WMB

Williams Companies Inc

We are a natural gas company originally incorporated under the laws of the state of Nevada in 1949 and reincorporated under the laws of the state of Delaware in 1987. We were founded in 1908 when two Williams brothers began a construction company in Fort Smith, Arkansas. Today, we primarily find, produce, gather, process and transport natural gas. Our operations are concentrated in the Pacific Northwest, Rocky Mountains, Gulf Coast, Eastern Seaboard, and the province of Alberta in Canada.

Our principal executive offices are located at One Williams Center, Tulsa, Oklahoma 74172. Our telephone number is 918-573-2000.

In 2009, we used Economic Value Added® (EVA®)1 as the basis for disciplined decision making around the use of capital. EVA® is a tool that considers both financial earnings and a cost of capital in measuring performance. It is based on the idea that earning profits from an economic perspective requires that a company cover not only all of its operating expenses but also all of its capital costs. The two main components of EVA® are net operating profit after taxes and a charge for the opportunity cost of capital. We derive these amounts by making various adjustments to our reported results and financial position, and by applying a cost of capital. We look for opportunities to improve EVA® because we believe there is a strong correlation between EVA® improvement and creation of shareholder value.

STRATEGIC RESTRUCTURING

On February 17, 2010, we completed a strategic restructuring, which involved contributing a substantial majority of our domestic midstream and gas pipeline businesses, including our limited- and general-partner interests in Williams Pipeline Partners L.P. (WMZ), into Williams Partners L.P. (WPZ). As consideration for the asset contributions, we received proceeds from WPZ’s debt issuance of approximately $3.5 billion, less WPZ’s transaction fees and expenses, as well as 203 million WPZ Class C units, which are identical to common units, except for a prorated initial distribution. We also maintained our 2 percent general-partner interest. WPZ assumed approximately $2 billion of existing debt associated with the gas pipeline assets. In connection with the restructuring, we retired $3 billion of our debt and paid $574 million in related premiums. These amounts, as well as other transaction costs, were primarily funded with the cash consideration received from WPZ. As a result of our restructuring, we are better positioned to drive additional growth and pursue value-adding growth strategies. Our new structure is designed to lower capital costs, enhance reliable access to capital markets, and create a greater ability to pursue development projects and acquisitions. (See Note 19 of Notes to Consolidated Financial Statements.)

In conjunction with the restructuring, WPZ has announced its intention to launch an exchange offer for the publicly traded common units of WMZ at a future date. WPZ will offer a fixed exchange ratio of 0.7584 of its common units for each WMZ common unit. The ratio is based on closing prices on the New York Stock Exchange on Friday, January 15, 2010, the business day before WPZ’s intention to make the exchange offer was announced, of $23.35 for WMZ and $30.79 for WPZ. The exact timing of the launch will be based upon the filing of necessary offering documents with the SEC and upon market conditions. If WPZ acquires ownership of more than 75% of WMZ’s outstanding common units pursuant to this offer, WPZ will consider causing the general partner of WMZ to (i) deregister WMZ under the Exchange Act or cause its common units to no longer be traded on the New York Stock Exchange, if these options are available, (ii) exercise its right under the WMZ’s limited partnership agreement to purchase all of the remaining common units or (iii) exercise any other available options.

Beginning with reporting of first-quarter 2010 results, we will change our segment reporting structure to align with the new parent-level focus, resource allocation management and related governance provisions resulting from the restructuring. Our reporting segments will be Williams Partners, Exploration & Production, and Other. Exploration & Production will include our current Gas Marketing Services (Gas Marketing) segment and Other will include certain midstream and gas pipeline businesses that were not contributed to WPZ, such as our Canadian and olefins midstream businesses and the remaining 25.5 percent interest in Gulfstream Natural Gas System, L.L.C. (Gulfstream), as well as corporate operations.

BUSINESS SEGMENTS

Substantially all our operations are conducted through our subsidiaries. To achieve organizational and operating efficiencies, our activities in 2009 were primarily operated through the following business segments:


• Exploration & Production — produces, develops and manages natural gas reserves primarily located in the Rocky Mountain and Mid-Continent regions of the United States and is comprised of several wholly owned and partially owned subsidiaries including Williams Production Company, LLC, and Williams Production RMT Company (RMT).

• Gas Pipeline — includes our interstate natural gas pipelines and pipeline joint venture investments organized under our wholly owned subsidiary, Williams Gas Pipeline Company, LLC (WGP). Gas Pipeline also includes Williams Pipeline Partners L.P. (WMZ), our master limited partnership formed in 2007.

• Midstream Gas & Liquids — includes our natural gas gathering, treating and processing business and is comprised of several wholly owned and partially owned subsidiaries including Williams Field Services Group, LLC and Williams Natural Gas Liquids, Inc. Midstream Gas & Liquids (Midstream) also includes Williams Partners L.P. (WPZ), our master limited partnership formed in 2005.

• Gas Marketing Services — manages our natural gas commodity risk through purchases, sales and other related transactions, under our wholly owned subsidiary Williams Gas Marketing, Inc.

• Other — primarily consists of corporate operations.

Exploration & Production

Our Exploration & Production segment produces, develops, and manages natural gas reserves primarily located in the Rocky Mountain (primarily Colorado, New Mexico, and Wyoming), Mid-Continent (Oklahoma and Texas), and Appalachian regions of the United States. We specialize in natural gas production from tight-sands and shale formations and coal bed methane reserves in the Piceance, San Juan, Powder River, Arkoma, Green River, Fort Worth, and Appalachian basins. Over 99 percent of our domestic reserves are natural gas. We also have international oil and gas interests, which include a 69 percent equity interest in Apco Oil and Gas International Inc. (formerly Apco Argentina Inc., NASDAQ listed: APAGF), an oil and gas exploration and production company with operations in South America. If combined with our domestic proved reserves, our international interests would make up approximately 4 percent of our total proved reserves. Considering this, the reserves information included in this section relates only to our domestic activity.

Our goal is to continue to drill our existing proved undeveloped reserves, which comprise approximately 44 percent of proved reserves, and to drill in areas of probable and possible reserves in order to add to our proved reserves. Our current proved, probable, and possible reserves inventory provides us with strong capital investment opportunities for many years into the future.

On January 14, 2009, the SEC issued the Final Rule for Modernization of Oil and Gas Reporting which modifies how oil and gas companies report reserves estimates. We have adopted the revised SEC oil and gas reporting requirements, effective as of December 31, 2009, with the following effects:


• Applying the expanded definition of oil and gas reserves used for reserves estimation supported by reliable technologies and reasonable certainty.

• Choosing to disclose two alternative reserves sensitivity scenarios.

• Revising proved undeveloped reserves estimates based on new guidance.

• Estimating reserves for SEC disclosure using the 12-month average, first-of-the-month price instead of a single-day, period-end price.

• Incorporating certain additional disclosures around proved undeveloped reserves, internal controls used to ensure objectivity of the estimation process, and qualifications of those preparing and/or auditing the reserves.

Gas Pipeline

We own and operate a combined total of approximately 13,900 miles of pipelines with a total annual throughput of approximately 2,700 TBtu of natural gas and peak-day delivery capacity of approximately 12 MMdt of gas. Gas Pipeline consists of Transcontinental Gas Pipe Line Company, LLC (Transco) and Northwest Pipeline GP (Northwest Pipeline). Gas Pipeline also holds interests in joint venture interstate and intrastate natural gas pipeline systems including a 50 percent interest in Gulfstream. Gas Pipeline also includes WMZ.

Transco

Transco is an interstate natural gas transportation company that owns and operates a 10,000-mile natural gas pipeline system extending from Texas, Louisiana, Mississippi and the offshore Gulf of Mexico through Alabama, Georgia, South Carolina, North Carolina, Virginia, Maryland, Pennsylvania, and New Jersey to the New York City metropolitan area. The system serves customers in Texas and 11 southeast and Atlantic seaboard states, including major metropolitan areas in Georgia, North Carolina, Washington, D.C., New York, New Jersey, and Pennsylvania.

Midstream Gas & Liquids

Our Midstream segment, one of the nation’s largest natural gas gatherers and processors, has primary service areas concentrated in major producing basins in Colorado, New Mexico, Wyoming, the Gulf of Mexico, Pennsylvania, and western Canada. Midstream’s primary businesses — natural gas gathering, treating, and processing; NGL fractionation, storage and transportation; and oil transportation — fall within the middle of the process of taking raw natural gas and crude oil from the producing fields to the consumer. NGLs, ethylene and propylene are extracted/produced at our plants, including our Canadian and Gulf Coast olefins plants. These products are used primarily for the manufacture of petrochemicals, home heating fuels and refinery feedstock.

Key variables for the Midstream business will continue to be:


• Retaining and attracting customers by continuing to provide reliable services;

• Revenue growth associated with additional infrastructure either completed or currently under construction;

• Disciplined growth in our core service areas and new step-out areas;

• Prices impacting our commodity-based processing and olefin activities.

Other

We own interests in and/or operate NGL fractionation and storage assets. These assets include two partially owned NGL fractionation facilities: one near Conway, Kansas and the other in Baton Rouge, Louisiana that have a combined capacity in excess of 167 Mbbls/d. We also own approximately 20 million barrels of NGL storage capacity in central Kansas near Conway.

We own an equity interest in and operate the facilities of Discovery Producer Services LLC and its subsidiary Discovery Gas Transmission LLC (collectively, Discovery) through our interest in WPZ. Discovery’s assets include a 600 MMcf/d cryogenic natural gas processing plant near Larose, Louisiana, a 32 Mbbls/d NGL fractionator plant near Paradis, Louisiana and an offshore natural gas gathering and transportation system in the Gulf of Mexico.

We also own a 14.6 percent equity interest in Aux Sable Liquid Products LP and its Channahon, Illinois gas processing and NGL fractionation facility near Chicago. The facility is capable of processing up to 2.1 Bcf/d of natural gas from the Alliance Pipeline system and fractionating approximately 87 Mbbls/d of extracted liquids into NGL products.

In June 2009, we completed the formation of a new joint venture, Laurel Mountain Midstream, LLC (Laurel Mountain), in the Marcellus Shale located in southwest Pennsylvania. Our partner in the venture contributed its existing Appalachian basin gathering system, which currently has an average throughput of approximately 100 MMcf/d. In exchange for a 51 percent interest in the venture, we contributed $100 million and issued a $26 million note payable. In 2010, we expect to significantly increase our investment in our Laurel Mountain joint venture through new gathering system infrastructure construction.

In conjunction with a long-term agreement with a major producer, we will construct a 28-mile natural gas gathering pipeline in the Marcellus Shale region that will deliver to the Transco pipeline. Construction is expected to begin on the 20-inch pipeline in the latter part of 2010, and it is expected to be placed into service during 2011. We will operate the pipeline, which represents our second significant midstream expansion in the Marcellus Shale.

We own a 49.25 percent interest in Accroven SRL which includes two 400 MMcf/d NGL extraction plants, a 50 Mbbls/d NGL fractionation plant and associated storage and refrigeration facilities. Accroven owns and operates gas processing facilities and an NGL fractionation plant for the exclusive benefit of the state-owned oil company, Petróleos de Venezuela S.A. (PDVSA). As a result of deteriorating circumstances for our Venezuelan operations (see Note 2 of Notes to Consolidated Financial Statements), we fully impaired and recognized a $75 million charge related to an other-than-temporary loss in value of our Accroven investment. (See Note 3 of Notes to Consolidated Financial Statements.) Accroven was not part of the operations that were expropriated by the Venezuelan government in May 2009. We are currently engaged in discussions regarding the eventual disposition of Accroven.

EMPLOYEES

At February 1, 2010, we had approximately 4,801 full-time employees. None of our employees are represented by unions or covered by collective bargaining agreements.