El Paso Corp. (ticker: EP, exchange: New York Stock Exchange (.N))
News Release -
El Paso Corporation Reports $1.57 per Mcfe Domestic Reserve Replacement Costs Before Price-Related Revisions; Proved Reserves Increase to 2.75 Tcfe
- $1.57 per thousand cubic feet equivalent (Mcfe) domestic reserve replacement costs, before price-related revisions
- $2.04 per Mcfe total company reserve replacement costs
- 212 percent total company reserve replacement ratio
- 2.75 trillion cubic feet equivalent (Tcfe) proved reserves, including the Company's proportionate interest in Four Star Oil & Gas Company (Four Star). Proved reserves rose by 8 percent, despite almost 100 billion cubic feet equivalent (Bcfe) of negative reserve revisions due to price
- 573 Bcfe of reserve additions
- Reserves to production ratio of 10 years
- 2009 production averaged 763 million cubic feet equivalent per day (MMcfe/D), with a December exit rate of approximately 750 MMcfe/D
HOUSTON, TEXAS, January 20, 2010—El Paso Corporation (NYSE:EP) reported today that its domestic reserve replacement costs, before reserve revisions due to price, improved to $1.57 per Mcfe. In addition, its proved natural gas and oil reserves at December 31, 2009 totaled 2.75 Tcfe, including 201 Bcfe related to its 48.8 percent interest in Four Star.
"El Paso's improved reserve replacement metrics and growth in proved reserves reflect the repositioning of our portfolio, and the increased capital efficiency of our drilling programs," said Doug Foshee, chairman, president and chief executive officer of El Paso Corporation. "I want to congratulate our E&P team. We are now seeing the fruits of a multi-year continuous improvement effort."
Below is a reconciliation of proved reserves from December 31, 2008 to December 31, 2009.
Proved Reserves (Bcfe)*
Proved Reserves at Dec. 31, 2008 2,547
Sales of Reserves in Place (59)
Extensions and Discoveries 573
Purchases of Reserves in Place 63
Revisions Due to Price (93)
Revisions Other than Price (2)
Proved Reserves at Dec. 31, 2009 2,750
* Year end reserve estimates are based on first day
12-month average prices of $3.87 per MMBtu of natural
gas (Henry Hub) and $61.18 per barrel of oil (WTI) and
include El Paso's interest in Four Star.
Approximately 31 percent of the December 31, 2009 proved reserves are proved undeveloped, and 84 percent are natural gas. While the SEC's rules for booking proved reserves changed for 2009, the impact to El Paso was minimal, beyond the change to a new standard using 12-month average pricing.
El Paso E&P's 2009 capital expenditures were approximately $1.1 billion, which includes approximately $92 million for the acquisition of producing properties completed in late December and approximately $240 million for international expenditures.
2009 Production Update
El Paso also reported that its 2009 production, including its proportional interest in Four Star, averaged 763 MMcfe/D, which is at the high end of its previous guidance of 745-765 MMcfe/D. The company's year-end exit rate was approximately 750 MMcfe/D, driven primarily by strong production growth in the Haynesville Shale program, which had a year-end exit rate of approximately 150 MMcfe/D, gross and 110 MMcfe/D, net.
El Paso Corporation provides natural gas and related energy products in a safe, efficient, and dependable manner. The company owns North America's largest interstate natural gas pipeline system and one of North America's largest independent natural gas producers. For more information, visit www.elpaso.com.
Cautionary Note to U.S. Investors
In this press release, we have disclosed our proved reserves using the SEC's definition of proved reserves under rules effective December 31, 2009. Proved reserves are estimated quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under the assumed economic conditions. Although the SEC now allows companies to report probable and possible reserves, we have elected not to report on such basis. Investors are urged to closely consider the disclosures and risk factors in our Forms 10-K and 10-Q, available from our offices or from our website at http://www.elpaso.com, including the inherent uncertainties in estimating quantities of proved reserves.
The information contained in this release is based on estimates. While the company has made every reasonable effort to ensure that the information and assumptions contained in this release are current, reasonable, and complete, a variety of factors could cause actual results to differ materially from the estimates contained in this release, including, without limitation, changes in unaudited and/or unreviewed financial information; the uncertainty of estimating proved reserves, the future level of service costs, the availability and cost of financing to fund our future exploration and production operations; the effects of any changes in accounting rules and guidance; our ability to meet production estimates in our Exploration and Production segment; changes in commodity prices and basis differentials for oil and natural gas, general economic and weather conditions in geographic regions or markets served by the company and its affiliates, or where operations of the company and its affiliates are located, including the risk of a global recession and negative impact on natural gas demand; political and currency risks associated with international operations of the company and its affiliates; competition; and other factors described in the company's (and its affiliates') Securities and Exchange Commission filings. While the company makes these estimates in good faith, neither the company nor its management can guarantee that such estimates will be achieved. Reference must be made to El Paso's filings for additional important factors that may affect actual results. The company assumes no obligation to publicly update or revise any of the estimates made herein whether as a result of new information, future events, or otherwise.
The reserves and production information in this press release include the production attributable to El Paso's 49 percent interest in Four Star Oil & Gas Company ("Four Star"). The proved reserves attributable to its proportionate share of Four Star represent estimates prepared by El Paso and not those of Four Star.
El Paso calculates two primary metrics, (i) a reserve replacement ratio and (ii) reserve replacement costs, to measure our ability to establish a long-term trend of adding reserves at a reasonable cost in our core asset areas. The reserve replacement ratio is an indicator of our ability to replenish annual production volumes and grow our reserves. It is important for us to economically find and develop new reserves that will more than offset produced volumes and provide for future production given the inherent decline of hydrocarbon reserves. In addition, we calculate reserve replacement costs to assess the cost of adding reserves which is ultimately included in depreciation, depletion and amortization expense. We believe the ability to develop a competitive advantage over other natural gas and oil companies is dependent on adding reserves in our core asset areas at lower costs than our competition. We calculate these metrics as follows:
Reserve replacement ratio Sum of reserve additions(1)
Actual production for the
Reserve replacement costs/Mcfe Total oil and gas capital costs(2)
Sum of reserve additions(1)
1Reserve additions include proved reserves and reflect reserve revisions for prices and performance, extensions, discoveries and other additions and acquisitions and do not include unproved reserve quantities or proved reserve additions attributable to investments accounted for using the equity method.
2Total oil and gas capital costs include the costs of development, exploration and property acquisition activities conducted to add reserves and exclude asset retirement obligations.
Our domestic reserve replacement costs calculation excludes the impact of price revisions on reserves to demonstrate the effectiveness of our domestic drilling program exclusive of economic factors (such as price) outside of our control.
The reserve replacement ratio and reserve replacement costs per unit are statistical indicators that have limitations, including their predictive and comparative value. As an annual measure, the reserve replacement ratio is limited because it typically varies widely based on the extent and timing of new discoveries, project sanctioning and property acquisitions. In addition, since the reserve replacement ratio does not consider the cost or timing of future production of new reserves, it cannot be used as a measure of value creation.
The exploration for and the acquisition and development of natural gas and oil reserves is inherently uncertain as further discussed in the Company's SEC filings. One of these risks and uncertainties is our ability to spend sufficient capital to increase our reserves. While we currently expect to spend such amounts in the future, there are no assurances as to the timing and magnitude of these expenditures or the classification of the proved reserves as developed or undeveloped.
We calculate the statistical measure "reserves to production ratio" to estimate the life of our proved reserves which is calculated by dividing end of year proved reserves by total production for the year. This ratio includes our interest in Four Star. Actual results may differ from this estimate.
These reserves metrics may not be comparable to similarly titled measurements used by other companies.
Investor & Media Relations
Bruce Connery, Vice President
Office: (713) 420-5855
Bill Baerg, Manager
Office: (713) 420-2906