Williams Reports Unaudited 2003 Financial Results and Outlook

2003 Net Loss Includes Cumulative Effect of EITF Issue No. 02-3; Company Committed to Continued Debt Reduction, Disciplined Growth

TULSA, Okla. — Williams (NYSE:WMB) today announced an unaudited 2003 net loss of $504.5 million, or a loss of $1.03 per share on a diluted basis, compared with a net loss of $754.7 million, or a loss of $1.63 per share, for the same period in 2002.

During the first quarter of 2003, the company recorded an after-tax charge of $761.3 million, or $1.47 per share, to reflect the cumulative effect of new accounting principles primarily associated with the adoption of Emerging Issues Task Force (EITF) Issue 02-3, “Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities.”

The company reported 2003 income from continuing operations of $2.9 million. This resulted in a loss of 5 cents per share on a diluted basis, which includes the effect of preferred stock dividends. In the same period for 2002, the company reported a loss of $611.7 million, or a loss of $1.35 per share, on a basis restated for discontinued operations related to assets sold or held for sale.

Factors in the improved full-year performance from continuing operations include a $759 million improvement in Power segment profit, significantly reduced levels of asset and investment impairment charges, reduced losses associated with interest-rate swaps, and lower general corporate expenses.

Income from discontinued operations for 2003 was $253.9 million, or 49 cents per share, compared with a loss from discontinued operations of $143 million, or a loss of 28 cents per share, in 2002 on a restated basis. The year-over-year improvement from discontinued operations largely reflects net gains from asset sales in 2003.

For the fourth quarter of 2003, the company reported a net loss of $66 million, or a loss of 13 cents per share, compared with a net loss of $219.2 million, or a loss of 44 cents per share for the same period of 2002. Included in the fourth quarter of 2003 is $66.8 million of pre-tax expense associated with the early retirement of debt.

“The improvement in our results is indicative of the significant steps we’ve taken to restructure our company,” said Steve Malcolm, chairman, president and chief executive officer. “In 2003, we made substantial progress in strengthening our finances, we refocused our business strategy around key natural gas assets, and we began executing on a plan toward achieving investment-grade credit characteristics. That plan includes making continued disciplined capital investments to grow our businesses.”

Recurring Results

Recurring income from continuing operations – which excludes items of income or loss that the company characterizes as unrepresentative of its ongoing operations – was $12 million, or 2 cents per share, for 2003. In 2002, the recurring results from continuing operations reflected a loss of $221.7 million on a restated basis, or a loss of 43 cents per share.

A reconciliation of the company’s income from continuing operations – a generally accepted accounting principles measure – to its recurring results accompanies this news release.

Core-Business Performance

Williams’ natural gas businesses – Gas Pipeline, Exploration & Production and Midstream Gas & Liquids – reported combined segment profit of $1.24 billion in 2003 vs. the same level in 2002 on a restated basis.

These businesses, which the company considers core to its strategy, reported combined segment profit of $244.4 million in the fourth quarter of 2003 vs. $176.6 million for the same period in 2002. The fourth-quarter results included $41.7 million and $115 million of impairments in 2003 and 2002, respectively, related to certain Midstream assets.

“Our natural gas wells, pipelines and midstream assets are producing the solid results that we expected in what was a challenging environment of liquidity-driven divestitures and constrained capital investment,” said Malcolm. “While we are focusing the majority of our available cash toward debt reduction, we are once again making disciplined investments in these world-class assets to create economic value. In the near-term, we are focused on maintaining or improving our favorable market position so that we create opportunities for more substantial growth in the future.”

Gas Pipeline, which provides natural gas transportation and storage services, reported 2003 segment profit of $554.9 million vs. $545.1 million for the previous year on a restated basis.

Results reflect the benefit of expansion projects that are now in service and reduced general and administrative costs, offset by lower equity earnings and a $25.5 million charge at Northwest Pipeline to write-off capitalized software development costs associated with a cancelled service delivery system. Equity earnings in 2002 included a $27.4 million benefit related to a construction fee received by an affiliate and $19 million of equity earnings from an investment that was sold in the fourth quarter of 2002.

For the fourth quarter of 2003, Gas Pipeline reported segment profit of $148.4 million, compared with restated segment profit of $122.1 million for 2002. The quarter-over-quarter increase was due to completed expansion projects and the absence of a $17 million FERC-related charge in 2002.

Exploration & Production, which includes natural gas production and development in the U.S. Rocky Mountains, San Juan Basin and Midcontinent, reported 2003 segment profit of $401.4 million vs. $508.6 million for the previous year on a restated basis.

Year-over-year results reflect the impact of lower levels of production in 2003 due to property sales and reduced drilling activities in the first half of the year, and reduced gains from the sales of assets in 2003 vs. 2002 of approximately $46 million.

For the fourth quarter of 2003, segment profit was $50.1 million, compared with $81.5 million a year ago on a restated basis. The quarter-over-quarter decline in segment profit reflects the impact of lower net domestic production volumes resulting from previous property sales.

Midstream Gas & Liquids, which provides gathering, processing, natural gas liquids fractionation and storage services, reported 2003 segment profit of $286 million vs. a restated segment profit of $183.2 million for the previous year.

The increase in segment profit reflects a net reduction of $73 million for impairment charges recorded in 2003 vs. 2002 associated with certain Canadian assets, the contribution of increased operations in the deepwater area of the Gulf of Mexico and gains on the sales of certain assets and investments. Partially offsetting these items were lower margins in the Canadian and U.S.-based olefins business and $14.1 million of impairment charges associated with the Aux Sable equity interest.

For the fourth quarter of 2003, segment profit was $45.9 million vs. a segment loss of $27 million on a restated basis in the same period a year ago. The increase in segment profit is primarily a result of $73 million in lower impairment charges associated with the Canadian operations. In addition, the current quarter includes a gain of $16.2 million from the sale of Williams’ wholesale propane business.

Power Business

Power, which manages more than 7,500 megawatts of power through long-term contracts, reported 2003 segment profit of $134.2 million vs. a segment loss of $624.8 million for the previous year.

The company is pursuing a strategy designed to result in substantially exiting the power business through sales of component parts of its portfolio or as a whole.

As Williams has previously stated, the exact timing of that exit and the resulting value to the company are uncertain because of the complexity of the underlying contracts and a power market that is significantly depressed based on historical comparisons. In the interim, Williams’ strategy is to manage this business – which continues to play a significant role in the company's financial performance – to reduce risk, generate cash and honor contractual obligations.

Consistent with the overarching and interim strategies described above, Williams received $315 million in cash in 2003 from sales of and agreements to terminate certain contracts.

The significant improvement in Power’s year-over-year performance reflects gains on the sales of assets, contracts and investments of $208 million, as well as significantly reduced levels of impairments in 2003 from those of 2002. As previously disclosed, Power recognized $80.7 million of revenue in the second quarter of 2003 from a correction of the accounting treatment previously applied to certain third-party derivative contracts during 2002 and 2001. Results for 2003 include $105 million of revenue related to these prior period items, of which $24 million was recorded prior to the correction.

The 2003 results also include the application of a different accounting treatment (EITF Issue No. 02-3), under which non-derivative, energy-related trading contracts are accounted for on an accrual basis. In 2002, all energy-related contracts, including tolling and full-requirements contracts, were marked to market. In 2003, Power recognized gains on power and natural gas derivative contracts, while 2002 reflected significant mark-to-market losses.

For the fourth quarter of 2003, Power reported a segment loss of $121.3 million, compared with a loss of $22.8 million in 2002. The fourth quarter of 2003 includes asset and goodwill impairment charges totaling $89.1 million and a charge of $33.3 million related to refund and other accrual adjustments for power marketing activities in California during 2000 and 2001. The prior year quarter included $95.5 million of impairment charges related to assets that were disposed.

Other

In the Other segment, the company reported a segment loss of $50.5 million in 2003 vs. a restated segment profit of $14.1 million for the previous year. The decrease in 2003 primarily results from an impairment of the company’s investment in a petroleum pipeline project.

For the fourth quarter of 2003, Williams reported a segment loss of $7.7 million, compared with a restated segment loss of $20.8 million for 2002.

Changes in Cash and Debt

For 2003, Williams increased its unrestricted cash by $665.3 million, ending the year with available cash and equivalents of approximately $2.3 billion.

A significant factor in the company’s increased cash is approximately $3 billion in net proceeds from asset sales and $315 million from the sale and/or agreement to terminate certain marketing and trading contracts in 2003.

Williams also reduced its debt by approximately $2 billion during 2003, including debt associated with discontinued operations and the early retirement of approximately $951 million of debt through tender offers.

Net cash provided by operating activities was approximately $770 million in 2003. In 2002, the company’s operating activities used approximately $515 million in cash.

Williams has already completed the majority of its planned asset sales. The company continues to market certain Midstream assets in 2004, such as its straddle plants in Western Canada. Williams also expects to complete the sale of its Alaska operations in the first quarter.

Company Direction for 2004

“The progress we’ve made toward strengthening our finances since this time last year defines the kind of discipline we will continue to exercise this year and in the years ahead,” Malcolm said.

Consistent with the company’s stated financial and commercial strategies, Williams in 2004 will continue to focus on disciplined growth, cash management and cost efficiencies. Capital allocation will be assessed using Economic Value Added® financial metrics, adopted Jan. 1.

Growth plans call for 1,400 new natural gas wells in 2004, the construction of a previously announced 110-mile expansion of the Gulfstream Natural Gas System and the spring startup of Midstream’s Devils Tower floating production system in the deepwater Gulf of Mexico.

On March 15, Williams is scheduled to retire the remaining $679 million of 9.25 percent Notes. Beyond March 15, Williams has $505 million of scheduled debt maturities for 2004 and 2005.

Williams plans to capitalize on its financial flexibility by establishing new credit facilities at favorable terms that reduce cash-on-hand requirements. The company’s goal is to maintain liquidity of approximately $1 billion to $1.3 billion.

Earnings Guidance

Williams is providing updated forecasts for 2004 through 2006 during a presentation this morning to analysts.

In 2004, Williams expects enterprise-wide segment profit of $1.1 billion to $1.4 billion. In 2005, Williams expects enterprise-wide segment profit of $1.3 billion to $1.6 billion. In 2006, Williams expects enterprise-wide segment profit of $1.4 billion to $1.7 billion.

Information on how to access the presentation and the analyst call via the company’s web site is provided at the end of this news release.

Analyst Call

Williams’ management will discuss the company’s year-end 2003 financial results during an analyst presentation to be webcast live at 10 a.m. Eastern today.

Participants are encouraged to access the presentation and corresponding slides via www.williams.com. A limited number of phone lines also will be available at (800) 810-0924. International callers should dial (913) 981-4900. Callers should dial in at least 10 minutes prior to the start of the discussion.

A webcast replay of the presentation will be archived at www.williams.com later today in the section for investors. An audio replay of the presentation also will be available at 3 p.m. Eastern today through midnight Eastern on Feb. 26. To access the audio replay, dial (888) 203-1112. International callers should dial (719) 457-0820. The replay confirmation code is 608313.

Form 10-K

The company plans to file its Form 10-K with the Securities and Exchange Commission in early March. The document will be available on both the SEC and Williams’ websites.

About Williams (NYSE:WMB)

Williams, through its subsidiaries, primarily finds, produces, gathers, processes and transports natural gas. Williams’ gas wells, pipelines and midstream facilities are concentrated in the Northwest, Rocky Mountains, Gulf Coast and Eastern Seaboard. More information is available at www.williams.com.

###

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” within the meaning of Private Securities Litigation Reform Act of 1995. You typically can identify forward-looking statements by the use of forward-looking words, such as “anticipate,” believe,” “could,” “continue,” “estimate,” “expect,” “forecast,” “may,” “plan,” “potential,” “project,” “schedule,” “will,” and other similar words. These statements are based on our intentions, beliefs, and assumptions about future events and are subject to risks, uncertainties, and other factors. Actual results could differ materially from those contemplated by the forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such statements, other factors could cause our actual results to differ materially from the results expressed or implied in any forward-looking statements. Those factors include, among other: changes in general economic conditions and changes in the industries in which Williams conducts business; changes in federal or state laws and regulations to which Williams is subject, including tax, environmental and employment laws and regulations; the cost and outcomes of legal and administrative claims proceedings, investigations, or inquiries; the results of financing efforts, including our ability to obtain financing on favorable terms, which can be affected by various factors, including our credit ratings and general economic conditions; the level of creditworthiness of counterparties to our transactions; the amount of collateral required to be posted from time to time in our transactions; the effect of changes in accounting policies; the ability to control costs; the ability of each business unit to successfully implement key systems, such as order entry systems and service delivery systems; the impact of future federal and state regulations of business activities, including allowed rates of return, the pace of deregulation in retail natural gas and electricity markets, and the resolution of other regulatory matters; changes in environmental and other laws and regulations to which Williams and its subsidiaries are subject or other external factors over which we have no control; changes in foreign economies, currencies, laws and regulations, and political climates, especially in Canada, Argentina, Brazil, and Venezuela, where Williams has direct investments; the timing and extent of changes in commodity prices, interest rates, and foreign currency exchange rates; the weather and other natural phenomena; the ability of Williams to develop or access expanded markets and product offerings as well as their ability to maintain existing markets; the ability of Williams and its subsidiaries to obtain governmental and regulatory approval of various expansion projects; future utilization of pipeline capacity, which can depend on energy prices, competition from other pipelines and alternative fuels, the general level of natural gas and petroleum product demand, decisions by customers not to renew expiring natural gas transportation contracts; the accuracy of estimated hydrocarbon reserves and seismic data; and global and domestic economic repercussions from terrorist activities and the government's response to such terrorist activities. In light of these risks, uncertainties, and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time that we have described. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Contact Information: