Williams Companies, Inc. (the) · NYSE:WMB
Williams Companies, Inc. (the) — Q3 2003 Earnings Presentation
54 slides from Williams Companies, Inc. (the)'s earnings presentation, Nov 6, 2003
Slide 1: Williams Analyst Conference Call 3rd Quarter 2003
Williams Analyst Conference Call 3rd Quarter 2003 November 6, 2003
Slide 2: Forward Looking Statements
Forward Looking Statements Williams’ 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” with in the meaning of Private Securities Litiga
Slide 3: Update
Update Steve Malcolm Chairman, President & CEO November 6, 2003
Slide 4: Agenda
Agenda ■ Update Steve Malcolm ■ Financial Review – Overview Don Chappel – Gas Pipelines Doug Whisenant – Exploration & Production Ralph Hill – Midstream Alan Armstrong – Power Bill Hobbs – Energy Risk Management Andrew Sunderman ■ Consolidated Outlook Don Chappel ■ Summary Steve Malcolm ■ Q&A 4
Slide 5: Strategy
Strategy Commercial Financial ■ Natural gas assets in key ■ Create and maintain adequate growth markets where we liquidity from all available enjoy the competitive sources to fully support advantages of scale, low-cost business strategy position and market leadership ■ De-leverage through combinatio
Slide 6: Successful Restructuring Continues: De-leveraging the balance sheet
Successful Restructuring Continues ■ De-leveraging the balance sheet – Tender offer removes almost $1 billion ■ $720 million of 9.25% notes ■ $230 million of high cost debt – Paid $116 million of scheduled debt in 3Q03 14000 13500 13000 Decrease of $2B $ in millions 12500 (14%) 12000 11500 11000 105
Slide 7: Successful Restructuring Continues: Core earnings, asset sales
Successful Restructuring Continues ■ Sustaining core business earnings capacity – Gas Pipeline – expansions coming on line – Exploration & Production – accelerated drilling pace – Midstream Gas & Liquids – deepwater contribution continuing; more fee-based services ■ Asset sales continue – Total of $
Slide 8: Successful Restructuring Continues: Costs and hedging
Successful Restructuring Continues ■ Rationalizing cost structure – SG&A costs reduced 32% 2003 YTD – Re-engineering initiatives ■ Continuing hedging of gas production to lock in cash flows – 2004 - 80% hedged at $4.03 NYMEX – 2005 - 47% hedged at $4.44 NYMEX ■ Added additional energy expertise to B
Slide 9: Power Restructuring Outlook
Power Restructuring Outlook ■ Actively pursuing full exit of power business – Sold or liquidated nearly $600 million of power-related assets and contracts since June 2002 – Agreed to terminate contract with Allegheny – Managing in the interim to ■ Reduce risk ■ Generate cash ■ Meet contractual commi
Slide 10: 3rd Quarter 2003 Overview
3rd Quarter 2003 Overview Don Chappel, CFO November 6, 2003
Slide 11: 3rd Quarter 2003 Results
3rd Quarter 2003 Results Dollars in millions 3Q2003 3Q2002 $ $/share $ $/share Income (Loss) from Continuing Ops.* $23 $0.04 ($171) ($0.34) Income (Loss) from Discont. Ops. 83 0.16 (123) (0.24) Net Income (Loss) 106 0.20 (294) (0.58) Recurring Income/(Loss) from Cont. Ops** 3 0.01 (241) (0.47) * Inc
Slide 12: 2003 YTD Results
2003 YTD Results 2003 YTD 2002 YTD Dollars in millions $ $/share $ $/share Income (Loss) from Continuing Ops.* $100 $0.13 ($461) ($1.05) Income (Loss) from Discont. Ops. 223 0.43 (75) (0.15) Income Before Accounting Change 323 0.56 (536) (1.20) Accounting Change (761) (1.45) -- -- Net Income (Loss)
Slide 13: Core Business Segment Profit
Core Business Segment Profit 3rd Quarter YTD Dollars in millions 2003 2002 2003 2002 Gas Pipelines $141 $147 $406 $423 Exploration & Production 59 228 351 427 Midstream Gas & Liquids * 74 112 240 210 $274 $487 $997 $1,060 Note: Includes gains and impairments *Midstream reflects reclassification of C
Slide 14: Change in Core Business Segment Profit
Change in Core Business Segment Profit Dollars in millions 3Q03 3Q02 Inc./(Dec.) Core Business Segment Profit $274 $487 ($213) Major Items Absence of 2002 E&P gain on sale of assets (144) Absence of 2002 Transco rate case settlement (26) Lower processing margins (47) Reduced E&P production & prices
Slide 15: Change in Core Business Segment Profit (YTD)
Change in Core Business Segment Profit Dollars in millions YTD 2003 2002 Inc./(Dec.) Core Business Segment Profit $997 $1,060 ($63) Major Items Absence of 2002 E&P gain on sale of assets (144) 2003 E&P gain on sale of assets 92 Lower processing margins (17) Reduced E&P production & prices (24) Absen
Slide 16: Income (Loss) from Continuing Operations
Income (Loss) from Continuing Operations Dollars in millions 3Q03 3Q02 Inc./(Dec.) Income (Loss) from Continuing Operations $23 ($171) $194 Major Items Changes in core segment profit - Absence of 2002 E&P gain (144) - Lower processing margins (47) - Other (22) Increase in Power segment profit - Inte
Slide 17: Recurring Income from Continuing Operations
Recurring Income from Continuing Operations Dollars in millions 3Q03 3Q02 Difference Income (Loss) from Cont. Ops. $23 ($171) $194 Gains on Asset Sales (47) (211) 164 Impairments/Losses/Write-offs 9 68 (59) Other - Net 4 41 (37) Income Tax Provision 14 39 (25) Recurring Income from Cont. Op. $3 ($23
Slide 18: 2003 YTD EBITDA Reconciliation
Consolidated 2003 YTD EBITDA Reconciliation Dollars in millions Net Income (Loss) ($438) Cum. Effect of Change in Acct. Principle 761 Income from Disc. Operations (223) Net Interest Expense 1,000 DD&A 504 Provision for Income Taxes 139 EBITDA $1,743 18
Slide 19: 2003 YTD Segment Contributions
Consolidated 2003 YTD Segment Contributions Dollars in millions Gas Pipes E&P Midstream Power Corp/Other Total Segment Profit (Loss) $406 $351 $240 $256 ($43) $1,211 DD&A 182 134 148 25 15 504 Segment Profit before DDA $588 $485 $388 $281 ($28) $1,715 General Corporate Expense (63) Investing Income*
Slide 20: Cash YTD 2003
Cash YTD 2003 Dollars in millions Cash @ 12/31/02 $1,736 Operating Income 1,177 DD&A 504 Net Asset Impairments/Gains 8 Debt Issues 1,777 Asset Sales 2,809 Retirements (2,204) Interest Payments (1,173) Capital Expenditures (755) LC Collateral Investments (448) W/C Changes & Other - Net* - Cash @ 9/30
Slide 21: Asset Sales
Asset Sales Dollars in millions Cash Proceeds Debt Assumed Completed 2Q 2003 YTD (Net) $2,445 $820 Completed in 3Q2003 (Net of Closing Costs)* Redwater/West Stoddart $228 -- E&P Brundage Canyon 44 -- West Texas Pipeline 29 -- Soda Ash 27 -- Investments 18 -- Other 18 -- $364 -- Total Completed 3Q 20
Slide 22: Pending Asset Sales
Pending Asset Sales Timeframe ■ Announced but not closed of $10 million – Distributed Power Assets 4Q03 ■ Identified for sale totaling $0.8-1.0 billion – Midstream Assets 4Q03/2Q04 – Alaska Refinery 1Q04 – Western Canada Assets (Straddle Plants) 3Q04 22
Slide 23: Debt Balances 3Q03
Debt Balances 3Q03 (1) Dollars in millions Avg. Cost Debt Balance @ 12/31/02 (2) $13,991 Debt Associated with Discontinued Operations (897) Debt Balance Adjusted for Disc. Oper. @ 12/31/02 13,094 10.0% Scheduled Debt Retirements (582) Progeny Debt Payments (460) Accrued Capitalized Interest 69 Lehma
Slide 24: Pro Forma Debt at 12/31/03
Pro Forma Debt at 12/31/03 Dollars in billions ■ Balance as of 9/30/03 $12,910 – Debt Tender (950) – Venezuela-Project Financing 230 – Scheduled Maturities & Amortization (187) ■ Balance as of 12/31/03 $12,003 24
Slide 25: 3rd Quarter 2003 Segment Review
3rd Quarter 2003 Segment Review Doug Whisenant Ralph Hill Alan Armstrong Bill Hobbs November 6, 2003
Slide 26: Gas Pipelines
Gas Pipelines 3rd Quarter YTD Dollars in millions 2003 2002 2003 2002 Segment Profit $141 $147 $406 $423 Includes ◆ Write-off projects - 2 26 14 ◆ Project completion fee - - - (27) ◆ Early retirement/realignment - 4 1 15 ◆ Net gains/losses/impairments - 7 - 7 $141 $160 $434 $432 ◆ 3Q02 and YTD 2002
Slide 27: Gas Pipelines Accomplishments
Gas Pipelines ■ Accomplishments – Several expansion projects placed into service: Northwest: ■ Evergreen Expansion placed into service 10/1/03 ■ Columbia River Gorge Expansion, 10/21/03 ■ Rocky Mountain Expansion Project (significant portion), 11/1/03. The remaining project balance will be in-servic
Slide 28: Exploration & Production
Exploration & Production 3rd Quarter YTD Dollars in millions 2003 2002 2003 2002 Segment Profit $59 $228 $351 $427 Includes ◆ Net gains on sale of assets - (140) (92) (143) $59 $88 $259 $284 ◆ Segment profit net of gain on asset sales declined due to lower volumes and lower net realized price ◆ Prod
Slide 29: Exploration & Production 3Q 2003 accomplishments
Exploration & Production 3Q 2003 accomplishments ■ Drilling activity resumes – Piceance basin rig count increased from one to seven rigs – San Juan basin rig count increased to one drilling rig and four cavitation rigs – Began drilling under the new EIS in the Powder River basin, Western litigation
Slide 30: Midstream
Midstream 3rd Quarter YTD Dollars in millions 2003 2002 2003 2002 Segment Profit * $74 $112 $240 $210 Includes ◆ Impairments 10 3 18 8 ◆ Gains on sale of assets (11) - (11) - ◆ Early retirement - 2 - 3 $73 $117 $247 $221 ■ 3Q 2002 vs. 3Q 2003 ■ NGL margins $47 million lower in 3Q 2003 due to higher
Slide 31: Midstream Accomplishments and Forecast Adjustment
Midstream ■ 3Q 2003 Accomplishments – Asset Sales: Total gain of $98MM ■ West Stoddart gas processing facility ■ Equity interest in NGL pipelines ■ Redwater fractionation, gathering and storage – Completion of Gunnison Pipeline – Devils Tower spar mooring – Record combined gathering and oil transpor
Slide 32: Power: 3Q03 Segment Profit
Power 3Q03 Segment Profit Dollars in millions 3Q03 3Q02 03YTD 02YTD Accrual Earnings (Losses) ($ 36) ($ 2) ($162) $1 MTM Earnings (Losses)1 60 ( 167) 361 ( 305) Interest Rate Earnings (Losses) 37 ( 131) ( 26) ( 217) Other ( 7) ( 9) ( 101) ( 80) SG&A and Other Income (Expense) ( 36) ( 80) ( 108) ( 20
Slide 33: Power: Accounting Methods
Power Accounting Methods Recall that because Power is a non-core business unit, certain derivative contracts that are economic hedges of non-derivative portions of Power’s portfolio do not qualify for hedge accounting treatment under SFAS 133. Contract Derivative Acctg Income Gross/ Type Treatment M
Slide 34: Power: Accomplishments
Power Accomplishments ■ Continued focus on risk reduction, cash flow generation and meeting contractual obligations ■ Continued progress on sale of portfolio – Received final payment of $13 million for Jackson EMC Sale – Closed Allegheny for $127 million with $100 million received in cash during 3Q0
Slide 35: Power: Expected Discounted Cash Flows
Power Expected Discounted Cash Flows 1-12 13-36 37-60 61-120 121+ Dollars in millions Mos. Mos. Mos. Mos. Mos. Total As of 6/30/03 $120 $291 $173 $405 $457 $1,447 As of 9/30/03 191 257 174 230 179 1,030 Change 70 (34) 1 (175) (278) (416) 1 to 60 months 61+ months +$37MM ($453MM) Notes: • The Fair Va
Slide 36: Power: Priorities
Power Priorities ■ Continue to manage to reduce risk, generate cash and meet contractual commitments ■ Williams will continue efforts to exit this business – All markets are depressed – Value is in the West book – Taking longer than originally estimated – May be exited in stages ■ Tutorial scheduled
Slide 37: CERA Viewpoint of Power Margins
Power CERA Viewpoint of Power Margins SP15 PJM Cinergy SOCO Entergy 2000 2005 2010 2015 2020 Expected Margin-Return Timeframe Best Guess of Margin-Return Source: Cambridge Energy Research Associates. 37
Slide 38: Current Williams Hedges
Power Current Williams Hedges AES4000/ CDWR Ironwood, Red Oak/Allegheny KM Jackson Tenaska/EMCs Cleco 2000 2005 2010 2015 2020 Expected Margin-Return Timeframe Best Guess of Margin-Return WMB Hedges Source: Cambridge Energy Research Associates. 38
Slide 39: Power Tutorial Agenda
Power Tutorial Agenda ■ Situation, outlook and strategy by market ■ Estimated cash flows by region and toll / deal – Parameter inputs including spark spreads, heat rates, etc. – Sensitivities to commodity price changes – Liquidity requirements ■ Understanding of risk adjusted cash flows ■ Tie-in all
Slide 40: Enterprise Risk Management
Enterprise Risk Management Andrew Sunderman November 6, 2003
Slide 41: Enterprise Risk Management: Credit Support and Liquidity
Enterprise Risk Management ■ Focused optimization and hedging program executed for 2005 gas length ■ Focused reduction in credit support and liquidity requirements – NYMEX margins reduced from 125% to 100% – Adequate assurance, prepays, margins reduced by 36% since 12/31/02 Corp./ Estimated dollars
Slide 42: Enterprise Risk Management: Sensitivities
Enterprise Risk Management ■ Enterprise-Wide Sensitivities – Margin Volatility (99% Conf. Int.) - Liquidity Requirement ■ 30 Days $240 million ■ 180 Days $308 million ■ 360 Days $214 million – Commodity Sensitivities - Operating Profit/Cash Flow ■ $1 NG NYMEX move correlated across portfolio ■ 2003
Slide 43: Consolidated Outlook
Consolidated Outlook Don Chappel, CFO November 6, 2003
Slide 44: 2003 Forecast Segment Profit
Consolidated 2003 Forecast Segment Profit Dollars in millions 2003 YTD 2003 Forecast Gas Pipelines $406 $530 - 560 Exploration & Production 351 400 - 430 Midstream 240 330 - 380 Other (43) (60) - (20) Total excluding Power $955 $1,200 - 1,350 Power 256 150 - 300 Total $1,211 $1,350 - 1,650 Note: Inc
Slide 45: 2003 Forecast Guidance
Consolidated 2003 Forecast Guidance Dollars in millions, except per-share amounts $ Segment profit* $1,350 - $1,650 EBITDA* 1,900 - 2,300 Cash Flow from Operations 600 - 800 Income from continuing operations* (50) - 150 Income before change in acctg principle* 150 - 400 Accounting change - EITF 02-0
Slide 46: 2003 Forecast EBITDA Reconciliation
Consolidated 2003 Forecast EBITDA Reconciliation Dollars in millions Net Income (Loss) ($600) - (300) Cum. Effect of Change in Acct. Principle 761 Income from Disc. Operations (200) - (250) Net Interest 1,250 - 1,225 DD&A 650 - 700 Provision for Income Taxes 25 - 125 Rounding 14 - 39 EBITDA $1,900 –
Slide 47: 2003 Forecast Segment Contributions
Consolidated 2003 Forecast Segment Contributions Gas Pipes E&P Midstream Power Corp/Other * Total Segment Profit (Loss) 530 - 560 400 - 430 330 - 380 150 - 300 (60) – (20) 1,350 - 1,650 DD&A 245 - 255 170 - 180 195 - 205 25 - 35 15 - 25 650 - 700 Segment Profit before DDA 775 - 815 570 - 610 525 - 5
Slide 48: 2003 - 2005 Outlook
Consolidated 2003 - 2005 Outlook Dollars in millions 2003 2004 2005 Segment Profit 1,350 - 1,650 1,100 - 1,400 1,400 - 1,700 DD&A 650 - 700 650 - 700 650 - 750 Cash flow from Operations 600 - 800 1,000 - 1,300 1,400 - 1,700 Capital Expenditures 950 - 1,000 600 - 700 700 - 800 Cash Tax Rate 3 - 6% 3
Slide 49: Drivers
Consolidated Drivers Segment Profit CFFO Dollars in millions Low High Low High 2003 1,350 1,650 600 800 Net gains (300) (300) - - Reduced Interest Expense & Fees - - 425 500 Midstream Deepwater 25 25 30 30 E&P Production Increase 20 20 25 25 WGP Expansions 25 25 30 30 Net Change in Tax Refunds / Pay
Slide 50: Financial Strategy
Consolidated Financial Strategy ■ Maintain a cash/liquidity cushion of $1.0 billion plus ■ Continue to delever - striving for investment grade ratios ■ Establish new liquidity/credit facility when attractive - reduces cash requirements ■ Uses of free cash flow – Pay scheduled debt retirements – Earl
Slide 51: Summary
Summary Steve Malcolm Chairman, President & CEO November 6, 2003
Slide 52: Key Issues Focus Continues
Key Issues Focus Continues ■ Sustain solid core business performance ■ De-leverage balance sheet ■ Maintain investment discipline ■ Position core businesses for future growth ■ Wrap up asset sales ■ Rationalize cost structure ■ Continue to resolve the distractions ■ Continue exit of power business 5
Slide 53: A Work in Progress
A Work in Progress Execute Initiate & Stabilize Emerge Restructuring Measures of Success Avoid bankruptcy Complete asset sales Position company for integrated natural Address liquidity Rationalize cost gas growth crisis structure Optimize capital Restore customer Manage liquidity structure and suppl
Slide 54: Willianie.
ae Willianie. a