Fitch Expects to Rate Williams Prod. RMT Co. Senior Secured Term Loan 'BB+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--May 16, 2003

Fitch Ratings expects to assign a 'BB+' rating to Williams Production RMT Co.'s (RMT) proposed $400 million senior secured term loan facility due May 2007. The Rating Outlook for RMT is Stable. RMT is an indirect wholly-owned subsidiary of The Williams Companies, Inc. (WMB; senior unsecured debt rated 'B+' by Fitch, Rating Outlook Stable). Proceeds from the term loan along with funds provided by WMB will be utilized by RMT to refinance an existing $1.167 billion secured credit facility, which includes principal, accrued interest and a deferred set up fee.

The rating reflects the underlying collateral package that will secure RMT's term loan, the quality of its reserves, its stable stand alone credit profile and low production and finding & development costs. Factors limiting RMT's rating are its large inventory of proven undeveloped reserves and WMB's ongoing reliance on RMT cash flows to support parent company level debt.

The term loan facility is expected to be secured by a perfected first priority security interest in all of RMT's existing and future oil and gas properties, except those currently under sales agreements or being offered for sale. Pro forma recently announced and contemplated asset sales, RMT had total proved reserves of 1,675 Bcfe at Dec. 31, 2002, which are located in the Piceance basin of Colorado and in the Powder River basin of Wyoming. Based on year-end 2002 gas prices, the value of these reserves provide a 5.0 times (x) total collateral to secured debt coverage ratio. Further growth in RMT's reserve base could occur in 2003 as a result of the reduction in well spacing in the Piceance Basin and the Bureau of Land Management's recent decision to allow additional development in the Powder River Basin. Nevertheless, given the size of the proposed term loan along with the scope of the collateral package, Fitch believes that total collateral to secured debt would approximate 2.0x even in a stressed commodity price scenario.

The Piceance and Powder River are high quality reserve basins due to their predictable production profiles, long-lived nature, minimal development risk and limited exploration requirements. RMT, through its 2001 acquisition of Barrett Resources, has gained expertise in the development of tight-sands and coal bed methane reserves. Over time, RMT's strategy has enabled it to achieve a combined historic production growth rate of 27% per year in the Piceance and Powder River basins for the last five years. Despite this significant growth, RMT has maintained a high R/P ratio of over 15 years. Additionally, because of RMT's familiarity with the geology in these regions, its drilling success rates have recently been in the high 90% range with very low finding and drilling cost. Offsetting some of these strengths is RMT's relatively high percentage of proved undeveloped reserves (approximately 60% of 2002 pro forma proved reserves).

RMT should continue to benefit from its access to firm pipeline transportation out of the Rocky Mountain region. All of RMT's production comes from the Rocky Mountain region where natural gas wellhead prices have traded at substantial discounts to other producing basins. However, through firm capacity contracts with the Trailblazer and TransColorado pipelines, RMT is able to sell nearly two-thirds of its gas production in the Mid Continent and San Juan markets instead of the Rockies, largely avoiding the basis risk that negatively impacts other gas producers in the region. Fitch also notes that the recently completed expansion of Kern River Gas Transmission should further improve regional gas price dynamics.

Pro forma to reflect the benefits of receiving gains from hedges, its recent asset sales and the proposed refinancing, 2002 EBITDA interest coverage would exceed 7.0x and debt/EBITDA would be near 2.0x, both well within the rating category. RMT's pro forma debt-to-total capital would be in the low 20% range and its debt per mcfe would be below $0.40. Given the fact that RMT is 80% hedged through June 2004, the company should achieve comparable ratios in the next 18 months. Furthermore, with additional reserves likely to be added in 2003 through the drill bit, RMT's debt per mcfe ratio should improve. In a mid cycle pricing environment of $2.50 per mcf, RMT expects EBITDA interest coverage in excess of 5.0x and debt to EBITDA of less than 3.5x. However, RMT's stable standalone financial profile is offset by the indirect financial pressure resulting from the substantial debt burden at WMB.