UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 1, 2008

The Williams Companies, Inc.

 

(Exact name of registrant as specified in its charter)

Delaware		1-4174		73-0569878
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

One Williams Center, Tulsa, Oklahoma		74172
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 918/573-2000

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240-14a-12)

o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02. Results of Operations and Financial Condition.

     On May 1, 2008, The Williams Companies, Inc. (“Williams” or the “Company”) issued a press release announcing its financial results for the quarter ended March 31, 2008. A copy of the press release and its accompanying financial highlights and reconciliation schedules are furnished as a part of this current report on Form 8-K as Exhibit 99.1 and is incorporated herein in its entirety by reference.

     The press release and accompanying financial highlights and reconciliation schedules are being furnished pursuant to Item 2.02, Results of Operations and Financial Condition. The information furnished is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, is not subject to the liabilities of that section and is not deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.

Item 9.01. Financial Statements and Exhibits.

	(a)		None
	(b)		None
	(c)		None
	(d)		Exhibits

Exhibit 99.1		Copy of Williams’ press release dated May 1, 2008, and its accompanying highlights and reconciliation schedules, publicly announcing its first quarter 2008 financial results.

     Pursuant to the requirements of the Securities Exchange Act of 1934, Williams has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

INDEX TO EXHIBITS

EXHIBIT
NUMBER		DESCRIPTION
Exhibit 99.1		Copy of Williams’ press release dated May 1, 2008, and its accompanying highlights and reconciliation schedules, publicly announcing its first quarter 2008 financial results.

Exhibit 99.1

NYSE: WMB

Date: May 1, 2008

Williams Reports First-Quarter 2008 Financial Results

	•		Natural Gas Businesses Continue to Deliver — Outstanding Results
	•		Key Measure — Recurring Adjusted EPS — Up 84% in First Quarter
	•		Net Income is $500 Million for 1Q 2008, Up from $134 Million in 1Q 2007
	•		Domestic Natural Gas Production Up 20%, Surpasses 1 Bcfe per Day
	•		NGL Margins Remain Strong — Midstream Segment Profit Up 69%
	•		New Transco Rates, Expansion Projects Drive Gas Pipeline Growth
	•		Outlook Increased for 2008, 2009

Quarterly Summary Financial Information		1Q 2008									1Q 2007
Per share amounts are reported on a fully diluted basis		millions				per share					millions				per share
Income from continuing operations		$	416			$	0.70				$	170			$	0.28
Income (loss) from discontinued operations			84				0.14					(36	)			(0.06	)
Net income		$	500			$	0.84				$	134			$	0.22
Recurring income from continuing operations*		$	343			$	0.57				$	166			$	0.27
After-tax mark-to-market adjustments			(2	)			—					23				0.04
Recurring income from continuing operations — after mark-to-market adjustments*		$	341			$	0.57				$	189			$	0.31

     TULSA, Okla. — Williams (NYSE:WMB) announced first-quarter 2008 unaudited net income of $500 million, or 84 cents per share on a diluted basis, compared with net income of $134 million, or 22 cents per share on a diluted basis, for first-quarter 2007.

     Strong performances in the company’s exploration & production, midstream and gas pipeline businesses were the key drivers of the increase in net income for the first quarter. Key factors were higher net realized average natural gas prices and strong natural gas production growth, natural gas liquid (NGL) margins remaining at historically high levels, and higher gas pipeline revenue.

     The first-quarter 2008 results also benefited from a $118 million pre-tax gain on the sale of certain international interests and increased income from discontinued operations. Income from discontinued operations in first-quarter 2008 included pre-tax income of $128 million related to the Williams’ former Alaska operations, while first-quarter 2007 primarily reflects the results of the company’s former power business.

Williams (NYSE: WMB) First-Quarter 2008 Financial Results — May 1, 2008		Page 1 of 9

Recurring Results Adjusted for Effect of Mark-to-Market Accounting

     Williams is continuing its practice of providing an analysis of recurring earnings adjusted to remove the effect on its results of mark-to-market accounting for certain hedges and other derivatives in Gas Marketing Services.

     Although not significant for first-quarter 2008, the company expects to have some level of future mark-to-market volatility in Gas Marketing Services from natural gas storage and transportation hedging and legacy contracts from the former power business. However, mark-to-market volatility is expected to be significantly reduced compared with previous levels.

     Recurring income from continuing operations after mark-to-market adjustments was $341 million, or 57 cents per share, for first-quarter 2008, compared with $189 million, or 31 cents per share, for first-quarter 2007.

     A reconciliation of the company’s income from continuing operations to recurring income from continuing operations and mark-to-market adjustments is available at www.williams.com and as an attachment to this news release.

CEO Perspective

     “Williams delivered a strong start to 2008, highlighted by an 84 percent increase in our recurring adjusted earnings per share,” said Steve Malcolm, chairman, president and chief executive officer.

     “Quarter after quarter, our operational performance continues to drive impressive financial results. In the first quarter this year, we increased production 27 percent in each of our two largest production areas — the Piceance and Powder River basins. Our focus on quickly and responsibly developing our long-lived natural gas reserves continues to generate value.

     “We also have a solid track record of delivering results in an ever-changing commodity price environment. Our capabilities and our portfolio of well-positioned natural gas production, processing and pipeline assets provide abundant opportunities for investment and growth,” Malcolm said.

Business Segment Performance

     Consolidated results include segment profit for Williams’ businesses — Exploration & Production, Midstream Gas & Liquids, Gas Pipeline and Gas Marketing Services as well as results reported in the Other segment.

Williams (NYSE: WMB) First-Quarter 2008 Financial Results — May 1, 2008		Page 2 of 9

Consolidated Segment Profit (Loss)		1Q
Amounts in millions		2008					2007
Exploration & Production		$	430				$	188
Midstream Gas & Liquids			261					154
Gas Pipeline			180					150
			871					492
Gas Marketing Services			21					(30	)
Other			1					—
Consolidated Segment Profit		$	893				$	462

Recurring Consolidated Segment Profit (Loss) After Mark-to-Market Adjustments*		1Q
Amounts in millions		2008					2007
Exploration & Production		$	312				$	188
Midstream Gas & Liquids			261					146
Gas Pipeline			180					150
			753					484
Gas Marketing Services			21					(30	)
MTM Adjustments for Gas Marketing Services			(3	)				38
Other			1					—
Recurring Consolidated Segment Profit After Mark-to-Market Adjustments		$	772				$	492

     For first-quarter 2008, Williams’ businesses reported consolidated segment profit of $893 million, compared with $462 million for first-quarter 2007.

     The significant improvements in consolidated segment profit during first-quarter 2008 were reflective of strong operational results in Midstream, Exploration & Production and Gas Pipeline. First-quarter consolidated segment profit also benefited from the previously noted gain on the sale of certain international interests.

     On a basis adjusted to remove the effect of nonrecurring items and mark-to-market accounting, Williams’ recurring consolidated segment profit was $772 million in first-quarter 2008, compared with $492 million for the same period in 2007.

Exploration & Production: Robust Production Growth in Piceance, Powder River Basins Drive Record Segment Profit

     Exploration & Production includes natural gas production and development in the U.S. Rocky Mountains, San Juan Basin and Mid-Continent, and oil and gas development in South America.

     The business reported segment profit of $430 million for first-quarter 2008, compared with first-quarter 2007 segment profit of $188 million.

Williams (NYSE: WMB) First-Quarter 2008 Financial Results — May 1, 2008		Page 3 of 9

     Higher net realized average prices and strong growth in domestic natural gas production volumes were the primary drivers of the increased segment profit in 2008. The first-quarter results also benefited from the $118 million gain on the sale of certain international interests.

     Williams’ average daily domestic production for the quarter surpassed 1 billion cubic feet equivalent (Bcfe) per day for the first time. For first-quarter 2008, average daily domestic production was 1.01 Bcfe per day, an increase of 20 percent over the same period last year.

     Increased development within the Piceance, Powder River and Fort Worth basins drove the strong growth in domestic production volumes. In the Piceance Basin of western Colorado — the company’s cornerstone for production and reserves growth — average daily production increased 27 percent for the first quarter.

Quarterly Average Daily Production		1Q
Amounts in million cubic feet equivalent of natural gas (MMcfe)		2008				2007					Growth rate
Piceance Basin			607				478					27	%
Powder River Basin			209				165					27	%
Other Basins			197				202					-2	%
U.S. Interests only			1,013				845					20	%
U.S. & International Interests			1,062				891					19	%

     Williams also has increased the company’s total proved, probable and possible reserves to an estimated 11.4 trillion cubic feet equivalent (Tcfe) from the previous estimate of 10.8 Tcfe, after producing 0.334 Tcfe in 2007. Total reserves are comprised of primarily domestic interests.

     During first-quarter 2008, Williams’ net realized average price for U.S. production was $6.58 per thousand cubic feet of natural gas equivalent (Mcfe), which was 24 percent higher than the $5.32 per Mcfe realized in first-quarter 2007.

     The benefits of higher net realized average prices and higher production volumes in first-quarter 2008 were partially offset by increased depreciation, depletion and amortization, higher operating taxes, and higher lease operating expenses.

     Williams is increasing Exploration & Production’s segment profit guidance for 2009. The new range for 2009 is $1.1 billion to $1.4 billion, up from previous guidance of $1.025 billion to $1.325 billion. The new range for 2009 reflects higher expected net realized average natural gas prices. Previous Exploration & Production segment profit guidance for 2008 is unchanged.

Midstream Gas & Liquids: NGL Margins Remain Robust, Drive 69% Increase in Segment Profit

     Midstream, which provides natural gas gathering and processing, NGL fractionation and storage services and olefins production, reported first-quarter 2008 segment profit of $261 million, an increase of 69 percent over first-quarter 2007 segment profit of $154 million.

     Midstream’s growth in segment profit during the first quarter is primarily due to NGL margins remaining at historically high levels, driven by favorable market commodity pricing on NGLs.

Williams (NYSE: WMB) First-Quarter 2008 Financial Results – May 1, 2008		Page 4 of 9

     Higher margins in Midstream’s olefins business unit were driven by favorable market commodity pricing, and higher volumes also contributed to the growth. The acquisition of an additional interest in the Geismar plant in July 2007 drove the increase in volumes.

     Williams markets NGLs via equity volumes the company retains as payment-in-kind under certain processing contracts.

     Although Midstream’s total NGL production volumes increased 7 percent during first-quarter 2008, NGL equity volumes sold declined during the quarter. The reason for the decline was a downstream shift in a product delivery location in the West, which resulted in higher in-transit inventory at the end of the quarter. The resulting lower equity volumes in the West drove an overall decline in Midstream’s equity volumes for the quarter.

     For first-quarter 2008, Midstream sold 308 million gallons of NGL equity volumes, compared with 345 million gallons during first-quarter 2007. Higher equity volumes in the Gulf of Mexico, due to the company connecting to new supplies in the deepwater, partially offset the lower equity volumes in the West.

     Higher operating expenses and the lower NGL equity sales volumes in the West partially offset the benefit of the higher average NGL prices during the first quarter.

     Williams is increasing its 2008 segment profit guidance for Midstream. The new range is $775 million to $1.025 billion, compared with the previous range of $700 million to $950 million. The new range reflects higher expected NGL margins for the year. Previous segment profit guidance for 2009 is unchanged.

Gas Pipeline: New Transco Rates, Expansion Projects Drive 20% Increase Segment Profit

     Gas Pipeline, which primarily delivers natural gas to markets along the Eastern Seaboard, in Florida and in the Northwest, reported first-quarter 2008 segment profit of $180 million, compared with $150 million for first-quarter 2007, an increase of 20 percent.

     Increased revenues from new rates on the Transco system and two expansion projects were the primary drivers of the increased segment profit during the first three months of 2008. Higher operating costs partially offset these benefits.

     Williams placed the Leidy to Long Island and Potomac expansions into service during fourth-quarter 2007. Leidy to Long Island increased transportation capacity into the New York City metropolitan area by 100,000 dekatherms per day, while the Potomac expansion increased capacity into the Washington, D.C., and Baltimore, Md., metropolitan areas by 165,000 dekatherms per day.

     Transco’s new, higher rates went into effect, subject to refund, on March 1, 2007. On March 7, 2008, the Federal Energy Regulatory Commission granted final approval of the rate case.

     Gas Pipeline segment profit guidance for 2008 has been slightly lowered to reflect the development costs of certain potential new projects. The new segment profit guidance for 2008 is $625 million to $675 million, a reduction of $15 million from the previous guidance of $640 million to $690 million. Previous Gas Pipeline segment profit guidance for 2009 is unchanged.

Williams (NYSE: WMB) First-Quarter 2008 Financial Results — May 1, 2008				Page 5 of 9

     Williams is increasing its capital expenditure guidance for Gas Pipeline for 2009. The new range for 2009 is $400 million to $550 million, up from the previous range of $340 million to $490 million. This increase is due to new expansion projects, principally the 85 North and the Mobile Bay South projects. Previous Gas Pipeline capital expenditure guidance for 2008 is unchanged.

Gas Marketing Services: Supporting Natural Gas Businesses with Marketing, Risk Management

     Gas Marketing Services is responsible for supporting Williams’ natural gas businesses by providing marketing and risk management services. These services primarily include marketing and hedging the gas produced by Exploration & Production, and procuring fuel and shrink gas and hedging natural gas liquids for Midstream.

     In addition, Gas Marketing manages various natural-gas related contracts, such as transportation, storage, and related hedges, and provides marketing services to third-parties, such as producers. The segment also manages certain legacy natural gas contracts and positions that previously were reported in the former power business.

     Gas Marketing reported a first-quarter 2008 segment profit of $21 million, compared with a segment loss of $30 million in first-quarter 2007.

     The improvement in first-quarter 2008 was primarily due to a favorable change in mark-to-market gains and losses and improvement in accrual gross margin.

     The company continues to liquidate its legacy contracts from the former power business. While some mark-to-market volatility from natural gas storage and transportation hedging is expected, it should be significantly reduced compared with previous levels.

Gas Marketing Recurring Segment Profit (Loss) Adjusted for Mark-to-Market Effect*		1Q
Amounts in millions		2008				2007
Segment profit (loss)		$	21				($30	)
Nonrecurring adjustments			—				—
Recurring segment profit (loss)			21				(30	)
Mark-to-market adjustments — pretax			(3	)			38
Recurring segment profit after MTM adjustments		$	18			$	8

Segment Profit, EPS Guidance Increased for 2008, 2009

     Guidance for consolidated segment profit includes results for Exploration & Production, Midstream and Gas Pipeline, as well as Gas Marketing and the Other segment. All consolidated segment profit and earnings per share ranges are presented on a recurring basis adjusted for the effect of mark-to-market accounting.

     For 2008, Williams has increased its consolidated segment profit guidance to a range of $2.5 billion to $3.0 billion and earnings per share of $1.70 to $2.10. The previous ranges were $2.4 billion to $2.9 billion in

Williams (NYSE: WMB) First-Quarter 2008 Financial Results — May 1, 2008				Page 6 of 9

consolidated segment profit and earnings per share of $1.60 to $2.00. The new range for 2008 reflects the previously referenced increase in Midstream, partially offset by the slight reduction in guidance for Gas Pipeline.

     For 2009, Williams is increasing its consolidated segment profit guidance to a range of $2.6 billion to $3.2 billion and earnings per share of $1.80 to $2.30. The previous ranges were $2.5 billion to $3.1 billion in consolidated segment profit and earnings per share of $1.70 to $2.20. The increased segment profit guidance for 2009 reflects the previously referenced increase in Exploration & Production.

     Williams is updating its capital expenditure guidance for 2008. The new range, $2.6 billion to $2.95 billion, is due to a carryover from 2007 due to capital spending timing differences. The previous range was $2.575 billion to $2.925 billion.

     Williams is increasing previously announced guidance for 2009 capital expenditures. The new range is $2.3 billion to $2.7 billion, compared with the previous range of $2.25 billion to $2.65 billion. The updated capital expenditure guidance reflects the previously referenced increase in Gas Pipeline.

Williams Updates Commodity Price, NGL Margin Outlook

     The following provides an update on Williams’ outlook for natural gas and crude oil prices in 2008 and 2009. The company is also now providing guidance on its expected average NGL margins.

     For 2008, the company expects unhedged natural gas prices ranging from $7.35 to $8.65 per Mcfe (Henry Hub), adjusted for basis differentials, and crude oil pricing in the range of $70 to $90 per barrel. Also for 2008, the company expects average NGL margins of 42 cents to 53 cents per gallon.

     For 2009, the company expects unhedged natural gas prices ranging from $7.35 to $8.65 per Mcfe (Henry Hub), adjusted for basis differentials, and crude oil pricing in the range of $70 to $90 per barrel. Also for 2009, the company expects average NGL margins of 34 cents to 55 cents per gallon.

Stock Repurchase Update

     In July 2007, Williams announced that its board of directors authorized the repurchase of up to $1 billion of the company’s common stock. The stock-repurchase program has no expiration date.

     Through March 31, 2008, the company has purchased approximately 20 million shares for $652 million under the program at an average cost of $33.24 per share.

Today’s Analyst Call

     Management will discuss first-quarter 2008 results during a live webcast beginning at 9:30 a.m. Eastern today. Participants are encouraged to access the webcast at www.williams.com. Slides are available for viewing, downloading and printing.

     A limited number of phone lines also will be available at (877) 741-4249. International callers should dial (719) 325-4787. Replays of the first-quarter webcast, in both streaming and downloadable podcast formats, will be available for two weeks at www.williams.com following the event.

Williams (NYSE: WMB) First-Quarter 2008 Financial Results — May 1, 2008				Page 7 of 9

Form 10-Q

     The company has filed its Form 10-Q with the Securities and Exchange Commission. The document is available on both the SEC and Williams websites.

About Williams (NYSE: WMB)

Williams, through its subsidiaries, finds, produces, gathers, processes and transports natural gas. Williams’ operations are concentrated in the Pacific Northwest, Rocky Mountains, Gulf Coast, and Eastern Seaboard. More information is available at http://www.williams.com. Go to http://www.b2i.us/irpass.asp?BzID=630&to=ea&s=0 to join our e-mail list.

Contact:		Jeff Pounds
		Williams (media relations)
		(918) 573-3332
		Travis Campbell
		Williams (investor relations)
		(918) 573-2944
		Richard George
		Williams (investor relations)
		(918) 573-3679
		Sharna Reingold
		Williams (investor relations)
		(918) 573-2078

# # #

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 others: 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 market, 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

Williams (NYSE: WMB) First-Quarter 2008 Financial Results — May 1, 2008				Page 8 of 9

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.

In regard to the company’s reserves in Exploration & Production, the SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves. We have used certain terms in this news release, such as “probable” reserves and “possible” reserves and “new opportunities potential” reserves that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. The SEC defines proved reserves as estimated quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under the assumed economic conditions. Probable and possible reserves are estimates of potential reserves that are made using accepted geological and engineering analytical techniques, but which are estimated with reduced levels of certainty than for proved reserves. Possible reserve estimates are less certain than those for probable reserves. New opportunities potential is an estimate of reserves for new areas for which we do not have sufficient information to date to raise the reserves to either the probable category or the possible category. New opportunities potential estimates are even less certain that those for possible reserves.

Reference to “total resource portfolio” include proved, probable and possible reserves as well as new opportunities potential.

Investors are urged to closely consider the disclosures and risk factors in our annual report on Form 10-K filed with the Securities and Exchange Commission on Feb. 26, 2008, and our quarterly reports on Form 10-Q available from our offices or from our website at www.williams.com.

Williams (NYSE: WMB) First-Quarter 2008 Financial Results — May 1, 2008				Page 9 of 9

Non-GAAP Utility Statement:

     This press release includes certain financial measures, EBITDA, recurring earnings, operating 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), net interest expense, income taxes, depreciation and amortization of intangible assets, less income (loss) from discontinued operations. Operating free cash flow is defined as cash flow from continuing operations less capital expenditures before dividends or principal payments. Recurring earnings exclude items of income or loss that the company characterizes as unrepresentative of its ongoing operations. Recurring earnings and recurring segment profit provide investors meaningful insight into the Company’s results from ongoing operations. This press release is accompanied by a reconciliation of these non-GAAP financial measures to their nearest GAAP financial measures. Management uses these financial measures because they are widely accepted financial indicators used by investors to compare company performance. In addition, management believes that these measures provide investors an enhanced perspective of the operating performance of the Company’s assets and the cash that the business is generating. Neither EBITDA nor recurring earnings, operating free cash flow and recurring segment profit are intended to represent cash flows for the period, nor are they presented as an alternative to net income or cash flow from operations. They should not be considered in isolation or as substitutes for a measure of performance prepared in accordance with United States generally accepted accounting principles.

     Certain financial information in this press release is also shown including Gas Marketing Services mark-to-market adjustments. This press release is accompanied by a reconciliation of these non-GAAP financial measures to their nearest GAAP financial measures. Management uses the mark-to-market adjustments to better reflect Gas Marketing’s results on a basis that is more consistent with Gas Marketing’s portfolio cash flows and to aid investor understanding. The adjustments reverse forward unrealized mark-to-market gains or losses from derivatives and add realized gains or losses from derivatives for which mark-to-market income has been previously recognized, with the effect that the resulting adjusted segment profit is presented as if mark-to-market accounting had never been applied to designated hedges or other derivatives. The measure is limited by the fact that it does not reflect potential unrealized future losses or gains on derivative contracts. However, management compensates for this limitation since derivative assets and liabilities do reflect unrealized gains and losses of derivative contracts. Overall, management believes the mark-to-market adjustments provide an alternative measure that more closely matches realized cash flows for the Gas Marketing segment but does not substitute for actual cash flows. We also apply the mark-to-market adjustment and the recurring adjustments to present a measure referred to as recurring income from continuing operations after mark-to-market adjustments.

Reconciliation of Income from Continuing Operations to Recurring Earnings
(UNAUDITED)

		2007																				2008
(Dollars in millions, except per-share amounts)		1st Qtr				2nd Qtr				3rd Qtr				4th Qtr				Year				1st Qtr
Income from continuing operations available to common stockholders		$	170			$	243			$	228			$	206			$	847			$	416
Income from continuing operations — diluted earnings per common share		$	0.28			$	0.40			$	0.38			$	0.34			$	1.40			$	0.70
Nonrecurring items:
Exploration & Production
Accrual for royalty litigation contingency		$	—			$	—			$	—			$	4			$	4			$	—
Gain on sale of Peru interests			—				—				—				—				—				(118	)
Total Exploration & Production nonrecurring items			—				—				—				4				4				(118	)
Gas Pipeline
Change in estimate related to a regulatory liability — NWP			—				(17	)			—				—				(17	)			—
Payments received for terminated firm transportation agreement — NWP			—				(6	)			(12	)			—				(18	)			—
Total Gas Pipeline nonrecurring items			—				(23	)			(12	)			—				(35	)			—
Midstream Gas & Liquids
Reversal of a maintenance accrual			(8	)			—				—				—				(8	)			—
Income from a favorable litigation outcome			—				—				—				(12	)			(12	)			—
Reserve for international receivables			—				—				—				9				9				—
Impairment of Carbonate Trend pipeline			—				—				—				10				10				—
Total Midstream Gas & Liquids nonrecurring items			(8	)			—				—				7				(1	)			—
Gas Marketing Services
Accrual for litigation contingencies			—				—				—				20				20				—
Total Gas Marketing Services nonrecurring items			—				—				—				20				20				—
Nonrecurring items included in segment profit (loss)			(8	)			(23	)			(12	)			31				(12	)			(118	)
Nonrecurring items below segment profit (loss)
Early debt retirement costs (Corporate)			—				—				—				19				19				—
Interest related to Gulf Liquids litigation contingency ( Interest accrued — Midstream)			1				1				1				—				3				—
Interest income related to contract termination gain noted above (Investing income — Gas Pipeline — NWP)			—				—				(2	)			—				(2	)			—
Interest related to royalty litigation contingency noted above ( Interest accrued — E&P)			—				—				—				1				1				—
Rounding			—				1				(1	)			—				—				—
			1				2				(2	)			20				21				—
Total nonrecurring items			(7	)			(21	)			(14	)			51				9				(118	)
Tax effect for above items (1)(2)			(3	)			1				(5	)			13				6				(45	)
Adjustment for nonrecurring tax-related items (3)			—				—				—				23				23				—
Recurring income from continuing operations available to common stockholders		$	166			$	221			$	219			$	267			$	873			$	343
Recurring diluted earnings per common share		$	0.27			$	0.36			$	0.36			$	0.44			$	1.44			$	0.57
Weighted-average shares — diluted (thousands)			611,470				613,172				610,651				604,243				609,866				598,627

Adjustment to remove MTM effect

Dollars in millions except for per share amounts		First Quarter
		2008				2007
Recurring income from cont. ops available to common shareholders		$	343			$	166
Recurring diluted earnings per common share		$	0.57			$	0.27
Mark-to-Market (MTM) adjustments:
Reverse forward unrealized MTM losses			264				40
Add realized (losses) from MTM previously recognized			(267	)			(2	)
Total MTM adjustments			(3	)			38
Tax effect of total MTM adjustments			1				(15	)
After tax MTM adjustments			(2	)			23
Recurring income from cont. ops available to common shareholders after MTM adjust.		$	341			$	189
Recurring diluted earnings per share after MTM adj.		$	0.57			$	0.31
weighted average shares — diluted (thousands)			598,627				611,470

Adjustments have been made to reverse estimated forward unrealized MTM gains/losses and add estimated realized gains/losses from MTM previously recognized, i.e. assumes MTM accounting had never been applied to designated hedges and other derivatives.

Financial Highlights and Operating Statistics
(UNAUDITED)

Final

March 31, 2008

Reconciliation of Income from Continuing Operations to Recurring Earnings
(UNAUDITED)

		2007																				2008
(Dollars in millions, except per-share amounts)		1st Qtr				2nd Qtr				3rd Qtr				4th Qtr				Year				1st Qtr
Income from continuing operations available to common stockholders		$	170			$	243			$	228			$	206			$	847			$	416
Income from continuing operations — diluted earnings per common share		$	0.28			$	0.40			$	0.38			$	0.34			$	1.40			$	0.70
Nonrecurring items:
Exploration & Production
Accrual for royalty litigation contingency		$	—			$	—			$	—			$	4			$	4			$	—
Gain on sale of Peru interests			—				—				—				—				—				(118	)
Total Exploration & Production nonrecurring items			—				—				—				4				4				(118	)
Gas Pipeline
Change in estimate related to a regulatory liability — NWP			—				(17	)			—				—				(17	)			—
Payments received for terminated firm transportation agreement — NWP			—				(6	)			(12	)			—				(18	)			—
Total Gas Pipeline nonrecurring items			—				(23	)			(12	)			—				(35	)			—
Midstream Gas & Liquids
Reversal of a maintenance accrual			(8	)			—				—				—				(8	)			—
Income from a favorable litigation outcome			—				—				—				(12	)			(12	)			—
Reserve for international receivables			—				—				—				9				9				—
Impairment of Carbonate Trend pipeline			—				—				—				10				10				—
Total Midstream Gas & Liquids nonrecurring items			(8	)			—				—				7				(1	)			—
Gas Marketing Services
Accrual for litigation contingencies			—				—				—				20				20				—
Total Gas Marketing Services nonrecurring items			—				—				—				20				20				—
Nonrecurring items included in segment profit (loss)			(8	)			(23	)			(12	)			31				(12	)			(118	)
Nonrecurring items below segment profit (loss)
Early debt retirement costs (Corporate)			—				—				—				19				19				—
Interest related to Gulf Liquids litigation contingency ( Interest accrued — Midstream)			1				1				1				—				3				—
Interest income related to contract termination gain noted above (Investing income — Gas Pipeline — NWP)			—				—				(2	)			—				(2	)			—
Interest related to royalty litigation contingency noted above ( Interest accrued — E&P)			—				—				—				1				1				—
Rounding			—				1				(1	)			—				—				—
			1				2				(2	)			20				21				—
Total nonrecurring items			(7	)			(21	)			(14	)			51				9				(118	)
Tax effect for above items (1)(2)			(3	)			1				(5	)			13				6				(45	)
Adjustment for nonrecurring tax-related items (3)			—				—				—				23				23				—
Recurring income from continuing operations available to common stockholders		$	166			$	221			$	219			$	267			$	873			$	343
Recurring diluted earnings per common share		$	0.27			$	0.36			$	0.36			$	0.44			$	1.44			$	0.57
Weighted-average shares — diluted (thousands)			611,470				613,172				610,651				604,243				609,866				598,627

Consolidated Statement of Income
(UNAUDITED)

		2007																				2008
(Dollars in millions, except per-share amounts)		1st Qtr				2nd Qtr				3rd Qtr				4th Qtr				Year				1st Qtr
Revenues		$	2,368			$	2,824			$	2,860			$	2,506			$	10,558			$	3,224
Segment costs and expenses:
Costs and operating expenses			1,843				2,180				2,222				1,834				8,079				2,373
Selling, general and administrative expenses			102				108				107				154				471				111
Other (income) expense — net			(18	)			(18	)			(2	)			20				(18	)			(117	)
Total segment costs and expenses			1,927				2,270				2,327				2,008				8,532				2,367
Equity earnings			21				23				52				41				137				36
Total segment profit			462				577				585				539				2,163				893
Reclass equity earnings			(21	)			(23	)			(52	)			(41	)			(137	)			(36	)
General corporate expenses			(40	)			(36	)			(40	)			(45	)			(161	)			(42	)
Operating income			401				518				493				453				1,865				815
Interest accrued			(172	)			(172	)			(171	)			(170	)			(685	)			(165	)
Interest capitalized			5				7				9				11				32				8
Investing income			52				66				78				61				257				55
Early debt retirement costs			—				—				—				(19	)			(19	)			—
Minority interest in income of consolidated subsidiaries			(14	)			(25	)			(29	)			(22	)			(90	)			(39	)
Other income (expense) — net			2				2				8				(1	)			11				5
Income from continuing operations before income taxes			274				396				388				313				1,371				679
Provision for income taxes			104				153				160				107				524				263
Income from continuing operations			170				243				228				206				847				416
Income (loss) from discontinued operations			(36	)			190				(30	)			19				143				84
Net income		$	134			$	433			$	198			$	225			$	990			$	500
Diluted earnings (loss) per common share:
Income from continuing operations		$	0.28			$	0.40			$	0.38			$	0.34			$	1.40			$	0.70
Income (loss) from discontinued operations			(0.06	)			0.31				(0.05	)			0.03				0.23				0.14
Net income		$	0.22			$	0.71			$	0.33			$	0.37			$	1.63			$	0.84
Weighted-average number of shares used in computation (thousands)			611,470				613,172				610,651				604,243				609,866				598,627
Common shares outstanding at end of period (thousands)			598,492				599,781				593,016				586,148				586,148				584,025
Market price per common share (end of period)		$	28.46			$	31.62			$	34.06			$	35.78			$	35.78			$	32.98
Common dividends per share		$	0.09			$	0.10			$	0.10			$	0.10			$	0.39			$	0.10

Reconciliation of Segment Profit to Recurring Segment Profit
(UNAUDITED)

		2007																				2008
(Dollars in millions)		1st Qtr				2nd Qtr				3rd Qtr				4th Qtr				Year				1st Qtr
Segment profit (loss):
Exploration & Production		$	188			$	209			$	169			$	190			$	756			$	430
Gas Pipeline			150				180				183				160				673				180
Midstream Gas & Liquids			154				251				300				367				1,072				261
Gas Marketing Services			(30	)			(63	)			(67	)			(177	)			(337	)			21
Other			—				—				—				(1	)			(1	)			1
Total segment profit		$	462			$	577			$	585			$	539			$	2,163			$	893
Nonrecurring adjustments:
Exploration & Production		$	—			$	—			$	—			$	4			$	4			$	(118	)
Gas Pipeline			—				(23	)			(12	)			—				(35	)			—
Midstream Gas & Liquids			(8	)			—				—				7				(1	)			—
Gas Marketing Services			—				—				—				20				20				—
Other			—				—				—				—				—				—
Total segment nonrecurring   adjustments		$	(8	)		$	(23	)		$	(12	)		$	31			$	(12	)		$	(118	)
Recurring segment profit (loss):
Exploration & Production		$	188			$	209			$	169			$	194			$	760			$	312
Gas Pipeline			150				157				171				160				638				180
Midstream Gas & Liquids			146				251				300				374				1,071				261
Gas Marketing Services			(30	)			(63	)			(67	)			(157	)			(317	)			21
Other			—				—				—				(1	)			(1	)			1
Total recurring segment profit		$	454			$	554			$	573			$	570			$	2,151			$	775

Exploration & Production
(UNAUDITED)

		2007																				2008
(Dollars in millions)		1st Qtr				2nd Qtr				3rd Qtr				4th Qtr				Year				1st Qtr
Revenues:
Production		$	413			$	449			$	399			$	464			$	1,725			$	617
Gas management			55				67				63				87				272				104
Net nonqualified hedge derivative income (loss)			(2	)			(5	)			8				(17	)			(16	)			(2	)
International			15				16				16				17				64				17
Other			2				12				13				21				48				12
Total revenues			483				539				499				572				2,093				748
Segment costs and expenses:
Depreciation, depletion and amortization (including International)			114				131				139				151				535				166
Lease and other operating expenses			44				49				54				58				205				60
Operating taxes			34				35				30				22				121				49
Exploration expense			7				5				4				4				20				2
Third party gathering expense			9				7				9				8				33				10
Selling, general and administrative expenses (including International)			36				32				35				45				148				37
Gas management expenses			55				67				63				87				272				104
International (excluding DD&A and SG&A)			4				6				7				7				24				6
Other (income) expense — net			(3	)			3				(1	)			5				4				(113	)
Total segment costs and expenses			300				335				340				387				1,362				321
Equity earnings — International			5				5				10				5				25				3
Reported segment profit			188				209				169				190				756				430
Nonrecurring adjustments			—				—				—				4				4				(118	)
Recurring segment profit		$	188			$	209			$	169			$	194			$	760			$	312