004 Net Realized Price Calculation
Exploration & Production 4Q 2004 Net Realized Price Calculation 4Q '04 Unhedged Hedge Market Price: NYMEX $6.70 - $7.60 $4.05 Basis Differential (1.00 - 1.65) (0.50) Net basin market price $5.70 - $5.95 $3.55 Fuel & Shrinkage/Gathering/ (0.80 - 1.00) (0.80 - 1.00) Transportation Net Price $4.70 - $5
Slide 94: 2005 Price Modeling
Exploration & Production 2005 Price Modeling 2005 Unhedged Hedge Market Price: NYMEX $6.00 - $6.60 $4.44 Basis Differential (0.50 - 0.70) (0.47) Net basin market price $5.50 - $5.90 $3.97 Fuel & Shrinkage/Gathering/ (0.80 - 1.00) (0.80 - 1.00) Transportation Net Price $4.70 - $5.15 $2.97 - $3.17 Yea
Slide 95: Enterprise Risk Management
Enterprise Risk Management As of 12/30/04 Dollars in millions Corp./ 12/31/03 E&P Midstream Power Other Total Total Margins & Ad. Assur. $50 $10 $74 - $134 $527 Prepayments 1 - 2 38 - 40 81 Subtotal $50 $12 $112 $- $174 $608 Letters of Credit 399 123 238 95 894 378 Total as of 12/30/04 $449 $135 $35
Slide 96: Enterprise Risk Management
Enterprise Risk Management Dollars in millions Margin volatility (99% confidence interval) - Incremental liquidity requirement 12/30/04 9/30/04 – 30 days ($106) ($118) – 180 days ($268) ($234) – 360 days ($353) ($336) Assumption: The margin numbers above consist of only the forward marginable posi
Slide 97: Enterprise Risk Management Sensitivities Analysis
Enterprise Risk Management Estimated dollars in millions Sensitivities Analysis WMB 1 Power 2 Midstream3 Natural Gas West Spark Spread Processing Margin (Per MMBtu) Power Price (Per MWh) NGL Price (Per Gallon) Price Increase $0.10 $5.00 $0.01 2005 ($5)-(2) $5-10 $10-15 2006 $2-5 $5-15 $10-15 2007 $7
Slide 98: Estimated Total Cash Flows
Power Estimated Total Cash Flows Undiscounted dollars in millions Com bined P ower P ortfolio E s tim ated as of 12/31/04 2004 2005 F 2006 F 2007 F Tolling Dem and P ay m ent O bligations ($397) ($395) ($399) ($404) Res ale of Tolling 144 115 99 88 F ull Requirem ents 12 29 13 6 Long-term P hy s ic
Slide 99: West – Estimated Total Cash Flows
Power West – Estimated Total Cash Flows Undiscounted dollars in millions West Power Portfolio Estimated as of 12/31/04 2004 2005 F 2006 F 2007 F Tolling Demand Payment Obligations ($154) ($155) ($155) ($157) Resale of Tolling 144 115 99 88 Long-term Physical Forward Power Sales 89 69 48 51 OTC Hedge
Slide 100: Central – Estimated Total Cash Flows
Power Central – Estimated Total Cash Flows Undiscounted dollars in millions Mid-Continent Power Portfolio Estimated as of 12/31/04 2004 2005 F 2006F 2007 F Tolling Demand Payment Obligations ($87) ($87) ($88) ($89) Long-term Physical Forward Power Sales (17) 2 0 0 OTC Hedges 35 (15) (11) (9) Est. To
Slide 101: East – Estimated Total Cash Flows
Power East – Estimated Total Cash Flows Undiscounted dollars in millions East Power Portfolio Estimated as of 12/31/04 2004 A 2005 F 2006 F 2007 F Tolling Demand Payment Obligations ($156) ($153) ($156) ($158) Full Requirements 12 29 13 6 OTC Hedges 37 33 52 12 Est. Tolling Cash Flows Associated Wit
The Williams Companies — Q4 2004 Earnings Presentation on 6ix