El Paso Corp. (ticker: EP, exchange: New York Stock Exchange (.N))
News Release -
El Paso Corporation Announces 2003 Operational and Financial Plan
HOUSTON, Feb. 5 /PRNewswire-FirstCall/ -- El Paso Corporation (NYSE: EP)
announced today its 2003 business plan, which includes financing and liquidity
components as well as specific plans for each of the company's business units.
(Photo: http://www.newscom.com/cgi-bin/prnh/20010205/DAM044LOGO )
"In a volatile industry, we have taken significant steps to reduce
expenses, strengthen our balance sheet, enhance our liquidity position, and
exit the energy trading business. We have moved aggressively to address many
of the issues that affected our industry and our business, and we are
confident that the company is headed in the right direction," said William A.
Wise, chairman and chief executive officer of El Paso Corporation. "We are
focused on creating value for our shareholders by generating stable earnings
and cash flow in our core businesses, strengthening and simplifying our
balance sheet, maximizing liquidity, reducing our debt, and resolving our
Five Point Plan
El Paso's 2003 business plan is based upon five key principles:
Preserve and enhance the value of the company's core businesses
Exit non-core businesses quickly, but prudently
Strengthen and simplify the balance sheet while maximizing liquidity
Aggressively pursue additional cost reductions
Continue to work diligently to resolve litigation and regulatory
El Paso is committed to:
Preserving and enhancing the value of its core businesses-natural gas
pipelines, production, midstream and non-merchant power. The company
will continue to invest efficiently in these businesses to maintain its
leadership positions. The company's capital expenditure plan reflects
that commitment with 87 percent of 2003 capital devoted to the pipeline
and production businesses.
Exiting non-core businesses quickly, but prudently. As previously
announced, El Paso is exiting the trading business and is aggressively
working to liquidate its remaining portfolio. In addition to the $3.9
billion of non-core assets already sold in 2002, the company plans to
sell $2.9 billion of non-core assets in 2003, including the majority of
its remaining petroleum assets, excluding the Aruba refinery. The
petroleum assets have been a drag on earnings and a significant user of
working capital. Exiting the petroleum business will not only provide
cash to pay down debt but will increase liquidity. Finally, the company
intends to exit the LNG business, since the credit and capital demands
of the LNG business are inconsistent with the current financial capacity
of the company.
Strengthening and simplifying the balance sheet while maximizing
liquidity. Capital expenditures have been reduced substantially to
$2.6 billion for 2003. This represents a decrease of 35 percent from
2002 and a 54 percent decrease from 2001.
As part of its ongoing effort to improve liquidity, the company also
announced that it will be reducing its common stock dividend to $.16 per
share annually. While this decision was difficult for the Board of
Directors, this action will provide the company with approximately
$425 million in cash per year and will reduce the company's balance
sheet leverage by more than 1.5 percent per year. Accordingly, the
Board declared a quarterly dividend of $.04 per share payable
April 7, 2003 to shareholders of record as of the close of business
on March 7, 2003.
Through cash flow from operations, the reduced capital program, lower
common stock dividends, and proceeds from asset sales, El Paso expects
to pay down approximately $2.5 billion of debt and minority interest
financings in 2003.
Aggressively pursuing additional cost reductions. The company has set
a target of $150 million in cost reductions for 2003. Reducing costs is
an ongoing effort for the company.
Continuing to work diligently to resolve litigation and regulatory
matters facing the company.
As of January 31, 2003, the Company had $2.6 billion in available
liquidity, as shown in the table below:
Liquidity as of January 31, 2003
Sources: ($ billions)
Available cash $0.6
364-day bank facility* 3.0
Multi-year bank facility* 1.0
Subtotal sources $4.6
364-day facility outstanding ( 1.5)
Multi-year facility letters of credit ( 0.5)
Subtotal uses ($2.0)
Net available liquidity $2.6
As part of its efforts to maximize liquidity, El Paso may draw all or part
of its remaining availability under its existing bank facilities. El Paso's
financial team is working with its lenders to determine whether it would be
advantageous for the company to renegotiate the current bank facilities and
two minority interest structures.
Core Business Strategies
El Paso is committed to preserving and enhancing the value of its pipeline
business through continuous efficiency gains and prudent capital spending
while remaining dedicated to operating its pipelines in a safe and dependable
manner. There is a significant inventory of expansion projects that are
required to meet customer commitments and are supported by long-term contracts
with attractive returns. The company intends to deliver these expansions on
time and on budget, and will continue to look for further cost reductions.
El Paso believes its position as the leader in deep drilling provides the
company with superior economic returns while continuing to build its reserve
base. El Paso Production Company was the most active driller in the U.S. in
2002, and since the Coastal merger in January 2001, the company's prospect
inventory has almost doubled. In large part, this is due to the successful
transfer of the company's South Texas deep-drilling expertise to the Gulf of
Mexico, Canada, and Louisiana. Moving forward, the company's 2003 plan is
focused on South Texas, coalbed methane, and the deep-shelf play in the Gulf
of Mexico. El Paso has been the industry's most active driller in the
deep-shelf play and has rapidly grown its reserve position there due to a
67-percent success rate since 2000. The 2003 capital plan of $1.3 billion,
which is down 48 percent from $2.5 billion last year, is expected to keep
production roughly level with 2002 results.
The company has hedged 40 percent of its expected 2003 natural gas
production at a NYMEX price of $3.43 per million British thermal units (MMBtu)
or $3.63 per thousand cubic feet, and 9 percent of its expected crude oil
production at a NYMEX price of $23.49 per barrel.
El Paso has demonstrated that El Paso Energy Partners (NYSE:EPN) is the
most financially efficient way for the company to continue to participate in
the ongoing growth of the midstream sector. The company's past sales to the
master limited partnership have been successful for both the partnership's
unitholders and El Paso. This process is essentially complete, and going
forward the company intends to invest only minimal capital in the midstream
El Paso's core power business consists of plants with long-term sales
agreements that generate dependable earnings and cash flow. Over time, the
company will rationalize the assets in its portfolio that do not earn adequate
returns. As part of the non-core asset disposition program, the company
intends to divest approximately $1.1 billion of power assets in 2003.
For 2003, the company estimates that it will achieve ongoing earnings of
approximately $1.00 per diluted share. This estimate assumes a NYMEX natural
gas spot price of $4.00 per MMBtu.
El Paso plans to make the fourth quarter and full year 2002 financial
statements available concurrent with the filing of its 2002 Form 10-K with the
Securities and Exchange Commission in mid-March 2003. Fourth quarter 2002
earnings are not yet final as a result of the complexity associated with the
company's planned exit from trading and other businesses as well as the early
implementation of EITF 02-3, which eliminates the use of mark-to-market
accounting for certain energy contracts that are not derivatives. Fourth
quarter charges resulting from these decisions are now estimated to total
$500 million to $600 million after-tax.
In addition, El Paso expects to recognize a $450 million to $700 million
after-tax asset impairment charge in the fourth quarter of 2002 relating
principally to the company's Western Australian pipeline investment, telecom
dark fiber, turbine inventory, and other miscellaneous power and merchant
The combination of these charges will result in a reported loss for the
quarter and year.
The company's current expectation for ongoing EBIT for its non-merchant
businesses in 2002 is as follows:
Fourth quarter 2002 Full year 2002
Pipelines 360 1,385
Production 168 797
Midstream 27 160
These EBIT estimates do not include the charges discussed above and are
not presented on the basis of Generally Accepted Accounting Principles (GAAP).
Conference Call, Webcast, and Presentation Slides
El Paso will host a webcast and conference call today to review the 2003
operating and financial plan at 10:30 a.m. Eastern Standard Time (EST).
Please note that the presentation slides to be discussed on the call will be
available for downloading and printing on our Web site at www.elpaso.com in
the For Investors section at approximately 10:00 a.m. EST.
Analysts and institutional investors who wish to participate in the
conference call should dial 973-582-2776 ten minutes prior to the start of the
call. A live webcast of the call also will be available online through our
Web site in the For Investors section.
An audio replay of the conference call will be available through
February 12, 2003 at 973-341-3080 (access code 3728221). The replay will also
be available online through our Web site.
El Paso Corporation is the leading provider of natural gas services and
the largest pipeline company in North America. The company has core
businesses in production, pipelines, midstream services, and power. 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 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. 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, 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; regulatory proceedings, appeals from
regulatory proceedings and any related litigation, including those related to
the pending FERC proceeding; 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 2003 business 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 must be made to those filings for
additional important factors that may affect actual results.
SOURCE El Paso Corporation
/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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