El Paso Corp. (ticker: EP, exchange: New York Stock Exchange (.N))
News Release -
El Paso Corporation Provides Outlook for 2011, On Track for 2012 Goals
HOUSTON, TX, Jan 27, 2011 (MARKETWIRE via COMTEX) --
El Paso Corporation (NYSE: EP) today announced its financial and operational outlook for 2011.
2011 Financial Highlights
-- $0.90 - $1.05 Adjusted Earnings Per Diluted Share (EPS)
-- $3.3 - $3.5 billion Adjusted Segment Earnings Before Interest, Taxes
and Depreciation, Depletion and Amortization (EBITDA)
-- $2.2 - $2.4 billion Adjusted Segment Earnings Before Interest and
-- $2.1 - $2.3 billion cash flow from operations
-- $3.2 billion capital program
-- $1.7 billion -- Pipeline Group (includes 100 percent of the Ruby
-- $1.3 billion -- Exploration and Production (E&P)
-- $0.2 billion -- Midstream and Corporate
Note: Adjusted EPS, Adjusted Segment EBIT and Adjusted Segment EBITDA exclude mark-to-market impacts from financial derivatives and include cash settlement proceeds of E&P financial derivatives based on guidance assumption prices. Adjusted Segment EBIT and Adjusted Segment EBITDA differ from our prior segment profit measures and are defined below under Disclosure of Non-GAAP Financial Measures.
"El Paso's execution was outstanding in 2010, and our achievements pave the way for further progress in 2011 and beyond," said Doug Foshee, chairman, president and chief executive officer of El Paso Corporation. "This year we will complete five major pipeline and LNG projects, advance our Eagle Ford and Wolfcamp shale oil programs and continue our balance sheet improvement, primarily through our MLP drop down strategy. Our progress will continue in 2012 when we expect to generate significant free cash flow, regain an investment grade profile, and deliver double-digit earnings growth."
2011 Guidance Assumptions The 2011 financial highlights above assume commodity prices of $4.25 per MMBtu for natural gas (Henry Hub) and $85.00 per barrel for oil (WTI). El Paso will continue its MLP drop-down strategy, selling assets to El Paso Pipeline Partners, L.P. as capital markets funding permits. Guidance for 2011 assumes two to three drop-down transactions, the proceeds of which will be used primarily for debt reduction.
Business Plan Highlights
Pipelines During 2011, El Paso's Pipeline Group will complete the balance of its original $8 billion expansion project backlog with the expectation of being within 5 percent of original budget. Projects to go into service during 2011 include the Ruby Pipeline, FGT Phase VIII, TGP 300 Line, Gulf LNG and the second phase of SNG's South System III expansion. Adjusted Segment EBITDA is expected to be approximately $2.2 billion to $2.3 billion, with a $1.7 billion capital budget. Approximately $1.3 billion of the capital budget is allocated to growth projects with $0.4 billion for pipeline integrity and maintenance capital. Construction on El Paso's Ruby Pipeline project continues and is on track with previous guidance provided in November 2010. The remainder of the backlog of committed pipeline and LNG projects remains on time and on budget.
Midstream El Paso's Midstream Group capital budget is expected to be approximately $100 million, net to El Paso, in 2011 and will be directed primarily at expansions of its Altamont and Eagle Ford assets, both of which support El Paso's E&P activities as well as third-party volumes. Negotiations continue with prospective customers for the Marcellus Ethane Pipeline and the Camino Real Pipeline projects.
Exploration and Production El Paso Exploration & Production's 2011 activities will focus on its four core programs -- Eagle Ford (oil), Haynesville, Altamont and Wolfcamp. The 2011 capital budget will be in line with 2010 levels at approximately $1.3 billion, 90 to 95 percent of which will be allocated to domestic programs. More than half of domestic capital will be allocated to oil programs. The remainder of domestic capital will be focused primarily on the Haynesville shale program, which provides solid returns in a sub-$4.00 per Mcf Henry Hub natural gas price environment. El Paso retains the flexibility throughout 2011 to shift capital between the Haynesville and its oil programs as oil and natural gas prices dictate. Adjusted Segment EBITDA is expected to be approximately $1.1 billion to $1.2 billion. The company is evaluating partnership opportunities for the development of the oil portion of its Eagle Ford shale program.
Total production is forecasted to increase by up to 7 percent above 2010 levels to an average of 790 - 840 million cubic feet equivalent per day in 2011. Oil production is expected to grow by 30 to 40 percent from 2010 levels to 17,000 to 18,000 barrels per day. Per-unit cash costs and DD&A rates are expected to be $1.70 - $1.90 per Mcfe and $1.90 - $2.10 per Mcfe, respectively.
Commodity Price Sensitivities El Paso has significant commodity price protection in 2011 with an estimated 75 percent of domestic natural gas production hedged at $5.95 per MMBtu. In addition, approximately 85 percent of oil production is hedged at approximately $86 - $92 per barrel. A one dollar change in the average annual NYMEX price of natural gas would impact 2011 Adjusted Segment EBITDA and Adjusted EPS by approximately $40 million and $0.04 per share, respectively. A $10 increase in the WTI price for oil would raise 2011 Adjusted Segment EBITDA and Adjusted EPS by approximately $40 million and $0.04 per share, respectively, while a $10 decrease would reduce 2011 Adjusted Segment EBITDA and Adjusted EPS by approximately $5 million and less than $0.01 per share, respectively.
Financing Requirements Total liquidity at December 31, 2010 was approximately $2.4 billion, excluding cash and credit facility capacity at the MLP and Ruby. Current liquidity and operating cash flow are expected to be sufficient to fund the 2011 capital plan. El Paso plans to continue its MLP drop-down strategy in order to accelerate its balance sheet improvement.
Webcast Information El Paso Corporation has scheduled a live webcast of its 2011 guidance call on January 27, 2011, beginning at 10 a.m. Eastern Time, 9 a.m. Central Time, which may be accessed online through El Paso's Web site at www.elpaso.com in the Investors section. During the webcast, management will refer to slides that are posted on El Paso's Web site in the Investors section. A limited number of telephone lines will also be available to participants by dialing (866) 865-6644 (conference ID #34419139) 10 minutes prior to the start of the webcast.
A replay of the webcast will be available online through the company's Web site in the Investors section. A telephone audio replay will also be available through February 11, 2011, by dialing (800) 642-1687 (conference ID #34419139). If you have any questions regarding this procedure, please contact Margie Fox at (713) 420-2903.
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 oil and natural gas producers. For more information, visit www.elpaso.com.
Disclosure of Non-GAAP Financial Measures
The SEC's Regulation G applies to any public disclosure or release of material information that includes a non-GAAP financial measure. In the event of such a disclosure or release, Regulation G requires (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. The required presentations and reconciliations are included in the body of this press release.
El Paso uses the non-GAAP financial measure "Segment earnings before interest expense and income taxes" or "Segment EBIT" to assess the operating results and effectiveness of the Company and its business segments. We define Segment EBIT as net income, adjusted for interest and debt expense and income taxes. Segment EBIT has not been reduced for noncontrolling interests. We believe that Segment EBIT is useful to its investors because it allows them to use the same performance measure analyzed internally beginning in 2011 by our management to evaluate the performance of our businesses and investments without regard to our financing methods or capital structure. We also use the non-GAAP financial measure of Segment EBITDA, which is defined as Segment EBIT excluding depreciation, depletion and amortization.
El Paso also uses the terms Adjusted Segment EBIT, Adjusted Segment EBITDA and Adjusted EPS as the company believes these measures are useful to investors in analyzing the company's on-going earnings potential. For its 2011 outlook, the company defines Adjusted Segment EBIT as Segment EBIT excluding mark-to-market impact of financial derivatives and including anticipated cash settlement proceeds of E&P financial derivatives based on guidance assumption prices. Adjusted Segment EBITDA is defined as Adjusted Segment EBIT excluding depreciation, depletion and amortization. For the company's 2011 outlook, Adjusted EPS is defined as earnings per share attributable to El Paso Corporation common stockholders, excluding anticipated mark-to-market impact of financial derivatives and including anticipated cash settlement proceeds of E&P financial derivatives, and the effect of the change in the number of diluted shares.
Our Exploration and Production segment uses per-unit total cash operating costs as a non-GAAP measure calculated on a per Mcfe basis equal to total operating expenses less DD&A, transportation costs, ceiling test and other impairment charges, and the cost of products and services, divided by total equivalent production. Per-unit total cash operating costs is a valuable measure of operating performance and efficiency.
El Paso believes that the non-GAAP financial measures described above are also useful to investors because these measurements are used by many companies in the industry as a measurement of operating and financial performance and are commonly employed by financial analysts and others to evaluate the operating and financial performance of the company and its business segments and to compare the operating and financial performance of the company and its business segments with the performance of other companies within the industry.
These non-GAAP financial measures may not be comparable to similarly titled measurements used by other companies and should not be used as a substitute for net income, earnings per share or other GAAP operating measurements.
Twelve Months Ending
($ Billions) December 31, 2011
Adjusted Segment EBITDA(1,2) $3.3-$3.5
Less: DD&A 1.1
Adjusted Segment EBIT(1,2) $2.2-$2.4
Less: Interest and debt expense 0.9
Less: Income taxes 0.3-0.4
Adjusted net income(2) $1.0-$1.1
Adjustments related to derivatives(3) 0.3
Net income $0.7-$0.8
(1) For 2011, the Company's performance measures were changed to
Segment EBIT and Segment EBITDA, which have not been reduced
for noncontrolling interests.
(2) Amounts exclude MTM impact of financial derivatives, and
include cash settlement proceeds of E&P financial derivatives
based on guidance assumption prices.
(3) All adjustments assume a 36% tax rate.
($ Billions, Except EPS) After-tax Diluted EPS
Net income attributable to EPC common
stockholders $0.4-$0.5 $0.54-$0.69
Adjustments related to derivatives(1) 0.3 0.36
Adjusted net income attributable to
EPC common stockholders $0.7-$0.8 $0.90-$1.05
(1) Amounts represent the after-tax effects of MTM impact of
financial derivatives, and include cash settlement proceeds
of E&P financial derivatives based on guidance assumption
prices. All adjustments assume a 36% tax rate.
Cautionary Statement Regarding Forward-Looking Statements
This release includes certain forward-looking statements and projections. The company has made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable, and complete. However, a variety of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this release, including, without limitation, our ability to execute our strategy of selling assets to El Paso Pipeline Partners, L.P.; our ability to pay dividends declared; changes in unaudited and/or unreviewed financial information; volatility in, and access to, the capital markets; our ability to implement and achieve objectives in our 2011 plan and updated guidance, including achieving our earnings and cash flow targets; the effects of any changes in accounting rules and guidance; our ability to meet production volume targets in our Exploration and Production segment; our ability to successfully identify and finance new Midstream opportunities; our ability to comply with the covenants in our various financing documents; our ability to obtain necessary governmental approvals for proposed pipeline and E&P projects and our ability to successfully construct and operate such projects; the risks associated with recontracting of transportation commitments by our pipelines; regulatory uncertainties associated with pipeline rate cases; actions by the credit rating agencies; the successful close of our financing transactions; credit and performance risk of our lenders, trading counterparties, customers, vendors and suppliers; changes in commodity prices and basis differentials for oil, natural gas, and power; 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; the uncertainties associated with governmental regulation; 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 statements and projections in good faith, neither the company nor its management can guarantee that anticipated future results will be achieved. Reference must be made to those filings for additional important factors that may affect actual results. The company assumes no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the company, whether as a result of new information, future events, or otherwise.
El Paso Corporation
Office: (713) 420-5855
Office: (713) 420-2906
SOURCE: El Paso Corporation