The Williams Companies Inc. (Williams Companies), a natural gas company, has reported a net income of $1.42 million, or $2.40 per share for the year-end 2008, compared with the net income of $990 million, or $1.63 per share in the previous year.

Highlights:

— Recurring Adjusted EPS Up 24% to $2.15 for the Year 2008

— US Natural Gas Production Climbs 20%; proved reserves rise 200 Bcfe to 4.5 Tcfe

— For the fourth quarter results and 2009 outlook hit by steep decline in commodity prices

– Company cuts expected ’09 capital expenditures by $650 million on expectation of sharply lower energy prices

– Company decides current structure best to manage risk, create value

– Financial condition remains strong, company poised to benefit upon economic recovery

The company has reported that the Williams’ exploration and production and gas pipeline businesses drove the improved results. In 2008, the company received higher net realized average prices for its natural gas production and produced more; both factors contributed to the increased income. Another driver of the improved results was the absence in 2008 of the major level of mark-to-market losses in gas marketing the earlier year.

The company has reported that while the full-year 2008 results are favorable compared with 2007, the sharp turn down in energy commodity prices during the fourth quarter had a negative effect on results in the exploration & production and midstream businesses. Results for both business segments in the last quarter of 2008 were significantly lower than the same period in 2007.

Strong earnings from gas pipeline partly counterbalanced the negative effect of declining energy commodity prices. Gas pipeline benefited from a full year of higher rates on the Transco system that went into effect early in 2007 and from the nature of its contracts, which are insulated from near-term commodity price volatility. Other factors that served to lessen the effect of falling commodity prices include exploration & production’s hedge positions, which cover a significant portion of its production, and fee-based revenues from certain of Midstream’s gathering and processing services. The results also benefited from a reduction in the company’s estimate of the effective deferred state tax rate during the fourth quarter.

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

The company reported that the recurring income from continuing operations, after adjustments to remove the effect of mark-to-market accounting for certain hedges and other derivatives in gas marketing services, was $1,271 million, or $2.15 per share for 2008. On the same adjusted basis, recurring income from continuing operations was $1,051 million, or $1.73 per share, in the previous year.

Favorable performances in the company’s exploration and production and gas pipeline businesses drove the improved results for the year. Reducing the energy commodity prices led to much lower fourth-quarter results in exploration & production and Midstream, which partly counterbalanced these benefits.

The company has reported that the for fourth-quarter 2008, recurring income from continuing operations after mark-to-market adjustments was $192 million, or $0.33 per share, compared with $358 million, or $0.59 per share year-ago quarter.

The company has reported that reduced segment profit in exploration & production and midstream was the key driver of the lower recurring adjusted results in the fourth quarter. The less favorable energy commodity environment during the 2008 period was a key factor in the reduction.

2009 Outlook Down on Expected Very Low Commodity Prices

The company has updated its outlook for commodity price assumptions and its earnings, cash flow and capital expenditure outlook for 2009.

The company has reported that the 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 to remove the effect of mark-to-market accounting.

For 2009, the company has lowered its consolidated segment profit guidance to an array of $1,350 million to $1,925 million and earnings per share of $0.60 to $1.10. The earlier ranges were $1,950 million to $2,900 million and earnings per share of $1.25 to $2.05. The updated expectations for 2009 reflect the effect of sharply lower commodity prices as well as a modestly reduced rate of natural gas production.

The company is decreasing its earlier capital expenditure guidance for 2009 by $650 million. The new range is $2,150 million to $2,450 million. The previous range was $2,800 million to $3,100 million. Williams’ total capital and investment expenditures in 2008 were $3,586 million.

The reduction in the Williams’ total potential capital spending for 2009 mainly reflects the its anticipation for lower spending in exploration & production , midstream and gas pipeline, based on lower energy prices, a slower economy, difficult financial markets and lower expected costs.

Company Decides Current Structure Best to Manage Risk, Create Value

The company’s management and its board announced that they have concluded a review of potential structural changes to the company and determined to leave the structure unchanged.

Williams Companies said that the major factors in its decision was the sharp decrease in energy commodity prices and further deterioration in the macroeconomic environment since early November when it announced the review. Maintaining Williams Companies investment-grade credit ratings while credit markets remain difficult, as well as the extraordinary costs, risks and lost synergies associated with a potential structure change, were other factors that contributed to the decision.

When Williams Companies stated it was assessing a multiple structural changes to enhance shareholder value, it said the macroeconomic environment, credit markets and energy prices would be among factors it considered. The company also announced an intention to maintain its strong credit profile and financial flexibility.

The company’s business mix and strong credit profile position the company to weather the challenging economic and market conditions in 2009 and benefit as the economy recovers.

Chief Executive Officer’s Perspective

Williams delivered very strong performance in 2008, largely on the strength of the first three quarters, said Steve Malcolm, chairman, president and chief executive officer. Even with a fourth quarter that suffered from the effects of global economic conditions, our full-year performance still drove a 24% increase in adjusted earnings per share.

Our 2008 results demonstrate the foundation of value in our businesses. We made significant additions to our reserves while keeping our finding and development costs low and increasing domestic production by 20%.

We again realized the benefit of our business mix and our strategy to manage the anomaly in the Rockies gas market, Malcolm said. Our Midstream business was a buyer of low-cost Rockies natural gas and our exploration & production business again sold the vast majority of its Rockies production into higher- priced markets.

Again, we benefited from strong cash flows in the parts of our business – our gas pipelines and fee-based midstream services – that are relatively insulated from the effects of commodity price changes.

We are not immune from the challenges created by the global economic recession. Given the effects of very low energy commodity prices on our business, we are making adjustments designed to preserve the value-creating capability and future growth of our businesses, Malcolm said.

We expect 2009 to be a challenging year in the industry, but Williams’ liquidity is strong, we have no significant debt payments until 2011 and we are making significant reduction in our capital spending to focus on those areas that best position us to prosper as the economy recovers.