El Paso Corp. (ticker: EP, exchange: New York Stock Exchange (.N))
News Release -
13-May-2003
El Paso Corporation Reports First Quarter 2003 ResultsHOUSTON, May 13, 2003 /PRNewswire-FirstCall via COMTEX/ -- El Paso Corporation (NYSE: EP)
today reported results for the first quarter of 2003, updated its progress on
its 2003 operational and financial plan, and provided further details on its
plan to achieve additional debt reduction beyond 2003.
Quarterly Highlights:
-- Pipeline Group and Production businesses post strong results
-- Field Services results reflect $1.6 billion of asset sales in 2002 to
El Paso Energy Partners and other third parties
-- Merchant Energy Group results reflect lower Power and Trading results,
partially offset by higher Petroleum refining operations
First Quarter Results Quarter Ended March 31
(In millions, except per share amounts) 2003 2002
GAAP net income (loss) $(394) $383
Non-recurring items 534 119
Pro Forma net income $140 $502
GAAP earnings (loss) per share-diluted $(.66) $.72
Non-recurring items .90 .21
Pro forma earnings per share-diluted $.24 $.93
FIRST QUARTER RESULTS
El Paso reported a net loss of $394 million, or $.66 per diluted share,
for the first quarter of 2003, compared with earnings of $383 million, or
$.72 per diluted share, in the first quarter of 2002. On a pro forma basis,
the company had first quarter 2003 income of $140 million, or $.24 per diluted
share, compared with earnings of $502 million, or $.93 per diluted share, in
the first quarter of 2002. First quarter 2003 non-recurring items total
$534 million, or $.90 per diluted share, mostly attributable to impairments of
assets to be sold during 2003, the write-down of El Paso's investment in
Chaparral (Project Electron) to fair market value in anticipation of its
consolidation in the second quarter of 2003, and net gains on asset sales
completed in the first quarter. A complete schedule of non-recurring items is
attached to this release. The primary components are detailed below.
-- Write-down of El Paso's equity investment in Chaparral of
$153 million after-tax, or $.26 per diluted share.
-- Impairment of the company's investment in the Milford power project of
$64 million after-tax, or $.11 per diluted share.
-- Impairment of the Eagle Point refinery of $186 million after-tax, or
$.31 per diluted share. El Paso signed a letter of intent to sell this
asset to Sunoco, Inc. in April.
-- Cost to terminate LNG ship charters of $32 million after-tax, or
$.05 per diluted share.
-- Adoption of SFAS 143 related to asset retirement obligations of
$22 million after-tax, or $.04 per diluted share.
-- Various other items, including the impairment of the company's nitrogen
business, net gains on asset sales, and restructuring costs of
$77 million after-tax, or $.13 per diluted share.
"While the trading business was negatively impacted by the liquidity
constraints that existed in the first quarter, we are very pleased with the
performance of our pipeline, production, and midstream businesses," said
Ronald L. Kuehn, Jr., chairman and chief executive officer of El Paso
Corporation. "The combined pro forma earnings before interest and taxes
(EBIT) of these businesses totaled $713 million, which is up 27 percent from
the fourth quarter of 2002 and 8 percent from the first quarter of 2002. We
are increasingly optimistic about the outlook for our natural gas businesses
as we expect the fundamentals for the natural gas industry to remain strong
for the foreseeable future. We are also very pleased with the progress that
we have made to date on our 2003 operational and financial plan. While we
have more work to do, we are confident that the company is headed in the right
direction, and we are determined to maximize value for our shareholders."
FIRST QUARTER SEGMENT RESULTS
Pipeline Group
The Pipeline Group's first quarter reported EBIT was $429 million, which
compares with reported EBIT of $399 million in 2002. The increase was driven
by expansion projects at Southern Natural Gas and Colorado Interstate Gas
(CIG), the reactivation of the Elba Island LNG facility, higher equity
earnings from pipeline joint ventures, and operating efficiencies. Offsetting
these benefits were the sale of CIG's production properties in July 2002, the
sale of ANR Pipeline's ownership in the Alliance pipeline system in November
2002 and lower revenues at El Paso Natural Gas. Total pipeline throughput
rose 9 percent from 2002 levels due to expansion projects and colder weather.
Pipeline Group Results First Quarter Ended March 31
(In millions) 2003 2002
GAAP Operating Income $384 $357
Equity and Other Income 45 42
Reported EBIT $429 $399
Total throughput (BBtu/d) 23,609 21,727
Production
Production's reported EBIT for the first quarter 2003 totaled $244 million
versus $176 million in 2002. Reported results in 2003 include a $9-million
impairment of an intangible asset related to Canadian properties that have
been sold and $3 million in restructuring costs, while 2002 results include
$33 million of ceiling test charges associated with certain international
properties. First quarter equivalent production declined 24 percent due
largely to significant sales of proved reserves since early 2002. The
realized price for natural gas, net of hedges, rose to $4.60 per thousand
cubic feet (Mcf) in 2003 from $3.46 per Mcf in 2002, while the realized price
for oil, condensate, and liquids, net of hedges, rose to $27.33 from
$15.68 per barrel. While total operating costs declined on an absolute dollar
basis, total per-unit costs increased to an average $2.55 per thousand cubic
feet equivalent (Mcfe) in the first quarter 2003 compared with $1.96 per Mcfe
last year. The per-unit costs were affected by increased production taxes due
largely to higher commodity prices in 2003, higher depletion costs, and
increased corporate expense allocations on lower equivalent production.
The company has hedged 162 trillion British thermal units (TBtu) or
approximately 47 percent of its remaining expected 2003 natural gas production
at a NYMEX price of $3.48 per million British thermal unit (MMBtu) or
$3.69 per Mcf. The company expects that its 2003 realized price for natural
gas will be approximately $.30 less than the NYMEX spot price due to
transportation costs and regional price differentials.
Production Results First Quarter Ended March 31
(In millions) 2003 2002
GAAP Operating Income $235 $175
Equity and Other Income 9 1
Reported EBIT 244 176
Non-recurring items(1) 12 33
Pro forma EBIT $256 $209
Natural gas sales volumes (MMcf) 101,743 133,266
Oil, condensate and liquids sales volumes (MBbls) 3,724 4,988
Total equivalent sales volumes (MMcfe) 124,086 163,193
Weighted average realized prices:
Natural gas ($/Mcf) $4.60 $3.46
Oil, condensate and liquids ($/Bbl) $27.33 $15.68
(1) Non-recurring items include an intangible asset impairment on Canadian
properties and restructuring costs (2003) and ceiling test charges on
certain international properties (2002).
Field Services
Field Services reported EBIT of $27 million for the first quarter
2003 compared with $51 million in 2002. Reported results for 2003 include a
$1-million loss on an asset sale. First quarter 2003 pro forma EBIT was lower
than 2002 levels, primarily due to the sale of $1.6 billion of assets to El
Paso Energy Partners (NYSE: EPN) and other third parties during 2002. The
earnings contribution from El Paso Energy Partners increased to $29 million
this quarter from $15 million during the first quarter of 2002. The
significant decrease in gathering and transportation volumes from prior-year
levels reflects the assets sales, as does the reduction in year-over-year
processing volumes. Gathering and transportation rates improved in 2003
because the remaining midstream assets have a higher average per-unit rate
than the assets that were sold. Processing margins improved as well,
primarily due to higher natural gas liquids prices.
Field Services Results First Quarter Ended March 31
(In millions) 2003 2002
GAAP Operating Income $-- $38
Equity and Other Income 27 13
Reported EBIT 27 51
Non-recurring items(1) 1 --
Pro forma EBIT $28 $51
Gathering and transportation volumes (BBtu/d) 577 5,832
Weighted average gathering and transportation
rate ($/MMBtu) $.22 $.16
Total processing volumes (Inlet BBtu/d) 3,307 4,117
Weighted average processing margins ($/MMBtu) $.11 $.10
Total NGL production (Bbl/d) 97,117 162,052
(1) Non-recurring item - loss on an asset sale
Merchant Energy
The Merchant Energy Group, consisting of domestic and international power,
petroleum and LNG, and energy trading, reported a first quarter 2003 EBIT loss
of $756 million compared with EBIT of $93 million in the prior year period.
Results for 2003 include asset and equity investment impairments, LNG exit
costs, net gains on asset sales, and restructuring costs while 2002 results
include a $342-million impairment of equity investments in Argentina.
El Paso's power business had pro forma first quarter EBIT of $46 million
versus $303 million in 2002. Last year's results benefited from domestic
power plant contract restructurings as well as Project Electron management
fees.
Petroleum and LNG had pro forma EBIT of $47 million in the first quarter
of 2003 versus EBIT of $87 million last year. The decrease was primarily due
to a steam contract termination fee received in 2002 partially offset by
improved current year refining margins at the Eagle Point and Aruba
refineries.
Trading operations had a first quarter pro forma EBIT loss of
$186 million compared with $45 million of EBIT in the same 2002 period. The
company's tight liquidity position during the first quarter of 2003 together
with the cost of exiting trading made it necessary to manage the trading
business for liquidity versus earnings. For example, El Paso sold or
terminated several contracts in order to eliminate the use of working capital
to service these commitments, as well as to continue liquidating its portfolio
pursuant to its announced decision to exit the trading business. These early
liquidations resulted in an estimated loss of $34 million in the quarter.
Preserving liquidity was also a major factor in other trading losses. At
the start of the quarter, the company had a sizeable portfolio of firm
pipeline transportation and storage capacity that it used in conjunction with
the wholesale purchase and sale of natural gas in various areas of the
country. These capacity positions were hedged with financial derivatives.
During the first quarter of 2003, natural gas prices were extremely volatile,
and the basis spread between producing basins, such as the Gulf of Mexico, and
market areas, such as New York and Boston, periodically rose to $10 per Mcf
and higher. To preserve liquidity, the company at times chose not to prepay
for high-priced natural gas for shipment or storage and was unable to fully
offset the costs of these positions and their financial hedges, which resulted
in estimated losses of $66 million in the quarter.
Because El Paso's liquidity is significantly better now due to the
completion of additional asset sales and several financings, together with a
substantial reduction in the size of the transportation and storage portfolios
and their related hedges, these types of losses should be mitigated in the
future. The overall transportation capacity portfolio was reduced by
50 percent in the quarter, from 4.4 billion cubic feet per day (Bcf/d) to
2.2 Bcf/d, while the storage portfolio was reduced by 56 percent, from 125 Bcf
to 55 Bcf. El Paso continues to make substantial progress with respect to the
overall liquidation of its trading book. The company's total remaining
contract positions declined by 33 percent in the first quarter from
approximately 40,000 positions at December 31, 2002 to 27,000 positions at
March 31, 2003, and the company is still on track to reduce the remaining
contracts to below 12,000 positions by year-end 2003.
Merchant Energy Results First Quarter Ended March 31
(In millions) 2003 2002
GAAP Operating Income (Loss) $ (514) $ 455
Equity and Other Income (Loss) (242) (362)
Reported EBIT (Loss) $ (756) $93
Non-recurring items(1) 663 342
Pro forma EBIT (Loss) $(93) $ 435
(1) Non-recurring items include asset and equity investment impairments,
LNG exit costs, net gains on asset sales and restructuring costs
(2003) and the impairment of equity investments in Argentina (2002).
Detailed operating statistics for each of El Paso's businesses are
available at www.elpaso.com in the For Investors section.
INTEREST EXPENSE
Interest expense on outstanding debt and preferred interests of
consolidated subsidiaries (which includes payments on financings such as
preferred securities, Clydesdale, and Trinity River) increased to $384 million
in the first quarter of 2003 versus $347 million in the prior year. The
increase is due to higher average debt balances in 2003 and higher interest
rates on recent debt issuances compared with recent retirements.
Interest Expense and Return on
Preferred Interests of
Consolidated Subsidiaries
First Quarter Ended March 31
(In millions) 2003 2002
Interest expense $345 $307
Return on preferred interests of
consolidated subsidiaries 39 40
Total expense $384 $347
OUTLOOK
El Paso continues to make significant progress on its operational and
financial plan. So far this year, accomplishments include:
-- $2.3 billion, or 67 percent, of the $3.4 billion asset sales program
have been announced or completed
-- Significant improvement in liquidity
-- Simplification of the balance sheet
-- Settlement in principle for the Western energy crisis
-- Extension of $3-billion bank facility
-- $1.9 billion of financings
-- Sale of European natural gas trading book
The company is making additional progress on other fronts. El Paso's
Clean Slate Initiative is moving forward with a goal of achieving a total of
$400 million of cost savings and business efficiencies by the end of 2004.
This compares with the original 2003 goal of $150 million.
Based on current initiatives, El Paso expects to reduce debt and other
obligations by approximately $7.5 billion by mid 2005. This would reduce its
obligations senior to common stock from $25 billion at March 31, 2003, to
approximately $17.5 billion. The path to this goal is well defined-asset
sales, which now include the Aruba refinery, telecommunications assets, and
additional domestic power assets; the recovery of working capital from the
trading and petroleum businesses; natural gas production hedges; and the use
of excess cash to pay down debt.
In order to complete the restructuring of the company, El Paso has formed
a Board-level Long Range Planning Committee that is focused on optimizing and
streamlining the company's core natural gas businesses, achieving additional
debt reduction so that the company can restore an investment grade rating,
maximizing the company's earnings power, and generating free cash flow.
El Paso now expects to achieve pro forma earnings per share for 2003 that
are consistent with the current First Call consensus estimate of $.87 per
share. This is primarily based on a better performance of the trading
business in the last nine months of the year and the continuance of current
natural gas prices. On March 31, 2003, the company said that it expected to
break even on a GAAP basis. Since then, the company has decided to sell the
Aruba refinery, telecommunications assets, and additional domestic power
assets. At this time, the company cannot estimate the impairment for these
assets, however the Aruba refinery and the telecommunications assets have a
combined book value of approximately $1.7 billion.
LIQUIDITY UPDATE
As of April 30, 2003, El Paso had $3.0 billion of available cash and lines
of credit as detailed below.
Sources
(in billions)
Available cash $1.9
2-year bank facility 3.0
Multi-year bank facility 1.0
Subtotal sources $5.9
Uses
2-year bank facility ($1.5)
2-year facility letters of credit (0.5)
Multi-year bank facility (0.5)
Multi-year facility letters of credit (0.4)
Subtotal uses (2.9)
Net available cash and lines of credit $3.0
As of March 31, 2003, El Paso had $1.8 billion of total cash, $1.5 billion
of which was readily available.
CONFERENCE CALL REMINDER; SLIDES TO BE AVAILABLE ON WEB SITE
El Paso Corporation has scheduled a live webcast today at 11:30 a.m.
Eastern Daylight Time, 10:30 a.m. Central Daylight Time, to discuss its
financial results, which may be accessed online through our Web site at
www.elpaso.com in the For Investors section. A limited number of telephone
lines will also be available to participants by dialing 973-339-3086 ten
minutes prior to the start of the webcast.
During the webcast, management will refer to slides that will be posted on
our Web site. The slides will be available 30 minutes before the call and can
be accessed in the For Investors section.
The webcast replay will be available online through our Web site in the
For Investors section. A telephone audio replay will be also available
through May 20, 2003 by dialing 973-341-3080 (access code 3913607).
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 pipelines, production, and midstream services. Rich in assets,
El Paso is committed to developing and delivering new energy supplies and to
meeting the growing demand for new energy infrastructure. 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, our ability to attract and retain qualified
members of the Board of Directors; the successful recruitment and retention of
a qualified CEO; the successful implementation of the 2003 operational and
financial plan; the successful implementation of the settlement related to the
Western Energy Crisis; material and adverse impacts from our proxy contest
with Selim Zilkha/Oscar Wyatt; actions by the credit rating agencies; the
successful close of financing transactions; our ability to successfully exit
the energy trading business; our ability to divest of certain non-core assets;
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; political and currency risks associated with international
operations of the company and its affiliates; inability to realize anticipated
synergies and cost savings associated with restructurings and divestitures on
a timely basis; difficulty in integration of the operations of previously
acquired companies, 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.
Additional Important Information
In this release and the attached income statement we include certain
financial information that is calculated and presented on the basis of
methodologies other than in accordance with generally accepted accounting
principles (GAAP). A presentation of the most directly comparable financial
measure calculated and presented in accordance with GAAP, and a reconciliation
of the differences between each non-GAAP financial measure used in this
presentation with the most directly comparable financial measure calculated
and presented in accordance with GAAP, is provided on our Web site,
www.elpaso.com. This information may be accessed in the For Investors section
by clicking on "First Quarter 2003 Operating Statistics" or by clicking the
"First Quarter 2003 Earnings Review" presentation in the Presentations section
of the For Investors section.
On May 12, 2003, El Paso Corporation began the process of mailing its
definitive proxy statement, together with a WHITE proxy card. Shareholders
are strongly advised to read El Paso's proxy statement as it contains
important information.
Shareholders may obtain an additional copy of El Paso's definitive proxy
statement and any other documents filed by El Paso with the Securities and
Exchange Commission for free at the Internet Web site maintained by the
Securities and Exchange Commission at www.sec.gov. Copies of the definitive
proxy statement are available for free at El Paso's Internet Web site at
www.elpaso.com or by writing to El Paso Corporation, Investor Relations, P.O.
Box 2511, Houston, TX 77252. In addition, copies of El Paso's proxy materials
may be requested by contacting El Paso's proxy solicitor, MacKenzie Partners,
Inc. at (800) 322-2885 Toll-Free or by email at proxy@mackenziepartners.com.
Information regarding the names, affiliation and interests of individuals
who may be deemed participants in the solicitation of proxies of El Paso's
shareholders is contained in El Paso's definitive proxy statement.
EL PASO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Millions, Except per Share Amounts)
(UNAUDITED)
First Quarter Ended
March 31,
2003 2002
Operating revenues $4,018 $3,765
Operating expenses
Cost of products and services 2,508 1,623
Operation and maintenance 612 662
Restructuring costs 75 --
(Gain) loss on long-lived assets 318 (15)
Ceiling test charges -- 33
Depreciation, depletion and amortization 361 365
Taxes, other than income taxes 83 85
3,957 2,753
Operating income 61 1,012
Equity earnings and other income (expense) (185) (299)
Earnings (losses) before interest
expense, income taxes and other charges (124) 713
Interest and debt expense 345 307
Return on preferred interests of
consolidated subsidiaries 39 40
Income (loss) before income taxes (508) 366
Income taxes (133) 118
Income (loss) from continuing operations
before cumulative effect of
accounting changes (375) 248
Discontinued operations, net of income taxes 3 (19)
Cumulative effect of accounting
changes, net of income taxes (22) 154
Net income (loss) $(394) $383
Diluted earnings (losses) per common share $(0.66) $0.72
Diluted average common shares
outstanding (000's) 595,059 538,015
EL PASO CORPORATION
CONSOLIDATED ANALYSIS OF NON-RECURRING ITEMS
(In Millions, Except per Share Amounts)
(UNAUDITED)
First Quarter Ended
March 31,
2003 2002
Reported net income (loss) $(394) $383
Non-recurring items affecting EBIT
Restructuring costs 75 --
Impairment of long-lived assets 368 --
Impairment of equity investments 207 286
Impairments of cost basis investments 86 56
Net gain on sale of long-lived assets (49) --
Net loss on sale of equity investments 11 --
Ceiling test charges -- 33
Total non-recurring items affecting EBIT 698 375
Income tax- tax effect of above non-recurring
items (183) (121)
Discontinued coal operations, net of
income taxes (3) 19
Cumulative effect of accounting
changes, net of income taxes:
Adoption of SFAS No. 143-
retirement obligations 22 --
Adoption of SFAS No. 141- elimination
of negative goodwill -- (154)
Pro forma net income $140 $502
Diluted earnings (losses) per common share:
Pro forma diluted earnings
per common share $0.24 $0.93
Restructuring costs (0.09) --
Impairment of long-lived assets (0.46) --
Impairment of equity investments (0.26) (0.35)
Impairments of cost basis investments (0.11) (0.07)
Net gain on sale of long-lived assets 0.06 --
Net loss on sale of equity investments (0.01) --
Ceiling test charges -- (0.04)
Discontinued coal operations 0.01 (0.03)
Cumulative effect of accounting changes:
Adoption of SFAS No. 143- retirement
obligations (0.04) --
Adoption of SFAS No. 141- elimination
of negative goodwill -- 0.28
Reported diluted earnings (losses)
per common share $(0.66) $0.72
Adjusted pro forma diluted average
common shares outstanding (000's) 595,059 546,472
Reported diluted average common
shares outstanding (000's) 595,059 538,015
EL PASO CORPORATION
SCHEDULE OF NON-RECURRING ITEMS
(UNAUDITED)
First Quarter Ended March 31,
2003 2002
(In Millions) Pre- After- Pre- After-
tax tax tax tax
Restructuring costs
Employee severance, retention and
transition costs $31 $23 $-- $--
LNG charter cancellation and
restructuring costs 44 32 -- --
Total restructuring costs 75 55 -- --
Asset impairments and net (gain)/loss
on sales
Long-lived assets impairment 368 271 -- --
Equity investments impairment 207 153 286 193
Cost basis investments impairment 86 64 56 38
Long-lived assets net gain on sales (49) (36) -- --
Equity investments net loss on sales 11 8 -- --
Total loss on assets 623 460 342 231
Ceiling test charges -- -- 33 23
Total charges impacting EBIT 698 515 375 254
Discontinued operations, net of
income taxes -- (3) -- 19
Cumulative effect of accounting
changes, net of income taxes -- 22 -- (154)
Total non-recurring items $698 $534 $375 $119
First Quarter 2003
Pro forma Non-Rec Reported
Total EBIT by segment EBIT Charges EBIT
Pipelines $429 $-- $429
Production 256 12 244
Merchant Energy (93) 663 (756)
Field Services 28 1 27
Corporate and Other (46) 22 (68)
Total $574 $698 $(124)
First Quarter 2002
Pro forma Non-Rec Reported
Total EBIT by segment EBIT Charges EBIT
Pipelines $399 $-- $399
Production 209 33 176
Merchant Energy 435 342 93
Field Services 51 -- 51
Corporate and Other (6) -- (6)
Total $1,088 $375 $713
SOURCE El Paso Corporation
Norma F. Dunn, Senior Vice President of Communications and
Government Affairs, +1-713-420-3750, fax, +1-713-420-3632, or Bruce L.
Connery, Vice President of Investor Relations, +1-713-420-5855, fax,
+1-713-420-4417, both of El Paso Corporation; or Joele Frank and Dan Katcher,
both of Joele Frank, Wilkinson Brimmer Katcher, +1-212-355-4449, fax,
+1-212-355-4554, for El Paso Corporation
http://www.elpaso.com
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El Paso Corp.
