El Paso Corp. (ticker: EP, exchange: New York Stock Exchange (.N))
News Release -
8-Nov-2002
El Paso Corporation Announces Third Quarter 2002 Results And Plan To Exit The Energy Trading Business
HOUSTON, Nov. 8 /PRNewswire-FirstCall/ -- El Paso Corporation (NYSE: EP)
today announced its earnings for the third quarter of 2002, which are
summarized in the table below.
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Third Quarter Ended Sept. 30
(In millions, except per share amounts) 2002 2001
Reported net income (loss) $(69) $211
Non-recurring items(1) 58 193
Pro forma net income (loss) $(11) $404
Reported earnings (loss) per share $ (.12) $ .41
Non-recurring items(1) .10 .37
Pro forma earnings (loss) per share $ (.02) $ .78
(1) A table summarizing all non-recurring items is attached to this
release.
The company also announced a plan to exit the energy trading business and
provided an update on the significant progress on its strategic repositioning
plan.
For third quarter of 2002, El Paso reported a net loss of $69 million, or
$.12 per diluted share, which compares with earnings of $211 million, or
$.41 per diluted share, in the third quarter of 2001. On a pro forma basis,
the company reported a loss of $11 million, or $.02 per diluted share,
compared with earnings of $404 million, or $.78 per diluted share, in the
third quarter of 2001. Pro forma results for the third quarter of 2002
exclude a loss of $36 million, or $.06 per diluted share, from the company's
discontinued coal operations and a charge of $22 million, or $.04 per diluted
share, on asset sales, while 2001 pro forma results exclude various
non-recurring charges and income from discontinued operations, which together
totaled $193 million, or $.37 per diluted share.
Third quarter 2002 earnings before interest expense and taxes (EBIT)
totaled $333 million, compared with $648 million in 2001. Third quarter 2001
results include $280 million of non-recurring charges, while 2002 results
include $33 million of non-recurring charges. Cash flow from continuing
operations, after changes in working capital, for the third quarter totaled
$767 million.
"While overall earnings were hurt by weak trading and refining results,
our core businesses of pipelines, production, midstream, and power produced
strong earnings and cash flow in a difficult quarter," said William A. Wise,
chairman and chief executive officer of El Paso. "Our core businesses alone
generated third quarter earnings per share of approximately $.33 after
deducting 100 percent of our financing and corporate/other expenses. We are
moving aggressively to rationalize our weaker businesses and are announcing
today a plan to exit energy trading. We will continue to sharpen our focus on
our core businesses, maintain our strong liquidity position, and lower our
cost structure significantly."
"We have announced or completed $3.6 billion of asset sales to date, and
we are on track to exceed our target of $4 billion by year-end," Wise
continued. "We are confident that these steps will allow us to pursue our
most promising growth initiatives and continue building on the outstanding
results of our core businesses while continuing to strengthen our balance
sheet and credit profile. We believe that our ongoing repositioning efforts
will create value for our shareholders, and we are grateful to our employees
for their hard work and dedication as we continue to execute this
comprehensive long-term strategy."
THIRD QUARTER SEGMENT RESULTS
Pipeline Group
Third quarter EBIT for the Pipeline Group rose 11 percent from 2001 levels
due to expansions, the reactivation of the Elba Island LNG facility, lower
operating expenses, and a $14-million favorable resolution of a processing
issue. The pipelines had solid increases in throughput, with the exception of
El Paso Natural Gas Company, which had an 11-percent decline in throughput due
to a sharp reduction in demand from power plants in California this year.
Third Quarter Ended Sept. 30
(In millions) 2002 2001
Reported EBIT $302 $274
Non-recurring items(1) -- ( 1)
Pro Forma EBIT $302 $273
Total throughput (BBtu/d) 19,608 18,883
(1) Non-recurring items: merger-related costs.
Production
El Paso Production Company's third quarter 2002 EBIT was $179 million
versus $169 million in 2001. The 2001 results included a $135-million ceiling
test charge and a $3-million merger-related charge. Total production declined
14 percent from 2001 levels due to the sale of approximately 1 trillion cubic
feet of natural gas equivalent proved reserves during the first nine months of
this year. The company's realized price for natural gas dropped from
$3.46 per thousand cubic feet (Mcf) in the third quarter of 2001 to $3.21 per
Mcf this year, while the realized price for oil, condensate, and liquids rose
from $21.62 to $22.19 per barrel. Total per unit costs averaged $2.01 per
thousand cubic feet equivalent (Mcfe) in the quarter compared with $1.69 per
Mcfe last year. Per unit costs rose due to higher corporate expense
allocations on lower equivalent production as well as higher reserve
replacement costs.
The company has hedged approximately 50 percent of its expected natural
gas production for the fourth quarter of 2002 at a NYMEX price of $4.15 per
Mcf ($3.92 per million British thermal units (MMBtu)), 38 percent of expected
2003 production at a NYMEX price of $3.64 per Mcf ($3.43 per MMBtu) and
13 percent of expected 2004 production at a NYMEX price of $2.70 per Mcf
($2.55 per MMBtu). The company expects that its realized price for natural
gas will be $0.35 to $0.40 less than the NYMEX per Mcf price due to
transportation costs and regional price differentials.
Third Quarter Ended Sept. 30
(In millions) 2002 2001
Reported EBIT $ 179 $ 169
Non-recurring items(1) -- 138
Pro forma EBIT $ 179 $ 307
Total equivalent sales volumes (MMcf) 144,008 167,742
Weighted average realized prices:
Natural gas ($/Mcf) $ 3.21 $ 3.46
Oil, condensate and liquids ($/Bbl) $22.19 $21.62
(1) Non-recurring items: ceiling test charge and merger-related costs.
Field Services
Field Services' third quarter 2002 results reflect a loss of $11 million,
down from $43 million in EBIT during the third quarter 2001. Last year's
results include $17 million of merger-related charges and other costs while
2002 results reflect a $48-million loss on an asset sale. Third quarter 2002
EBIT and volumes reflect the April 2002 sale of Field Services' Texas
intrastate natural gas transmission system to El Paso Energy Partners (NYSE:
EPN). Gathering and transportation rates improved from 2001 levels due to the
April 2002 asset sale. However, processing rates were lower as a result of
the unfavorable pricing relationship between natural gas prices and natural
gas liquids prices in commodity price-sensitive contracts.
Third Quarter Ended Sept. 30
(In millions) 2002 2001
Reported EBIT $ (11) $ 43
Non-recurring items(1) 48 17
Pro forma EBIT $ 37 $ 60
Gathering and transportation volumes (Bbtu/d) 2,209 6,177
Weighted average gathering
and transportation rate ($MMBtu) $.19 $.14
Total processing volumes (Inlet Bbtu/d) 3,883 4,551
Weighted average processing margins ($/MMBtu) $.11 $.15
Total NGL production (Bbl/d) 153,630 184,063
(1) Non-recurring items: merger-related costs and other charges and a
loss on an asset sale.
Merchant Energy
The Merchant Energy Group's third quarter results reflect a loss of
$171 million compared with EBIT of $253 million in 2001, reflecting lower
income from trading and petroleum refining activities. Last year's third
quarter results included $61 million of merger-related and other charges while
2002 results include a $15-million gain on an asset sale.
The contribution from trading activities declined by $336 million quarter
to quarter. El Paso has been operating its trading business to maximize cash
flow versus earnings. In addition, during the third quarter, mark-to-market
accounting rules for certain energy contracts were changed, and those rules
now disallow the recognition of initial gains. Without this accounting
change, trading would have reported an additional $96 million in the 2002
third quarter. The contribution from El Paso's petroleum operations declined
by $129 million, primarily due to unfavorable results at the company's Aruba
refinery. El Paso's power assets contributed $115 million in the third
quarter of 2002, a decline of $19 million from a year ago.
Third Quarter Ended Sept. 30
(In millions) 2002 2001
Reported EBIT $(171) $253
Non-recurring items(1) (15) 61
Pro forma EBIT $(186) $314
(1) Non-recurring items: merger-related costs, asset impairments, and
other charges and a gain on an asset sale.
Detailed operating statistics for each of El Paso's businesses are
available at http://www.elpaso.com in the "For Investors" section.
PLAN TO EXIT THE ENERGY TRADING BUSINESS
Consistent with the commitments announced in May 2002, the company has
made significant progress in downsizing its trading portfolio, reducing
investment and administrative costs, and limiting the credit demands of
trading on the corporation. Given the substantially diminished business
opportunities in energy trading and the higher capital costs for this
activity, El Paso is announcing a plan to exit this business. The key
component of this plan is to liquidate the trading portfolio in an orderly
manner. In addition, El Paso is working to segregate the credit and balance
sheet demands of trading from the remainder of the corporation through the
creation of a new, separately capitalized subsidiary, Travis Energy Services
L.L.C.
El Paso is planning to transfer the bulk of its energy trading portfolio
to Travis Energy in the first quarter of 2003, with the expectation that the
portfolio will be liquidated within two years. El Paso has requested that the
major credit rating agencies rate Travis Energy as a separate counterparty and
is seeking an investment-grade rating for Travis Energy. El Paso expects to
support Travis Energy's trading portfolio liquidation by credit facilities
with a total capacity of approximately $600 million. El Paso is in active
negotiations with capital providers to supply this funding. The company
expects to pledge the cash flow from liquidating the trading portfolio and to
pledge its 50-percent interests in Citrus Corp. and Great Lakes Gas
Transmission as collateral for this $600 million in incremental credit.
As of September 30, 2002, the trading portfolio had a net asset value of
$968 million. In the fourth quarter, El Paso will fully implement the new
accounting rules that eliminate the use of mark-to-market accounting for
certain energy contracts that are not derivatives (EITF 02-3). The company
expects that this implementation, together with its decision to exit the
energy trading business, will result in an estimated after-tax charge in the
fourth quarter of $400 to $600 million.
BALANCE SHEET AND LIQUIDITY UPDATE
As of September 30, 2002, El Paso had $4.5 billion in total available
liquidity, comprised of $1.3 billion of immediately available cash on hand, a
$3.0-billion 364-day bank revolver and a $1.0-billion multiple-year bank
revolver. The company had $0.3 billion of commercial paper outstanding and
$0.5 billion of letters of credit outstanding under its multi-year bank
revolver.
In 2003, the company intends to fund capital expenditures with operating
cash flow from its core businesses and the cash proceeds from its continuing
asset sale program.
OUTLOOK
The company expects to complete its annual budgeting process and a review
of the impact of the new accounting rules on energy trading within six weeks.
Upon completion of this analysis, El Paso will provide revised earnings and
cash flow guidance for the fourth quarter of 2002 and for 2003.
CONFERENCE CALL REMINDER; CHARTS TO BE AVAILABLE ON WEB SITE
El Paso Corporation has scheduled a conference call today at 10:00 a.m.
Eastern Standard Time, 9:00 a.m. Central Standard Time to discuss its
financial results. The call may be accessed by dialing (973) 582-2734. A
live webcast of the call also will be available online through our Web site at
http://www.elpaso.com in the "For Investors" section. During the conference
call and webcast, management will refer to charts that will be posted on our
Web site. The charts will be available 15 minutes before the call and can be
accessed in the "For Investors" section.
A telephone replay of the conference call will be available through
November 15, 2002 by dialing (973) 341-3080 (access code 3548480). A replay
also can be accessed online through our Web site in the "For Investors"
section.
El Paso Corporation is the leading provider of natural gas services and
the largest pipeline company in North America. The company has leading
positions in natural gas production, gathering and processing, and
transmission, as well as liquefied natural gas transport and receiving,
petroleum logistics, power generation, and merchant energy services. El Paso
Corporation, rich in assets and fully integrated across the natural gas value
chain, is committed to developing new supplies and technologies to deliver
energy. For more information, visit http://www.elpaso.com.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This release includes forward-looking statements and projections, made in
reliance on the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. El Paso Corporation 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, the successful completion of the plan
to exit the energy trading business; the positive acceptance of the exit plan
by the credit rating agencies; the accounting and financial consequences of
the plan to exit the energy trading business; changes in commodity prices for
oil, natural gas, and power; general economic and weather conditions in
geographic regions or markets served by El Paso Corporation and its
affiliates, or where operations of the company and its affiliates are located;
the uncertainties associated with governmental regulation; the uncertainties
associated with regulatory proceedings, appeals from regulatory proceedings,
and any related litigation; political and currency risks associated with
international operations of the company and its affiliates; inability to
realize anticipated synergies and cost savings associated with mergers and
acquisitions or restructurings on a timely basis; difficulty in integration of
the operations of previously acquired companies; competition; the successful
implementation of the Balance Sheet Enhancement Program and the Strategic
Repositioning Plan; 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 should 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
CONSOLIDATED STATEMENTS OF INCOME
(In Millions, Except per Share Amounts)
(UNAUDITED)
Third Quarter Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
Operating revenues $2,656 $3,166 $9,398 $10,890
Operating expenses
Cost of products and services 1,396 1,381 4,481 5,269
Operation and maintenance 645 724 1,891 2,196
Restructuring and merger-related
costs and asset impairments --- 32 405 1,792
Ceiling test charges --- 135 267 135
Depreciation, depletion and
amortization 340 338 1,057 982
Taxes, other than income taxes 64 77 212 291
2,445 2,687 8,313 10,665
Operating income 211 479 1,085 225
Equity earnings and other income 122 169 372 507
Earnings before interest expense,
income taxes and other charges 333 648 1,457 732
Interest and debt expense 342 280 1,008 866
Returns on preferred interests of
consolidated subsidiaries 38 51 121 169
Income (loss) before income taxes (47) 317 328 (303)
Income taxes (14) 102 105 4
Income (loss) from continuing
operations before extraordinary
items and cumulative effect of
accounting changes (33) 215 223 (307)
Discontinued operations,
net of income taxes (36) 1 (122) (1)
Extraordinary items,
net of income taxes --- (5) --- 26
Cumulative effect of accounting
changes, net of income taxes --- --- 168 ---
Net income (loss) $(69) $211 $269 $(282)
Diluted earnings (loss)
per common share $(0.12) $0.41 $0.49 $(0.56)
Diluted average common shares
outstanding (000's) 586,079 519,642 549,326 504,374
EL PASO CORPORATION
CONSOLIDATED ANALYSIS OF NON-RECURRING ITEMS
(In Millions, Except per Share Amounts)
(UNAUDITED)
Third Quarter Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
Reported net income (loss) $(69) $211 $269 $(282)
Non-recurring items affecting EBIT
Changes in accounting estimates (A) --- 113 --- 316
Restructuring and merger-related
costs and asset impairments --- 32 405 1,792
Ceiling test charges --- 135 267 135
Net loss on asset disposals 33 --- 23 ---
Total non-recurring items
affecting EBIT 33 280 695 2,243
Currency loss on Euro bond offering-
reported as interest and debt expense --- --- 45 ---
Income taxes - tax effect of above
non-recurring items (11) (91) (237) (620)
Discontinued coal operations, net of
income taxes 36 (1) 122 1
Extraordinary items, net of income
taxes-FTC ordered asset sales --- 5 --- (26)
Cumulative effect of accounting
changes, net of income taxes
Adoption of Derivatives
Issue C-16 --- --- (14) ---
Adoption of SFAS No. 141 -
elimination of negative
goodwill --- --- (154) ---
Pro forma net income (loss) $(11) $404 $726 $1,316
Diluted earnings (loss) per common
share:
Pro forma diluted earnings per
common share $(0.02) $0.78 $1.32 $2.52
Changes in accounting estimates (A) --- (0.15) --- (0.40)
Restructuring and merger-related
costs and asset impairments --- (0.04) (0.49) (2.49)
Ceiling test charges --- (0.17) (0.33) (0.17)
Net loss on asset disposals (0.04) --- (0.03) ---
Currency loss on Euro bond offering --- --- (0.05) ---
Discontinued coal operations (0.06) --- (0.22) ---
Extraordinary items - FTC ordered
asset sales --- (0.01) --- 0.05
Cumulative effect of accounting
changes
Adoption of Derivatives
Issue C-16 --- --- 0.02 ---
Adoption of SFAS No. 141-
elimination of negative
goodwill --- --- 0.28 ---
Adjustment for antidilution (B) --- --- (0.01) (0.07)
Reported diluted earnings (loss) per
common share $(0.12) $0.41 $0.49 $(0.56)
Reported diluted average common
shares outstanding (000's) 586,079 519,642 549,326 504,374
Adjusted pro forma diluted
average common shares
outstanding (000's) (B) 586,079 528,099 557,138 529,650
(A) Changes in estimates related to environmental liabilities and spare
parts inventories, as discussed in our Form 10-Q for the period ended
September 30, 2001.
(B) Adjusted pro forma diluted earnings (loss) per common share and
adjusted pro forma diluted average common shares outstanding for the
third quarter and nine months ended September 30, 2002 and 2001,
include the impact of securities that are antidilutive for purposes
of reporting under U.S. generally accepted accounting principles. As
a result, these amounts differ from our reported amounts.
EL PASO CORPORATION
SCHEDULE OF NON-RECURRING ITEMS
(UNAUDITED)
Third Quarter Ended September 30,
2002 2001
(In Millions) Pre-tax After-tax Pre-tax After-tax
Restructuring and
merger-related costs
Employee severance,
retention and
transition costs $--- $--- $10 $7
Transaction costs
and fees --- --- 3 2
Business and
operational
integration --- --- 1 1
Merger-related asset
impairments --- --- 4 3
Other --- --- 14 9
Total restructuring
and merger-related
costs --- --- 32 22
Asset impairments --- --- --- ---
Total restructuring
and merger-related
costs and asset
impairments --- --- 32 22
Changes in accounting
estimates --- --- 113 76
Total restructuring
and merger-related
costs, asset
impairments and
other --- --- 145 98
Ceiling test charges --- --- 135 91
Net loss on asset
disposals 33 22 --- ---
Total charges
impacting EBIT 33 22 280 189
Currency Loss --- --- --- ---
Discontinued operations,
net of income taxes --- 36 --- (1)
Extraordinary items,
net of income taxes --- --- --- 5
Cumulative effect of
accounting changes, net
of income taxes --- --- --- ---
Total non-recurring
items $33 $58 $280 $193
Nine Months Ended September 30,
2002 2001
(In Millions) Pre-tax After-tax Pre-tax After-tax
Restructuring and
merger-related costs
Employee severance,
retention and
transition costs $23 $16 $829 $562
Transaction costs and
fees 40 27 70 48
Business and operational
integration --- --- 424 288
Merger-related asset
impairments --- --- 149 101
Other --- --- 213 246
Total restructuring
and merger-related
costs 63 43 1,685 1,245
Asset impairments 342 232 107 73
Total restructuring
and merger-related
costs and asset
impairments 405 275 1,792 1,318
Changes in accounting
estimates --- --- 316 214
Total restructuring
and merger-related
costs, asset
impairments and
other 405 275 2,108 1,532
Ceiling test charges 267 182 135 91
Net loss on asset
disposals 23 15 --- ---
Total charges
impacting EBIT 695 472 2,243 1,623
Currency Loss 45 31 --- ---
Discontinued operations,
net of income taxes --- 122 --- 1
Extraordinary items,
net of income taxes --- --- --- (26)
Cumulative effect of
accounting changes,
net of income taxes --- (168) --- ---
Total non-recurring
items $740 $457 $2,243 $1,598
Third Quarter 2002 Nine Months Ended 2002
Total EBIT by Pro forma Non-Rec Reported Pro forma Non-Rec Reported
segment EBIT Charges EBIT EBIT Charges EBIT
Pipelines $302 $--- $302 $1,025 $1 $1,024
Production 179 --- 179 629 267 362
Merchant Energy (186) (15) (171) 320 338 (18)
Field Services 37 48 (11) 133 39 94
Corporate and Other 34 --- 34 45 50 (5)
Total $366 $33 $333 $2,152 $695 $1,457
Third Quarter 2001 Nine Months Ended 2001
Total EBIT by Pro forma Non-Rec Reported Pro forma Non-Rec Reported
segment EBIT Charges EBIT EBIT Charges EBIT
Pipelines $273 $(1) $274 $1,010 $334 $676
Production 307 138 169 851 208 643
Merchant Energy 314 61 253 972 325 647
Field Services 60 17 43 190 56 134
Corporate and Other (26) 65 (91) (48) 1,320 (1,368)
Total $928 $280 $648 $2,975 $2,243 $732
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SOURCE El Paso Corporation
-0- 11/08/2002
/CONTACT: Communications and Government Affairs - Norma F. Dunn, Senior
Vice President, +1-713-420-3750, or fax, +1-713-420-3632, or Investor
Relations - Bruce L. Connery, Vice President, +1-713-420-5855, or fax,
+1-713-420-4417, both of El Paso Corporation/
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