On a year-over-year basis, Williams’ adjusted earnings per share plunged more than 70% while revenue nosedived 48% to $1.9 billion, hurt by weak performances of the company’s Exploration and Production (E&P) and Midstream businesses on the back of a sharp decline in commodity prices from the year-ago level.

E&P

In the E&P business, total production was up approximately 6% year over year to 1,233 million cubic feet equivalent per day (MMcfe/d). Domestic volumes increased 6% year over year to 1,180 MMcfe/d, driven by strong contribution from the Piceance, Powder River and Fort Worth basins. For the first quarter of 2009, average daily net production from the Piceance basin was up approximately 7% from the year-ago level while that from the Powder River basin was up approximately 3%.

Despite strong domestic production growth, the E&P segment’s operating profit of $119 million collapsed 76% from the year-ago level. This was mainly due to a 51% slump in the company’s domestic average realized natural gas price to $3.9 per thousand cubic feet equivalent (Mcfe). Segment profit was pulled down even more by higher depletion, depreciation and amortization expenses and increased capital costs.

Midstream

Williams’ Midstream segment reported an operating profit of $137 million, down 49% from the year-ago level, primarily due to lower natural gas liquid (NGL) and olefin prices and lower NGL equity sales volumes, partially offset by decreased production costs. Total equity NGL sales volumes fell approximately 19% year over year to 297 million gallons, mainly due to weaker volumes in the Western region, together with declines in production sources and hurricane-related impacts in the Gulf region.

Gas Pipeline

Operating profit in the Gas Pipeline segment was $162 million, down 10% from the second quarter of 2008. This year-over-year decline can be attributed to higher operating costs.

Gas Marketing Services

The Gas Marketing Services segment reported a recurring loss of $13 million after mark-to-market adjustments, compared to a loss of $31 million a year ago. The narrower loss was a result of margin improvements from buying and selling gas around transportation contracts, as well as margins realized on physical gas purchases.

Capital Expenditure & Balance Sheet

During the quarter, Williams spent $465 million on capital expenditure. As of June 30, the company had a long-term debt of $8.3 billion, representing debt-to-capitalization ratio of 49.9%. Williams has current cash balance of about $1.9 billion.

Guidance for 2009

Management guided towards full-year 2009 earnings of 70–90 cents per share. Capital expenditure during the period is expected to be in the range of $2.2 billion – $2.5 billion.

We currently rate Williams shares as Neutral.

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