El Paso Corp. (ticker: EP, exchange: New York Stock Exchange (.N))
News Release -
El Paso Corporation Provides Financial and Operational Update
HOUSTON, TEXAS, August 23, 2004—El Paso Corporation
(NYSE: EP) is providing today a progress report on its long-range plan, financial
and operational information for the second quarter of 2004, and an update on
the status of the filing of the company's 2003 Form 10-K and first and
second quarter 2004 Form 10-Qs.
The financial information provided for the quarter and six months
ended June 30, 2004 has not been reviewed by the company's independent
auditor. This financial information remains subject to further review by El Paso
and its independent auditor and, therefore, is subject to change.
"We continue to make solid progress on our long-range plan," said
Doug Foshee, president and chief executive officer of El Paso Corporation.
"With $3.5 billion of asset sales closed or announced, we have effectively
met the asset sales goal that we had targeted for year-end 2005. This has led
to a sharp reduction in debt, and we expect that reduction to continue as we
close as much as $1.8 billion in asset sales in the third quarter of 2004. Our
cash flow has been consistent with our long-range plan, and we continue to benefit
from natural gas and oil prices that are well above plan assumptions. Operationally,
our businesses are performing at or ahead of our expectations, and we are encouraged
by the signs of stability in our production business. Given our progress, I'm
optimistic about the outlook for El Paso."
During the second quarter, El Paso continued to make substantial progress
toward its goal of reducing debt, net of cash, to $15 billion by year-end 2005.
By the end of 2004, El Paso expects its debt, net of cash, to be below
$17 billion, well ahead of its original goal.
Unaudited Net Debt ($ Billions)
||Sept. 30, 2003
||Dec. 31, 2003
||March 31, 2004
||June 30, 2004
|Balance Sheet Cash
| Net debt
El Paso's liquidity was approximately $2.7 billion as of July 31, 2004,
consisting of approximately $1.3 billion of readily available cash and approximately
$1.4 billion of capacity available under its $3-billion bank facility. The company
defines readily available cash as cash on deposit or held in short-term investments
that is easily accessible for general corporate purposes. During the second
quarter of 2004, El Paso purchased approximately $181 million (face value)
of its 7.71-percent Gemstone notes due October 31, 2004 at an average price
of 101.6 percent, reducing its debt maturities for the remainder of 2004.
El Paso's cash flow generation has been consistent with its long-range
plan. The table below updates El Paso's net change in cash for the
first six months of 2004. In the second quarter of 2004, El Paso paid out
$604 million under the terms of the western energy settlement, which was treated
as a use of operating cash.
Preliminary Unaudited Financial Information ($ Millions)
||Six Months ended
June 30, 2004
|Cash flow from operating activities
before western energy settlement
|Western energy settlement
|Cash flow from operating activities
| Net proceeds from asset sales and other
|Repayment of debt and other
| Net change in cash
Operational Update - Regulated Business
The financial results for El Paso's Pipeline Group continue to meet
or exceed the assumptions of El Paso's long-range plan. The outlook
for this business remains solid as a result of several projects that will add
significant capacity to the Group's natural gas pipeline system. In July,
Cheyenne Plains Gas Pipeline Company, L.L.C, a wholly owned, indirect subsidiary
of El Paso Corporation (Cheyenne Plains), commenced construction on a two-phase
project that will transport 755 million cubic feet per day (MMcf/d) of Rocky
Mountain supplies to the Mid-continent region. Phase 1 of this important new
pipeline is expected to be in service in December 2004 with the additional compression
to be in service by the end of 2005. Cheyenne Plains expects to complete an
approximate $275 million non-recourse financing for this project.
Also in the Western Pipeline Group, Wyoming Interstate Company (WIC) announced
in July that it had received binding bids for 350 MMcf/d of capacity on the
Piceance Lateral Expansion project. The company plans to begin construction
in September 2005 and to have the pipeline in service in late 2005 or early
2006, depending upon weather conditions, Federal Energy Regulatory Commission
(FERC) approval, and construction conditions.
In the Eastern Pipeline Group, ANR Pipeline is in the final stages of completion
on its Westleg expansion, which will add approximately 218 MMcf/d of capacity
when it goes into service in November 2004. Two other projects on the ANR system,
Eastleg and Northleg, have each recently received FERC approval. The Eastleg
project will provide incremental capacity of 142 MMcf/d to the ANR system in
2005. The Northleg project will displace approximately 110 MMcf/d that it currently
sources from another pipeline, beginning in 2005.
Southern Natural Gas Company's (SNG) South System II project was recently
placed in-service. The expansion has a design capacity of 330 MMcf/d and increases
the SNG firm transportation capacity along the SNG south mainline to Alabama,
Georgia, and South Carolina.
The company continues to make progress on the new 750 MMcf/d Seafarer Pipeline
project, which will transport gas from a proposed LNG facility in the Bahamas
to southern Florida. The project has secured a customer for all of the firm
capacity and is working toward obtaining all regulatory approvals.
Operational Update - Non-Regulated Businesses
El Paso Production Company is on target to achieve the production and operational
goals established in the business plan that was announced on June 29, 2004.
The company continues to increase its activity, particularly in the Texas Gulf
Coast where El Paso has six rigs currently drilling. In the Gulf of Mexico,
the company recently added a rig and now has two rigs operating.
During the second quarter 2004, the company closed acquisitions in Brazil
(UnoPaso) and the Black Warrior Basin of Alabama totaling $84 million. UnoPaso's
production is ahead of plan, while the coal seam properties it acquired in Alabama
are performing in line with expectations. Also, in July 2004, El Paso sold
its interests in Indonesia for $23 million plus working capital.
The table below shows the production volumes, capital expenditures, realized
prices, and total cash expenses for the first quarter and second quarter of
| Production (MMcfe/d)
|Capital expenditures ($MM)
|Realized prices2 (net of hedges)
|Production costs ($/Mcfe)3
|Other taxes ($/Mcfe)
|General and administrative expenses ($/Mcfe)
| Total cash expenses4
|1 Includes production from Canadian
properties divested during 1Q2004.
2 Realized prices reflect restatement for hedge accounting.
3 Production costs include lease operating expenses plus production
4 Cash expenses equal total operating expenses less DD&A
and other non-cash charges, including ceiling test charges, which have not
The average daily production rate for the third quarter 2004 to date is estimated
to be 803 million cubic feet equivalent per day (MMcfe/d), pro forma for the
At El Paso's marketing business, market volatility, principally the
Cordova tolling arrangement, coupled with the mark-to-market impact of the hedge
accounting restatement resulted in significant losses in the first half of 2004.
The marketing business continues to make good progress in reducing the number
of contract positions in its trading portfolio.
El Paso is also making solid progress selling its domestic power assets. Of
the 38 plants in its domestic inventory at December 31, 2003, 19 have been sold
and 16 are targeted to close by the end of October 2004. El Paso's
international power assets are performing at or above the levels assumed in
its long-range plan. El Paso will provide updates for its power businesses
in today's conference call.
Status of Form 10-K Filing
On August 9, 2004, El Paso issued a press release (see www.elpaso.com) in
which it announced that it expected to file its 2003 Form 10-K by the end of
the third quarter of 2004 and its first quarter and second quarter 2004 Form
10-Qs by November 30, 2004. In that release the company disclosed that a further
restatement of its 2003 Form 10-K was likely as it believed that certain transactions
that were historically treated as hedges for its natural gas production did
not qualify for hedge accounting and that it would restate its 1999 through
2003 financial results accordingly. The company has made a determination that
it must restate for the hedge accounting issue in addition to its previously
announced restatement for the revisions to its natural gas and oil reserves.
The restatement impact for reserve revisions is expected to be as follows:
- Total $2.7-billion pre-tax reduction to value of oil and gas
- Corresponding after-tax reduction in shareholder's equity
- Significantly lower unit DD&A rate in future periods compared to no
- Increase in 2004 net income and lower exposure to ceiling test charges
in the future
- No impact on cash flow for any period
The restatement impact for hedge accounting is expected to be as follows:
- $1.0-billion (pre-tax) cumulative impact on stockholders' equity
at December 31, 2003
- $1.6 billion incremental ceiling test charges
- Partially offset by $0.6 billion lower DD&A
- The restatement should have little, if any, impact on El Paso Production
Holding Company (EPPH) and El Paso CGP Company (EPCGP)
Based upon the restatement for reserve revisions and hedge accounting, the
unit DD&A rate for El Paso's production business by registrant
is estimated to be as follows:
Current Estimate 2004
|DD&A rate ($/Mcfe)
|El Paso Corp.
|El Paso Production Holding Company
|El Paso CGP Company
Preliminary and Unaudited Balance Sheet
The capitalization of El Paso (in $ billions) at June 30, 2004 is estimated
to be as follows:
|Balance sheet cash
|Debt and obligations
|Minority and preferred interests
| Total book capitalization
With the change in hedge accounting, the previous and new hedge positions for
El Paso Production Company's natural gas production are shown below.
New Hedge Position
CONFERENCE CALL REMINDER; SLIDES TO BE AVAILABLE ON WEB SITE
El Paso Corporation has scheduled a live webcast to discuss the matters addressed
in this release today at 10:00 a.m. Eastern Daylight Time, 9:00 a.m. Central
Daylight Time, which may be accessed online through El Paso's Web
site at www.elpaso.com in the Investors section. A limited number of telephone
lines will also be available to participants by dialing (973) 935-8507 ten minutes
prior to the start of the webcast. The company requests that those who do not
intend to ask questions use the webcast option.
During the webcast, management will refer to slides that will be posted on
the Web site. The slides will be available 45 minutes before the webcast and
can be accessed in the Investors section.
The webcast replay will be available online through the Web site in the Investors
section. A telephone audio replay also will be available through August 30,
2004 by dialing (973) 341-3080 (access code 5043240).
El Paso Corporation provides natural gas and related energy products in a
safe, efficient, dependable manner. The company owns North America's largest
natural gas pipeline system and one of North America's largest independent
natural gas producers. For more information, visit www.elpaso.com.
This press 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 press release, including, without
limitation, changes in unaudited and/or unreviewed financial information; the
ability to implement and achieve our objectives in the long-range plan, including
achieving our debt reduction targets; the extent and time periods involved in
the restatement of our prior years' financial results, whether related
to the reserve revisions, the natural gas hedge transactions or otherwise; the
ongoing discussions with the SEC regarding the company's plan for restatement
of prior years' financial results; the potential impact of the restatement
of financial results on our access to capital (including borrowings under credit
arrangements); further changes in reserve estimates based upon internal and
third party reserve analyses; uncertainties associated with the outcome of governmental
investigations, including, without limitation, those related to the reserve
revisions and the natural gas hedge transactions; outcome of litigation including
shareholder derivative and class actions related to reserve revisions and restatements;
consequences arising from the delay in filing of our periodic reports including
the exercise of remedies by the company's lenders under certain bond and
financing arrangements and if such remedies were to be exercised, the company's
potential inability to identify and obtain alternate sources of financing and
the existence of cross-acceleration provisions in various financing agreements;
the successful implementation of the settlement related to the western energy
crisis; actions by the credit rating agencies; the successful close of our financing
transactions; our ability to successfully exit the energy trading business;
our ability to close our announced asset sales on a timely basis; changes in
commodity prices for oil, natural gas, and power; inability to realize anticipated
synergies and cost savings associated with restructurings and divestitures on
a timely basis; 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; 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.
The financial information provided herein with respect to the year ended December
31, 2003 and the quarters ended March 31, 2004 and June 30, 2004 have not been
audited by its independent auditor. This financial information remains subject
to final review and audit by the company and its independent auditor and, therefore,
is subject to change.