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The Williams Companies, Inc. (NYSE:WMB)

Q4 FY07 Earnings Call

February 21, 2008, 10:00 AM ET

Executives

Travis Campbell - VP of IR and Corporate Communications

Steven J. Malcolm - Chairman, President, and CEO

Don R. Chappel - Sr. VP and CFO

Ralph A. Hill - President of Exploration and Production

Alan Armstrong - President of Midstream Gathering and Processing

Phillip D. Wright - President of Gas Pipeline

Analysts

Lasan Johong - RBC Capital Markets

Richard Gross - Lehman Brothers

Faisel Khan - Citigroup Investment Research

Jeff Coviello - Duquesne Capital

Christopher Taylor - Evergreen Investment

Operator

Good day, everyone and welcome to The Williams Companies Fourth Quarter 2007 Earnings Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call over to Mr. Travis Campbell, Head of Investor Relations. Please go ahead, sir.

Travis Campbell - Vice President of Investor Relations and Corporate Communications

Thank you, and good morning everybody. Welcome to the Williams fourth quarter 2007 earnings call. As you're probably aware, 2008 is the Centennial year of our Company, and you can see that noted on our slide format this year. Thanks for our interest in our Company. This morning, Steve Malcolm, our CEO, will lead off followed by Don Chappel; also Ralph Hill, Alan Armstrong, and Phil Wright will make some brief remarks.

Before I turn it over to Steve Malcolm, please note that all of the slides, both those that are presented today and those in the appendix are available on our website, williams.com in a PDF format. The fourth quarter press release and all the accompanying schedules as well as the release announcing increases to approved reserves which was also released this morning are also available on the website.

Slide two and three titled Forward-Looking Statements discloses various risk factors and uncertainties related to future operations and expectations. Actual results, of course, may vary significantly from our current expectations due to the factors disclosed. Please review the information on those slides.

Slide four, oil and gas reserves disclaimer is also very important and we urge you to read that slide as well. Also included in the presentation today are various non-GAAP numbers that have been reconciled back to generally accepted accounting principles. Those schedules follow the presentation and are integral to this presentation.

So with that, I'll turn it over to Steve.

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Thanks, Travis. Good morning, and welcome to our fourth quarter and full year 2007 earnings call. As always, we very much appreciate your interest in our Company. By almost any measure, we had an outstanding fourth quarter, an exceptional full year 2007, and our core natural gas businesses clearly delivered very strong performances across the board. In fact, while we have been very pleased with our performance over the past five years, 2007 may have been our best year since our restructuring.

Looking at slide number six, which describes some of our key achievements during the year, we delivered $1.73 adjusted earnings per share, a 62% increase for the year and this is the fifth year of double-digit percentage improvement to earnings per share. And we produced $2.2 billion of consolidated segment profit, a 46% increase.

All of our businesses finished 2007 with strong performance. We benefited from strategic management of the Rockies basis price opportunity. We boosted natural gas production. We captured record NGL margins. We collected new higher rates on Transco and Northwest pipeline. We also pulled important value creating levers. We sold our power business. We continued to execute around our MLP strategy, and a couple of specifics on that.

In December, we completed our Wamsutter drop-down WPZ, a $750 million transaction. And I want to emphasize that WPZ continues to be an important tool for our midstream strategy. We've dropped down $2.4 billion in assets to WPZ in its short two and half year history, providing a source of growth and scale and scope and distributable cash for our limited partners of WPZ, while providing fair value for WMB through the monetization of assets. This is a winning strategy for both Williams and WPZ. And on January 17, WNZ priced its IPO of 16.25 million units at $20.

Moody's and Fitch returned us to investment-grade in November. And in 2007, we bought approximately 16 million shares for $526 million at an average price just north of $33. And all of that culminates in Williams's shareholders being rewarded with a 39% total return during the year.

Slide seven offers a few of the business unit highlights for '07. And again, I'd call your attention to our year-end reserves report, which we issued this morning in a separate news release. But we did produce 21% more domestic natural gas; our fourth quarter average surpassed one billion cubic feet per day. We improved our one year F&D to below $2; added 12% to proved reserves. Domestic reserves are now 4.14 tcf; total proved, including Apco, 4.3 trillion cubic feet. And for the fifth consecutive year, Williams has replaced more than 200% of its production with a 232% reserve replacement rate in 2007.

The business mix and our management of the Rockies basis was done well. As we've said many times, we are a Rockies producer, not a Rockies price taker. We were able to capture 15% higher average net realized prices compared to '06 despite a 31% decrease in Rockies prices. How we're able to do that? Because just 8% of our production was exposed to Rockies prices; more than 70% was produced and shipped to other price points; about 20% hedged in the Rockies.

Midstream captured the benefit of the basis opportunities, with capturing an $0.83 per gallon margin in the fourth quarter of '07, compare that to $0.36 per gallon in fourth quarter of '06, Midstream topped a billion dollars in segment profit for the year. And as I stated earlier, Northwest and Transco benefited from nearly a full year of new rates.

Slide eight shows our steady growth, both looking back and looking forward into the future. The graph shows recurring adjusted segment profit, the blue bars, and recurring adjusted earnings per share shown in the purple bars. It shows the actual for '05, '06, and '07 and shows our forecast for '08 and '09.

For '07, you can see the effect of the very attractive price environment... and I'm specifically talking here about the Midstream margin uplift year-over-year, which amounted to $305 million, and Alan will talk more about that. But you can see that in the diagonally hashed portion at the top of the bars for '07; a significant benefit. But if we normalize pricing for '07, we'd still end up with segment profit growth for the year of approximately 15%.

As we look toward '08 and '09, our growth expectation is built on a fairly conservative commodity price forecast, particularly compared to today's market prices. So for this year... and when I say this year, I'm talking about 2008, we're expecting stronger natural gas prices than '07 in the Rockies and elsewhere; slightly lower crude oil prices; and a lower crude to natural gas ratio. And of course, that drives our processing margins.

And so our guidance on this slide runs through '09. And while we're not prepared to publish ranges for 2010 and beyond, I do want to highlight the high level of optimism we have about those out years. This slide nine, we're layering our thoughts about 2010 and beyond on top of the five year horizon of actuals and expected performance. We expect continued double digit percentage growth in our production. Our strategy of rapid development of our significant and growing inventory of reserves is obviously working.

Our guidance for '08 and '09 includes the unfavorable effect of certain legacy hedges for natural gas. We'll see much of that roll off after 2009. As a result, we would expect to see about a $40 million positive effect in 2010 compared with '09 and the 2011 picture will improve by another $80 million because of legacy hedges that will expire in 2010.

We'll also see the benefit of projects that we're investing in today as they come into service and they're contributing to our profitability. I'm speaking here specifically about projects in Midstream like Perdido Norte and Willow Creek and in the gas pipeline business, we'll have the benefit of expansions like Sentinel Phase 2, Eminence, Gulfstream 3 and 4.

So as we continue our disciplined investment strategy, we expect to continue to grow our recurring adjusted earnings per share at a rate somewhere between 10% and 20% in 2010. Williams's future is very bright. We continue to have abundant growth opportunities.

So with that, I'll turn it over to Don.

Don R. Chappel - Senior Vice President and Chief Financial Officer

Thanks, Steve. Good morning. Let's turn to slide number 11, please, financial results. Just to note a couple of highlights here. Obviously, we are delighted with the earnings that we are reporting this morning. I would just point you to the income from discontinued operations for just a second. You can see for the full year we had a gain of $143 million; relates to the sale of the power business. I would also note that we had related losses that were included in continuing operations related to gas marketing contracts that were legacy Power segment contracts that we're seeking to exit.

But most importantly is the key measure at the bottom of the page, recurring income from continuing operations after eliminating mark-to-market effects. And again, you can see $0.59 as compared to $0.28 a year ago. Again, more than double and on a full year basis, $1.73 up 62%.

Let's turn the page to slide number 12 please, fourth quarter segment profit. Again, I'll note that a reconciliation from reported to recurring results is included in the appendix on slide 82 and a calculation of the mark-to-market adjustment is included on slide number 83. I'm going to focus my comments on the recurring column.

E&P results at $194 million up $54 million or 39%, quite an extraordinary year. The fourth quarter production increase of 18% coupled with a 14% higher net which realized prices offset somewhat by higher DD&A, lease operating expense, and G&A contributed to those results.

Midstream's exceptional performance, $374 million, up $205 million from the prior year quarter or 121% were primarily driven by record NGL margins, which resulted from very favorable NGL prices and low Rockies natural gas feedstock prices. Additionally, higher NGL production volumes and margins were driven by the fifth processing train at Opal, which was placed into service during February of 2007. And gas pipeline results at $160 million, up $59 million or about 59% were driven by the effects of the rate cases which took hold in the first quarter of 2007. These three principal businesses, the results totaled $728 million, up $318 million or 78% from the prior year's quarter.

Let's turn to gas marketing. Again, gas marketing includes results related to certain legacy contracts that were formally a part of the Power segment, including a loss on termination of one such contract. And we will continue to seek to exit some other contracts of a similar nature, but I think we have the lion's share of such losses behind us. But we will continue to have some mark-to-market volatility and potentially some potential gains and losses as we continue to exit the legacy contracts.

At the bottom of this slide, you can see the gas marketing results excluding mark-to-market effects. And at that level, the loss is very small. And again, gas marketing principally is providing services to our E&P and Midstream business as well as to certain third party producers. Again, focusing on the bottom line there segment profit after mark-to-market adjustment, $718 million, up $325 million or 83%.

Let's turn the page, slide number 13 please. Full year segment profit, as you can see, all of our businesses were up, both on a reported and a recurring basis. And again, if I focus your attention to gas marketing at the bottom of the page, you'll see the result without the effect of mark-to-market. Again, a modest loss and one that relates principally to these legacy contracts that we continue to exit.

With that, I'm going to turn it to Ralph.

Ralph A. Hill - President of Exploration and Production

Thank you, Don. I'm very proud to share with you today the excellent results that our dedicated E&P employees achieved in 2007. Bottom line was a record year for organic reserve additions, production, and for profit.

Looking at slide 15, our recurring segment profit was up 38%, as Don mentioned, and as Steve talked about, we have been very proactive in optimizing our transportation strategy and our color hedging strategy. And as mentioned, we were able to realize prices 15% higher in the Rockies... or 15% higher net realized prices, even though the Rockies prices were 30% lower, or the market prices were. So great job by our team on managing our transportation and color strategy.

Looking at our accomplishments, a growth of 20%, overall 21% domestically, we did average over 1 Bcf a day in the fourth quarter. Reserve replacement, which I have another slide on, is 232%, our three-year finding and development costs of $1.77. Looking at one-year finding and development costs, it is approximately $1.93. Early surveys that we've seen, one has come out from JP Morgan analysts, showed that most... analysis of 35 North American producers showed a cost of $3.22 approximately for their one year finding costs. So one year finding year cost looks to be about $1.30 or more, better than market. What we concentrate more on is the three year F&D which was $1.77.

Also very proud of our team for some of the awards that they earned, I'd like to mention. We did get a best management practices from the BLM for our new drilling technology. We got outstanding operations awards from the Colorado Oil and Gas Conservation Commission, where we are the largest producer now in Colorado, for hydraulic fracturing process for our water quality, and for the Wheeler Gulch Road and Tunnel.

Turning to slide 16, looking at our asset teams, the Piceance Valley was up 21% over a year ago. We have 22 rigs operating in the Valley. Piceance Highlands production was up 92% over a year ago at 45 million cubic feet a day. We have four rigs operating there. Powder River was up 18% over one year ago. Sequential quarters, fourth quarter our volumes are starting to explode in the Powder; they were up 34%. Fort Worth production was up 78% and is now at 35 million cubic feet a day with four rigs drilling. We do have quite a bit of deal flow coming in the door and tighter well density also offers upside.

San Juan, our very mature basin, continues to grow at a 3% rate. In our step-out areas, we did earn the additional 11,000 acres that we've talked about at Barcus Creek Farm and in the Piceance Highlands, which will be added to the Piceance Highlands team.

Slide 17, reserve performance. Our total reserves are now 4.3 trillion cubic feet. Our U.S. proved reserves are 4.14 trillion cubic feet, which is up 12%. As mentioned, we had a 232% domestic reserve replacement. Our drilling success rate was 99.4%. That's our fourth or fifth consecutive year of over 99% drilling success and greater than 200% reserve replacement. And we added 776 Bcf to our proved reserves.

In addition to moving the 1.9 trillion cubic feet that's on the bottom of this slide the last three years from our probables to our approved categories, our proved developed producing percentage has now gone up from 49% to 54%, meaning we have much more productive assets also.

Turning to slide 18. The left panel shows the... panel one shows the continued organic growth we've achieved the last several years of 21% approximately. It's a Verde production from 2004 to 2007. On the right hand side, you can see our proved reserves have gone up on a compound average growth rate of approximately 12%. It again shows that we have been able to increase our production capacity as you look at the percentage of PDP's of 54% versus 45% just four years ago.

In addition, we have been able to be much more productive even though we drill in tight sands areas where the initial decline rates are quite rapid. And then they fall off into a much more steady. So we believe that our ability to continue to increase this is quite impressive based on the reservoir characteristics of where we operate in. The bottom of that slide shows our RP ratio, which does reflect that we are becoming much more productive in our asset base, and our reserve replacement ratio, which has averaged over 200% as mentioned.

Slide 19, this is our standard domestic proved reserves reconciliation from 2005 to 2007. I won't go through all the aspects of it, but basically you can see each year we show you our acquisitions, which are very small in our Company, our production, and then our addition or revisions, and come up with our year-end 2006 and year-end 2007 on a domestic reconciliation. Very proud of our results for the 2007 year.

Slide 20, once again, our value creation continues. We did have a record year for reserve additions, production, and segment profit. Our strategy remains where rapid development is... our premiere drilling inventory. We believe and we will be able to share more of this in our next call with you, but our organic production growth rate of 20% should be an industry leader. Our domestic reserve replacement through the drill-bit only of 232% is again, should be an industry leader. And our three-year finding cost is $1.77, we expect to be as a leader in the industry also.

We have a very long-term inventory ahead of us, and we will continue to develop it as we have. Our history is very high drilling success and very cost efficient and we are looking for our long term organic growth outlook for continuing drilling in our existing areas and we continue to evaluate the new opportunities that we have talked about previously which are in the Paradox, Uinta and Deeper Piceance and we'll be providing more information as appropriate during this 2008 year.

With that, I'm very pleased to turn it over to Alan Armstrong, our $1 billion man.

Alan Armstrong - President of Midstream Gathering and Processing

Thank you very much, Ralph. I'm going to start off here on slide 22.

Certainly at the top of the list for Midstream's 2007 accomplishments is the financial performance. We were able to capture extraordinary margins by continuing to execute on our strategy in a timely manner. This allowed us to generate over $1 billion in recurring segment profit and approximately $1.3 billion in segment profit plus DD&A.

This was done with less than $4 billion of average assets. A key contributor to our year-over-year increase was the timely addition of our fifth processing train to our Opal complex. This on-schedule project allowed us to capture about $105 million in margin in just ten months, yielding us a very nice return on our $70 million investment there.

We also are continuing to contract for additional volumes from the exciting deepwater Gulf of Mexico. Notably, we just signed up the Bass Lite fill to come across our Devils Tower platform. And in fact, this production began flowing last week at a rate of over 40 million a day. Additional volumes will begin flowing once we have completed the expansion of the Devils Tower gas handling capacity on our platform, which is currently operating at maximum capacity.

We also have three other major deepwater projects currently underway that will add significant fee-based revenues later this year, all the way through 2009 and 2010 as those projects start up over that period. First, the Blind Faith, which is scheduled later this year; Tahiti; Perdido Norte projects come online through that period. Finally, we signed another significant commitment in Canada that will add about 15% to our liquids volumes at our Redwater fractionator, serving the off-gas liquids from the Alberta oil sands upgraders.

Moving to slide 23. Clearly the most pleasant surprise in 2007 was the NGL margin environment. This was driven by crude oil prices rising from $55 a barrel in January to $95 a barrel in December, and by lower natural gas prices, particularly in the Rockies. As you can see from this graph, we saw NGL production volumes continue to rise throughout all of 2007, even in spite of a fire that we had at our Ignacio, Colorado plant that eliminated approximately 28 million gallons of production and 11 million gallons of equity sales from this large complex for about 33 days in the fourth quarter.

As a result of this very positive environment, we began laying off some of our NGL price risk spread across the year. We sold four at about 24% of our projected domestic NGL sales through 2008, using collars that will yield us weighted average sales prices that are 9% higher at the floor and 22% higher at the ceiling than the prices we realized in 2007.

Additionally, we executed fixed-price swaps on another 4% of our sales volumes and bought the corresponding natural gas volumes to capture margin higher than 2007 for a significant portion of our Four Corners area production.

Moving on to slide 24, this chart takes a look at our growth projects and there are several key things to note here. First, on the in-development front, we continue to see growth in our Canadian oil sands opportunities and we have added a new project that we are very excited about and hope to be moving that into the under negotiations pie very soon.

We were able to move, we are also able to move the plant expansion at Markham from the under-negotiations into our in-guidance slide. And this project will double the size of our Markham plant.

We also expect to see significant movement to the In Guidance slide during the second quarter of the year when a number of project will be coming forward for approval. The key takeaway is that we continue to move investment opportunities to the right on this slide and amount of profit we expect from these investments continues to grow.

Moving to slide 25, the key points, we are celebrating the first time this business unit has broken through the $1 billion segment profit level in a succession of back to back to back record quarters. All of our operating areas contributed to this success within Midstream. Even more important is the return we are generating on our investments. We keep tabs on how we are performing against our Midstream peers in the area of capital efficiency and we appear to be leading when it comes to return on average assets employed. We calculate our return on average assets to be approximately 28% for 2007.

Our guidance for 2007 assumes that we will see lower margins in 2008 as actual NGL prices hold steady but natural gas prices increase substantially, particularly in the Rockies. As a result, we moved at the first of the year to capture some of the NGL prices on about 28% of our projected domestic sales, as we mentioned earlier. And there is a slide in the appendix that further describes our transactions in more detail.

The demand for our services remains strong and we are excited about the growth opportunities in Canada, the Western region, and the Deepwater Gulf of Mexico.

In closing, we remind you that we are raising guidance again for 2008 based on the pricing we receive on the forward sales of our NGL barrels and the growth in deepwater revenues we expect from Bass Lite and Blind Faith as those projects come online. Our current guidance moves away from our past practice of using five-year average margin because the current pricing is such a large variance to historical.

And with that, I will turn it over to Phil Wright.

Phillip D. Wright - President of Gas Pipeline

Thank you, Alan. If you'll turn to slide 27 please, among our many accomplishments in a strong year we settled general rate cases, as Steve mentioned, at Northwest pipeline and Transco without litigation, fueling our profit improvement and significantly enhanced free cash flow generation. We were pleased to launch the successful IPO of Williams Pipeline Partners LP at the midpoint of our price range in a dramatically down market.

Reflecting the quality of our pipeline franchises, we placed several large expansion projects in service. We received FERC approval to proceed on several organic growth projects and we finished binding open seasons on a combination of organic and Greenfield projects.

Slide 28, please. Looking ahead to 2008 and 2009, we expect our maintenance capital levels to be lower than required in 2007. In 2007, our maintenance capital provided... approximated $300 million, which was at the top end of the guidance provided, while total capital spending was slightly under guidance. As always, we've shown detail on the major growth projects included in our guidance, illustrating when we expect the project to be in service, a capital expenditure forecast, and the expected addition to segment profit in the first full year of each project.

Slide 29, please. Finally, and don't worry, I'm not going to take you through each one of these, this slide clearly illustrates the excellent growth we are enjoying across our pipeline enterprises. You will note the expansions not included in the guidance are shown in blue. The scope of each one of these projects is detailed in the appendix on slide number 76.

And with that, I'll turn it back to Don.

Don R. Chappel - Senior Vice President and Chief Financial Officer

Thanks, Phil. Let's turn now to slide number 31. Just a summary of our 2008 forecast guidance, I'll focus on the bottom line, $1.60 to $2.00, up from $1.50 to $1.90 that we forecast back in November. Let's now turn the page to slide number 32 and for the first time we're detailing 2009 guidance. And the bottom line there, diluted EPS reoccurring on an after mark-to-market adjustment totaling $1.70 to $2.20. Again, up from the 2008 levels, and I would note that our commodity price assumptions for both 2008 and 2009 are included on slide number 85 as well as our hedges are detailed in the appendix as well.

Let's now turn to the next slide, please, number 33. Give you a sense of where we are from a natural gas exposure standpoint. And this is company-wide. The chart on the left, 2008, again, our E&P business is producing more than 1 Bcf of gas a day after fuel and taxes and the like. Our net exposure is just under 1 Bcf a day. The orange coloration represents financial hedges that are in place. The blue is the unhedged E&P long natural gas position. And below the zero line there is the unhedged Midstream short natural gas position related to their fuel and shrink needs.

The red line is the net position for the Company and you can see that more than 1 Bcf a day of natural gas production netted down by financial hedges and Midstream needs turns out to be boring about 300 million a day for both 2008 and just a bit below that in 2009. So, our economics exposure to natural gas prices is considerably less than it would absent both financial hedges as well as the Midstream short position.

The next slide is a subset of the prior slide and focuses on Rockies exposure and here you can see the net company exposure is more in the 125 million a day in 2008 and less than 100 million a day in 2009. So again, very modest exposure to Rockies prices, despite the fact that we are a Rockies producer.

The next slide please, number 35, 2008 and 2009 reoccurring segment profit. And again, I will note the commodity price assumptions are on slide number 85 and the hedges are on slide number 66. E&P at about $1 billion to $1.3 billion, and I would note again, as Steve did, that 2008 is burdened with a forecast of $59 million hedged loss related to legacy hedges that were dated 2002 and 2003 transactions. And 2009 is burdened with $119 million hedge loss or a $60 million change between those two years. But what we do see positively is good strong production growth and reserve increases throughout the period.

The Midstream results continue to be very strong, based on strong margin forecast, somewhat lower than 2007 but still very strong margins, as well as new projects and volumes. Gas pipeline, steady returns and very low-risk.

Focusing on the last line on the page now, the gas marketing after eliminating mark-to-market effects, you can see there is just a bit below breakeven and again, with some of the legacy contract issues continuing to drag that below zero. This is really a service business to our E&P and Midstream business, principally and the business should be operating breakeven or better, again, as we continue to exit these legacy positions or the legacy positions expire. We'll continue to move up on that basis.

Let's turn to the next page, to slide number 36, please, capital expenditures. You can see once again we're spending about $1.5 billion more or less in our E&P business, driving that very strong growth in production as well as continuing to prove up new reserves and new areas. Midstream business, investing in many new growth projects with many more, having some visibility. And we will continue to update you and update our guidance as we continue to pursue those projects and capture those projects.

And then gas pipeline, a combination of maintenance capital and growth capital there. As Phil pointed out, we have many more projects that are not yet in guidance that we're pursuing and we would expect to be able to update guidance for all of our businesses as we continue to capture additional value adding growth opportunities that create both earnings and EVA. At the bottom line there, a range of 2.575 to 2.925 in 2008 and 2.250 to 2.650 in 2009. Again, we are opportunity-rich and we would expect to increase our capital spending guidance substantially in future periods.

The next slide number 37, is a new slide designed to provide more transparency and better understanding of key elements of our plans and this is cash flow, I will walk through this quickly. Starting with an unrestricted cash balance of $1.234 billion as we enter 2008. We add to that our CFFO, back out the capital spending, and again I note that capital spending will in fact rise gives us operating free cash flow of a negative $200 million to $250 million. What else do we know? We have proceeds from our Peru asset sale of $120 million; net proceeds from our WMZ IPO of $305 million. Dividends at their current level are $230 million. Minority interest payments now at their current level, $110 million to $130 million; and share repurchase, this represents the balance of the $1 billion program that was authorized last July of $474 million.

That brings us to a change in cash of about $600 million negative; coming off that $1.2 billion balance that we started off leaves us with about $600 million at the end of the year, if nothing else happened. However, we know that a number of other things will in fact, happen. We will make additional investments, additional capital expenditures. We will consider additional share repurchases or debt repurchases based on our cash position and our cash needs. And we will likely, very likely, drop down assets to both WPZ and WMZ. Again, we're not prepared to offer any guidance on any one of these three factors, but these are the other considerations that are part of our plan to create even more value in future periods.

With that, I'll turn it back to Steve.

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Yes. Let me summarize quickly slide 39. As we spoke about earlier, 2007 was an extraordinary year. 2008 and '09 we expect to continue to grow earnings per share as a result of disciplined investment in our numerous organic growth opportunities. Slide 40 describes the growth beyond 2009 and that growth is clearly tied to continued production growth, the reduced impact of legacy hedges and the benefit of new projects, which will begin generating incremental revenues.

Slide 41 simply shows the market. This is a very positive reaction to our earnings growth since 2004. Our stock price during that time has grown from just under $10 to, as you can see here, $35.

My final slide, slide 42, the key takeaways, exceptional results on strong business performance in '07. We are forecasting continued growth. We expect to continue to pull value creation levers around WMZ and WPZ and our ongoing share repurchase program. We see a very bright future ahead for natural gas. We believe we are well positioned with the right assets and the right capabilities. We offer to shareholders, strong organic E&P production growth. We offer Midstream exposure to high NGL margins and stable, steady cash flow from our pipeline assets.

We will be delighted to take your questions.

Question And Answer

Operator

[Operator Instructions]. We will take our first question from Lasan Johong from RBC Capital.

Lasan Johong - RBC Capital Markets

Yes good morning. Nice quarter and year, congratulations. A couple of questions on the E&P segment, can you give us any guidance on production target levels that you expect in '08 and '09? Or is that still off the table?

Don R. Chappel - Senior Vice President and Chief Financial Officer

Which slide is that on, there is a... it's in appendix or is the guidance given for '09 for our production range on slide number 61.

Lasan Johong - RBC Capital Markets

Okay. I will take a look at that then. In terms of F&D costs, there is a lot of discussion and talk about where costs are going in the E&P segment. There's a lot of price pressure. And I'm not quite sure that I understand the relationship between escalating prices of production growth profile at Williams and the fact that the CapEx are being held steady between '08 and '09. In other words, if you are going to increase production, I am assuming you have to drill continuously more wells. And that should in fact increase your cost, not keep it flat, if you want to continue the same growth profile. So I am not quite sure how all of those three connect for Williams?

Ralph A. Hill - President of Exploration and Production

I think a couple of things. First of all, there are some expenditures we had in '07 and carrying into 2008 that have some facilities that we are putting in place now for future production growth. And those expenditures basically go away to a much smaller number. They were probably over $150 million in '07 and probably still over $100 million or so in '08 and dropping to probably $50 million or so in '09. So that allows us about $100 million to be applied to drilling that was applied to the facilities to get ready for the drilling.

Second, it's really a function for our finding costs of the continued reserve additions that we're able to do. We've had a great success of adding significant reserves. We have a very large probable inventory and we look forward to hopefully continuing that success. So that should help us to continue to have that kind of growth.

Lasan Johong - RBC Capital Markets

On a CapEx base of almost $1.5 billion, I am not quite sure that $100 million makes that much of a difference if you're drilling, if your costs are going up at a rate of 15% to 20% a year minimum, from what I can tell?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Well, we don't project that our costs are going to go up. This year we built into our costs about 4% on the drilling side and about the same, maybe 5% on the completion side. And we hope, and we've been able to demonstrate so far that we continue to be more efficient in the way we drill in the sense of we bring down the number of days it takes to drill. So thus we're able to... we're more efficient on both the cost basis and a number of days that allows us to drill more wells ultimately for about the same amount. So we are not seeing a 20% or 30% type cost increase.

Lasan Johong - RBC Capital Markets

I see. How much of your 757 Bcf add was due to price revisions?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Virtually none. We are not... we have never been in that since the prices of where we are, we have had very high return assets, so essentially none of it was...

Lasan Johong - RBC Capital Markets

Because your cost base is so low and your F&D cost is so low?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Correct. Correct.

Lasan Johong - RBC Capital Markets

Okay. And then just quickly rounding out... I understand you're expecting some large production growth. Question, first question related to that is, how long can you sustain a double digit production growth profile? And related to that is what's kind of like, give a sense of your inventory of drilling opportunities relative to what you've been doing over the last, say, two or three years?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

We have a significant inventory remaining ahead of us. Literally, thousands of locations, both in the Piceance Valley and the Piceance Highland and in the Powder River. And we're adding quite a bit of locations to our Barnett Shale area. So we have the... for the foreseeable future, we have similar opportunities in front of us that we've been able to experience the last three or four years. And so far, all we've really given guidance on is through '09 with thoughts also that we don't... our goal is to continue double digit type production in the years beyond like 2010.

Lasan Johong - RBC Capital Markets

But no kind of peak estimates or anything like that?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

No, not at this time. We expect to be able to continue our production growth.

Lasan Johong - RBC Capital Markets

Okay, great. Thank you.

Operator

And next we will hear from Rick Gross from Lehman Brothers.

Richard Gross - Lehman Brothers

Good morning. I've got a couple of questions for Ralph and then one for Alan. On page 16, you provided some regional production numbers. Are those annual or are those for the quarter?

Ralph A. Hill - President of Exploration and Production

They are quarter-to-quarter comparisons. The fourth quarter '07.

Richard Gross - Lehman Brothers

So those numbers were for the fourth quarter

Ralph A. Hill - President of Exploration and Production

Yes.

Richard Gross - Lehman Brothers

Okay. The Valley seemed to roll over from the third quarter. Is there anything going on there?

Ralph A. Hill - President of Exploration and Production

I'm not sure if I know what rollover means.

Richard Gross - Lehman Brothers

Slightly lower than what you had in the third quarter. The third quarter you were --

Ralph A. Hill - President of Exploration and Production

A number of rigs in the third quarter move up to the Highlands 9 or 10. And what happens there, whereas the Valley was essentially flat in the fourth quarter, the Highlands almost doubled.

Richard Gross - Lehman Brothers

Yes, the Highlands picked up materially. Okay.

Ralph A. Hill - President of Exploration and Production

Now we're back to 22 rigs in the Valley and you will see the Valley go the other way and the Highlands will flatten out for a while and then the Highlands will grow again in the summer months.

Richard Gross - Lehman Brothers

Okay, that's fine. From a standpoint of moving two P's into the PUD category, you had a very good year. Was this principally Highlands/Barnett?

Ralph A. Hill - President of Exploration and Production

It was actually quite a bit... about 75% of it was the Valley and the Highlands. And then Barnett was about probably 10% of that. And the Valley and the Highlands were about split between the two of them. So we had a very impressive year in the Valley. As you know, we are starting to drill more and more south of the river, as we call it, South of 70. And we had a very good year in the Valley also.

Richard Gross - Lehman Brothers

Okay, great. From a standpoint of the other thing that dictates kind of year-to-year finding costs, what kind of PUDs did you move to PDs?

Ralph A. Hill - President of Exploration and Production

What kind of PUD --?

Richard Gross - Lehman Brothers

Yes, every year you've generally provided a number of just drilling that's moving, in effect, changing proved categories.

Ralph A. Hill - President of Exploration and Production

Oh, how much of the PUD became PDs? Rick, I'll have to get that for you. I know the probables. I need to get that off... I don't have that on the top of my head.

Richard Gross - Lehman Brothers

Okay. And this one is kind of an obscure question for Alan. But the olefins, the ethylene plant all of a sudden came to life with low ethane prices. And I'm curious as to what you're forecasting for 2008, because if you just kind of take the 4Q run rate, it adds maybe about $100 million to EBIT with big volumes and nice margins?

Alan Armstrong - President of Midstream Gathering and Processing

Yes. Two things really drove that, Rick. And I'm not sure exactly what you're looking at, but certainly we're really pleased with the way our olefins segment operated. Remember, we made an acquisition of the BAS 5/12th of the interest in July of the Geismar plant. And so that increased that substantially.

Also included in the $100 million of EBIT for olefins is our Canadian business, producing propylene up there that has been really performing very well. And in terms of what we have in '08, fairly you will see AMI pricing in our forecast? And it's not too different than the margins we saw on average through '07 for olefin margins.

Richard Gross - Lehman Brothers

Okay. And then once again dealing in obscurity, are you signed off on the ethane glut by the time we get to '09, so you end up with a much different orientation around that plant as far as profitability?

Alan Armstrong - President of Midstream Gathering and Processing

We have quite a bit of fee-based contracts at our ethylene facility through '09. So we wouldn't be as exposed to that. At the end of '09 we do get exposed to that in the market and own about half of it. So again, I think the thing we think about there is the fact we're also a large ethane producer. And so we're on both sides of that curve.

Richard Gross - Lehman Brothers

Okay.

Ralph A. Hill - President of Exploration and Production

The Powder also contributed to that and to our moves from probs to proved about 13%. So I just wanted to also mention that.

Richard Gross - Lehman Brothers

Okay, great. Thank you.

Operator

Next we will move to Faisel Khan from Citi Investment Research.

Faisel Khan - Citigroup Investment Research

Wondering if you could discuss the demand you're seeing for your liquids products from your customers? I know that's been asked in the past before but I just want to do a channel check and make sure that you're still seeing the same sort of robust demand from both your chemical and refinery customers?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Yes. Good question. There are a number of ethylene crackers that are down right now. There's three I think that were planned to be down and two that were unplanned that are down right now. But... and so we have seen a little bit of backing off of the relationship between ethane and crude oil here recently. And in fact, the hedge that we did is very weighted towards ethane partially for the concern you, I suspect, getting to in terms of concerns about a recession and backing off in the pet-chem market. Ethane would certainly be the product that would be exposed to that. And about 65% of our barrel that we hedged was ethane. So we went heavy on the ethane hedge there. And got, again, a lot nicer prices than we saw in '07 for that ethane.

Faisel Khan - Citigroup Investment Research

So you are seeing a little bit of softness right now?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Well, I think, anyway, we don't see anything fundamental other than the fact that there's five plants down right now.

Faisel Khan - Citigroup Investment Research

Okay. Got you. And on the E&P side, can you update us on any of your exploration activities? I know you were talking about a deep well in the Piceance, I think, and I just wanted to see where you guys were with that?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

We had two drilled in the Deep and the Piceance. They're both... one is in completion and cleanup as we speak and the other one is waiting on some stipulations before we can complete that, which will be later in the spring. And we're going to wait until we finish that well also and start giving some results on that. But we do have quite a few opportunities out there if those work. We're just waiting on the stipulations to get through them and we can complete the second well.

Faisel Khan - Citigroup Investment Research

Okay. And then the Paradox, is that project still ongoing?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Yes, it is. It is ongoing and we've been working on our drilling schedule for this year. And we expect to continue to drill some more wells to continue to delineate what's available out in the field during 2008.

Faisel Khan - Citigroup Investment Research

What kind of results have you had so far?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

We hadn't really given them out so far but we have found that there is gas presence, and that just means... and those are vertical wells we're drilling right now. So we will continue to analyze. Does that mean it... can we make it productive? And that's we'll be using various completion techniques on that to understand what is the best way to make it productive. And then we will also be looking at should we look at some horizontal opportunities in that kind of a shale.

Faisel Khan - Citigroup Investment Research

Okay, got you. And then on the Powder River Basin, how should we look at the growth of that particular segment in terms of permeating, dewatering and all that other stuff? I mean can we continue to see sustained growth out of that part of the production side?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Yes, we're feeling very good about the Powder. With our new partner over the last year and a half, they've done a great job of really working on their water management plan. And we feel that a number of their pilots are now producing. And our pilots have been producing for quite a while. So with the addition of their pilots coming on and doing very well, we're feeling very good about the Powder's future.

Faisel Khan - Citigroup Investment Research

Okay. And then switching to the pipeline side of the equation for a second, in the fourth quarter it looked like there were some increases in O&M and SG&A. I'm just wondering is that related to kind of ongoing operations or is that related to maybe new development expenses for projects you guys are working on?

Phillip D. Wright - President of Gas Pipeline

Actually, I think at year end we were attempting to get a lot of maintenance work completed, and associated with that are some expenses going along with it. As you will recall, we had quite a hill to climb in order to comply with Pipeline Safety Improvement Act. We had to have 50% of our high consequence areas fully inspected by the end of 2007. And so we got on that work and got it done.

Faisel Khan - Citigroup Investment Research

What percentage of your O&M would you say for '07 came from kind of this safety work that you guys have been doing?

Phillip D. Wright - President of Gas Pipeline

I don't have that number off the top of my head Faisel, so I'll have to get back with you on that.

Faisel Khan - Citigroup Investment Research

Fair enough. Thank you for the time.

Operator

And next we will go to Jeff Coviello from Duquesne Capital.

Jeff Coviello - Duquesne Capital

Good morning guys, how are you? I just wanted to check and see what the share count was at the end of '07. I took... I think you bought back 8.4 million or something in the fourth quarter and I took that off the third quarter balance and I just wanted to make sure I did it the right way. How many shares did you have out at the end of the year?

Ralph A. Hill - President of Exploration and Production

Jeff, just give us a second. We're looking that up here.

Phillip D. Wright - President of Gas Pipeline

I think it's about 584.

Don R. Chappel - Senior Vice President and Chief Financial Officer

584 at the end of the year. 584 million.

Jeff Coviello - Duquesne Capital

Great. And then I was wondering on the E&P side and the Rockies, I know you guys are able to get a lot of your production out of the Rockies, but with Rex coming online, I was wondering what you were seeing as far as the basis goes. And in '07 the average basis was about a $1.40, I was wondering what your outlook was on the average basis for '08 and then looking further down, if you saw that getting wider or tighter does any kind of subjective information you could give us on that would be helpful?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

I think, actually some of the basis in '07 in the Rockies was a lot higher than that, that you mentioned. But with Rex coming on, the basis has narrowed significantly. And as we've been going through really Rex is about $1 to get to its marketplace from the Rockies. So in general you could expect the basis to get more into that range as there continues to be opportunities to... as Rex continues to expand the rest of the way and move the gas to Mid-continent and ultimately to the Northeast. So we expect and have seen the basis narrow quite a bit since Rex coming on, and also winter has obviously helped in some of the areas too.

Jeff Coviello - Duquesne Capital

And the basis that's embedded in the E&P guidance right now, what was the range for that roughly? I know the NYMEX price is like $7.05 to $8.35. And I think the basis or average around $1.40 in '08... am I right about that?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Yes, it's about $1.40. I mean, some of the areas... San Juan might be a little higher, I mean lower than that, maybe more like $1.10 or so. But in the Rockies pure probably be $1.40 or so, I think it is.

Jeff Coviello - Duquesne Capital

Okay, great. Guys, thank you very much.

Don R. Chappel - Senior Vice President and Chief Financial Officer

Jeff, slide number 85 does indicate the range for the Rockies, San Juan, Mid-continent.

Jeff Coviello - Duquesne Capital

Oh, I see. Okay. So I guess what you're saying is right now if we took a snapshot, the spread looks a little tighter than this but is that right?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Yes, the spread is tighter. And I think the thing we have is we have... we've set up our transportation strategy in such a way that we can move the majority of our gas away from the Rockies. However, if for some reason the prices were better, we had the optionality to keep it there. So we really have... of our gas exposed in 2008 for example, as little as 15% of it can be exposed to Rockies prices and that could increase depending on if we would choose to not transport and keep it in the Rockies. So we kind of have the best of both worlds.

Jeff Coviello - Duquesne Capital

Right. That's great. Thank you very much.

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Jeff, just kind if related to that, there are many projects seeking to move Rockies gas to other markets that certainly will benefit from over the longer term.

Operator

And next we will go to Lasan Johong from RBC Capital.

Lasan Johong - RBC Capital Markets

Well, great. I just wanted to ask a question about the basis as well and Rockies in particular in view of the fact that the Rockies expressed should have some significant impact in longer-term, there's maybe another pipe going probably to mainland Oregon that will help reduce the basis even more. So I am curious as to how the '08 and '09 numbers of a basis to the Rockies in particular would change in view of this fact or why it hasn't changed in your guidance?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

What we actually saw depending on which particular point you're looking at in the Rockies in '07, the number would range from about $2.72 to about $3 basis differential depending... for the annual average, depending on which point you're actually looking at. And so we have changed that to $1.40 currently. Generally what we've seen over the years, we've certainly been in the Rockies and being both the buyer and seller for many years, is that in the shoulder months we will see the basis widen out as there's not enough demand, local demand. In the winter we will see prices sometimes and even see the basis go upside down as we've seen a little bit this winter.

So,... but longer-term, there is a lot of productive capacity in the Rockies. And it is seldom that the pipeline capacity keeps in perfect step with that. And so we will see the basis build up. We will see new capacity come on, we'll see it soften. We'll see the basis close and then we'll see it widen back out. And I think the key thing to note is that the shoulder months are typically when we really see the basis widen out.

Lasan Johong - RBC Capital Markets

But $1.40 is not exactly what you would call astoundingly narrow basis differential if you look at it on a historical basis. $2.70 was obviously a blowout. And it was very similar to that, somewhat of an anomaly, right?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

That is correct.

Lasan Johong - RBC Capital Markets

So, I mean the $1.40 doesn't seem like you're being too aggressive in your basis assumption, in fact, you're being very conservative, from what I can tell. Is that not the correct view?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Well, I think that seems like it right now. Certainly last year that wouldn't have seemed aggressive. And we certainly haven't seen any shoulder months. And we do know there's a lot of new production capacity in the Rockies that we need to be wary of.

Lasan Johong - RBC Capital Markets

And what do you think about going west? Something is probably going to get built into the California/Oregon border. How much more upside do you see in the basis subject to that pipe coming online?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

I think there's a lot of things yet to be determined by the time that pipe comes on and see what production does in the Rockies. It's pretty far out, I think.

Ralph A. Hill - President of Exploration and Production

I think it's a good idea to have another outlet. So it is good to see some projects being announced or studied. I think... and the Pacific Northwest seems to be a good place to go based on the ability we have to go elsewhere also. So it's good to see those in the works.

Lasan Johong - RBC Capital Markets

Great. Thank you.

Don R. Chappel - Senior Vice President and Chief Financial Officer

A reminder... in '08 and '09 we are highly hedged economically in the Rockies due to natural gas price changes as indicated on that slide that we reviewed earlier.

Lasan Johong - RBC Capital Markets

Got it. Thank you very much.

Operator

We hear again from Rick Gross, Lehman Brothers.

Richard Gross - Lehman Brothers

Yes, I've got a couple of Rockies basis kind of questions as well. One is, you guys were prescient enough to buy FT at very, very cheap rates like on Trans-Colorado with some of the other outlets very early on. When does this stuff begin to expire? And do we have to worry about either much higher costs for renewing some of this stuff or maybe even inability to renew some of the FT out of the Rockies?

Ralph A. Hill - President of Exploration and Production

Rick, this is Ralph. Most of our stuff doesn't expire for quite a while. And we also have the right of first refusal or whatever the right words would be on almost all of that also. So, first of all, it's not very quick when it expires and we do have a right to keep it.

Richard Gross - Lehman Brothers

Okay, great. And this one's for the pipe folks. I've seen a couple of presentations, Bronco, Ruby and others where to move that gas from Opal over to Mallen [ph], they're going to want to charge at least $1. If I look at the postage stamp rates on Northwest, why can't Northwest provide some extremely competitive alternative to these big bullet lines?

Phillip D. Wright - President of Gas Pipeline

Rick, this is Phil. I would start by saying we have a project that we've announced and are working with customers to develop to expand along the Northwest pipeline right away but indeed, it will require an expansion. And so we need for the market to be able to sustain a rate that will pay for that incremental capacity.

Richard Gross - Lehman Brothers

But I would assume that given that you've already got the right of way in place, et cetera, et cetera, that you could move gas over there for well under $1.

Phillip D. Wright - President of Gas Pipeline

Well, we're studying it, is about all I can tell you at this point. And we want to see what the market wants, first of all, and size of project that will appropriately accommodate that. And of course that will have an impact on what the ultimate scope of the project is and the ultimate rate.

I hate to be evasive, but there are a lot of big variables turning in there. As you look to the Bronco versus Ruby project, one thinks that project along the same essential route will cost $2 billion. The other thinks it will cost $3 billion. I guess the only thing that's clear from that is one or the other of them is wrong.

Richard Gross - Lehman Brothers

Well, like I say, the tariffs there pretty spectacular relative to what I thought you'd be able to do it. The other thing is, if that is a pipeline that goes out of the Rockies, is it going to be... at least one of the new bullet lines... are they going to have to be a B a day and are they going to have to get producers who seem to be focused to the East? Is getting a producer contingent really the key to underpinning a pipe in the other direction?

Phillip D. Wright - President of Gas Pipeline

The other direction being --?

Richard Gross - Lehman Brothers

West.

Phillip D. Wright - President of Gas Pipeline

Westward.

Richard Gross - Lehman Brothers

They seem to be all pointed East. All of the producers I talked to still want to go East.

Phillip D. Wright - President of Gas Pipeline

I don't know that I would necessarily say that's a given, but certainly you've seen in the press that the Ruby project that you mentioned has a large utility that has stepped up to subscribe for a substantial part of that capacity. They announced last week that they've gotten a couple of more shippers on there. I don't know whether those are producers or LDCs.

Richard Gross - Lehman Brothers

I think they're marketers. But, okay. What does this do to your Pacific Connector? Has PG&E done any... given you any body English around... if they go the Ruby route, what that means to Pacific Connector?

Phillip D. Wright - President of Gas Pipeline

Well, I wouldn't want to speak for PG&E in this call, but I would say that first of all, the key to success on Pacific Connector is now and has always been when will adequate liquefaction capacity make LNG supply available for that project?

The good news for us is that we have filed our FERC application. And to the extent that LNG wants to find its way to the West Coast as a supply option, we believe that the Jordan Cove terminal will be where it arrives. And we believe therefore that the Pacific Connector project will be the best access corridor for that gas.

Now having said that, substantial things would need to probably move, if you have a pipeline into Mallen, in order for there to be adequate room in the market to accommodate that incremental supply, some of those developments could include, for example, additional gas staying north of the border from out of Canada.

Richard Gross - Lehman Brothers

Okay, thank you.

Operator

And next we will go to Christopher Taylor with Evergreen Investment.

Christopher Taylor - Evergreen Investment

Thanks. Wanted to ask just a couple of questions, leaving aside the hedges in the Midstream area, if the gas/propane differential reverts back to the historical average, how would that impact your segment profit for the Midstream area, leaving aside the hedges?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Yes, that's a fairly complicated question. I'll give you some numbers you can draw to. The historical average is about $0.265 per gallon across all of the business. And we currently, at the lower end of our NGL margin range is about $0.38. So --

Christopher Taylor - Evergreen Investment

That's in your guidance.

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Yes. The lower end of NGL margin guidance that we have in there. And so that is... and we have about 1.45 billion gallons to multiply that by. So it is about $0.10 on about 1.45 billion gallons; $0.12 on that 1.45 billion gallons.

Christopher Taylor - Evergreen Investment

Now, this $0.38, is that including hedges or is that before the benefit of the hedges?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Before the benefit of hedges.

Christopher Taylor - Evergreen Investment

Okay. So that's the real price.

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

That's at our guidance gas price and assumed crude oil... $75 crude oil price.

Christopher Taylor - Evergreen Investment

And with A, just gas prices in general and B, specifically Rockies gas prices, they're having very good rally this month. Just assuming it goes back to the historical $0.26, what would the impact be going from $0.38 to $0.26? Do I just multiply that by the volume? Or is there --?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Yes, you can just take that against the 1.45 billion gallons times that $0.115 differential.

Christopher Taylor - Evergreen Investment

Okay. So that's fairly straightforward.

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

But I think one thing to note, as Don pointed out a while ago, is that be careful about assuming gas prices or the increase, because as that gas price increase comes, we're going to pick that up on the E&P side.

Christopher Taylor - Evergreen Investment

Yes, I know, that makes sense. On the MLP side, I mean, obviously the market is a bit tight right now for further issuance, but what would your use of proceeds be for any further issuance? I mean, you've said you intend to maintain a 50/50 or an absolute debt level. But does that imply you intend to take the money and buyback debt or do you intend to... how do you plan to use your MLP?

Don R. Chappel - Senior Vice President and Chief Financial Officer

Christopher, this is Don. One, to the extent that our MLPs raised debt capital to fund the acquisition, we have stated that it would be our general intention to pay down a like amount of corporate debt, so consolidated indebtedness remains unchanged. So it won't stress the credit. To the extent that it is funded with equity proceeds or cash from the MLPs, that cash would be available for us for a variety of purposes. And again, come back to our comments regarding the fact that we're opportunity-rich, and we have good visibility to a number of upside investment opportunities in each of our businesses. So, first and foremost, we would pursue those reinvestment opportunities that we believe will add the highest value. And then two, to the extent that we have excess cash after considering those investment opportunities, we would look at additional share repurchase or debt reduction.

Christopher Taylor - Evergreen Investment

So is it fair to assume what you're saying is that your absolute debt amount on a consolidated basis will remain unchanged?

Don R. Chappel - Senior Vice President and Chief Financial Officer

Probably not forever.

Christopher Taylor - Evergreen Investment

Or just in the interim?

Don R. Chappel - Senior Vice President and Chief Financial Officer

But I think during this two year forecast period, I would expect that the consolidated debt level will remain about where it is.

Christopher Taylor - Evergreen Investment

And then right now, I mean you don't have any debts at the parent level to take out, except for the bonds, which you'd have to buy back at a premium. Wouldn't that be rather expensive?

Don R. Chappel - Senior Vice President and Chief Financial Officer

Yes, it is.

Christopher Taylor - Evergreen Investment

So what's the logic of taking out that? Wouldn't you get a better return from your CapEx projects or share buybacks?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Well, again, to the extent that we're adding debt at the MLPs, we would be buying back debt to hold our credit metrics constant at our ratings. To the extent that we have additional fire power to your point, it's not all that attractive to take out additional debt. But I'm just saying that's a possibility but not all that likely.

Christopher Taylor - Evergreen Investment

I guess... if you don't mind me just asking a follow-up... if your debt remains unchanged at an absolute amount, your EBITDA is increasing very steadily, your debt metrics continue to improve, why do you have the need to buy back expensive debt?

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

I think we're just on the cusp of investment grade. We'd like to be solid investment grade. So we have... we don't have all the agencies; they've not taken... all taken us to investment grade levels yet. So we have just a bit more work to do, I think, to return to solid investment grade metrics that provide us with better access to the capital markets during difficult periods, lower cost of debt capital, and more flexibility to pursue value adding opportunities, and particularly when times are tough.

Christopher Taylor - Evergreen Investment

Okay, thanks very much.

Operator

Thank you. And next we will go to Mark Caruso [ph] with Millennium Partners.

Unidentified Analyst

Good morning. Don, I had a question for you circling back on the cash flow slide. I wanted to make sure I had the numbers right for share buybacks. So you did 7.5 million in third quarter as far as share buybacks and 8 million this quarter, do I have that right?

Don R. Chappel - Senior Vice President and Chief Financial Officer

One second, let me look at the slide. It's slide number 89, for anyone that has not yet seen it. I think that's about right... through the end of 2007, I think its 15.9 million shares, $526 million expended, average price of $33.08.

Unidentified Analyst

And then based on the numbers you gave, that's about 13 million left to do this year. Is there any way to think about sort of the rate, because it seems like if you keep up that rate, you'll finish that up in the first half of '08.

Don R. Chappel - Senior Vice President and Chief Financial Officer

We're not going to provide guidance in terms of our timing. I think it will be a function of what's happening in the market. And obviously, we'd like to buy the shares at the lowest possible cost.

Unidentified Analyst

Got you. And then as far as drop downs for the MLPs, should we think about sort of the same rate that you guys have already started out as far as what you've done with WPZ in terms of in general for both?

Don R. Chappel - Senior Vice President and Chief Financial Officer

Yes, we've chosen not to give guidance for either WPZ or WNZ, so I really can't comment on it. But certainly we're intent on ensuring that both MLPs remain healthy. We see both as growth MLPs. As such, we think that we will have a very attractive cost of capital from those MLP issuances.

In terms of specific guidance, I really can't provide any other than to say it's our intention to continue to support the two MLPs and continue to achieve statuses of a growth MLP with attractive cost of capital.

Unidentified Analyst

Got you. Okay, great. Thanks, guys.

Operator

There's no further questions at this time. For closing remarks, I'd like to turn it back over to Mr. Steve Malcolm.

Steven J. Malcolm - Chairman, President, and Chief Executive Officer

Again, we're delighted with our 2007. We're equally excited about our future and appreciate your interest today. Thank you.

Operator

That concludes today's conference. We appreciate your participation. You may now disconnect.

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