El Paso Corp. (ticker: EP, exchange: New York Stock Exchange (.N))
News Release -
El Paso Corporation Finalizes Third Quarter 2001 Full-Cost Ceiling Test Charge and Earnings Per Share
HOUSTON, TEXAS, November 8, 2001
El Paso Corporation (NYSE:EPG) announced today that it finalized its previously estimated third quarter 2001 full-cost ceiling test charge for its oil and gas assets at $91 million after-tax. Previously, the ceiling test charge was estimated at approximately $100 million after-tax. The revised charge relates solely to El Paso's international oil and gas assets. There is no ceiling test charge for the company's domestic oil and gas activities. This revised charge has no impact on El Paso's previously reported adjusted earnings per diluted share of $0.78, which excluded the impact of merger-related and other non-recurring charges, including the revised ceiling test charge. Diluted earnings per share for the quarter, including the effects of these non-recurring charges, was $0.41 per share compared with $0.55 for the same period last year.
El Paso uses the full-cost method of accounting for its oil and gas assets. The full-cost method of accounting requires a company to capitalize substantially all direct costs associated with acquisition, exploration, and development activities. However, the net capitalized costs are subject to a cost ceiling. If capitalized costs exceed the ceiling, a non-cash ceiling test charge against earnings must be recorded to reduce the carrying amount of the related oil and gas properties. The cost ceiling represents the present value (discounted at 10 percent) of net cash flows from sales of future production, using commodity prices on the last day of the quarter or, alternatively, if prices subsequent to that date have increased, a price near the periodic filing date of a company's financial statements. If El Paso had used the prices on the last day of the quarter, the after-tax ceiling test charge would have been approximately $578 million, including a charge of approximately $391 million related to the company's domestic full-cost pool. Using the alternative pricing date, November 1, 2001, natural gas prices had increased substantially, resulting in no impairment charge on El Paso's domestic oil and gas assets.
El Paso also uses financial instruments to hedge a substantial amount of its domestic future production, and these instruments qualify and were designated as hedges under the provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. Had these hedges been considered in the determination of the ceiling test using prices as of September 30, 2001, they would have completely offset any non-cash charge on El Paso's domestic full-cost asset pool at that time. El Paso has not historically hedged a significant portion of its international oil and gas production.
El Paso Corporation is committed to meeting energy needs throughout the United States and the world, with operations that span the energy value chain from wellhead to electron. El Paso Corporation is involved in every segment of the natural gas industry, including production, gathering and processing, and transmission. The company also provides merchant energy services, international project development, energy financing, power generation, and telecommunications services. El Paso is focused on speeding the development of new energy sources to address critical energy shortages across the globe. For more information, please visit www.elpaso.com.