66 slides from Williams Companies, Inc. (the)'s conference presentation, Feb 21, 2003
Slide 1: Williams Analyst Webcast
winians. _— Williams Analyst Webcast February 20, 2003
Slide 2: Forward-looking statements
Forward-looking statements os \witiams reports, flings, and other public announcements might contain or incorporate by reference statements that do not drecy or exdusively relate fo historeal facts Such statements are Yonuard- locking statement? within the meaning of Prvate Secures Ligation Refotm A
Slide 3: Steve Malcolm, Chairman, President and CEO
winians. _— Williams Analyst Webcast Steve Malcolm Chairman, President and CEO
Slide 4: Agenda
m@ 2002 results m 2003-2004 Guidance for 2003 ¢ Liquidity management strategy « Business outlook m@ 2004 and beyond * Creating shareholder value « Comprehensive response « Key elements = Questions and answers
Slide 5: Overall 2002 results
Overall 2002 results Unaudited Dollars in millions except per-share amounts ‘ear 4Q 2002 2002 2001 Income (loss) (106) (483) 803 continuing operations Loss discontinued operations (95) (253) (1,280) Net loss (201) (736) (478) Loss per share (0.40) (1.60) (0.95)
Slide 6: Core assets
Core assets @ $1.4 billion recurring segment profit from core asset businesses vs. $983 million in 2001 Doliars in millions Recurring Reported 2002 2001 2002 2001 Exploration & Production 380 234 521 234 Midstream Gas & Liquids 315 186 189 172 Gas Pipeline 694 563 669 572
Slide 7: 2002 — other factors
2002 — other factors m Recurring ¢ Energy Marketing & Trading Recurring loss results of ($353 million) in 2002 vs. $1.3 billion in 2001 4t-quarter 2002 recurring results of $81 million were improvement over previous two quarters m Non-Recurring Telecom-related obligations ($269 million) ¢ Impairment
Slide 8: 2002 recurring results
2002 recurring results Dollars in millions except per-share amounts Year 4Q 2002 2002 2001 Recurring Earnings (Loss) $99 ($84) $1,033 Recurring Earnings (Loss) $0.19 ($0.16) $2.06 per Share Recurring results exclude discontinued operations
Slide 9: 2002 cash information
2002 cash information Sources (Uses) 4th quarter 2002 Unaudited Dollars in mitions Full-year 2002 Beginning cash 1,293 1,304 Cash flow from operations 845 (534) Capital expenditures/purchase of investments (498) (2,130) Other — net 33 (295) Net sources/{uses) 380 (2,959) Debt repayments (1,080) (5,3
Slide 10: 2002 progress on key issues
2002 progress on key issues @ Liquidity/balance sheet Refinanced company under deadline pressure « Sold $5.2 billion in assets; another $1.7 billion sales in progress Instituted enhanced cash-management process m EM&T « Settled with California « Worked to reduce portfolio risk and liquidity requirem
Slide 11: Williams in 2003-2004
Williams in 2003-2004 winians. _—
Slide 12: Next two years
Next two years @ Strategy @ Guidance for 2003 § Liquidity through 2004 @ Clear, straightforward plan
Slide 13: Strategy
Strategy Commercial @ Natural gas assets in key growth markets where we enjoy the competitive advantages of scale, low- cost position and market leadership Financial Create and maintain adequate liquidity from all available sources to fully support business strategy De-leverage through combination o
Slide 14: Financial discipline
Financial discipline m= We are managing this company differently « Proactively managing cash * Reducing costs ¢ Allocating capital with strict discipline « Managing to balanced financial-performance metrics « Managing business as a portfolio
Slide 15: Segment roles in strategy
= Exploration & Production « Generates free cash flow; primary growth segment m Midstream Gas & Liquids « Generates free cash flow; decreasing volatility m Gas Pipelines « Generates substantial free cash flow m Energy Marketing & Trading Continue to reduce risk, limit liquidity requirements and pres
Slide 16: 2003 guidance
2003 guidance = Business units « Cash flow from operations Segment profit m Consolidated « Cash flow from operations © Free cash flow © Net income © EPS m Liquidity
Slide 17: 2003 guidance — business units
2003 guidance — business units 2003 Dollars in millions Segment Cash flow from profit operations Exploration & Production 300 - 400 300 - 350 Midstream Gas & Liquids 200 — 300 300 - 350 Gas Pipeline 500 - 600 600 - 650 Energy Marketing & Trading 200 — 350 (100) - 0 Other 100 — 150 (300) — (200)
Slide 18: 2003 guidance — consolidated
2003 guidance — consolidated Dollars in milions, except per-share amounts 2003 Segment profit 1,300 — 1,800 Cash flow from operations 800 — 1,050 Net income 250 - 400 Earnings per share 0.40 - 0.75 Excludes cumulative effect of change in accounting principle.
Slide 19: 2003 guidance — consolidated
2003 guidance — consolidated Dollars in milions, except per-share amounts 2003 Segment profit 1,300 - 1,800 Cash flow from operations 800 — 1,050 Net income before accounting change 250 — 400 Accounting change — EITF 02-03 (750) — (800) Loss per share (1.10) - (0.70)
Slide 20: Liquidity management summary
Liquidity management summary 2" Sources (Uses) Dollars in millions 2003 2004 Beginning cash 1,700 2,800 Cash flow from operations 900 1,050 Capital expenditures (1,000) (500) Margin calls (350) (350) Other - net (100) Q Net sourcesi(uses) (550) 200 Debt repayments (2,300) (1,600) Cash collateralizat
Slide 21: Asset sales announced/in progress
nced/in progress m Gross value of $1.9 billion includes $1.7 billion cash a Assets Memphis Refinery - closing March 3, 2003 TravelCenters — closing February 27, 2003 Ethanol — closing expected 2" quarter 2003 Canadian midstream Alaska — refinery, terminal, retail, TAPS interest Soda Ash Other eoeoer
Slide 22: Liquidity solution is straightforward
Liquidity solution is strai m Strategy provides additional $2.5 billion — $3 billion liquidity over the next 15 months m Sell additional assets that are fully valued in the marketplace = Additional sources of liquidity Issue subsidiary debt Sell additional EM&T contracts and free up cash and letters
Slide 23: $2.5 billion in new asset sales
$2.5 billion in new asset sales w Williams Energy Partners (WEG) mu Gas Pipelines — targeted sale of Texas Gas = Assets totaling less than 20% of value of these businesses « Exploration & Production — identified properties ¢ Midstream Gas & Liquids — identified assets m Resolution of EM&T would prov
Slide 24: Total SG&A
Total SG&A 1,059 1,200 979 1,000 550 - 600 2001 2002 2003 est
Slide 25: Financial priorities
m Financial «© Execute the liquidity management plan * De-lever = Cost reductions * Cut costs Further reduce work force = Sufficient assets to support long-term earnings, debt repayment Continue to grow profits in core businesses ¢ Disciplined investment in core businesses mg EM&T Continue to reduce
Slide 26: Business outlook
Business outlook m Energy Marketing & Trading = Exploration & Production m Midstream Gas & Liquids m Gas Pipeline
Slide 27: Energy Marketing & Trading
winians. _— Energy Marketing & Trading Bill Hobbs Senior Vice President
Slide 28: Pursue joint venture or sales to capture value
@ Pursue joint venture or sales to capture value of portfolio m@ 10,000 MW power business @ Market 550 BBtud of E&P gas ™@ Purchase 700 BBtud for Midstream gas plants @ Transition out of Transco firm service (FS) business &@ Continue to right-size work force
Slide 29: Margin liquidity
@ Margin liquidity + Commodity - $250 million + Interest rates - $100 million @ Additional credit support may be required @ Talent retention @ Ongoing litigation and investigations
Slide 30: Adopt effective January 1, 2003
@ Adopt effective January 1, 2003 @ $750 million to $800 million after-tax charge @ No cash implications H No loss of economic value @ Earnings volatility reduced
Slide 31: Significantly reduced scope of business
&@ Significantly reduced scope of business H Correlation between power hedges and E&P hedges reduces liquidity requirements for 2003-2004 m@ West power position good outlet for equity production @ Additional credit support not likely @ Higher interest rates increase earnings and cash @ Volatility of
Slide 32: Exploration & Production
winians. _— Exploration & Production Ralph Hill Senior Vice President
Slide 33: Exploration & Production: key 2002 metrics
Exploration & Production Key 2002 metrics m 2.8 Tcfe proved reserves = More than 550 MMcfe per day production mw 157% reserves replacement rate m $0.36/Mcfe lease operating expense m $0.83/Mcfe 3-year average F&D cost m Drilled 1,357 wells with a 99% success rate = Cash flow from operations of $539
Slide 34: Exploration & Production: positioned
Exploration & Production Positioned ™@ Leadership positions in top Rockies basins @ 52% of proved reserves are undeveloped &@ Significant probable reserves inventory @ 10+ year low-risk high-return development drilling inventory @ Expect 10-15% annual production growth with typical capital expenditu
Slide 35: Hedging and pricing strategy
Exploration & Production Hedging and pricing strateg @ 2003 and 2004 hedged at 85%, above $4 @ Future strategy for level of hedging is function of Williams’ portfolio @ Historical hedging range of 40% - 85% ™@ Rockies producer, not Rockies “price taker”
Slide 36: 2002 year-end reserves
Exploration & Production 2002 year-end reserves Proved Reserves Mid-Cont. & Other 16% Powder River 11% Piceance 48% San Juan 25% Mid-Cont. & Other 10% Proved + Probable Piceance 49%
Slide 37: Production from Retained Properties
Production from Retained Properties 600 24%,/* 500 9 % 4% _" 400 300 200: 2002 2003 2004 2005 Note: ‘02 &'03 adjusted for asset sales
Slide 38: Cash flow vs. capital spending
Exploration & Production Cash flow vs. capital s $in Millions 600; 500; 400; 300; BCFFO BCapita 2003 2004 2005
Slide 39: Piceance Basin economics
Exploration & Production Piceance Basin economics Typical Well (Mesaverde) Finding Costs Illustrative Economics Drill & Complete $1,000,900 Beis Aajue ance (MMbtu) Total Well Cost, $ $1,000,000 Rocky Mountain Gas Price (per MMbtu) Reserves, Mcf 1,240,000 BTU Adjustment - 1060 MMbtuMef Finding & Deve
Slide 40: Powder River Basin economics
Exploration & Production Williams. [a Powder River Basin economics Typical Big George Well Finding Costs Drill & Complete $65,000 Hook-up $70,000 Total Well Cost $195,000 Leasehold Cost 10,000 Total Development Cost $145,000 Reserves, Met 598,000 Finding & Development Cost $0.27 446_446 400) Metid I
Slide 41: San Juan Basin economics
Exploration & Production San Juan Basin economics Typical San Juan Well (Fruitland Coal) Finding Costs Illustrative Economics Drill & Complete $600,000 ee etme (MMbtu) asis Adjustment * Total Well Cost, $600,000 otal Well Cost, § Rocky Mountain Gas Price (per MMbtu) Reserves, Mef 2,200,000 BTU Adjus
Slide 42: Arkoma Basin economics
Exploration & Production Arkoma Basin economics Arkoma Basin Typical Arkoma PUD Well (Lona Valley) Illustrative Economics Finding Costs pac NYMEX Gas Price (MIMbtu) $4.00 Total Well Cost,$ bewreend Basis Adjustment * 20.14 J 5 Mid Continent Gas Price (perMMbtu) $3.86 Reserves, Mcf 790,000 BTU Adjust
Slide 43: Self-funding, primary growth
Exploration & Production Self-funding, primary growth m@ 1,400 wells per year ™ 99% success rate @ Average annual production growth of 10-15% ™@ Free cash flow generator @ Long-term, low-risk, high-return drilling portfolio
Slide 44: Midstream Gas & Liquids
winians. _— Midstream Gas & Liquids Alan Armstrong Senior Vice President
Slide 45: Well-positioned assets
mu Well-positioned assets «© Growth basins © Scale in these basins m Operational health Metrics improving ¢ Continued focus on operational excellence = Future cash flow « Drastic improvement Strong incremental return Invest for return, not operating profit
Slide 46: Midstream assets and cash flows
NOL Mita. Conway Southern 8 Wyoming 138 Venazuda 2088 San Juan Bazin Canada 258% oe uit Coast 26 Geographic Cash Flows Other Fe Rev. 12% Gathering NGL Margin cee 13% Venezuela 16% Deepwater Fass % Storage & Trane a Net Revenue Components 48
Slide 47: Cash flow vs. capital spending
Midstream Cash flow vs. capital spending $in Millions $500 $400 $300 @CFFO $200 Capital Expenditures $100 $0 2003 2004 2005
Slide 48: Reducing volatility
Midstream Reducing volatility m Fee revenue increases to 81% of EBITDA in 9 2004. % of EBITDA 100% = Deepwater fees grow to $150 million in 2004 809 = Loss of pipeline fee revenue being made up 60% by deepwater 409 09 2001 2002 2003 2004
Slide 49: Operational health
Midstream Operational health Tetud $/ MMbtu 65 $0.190 63 64 $0.185 64 $0.180 59 8 $0.180 90.177 57 90.175 55 $0.170 53 Dee. 2001 Dec. 2002 Dec. 2001 Dec. 2002 Gathering Volume Gathering Rate
Slide 50: Operational health: leveraging scale
Midstream Operational healt $/ MMbtu $0.14 $0.12 $0.10 $0.08 $0.06 $0.04 $0.02 $0.00 Leveraging Scale - West Region (System Costs / MMbtu) $0.121 $0.093 $0.092 2001 2002 2003
Slide 51: Projected commodity values
stream Projected commodity values ® Projections assume 5-year average realized margins Composite NGL Margins @ Year-to-date results exceeding Sper Gallon last year’s and 5-year average $0.20 soas results $0.15 $0.0 $0.10 $0.08 $0.05 $0.00 Jan.-Feb. Syr. Aug. Jan. Feb. 2002 Plan Actual YTD
Slide 52: Projected deepwater EBITDA
Midstream Projected deepwater EBITDA @ East Breaks © Placed in service 4 Qtr. 2001 * EBITDA «Kerr McGee production exceeding original estimates Original Projection for 2003 = AT 2MMefa Jan, 2003 Actual= 336 MMefd = Canyon Station Placed in service 34 Qtr. 2002 Production exceeding estimates by 30+ M
Slide 53: Gas Pipeline
winians. _— Gas Pipeline Doug Whisenant Senior Vice President
Slide 54: Northwest, Transco and Gulfstream pipelines
Northwest Transco! Gulfstream (605% Gwrerstip)
Slide 55: Few expiring long-term contracts
Few expiring long-term contracts wiligns. _— =, 2004 2005 2006 200720082009 [== Northwest — Northwest Capacity 201020112012 2004 2005 2006 2007 2008 2009 [STransco Transco Capacit 2010 2011 2012
Slide 56: Northwest expansion projects
Gas Pipeline Northwest ex Evergresn sarge Sa 276 Mthia eee einna Oct 2003 $198 M ‘Oct 2005 $31.5 Columbia Gorge 57 MDthid Hou 2003 $43M Rockies 175 MDthia How 2003 124M “* WMB's net investment when project is placed in-service assuming 70/30 project financing and 80% ownership 58
Slide 57: Transco expansion projects
Gas Pipeline Transco expansion projects = rae J Momentum Sf) [Trenton 270 MDI a Woodbury . 2onea04 ff 2] er move 185M Nov2008 ‘| s20m hs, \ \ ey
Slide 58: Cash flow vs. capital spending
Gas ine Cash flow vs. capital spending $in Millions 1000 800 600 @CFFO 400 Capital expenditures 200 2003 2004 2005
Slide 59: Key issues
Gas Pipeline Key issues & Smooth implementation of iLine § Basis differentials @ Compliance with marketing affiliate rules @ Timing of future rate cases
Slide 60: Investment highlights
Gas Pipeline Investment highl @ Significant free cash flows supported by long-term contracts with high-quality customers @ Limited expansion capital required beyond 2003 @ Principal provider in primary markets @ Low-cost provider @ Flexible pipeline operations with diversified natural gas supplies
Slide 61: 2004 and beyond — creating shareholder value
winians. _— 2004 and beyond — creating shareholder value Steve Malcolm Chairman, President & CEO
Slide 62: Core businesses — continued profitability
m Core businesses — continued profitability m= Turn more assets into cash = Continue to reduce risk and liquidity impact of EM&T m Reduce costs and work force to align with remaining base of core assets = Create financial flexibility by refinancing; reduce debt level on our own terms a Invest limite
Slide 63: Cash flow, capex and returns 2003-2005
Dollars in mitions 2003 2004 2005 Cash flow from 800 - 1,050 950 - 1,050 1,450 - 1,650 operations Capital expenditures 900 - 1,050 400 - 550 500 - 600 Free cash flow (100) - 0 400 - 650 850 - 1,150 Return on capital 6.0% - 7.0% 5.5% - 6.5% 6.0% - 7.0% employed Cash flow return on 4.5% - 5.5% 6.0%-7.
Slide 64: Key elements
Key elements $4 billion in announced and new asset divestitures Substantial free cash flow generation growing to more than $1 billion in 2005 mw Prioritize reduced capital expenditures = Opportunistic financings with continuing goal of de-levering company = Continued cost reductions
Slide 65: Plan is comprehensive response
Plan is comprehensive response m Addresses all near-term and medium-term liquidity issues m De-levers the company with objective of return to investment grade in 2005 m= Downsizes to portfolio of appropriately capitalized core businesses m Creates shareholder value
Slide 66: Questions & Answers
winians. _— _Questions & Answers