El Paso Corp. (ticker: EP, exchange: New York Stock Exchange (.N))
News Release -
El Paso Corporation Provides Financial and Operational Update
HOUSTON, TEXAS, May 28, 2004—El Paso Corporation
(NYSE: EP) is providing today a progress report on its long-range plan, financial
and operational information for the fourth quarter of 2003 and first quarter
of 2004, and an update on the status of the filing of the company's 2003
Form 10-K and first quarter 2004 Form 10-Q.
The financial information provided herein with respect to the quarter
and year ended December 31, 2003 has not been audited, nor has the financial
information for the quarter ended March 31, 2004, been reviewed by its independent
auditor. This financial information remains subject to further review by El
Paso and its independent auditor and, therefore, is subject to change.
"I am pleased to report that El Paso has made meaningful progress against
the three key challenges the market identified in our long-range plan,"
said Doug Foshee, president and chief executive officer of El Paso Corporation.
"First, we are well ahead of schedule for our asset sales, and we have
received good value for the assets we have sold. Second, we've eliminated
between $40 million and $50 million of annual expenses through a reorganization
that was completed in the first quarter. Third, we've recruited new leadership
for our production business and are aggressively working to restore this business
to profitable growth. Taken together, these results represent significant progress
toward achieving the goals we laid out for the market last December. In addition,
El Paso's first quarter cash flow was higher than anticipated in our plan,
and this is helping us further accelerate our debt reduction."
Long-Range Plan Update
El Paso is ahead of schedule on the goal laid out in its long-range plan to
sell $3.3 billion to $3.9 billion of assets by the end of 2005. Since December
1, 2003, the company has announced the sale of or sold approximately $3.5 billion
of assets. An asset sales tracker is available on El Paso's web site at
The progress in asset sales has led to a significant reduction in the company's
debt. As indicated in the table below, the company's debt, net of cash,
was reduced by approximately $2.4 billion between September 30, 2003 and March
31, 2004. El Paso expects its net debt to be approximately $17 billion at year-end
2004 as about $1.9 billion of previously announced asset sales are expected
to close by then. The closing of those sales will also result in the elimination
of approximately $1 billion of non-recourse debt from the company's balance
sheet. This will be partially offset by approximately $275 million of non-recourse
financing for the Cheyenne Plains Pipeline as discussed below. Additional asset
sales are expected to be announced and completed during 2004.
Unaudited Net Debt ($ Billions)
||Sept. 30, 2003
||Dec. 31, 2003
||March 31, 2004
| Net debt
The Western Energy Settlement will become effective in June 2004 as a result
of a federal court order received this month. On the effective date, the company
will post a minimum of $585 million of collateral in the form of production
properties to support its future payment obligations under the settlement.
El Paso's liquidity increased to approximately $2.7 billion as of March
31, 2004, consisting of $1.5 billion of readily available cash and $1.2 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 $130 million (face value) of
its 7.71 percent Gemstone notes due October 31, 2004 at an average price of
101.6 percent, reducing its debt maturities for the remainder of 2004.
El Paso's cash flow generation has been consistent with its long-range
plan. The table below updates El Paso's net change in cash for the fourth
quarter of 2003, full year 2003 and the first quarter of 2004.
Preliminary Unaudited Financial Information ($ Millions)
Dec. 31, 2003
|Full Year ended
Dec. 31, 2003
March 31, 2004
|Cash flow from operating activities
|Net proceeds from asset sales and other
|Repayment of debt and other
| Net change in
Financial and Operational Update
The pipeline group's financial and operational performance continues
to meet or exceed the assumptions included in the company's long-range
plan, and the inventory of expansion opportunities remains solid. The Cheyenne
Plains Pipeline project, which has a filed cost estimate of $420 million, has
received FERC approval and is currently ahead of schedule with expected completion
in early 2005. The company is in advanced discussions to obtain approximately
$275 million of the capital required for this project through a non-recourse
A key goal of El Paso's long-range plan is to restore the production
business to profitable growth. As part of that process, the company is reviewing
all drilling opportunities and establishing a capital allocation process designed
to produce more predictable results. In addition, the near-term focus is on
a return to leadership in both drilling and operating costs. The company plans
to provide a review of this business in June.
The table below shows the production volumes, realized prices, and operational
and maintenance expenses for the fourth quarter of 2003, full-year 2003, and
the first quarter of 2004.
Dec. 31, 2003
|Full Year ended
Dec. 31, 2003
March 31, 2004
|Realized prices (net of hedges)
|Operating & Maintenance ($/Mcfe)
||Lease operating expenses
||General & administrative expenses
|| Total Operating & Maintenance
The average daily production rate for the second quarter of 2004 through May
19, 2004 is estimated to be 823 million cubic feet equivalent per day (MMcfe/d).
El Paso's marketing business was profitable in the fourth quarter of
2003 and incurred a minor loss in the first quarter of 2004. The keys to its
improved financial performance are cost reduction and improvement in the mark-to-market
value for its Cordova tolling arrangement. The marketing business is also making
solid progress in reducing the number of contract positions in its trading portfolio,
which was comprised of more than 35,000 positions at the end of 2002. El Paso
now expects to have fewer than 6,000 positions at year-end 2004.
El Paso has made steady progress selling domestic power assets during 2004.
In addition, the financial performance of its international power assets has
been slightly ahead of the assumptions included in the long-range plan.
Status of Form 10-K Filing
On May 3, 2004, El Paso issued a press release (see www.elpaso.com) in which
it announced findings of an independent review concerning revisions to the company's
proved oil and natural gas reserves. The independent review supported El Paso's
previous assessment that prior years' financial statements for El Paso
Corporation, El Paso CGP Company (EPCGP), and El Paso Production Holding Company
(EPPH) should be restated. As announced earlier, investors should not rely on
previously filed reports for these registrants until further notice from the
company. The company is in the process of completing the methodology for such
restatements and is working to file a Form 10-K for each entity for 2003 as
soon as possible. Each 2003 Form 10-K will include the required restated financial
statements for prior periods. Currently, the company expects to restate the
financial statements of El Paso Corporation, EPCGP, and EPPH from 1999 through
2003. The first quarter 2004 Form 10-Qs for these registrants will be delayed
pending the filing of the Form 10-Ks.
Because of the delay in the company's filings, the company and certain
of its subsidiaries may not be in compliance with certain of their obligations
to file or deliver to relevant parties their SEC reports under their public
debt indentures and various other financing arrangements. The delay in filing
the 2003 Form 10-Ks does not automatically result in an event of default under
the indentures. Instead, the holders of at least 25 percent of the outstanding
principal amount of any series of debt securities issued under such indentures
would have to provide notice of non-compliance and the company would have between
30 and 90 days to cure the default. El Paso has not received notice from these
debt holders. If the default was not cured and an acceleration of debt securities
were to occur, the company may be unable to meet its payment obligations with
respect to the related indebtedness.
As previously disclosed, the company has received waivers from the lenders
under its $3-billion credit facility and various other financings to address
restatements arising out of revisions to its oil and natural gas reserves and
has received an extension on its time to file financial statements through June
15, 2004 to permit continued access to the facility. The company has begun the
process required to extend the waivers on the credit facility and will provide
an update to the market upon the completion of that process.
2004 Annual Meeting of Stockholders
El Paso is also announcing today that its annual meeting of stockholders will
be held on September 9, 2004. Additional information can be found in a Form
8-K to be filed today.
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 11:30 a.m. Eastern Daylight Time, 10:30 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) 582-2703 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 will also be available through June 4,
2004 by dialing (973) 341-3080 (access code 4810199).
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 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 ability to implement and achieve our objectives in the long-range
plan; any developments arising from additional reviews of the reserve revisions
performed internally or by independent counsel to the Audit Committee; the extent
and time periods involved in the restatement of our prior years' financial results;
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; 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 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.