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El Paso Corporation Reports 83 Percent Increase in First Quarter Adjusted EPS
HOUSTON, TX - May 8, 2008 - El Paso Corporation (NYSE:EP ) is reporting today first quarter 2008 financial and operational results for the company.
Highlights:
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-- $0.29 earnings per diluted
share from continuing operations versus a
loss of $0.08 in 2007
-- Pipeline earnings before interest expense and taxes (EBIT)
and
throughput up 5 percent and 7 percent, respectively,
from first quarter
2007
-- Exploration & Production (E&P) EBIT up 35 percent versus
first quarter
2007
-- Production, including unconsolidated affiliate volumes,
totaled 886
million cubic feet equivalent per day (MMcfe/d) -- an 8
percent increase
over first quarter 2007
-- Expanded hedge position for 2008 and 2009. Oil hedges
for 2009 ensure
approximately $105 million of incremental revenues
versus 2008.
"Our first quarter results
provide a great start to the year," said Doug Foshee,
president and chief executive officer for El Paso
Corporation. "We achieved solid results from both our
Pipeline and E&P businesses, as well as an 18 percent
reduction in interest expense. Looking forward, we expect to
realize sharply higher earnings than our $1.00 to $1.10
earnings guidance for 2008 as our hedging strategy has
enabled us to participate in improved natural gas and oil
prices."
Financial Results - Three Months
Ended March 31, 2008
For the three months ended March
31, 2008, El Paso reported net income available to common
stockholders of $200 million, or $0.29 per diluted share,
compared with $620 million, or $0.89 per diluted share, for
the first three months of 2007. Results for 2007 include
$677 million, or $0.97 per diluted share, of income from
discontinued operations, which includes a $651-million, or
$0.94-per-diluted-share-gain from the sale of ANR Pipeline
and related assets. The 2007 net loss from continuing
operations to common stockholders was $ 48 million, or $0.08
per diluted share.
Financial
Results Three Months Ended
March
31,
($ in millions, except per share amounts)
2008 2007
-------------
------------
Income (loss) from continuing operations $ 219
$ (48)
Discontinued operations, net of income taxes
- 677
-------------
------------
Net income
219 629
Preferred stock dividends(1)
19 9
-------------
------------
Net income available to common stockholders $ 200
$ 620
=============
============
Basic and diluted per common share
amounts
Income (loss) from continuing operations $ 0.29
$ (0.08)
Discontinued operations
- 0.97
-------------
------------
Net income per common share $ 0.29
$ 0.89
=============
============
(1) Due to timing, 2008 includes two
quarters of preferred stock dividends
Items Impacting Quarterly Results
First quarter 2008 and 2007 net income includes the following
items:
First Quarter 2008
($ millions, except per share
amounts) Before After Diluted
Tax
Tax EPS
--------
-------- --------
Net income available to common shareholders $
200 $ 0.29
Adjustments(1)
Change in fair value of production-
related derivatives $ 21 $
13 $ 0.02
Change in fair value of power contracts 41
26 0.04
Change in fair value of legacy
indemnification 43
28 0.04
Case Corporation indemnification (65)
(27) (0.04)
Gain on sale of portion of
telecommunications business (18)
(12) (0.02)
--------
Adjusted EPS--continuing
operations(2) $ 0.33
========
(1) Assumes a 36 percent tax rate,
except for Case Corporation
indemnification, and 701 million diluted shares
(2) Based upon 767 million fully diluted shares and includes
income impact
from dilutive securities
First Quarter 2007
($ millions, except per share
amounts) Before After Diluted
Tax
Tax EPS
--------
-------- --------
Net income available to common
shareholders $
620 $ 0.89
Adjustments(1)
Change in fair value of production-
related derivatives $ 87 $
56 $ 0.08
Debt repurchase costs 201
128 0.18
Discontinued operations (ANR) (1,048)
(677) (0.97)
--------
Adjusted EPS - continuing
operations(2) $ 0.18
========
(1) Assumes a 36 percent tax rate,
except for discontinued operations, and
694 million diluted shares
(2) Based upon 756 million diluted shares and includes the
income impact
from dilutive securities
Business Unit Financial Update
Segment EBIT Results Three Months
Ended March 31,
($ in millions)
2008 2007
------------
------------
Pipeline Group $ 381
$ 364
Exploration and Production
242 179
Marketing
(60) (135)
Power
(2) 18
Corporate and Other
39 (210)
------------
------------
$ 600
$ 216
============
============
Pipeline Group
The Pipeline Group's EBIT for the
three months ended March 31, 2008, was $381 million, compared
with $364 million for the same period in 2007. The increase is
primarily due to incremental revenues from several expansion
projects that went into service during 2007 and 2008, including
Cypress Phase I, Northeast ConneXion New England, Yuma Lateral,
and Kanda Lateral; favorable fuel costs and revenue tracker
adjustments on Colorado Interstate Gas (CIG) system; and the
receipt of $29 million in settlement of Calpine's approved plan
of reorganization. Partially offsetting these favorable impacts
were $16 million of impairment costs, principally related to the
cancellation of the Essex-Middlesex project. First quarter 2008
results include $9 million of minority interest expenses
associated with El Paso Pipeline Partners, L.P. (NYSE:EPB -
News), which became a public partnership in November 2007.
Three
Months Ended
Pipeline Group Results March
31,
($ in millions)
2008 2007
-----------
-----------
EBIT before minority interest $ 390
$ 364
Minority interest
9 -
-----------
-----------
EBIT $ 381
$ 364
DD&A $ 99
$ 94
Total throughput
(BBtu/d)(1) 19,321 18,040
(1) Includes proportionate share of
jointly owned pipelines
Exploration and Production
The Exploration and Production
segment's EBIT for the three months ended March 31, 2008, was
$242 million, compared with $179 million for the same period in
2007. The increase is primarily due to higher production and
higher realized commodity prices, partially offset by a
mark-to-market loss of $35 million for changes in fair value of
derivatives not designated as hedges.
First quarter 2008 production
volumes averaged 886 MMcfe/d, including unconsolidated affiliate
production volumes of 75 MMcfe/d. First quarter 2007 production
volumes averaged 820 MMcfe/d, including 70 MMcfe/d of
unconsolidated affiliate production volumes. The increase
reflects successful drilling programs and acquisitions in 2007.
Reported production volumes in the first quarter 2008 associated
with properties sold during the quarter averaged 88 MMcfe/d.
Despite industry inflation, total
per-unit cash operating costs decreased to an average of $1.92
per thousand cubic feet equivalent (Mcfe) in first quarter 2008
from $1.99 per Mcfe for the same 2007 period. The improvement is
primarily a result of reduced production costs resulting from
lower workover activity levels, partially offset by higher
production taxes related to higher revenues.
Exploration and Production Results Three
Months Ended
March 31,
($ in millions, except prices and unit cost amounts)
2008 2007
-------- ---------
Natural gas, oil, condensate and NGL revenue $
627 $ 496
Changes in fair value of derivative contracts(1)
(35) 3
Other revenues
11 6
-------- ---------
Total Operating Revenues $
603 $ 505
Operating Expenses
377 328
Other income
16 2
-------- ---------
EBIT $
242 $ 179
DD&A $
212 $ 170
Consolidated volumes:
Natural gas sales volumes (MMcf/d)
679 630
Oil, condensate, and NGL sales volumes (MBbls/d)
22 20
Total consolidated equivalent sales
volumes (MMcfe/d) 811 750
Four Star total equivalent sales volumes (MMcfe/d)(2)
75 70
Weighted average realized prices
including hedges3
Natural gas ($/Mcf) $
7.57 $ 7.19
Oil, condensate, and NGL ($/Bbl) $
79.74 $ 49.32
Transportation costs3
Natural gas ($/Mcf) $
0.28 $ 0.31
Oil, condensate, and NGL ($/Bbl) $
0.71 $ 0.76
Per-unit costs ($/Mcfe)(3)
Depreciation, depletion, and amortization $
2.87 $ 2.52
Cash operating costs(4) $
1.92 $ 1.99
(1) Represents contracts not
designated as accounting hedges.
(2) Four Star is an equity investment. Amounts disclosed
represent the
company's proportionate share.
(3) Does not include proportionate share of Four Star.
(4) Includes lease operating costs, production-related taxes,
G&A expenses,
and taxes other than production and income.
Updated Hedge Positions
El Paso has updated its hedge positions
for 2008 and 2009. As of May 2, 2008, natural gas hedges for the
last nine months of 2008 have an average floor price of $7.94 per
million British thermal unit (MMBtu) and an average ceiling price of
$10.24 per MMBtu on 153 trillion British thermal units (TBtu). They
are weighted toward April through October production, with November
and December production hedged at approximately 50 percent of
anticipated production. In addition, El Paso hedged 2.6 million
barrels of 2008 crude oil production with an average floor price of
$79.51 per barrel and an average ceiling price of $79.97 per barrel.
The 2009 natural gas hedges have an average floor price of $8.27 per
MMBtu on 76 TBtu and an average ceiling price of $12.12 per MMBtu on
93 TBtu. Of the total 2009 natural gas hedges, 24 TBtu consists of
collars on January through March production with floor prices of
$9.00 per MMBtu and ceiling prices of $18.22 per MMBtu. El Paso has
oil hedges for 2009 on 3.4 million barrels of crude oil at an
average fixed price of $109.93 per barrel. Further information on
the company's hedging activities will be available in El Paso's Form
10-Q.
Other Operations
Marketing
The Marketing segment reported an EBIT
loss of $60 million for the three months ended March 31, 2008,
compared with an EBIT loss of $135 million for the same period in
2007. Changes in the fair value of derivatives intended to manage
the price risk of the company's natural gas and oil production
resulted in a 2008 first quarter loss of $21 million, compared to a
2007 first quarter loss of $87 million. First quarter 2008 results
also include a $41-million loss related to the change in fair value
of power contracts in the Pennsylvania-New Jersey-Maryland (PJM)
region, compared with a $17-million loss in the comparable period in
2007. The 2008 loss is due to lower interest rates, higher capacity
prices and an unfavorable change in the basis between the western
and eastern regions of the power pool. During the first quarter of
2008, El Paso hedged the price of capacity through the remainder of
the contract term. First quarter 2007 results include a $13-million
loss on the assignment of an option contract to supply natural gas
to the northeast United States.
Power
The Power segment reported an EBIT loss
of $2 million for the three months ended March 31, 2008, compared
with EBIT of $18 million for the same period in 2007. The decrease
is primarily due to a $13-million reduction in earnings from the
Porto Velho project in Brazil.
Corporate and Other
During the first quarter of 2008,
Corporate and Other reported EBIT of $39 million compared with an
EBIT loss of $210 million for the same period in 2007. First quarter
2008 results were positively impacted by a $65-million reduction of
the company's liability related to the indemnification of medical
benefits for retirees of the Case Corporation, offset by a
$43-million mark-to-market loss related to changes in fair value of
a legacy indemnification from the sale of an ammonia facility. First
quarter 2007 results were impacted by a $201-million charge for debt
repurchase costs and $25 million of unfavorable changes in
litigation, insurance, and other reserves.
Detailed operating statistics for each
of El Paso's businesses will be posted at
www.elpaso.com in the Investors section.
Webcast Information
El Paso Corporation has scheduled a live
webcast of its first quarter 2008 results on May 8, 2008, beginning
at 10:00 a.m. Eastern Time, 9:00 a.m. Central Time, which may be
accessed online through El Paso's Web site at
www.elpaso.com in the Investors section. During the webcast,
management will refer to slides that will be posted on the Web site.
The slides will be available one hour before the webcast and can be
accessed in the Investors section. A limited number of telephone
lines will also be available to participants by dialing
(888)710-3574 (conference ID # 44237134) ten minutes prior to the
start of the webcast.
A replay of the webcast will be
available online through the company's Web site in the Investors
section. A telephone audio replay will be also available through May
15, 2008, by dialing (800)642-1687 (conference ID # 44237134). If
you have any questions regarding this procedure, please contact
Margie Fox at (713) 420-2903.
Disclosure of Non-GAAP Financial
Measures
The SEC's Regulation G applies to any
public disclosure or release of material information that includes a
non-GAAP financial measure. In the event of such a disclosure or
release, Regulation G requires (i) the presentation of the most
directly comparable financial measure calculated and presented in
accordance with GAAP and (ii) a reconciliation of the differences
between the non-GAAP financial measure presented and the most
directly comparable financial measure calculated and presented in
accordance with GAAP. The required presentations and reconciliations
are attached. Additional detail regarding non-GAAP financial
measures can be reviewed in El Paso's full operating statistics,
which will be posted at
www.elpaso.com in the Investors section.
El Paso uses the non-GAAP financial
measure "earnings before interest expense and income taxes" or "EBIT"
to assess the operating results and effectiveness of the company and
its business segments. The company defines EBIT as net income (loss)
adjusted for (i) items that do not impact its income (loss) from
continuing operations, such as extraordinary items, discontinued
operations, and the impact of accounting changes; (ii) income taxes;
and (iii) interest and debt expense. The company excludes interest
and debt expense so that investors may evaluate the company's
operating results without regard to its financing methods or capital
structure. El Paso's business operations consist of both
consolidated businesses as well as investments in unconsolidated
affiliates. As a result, the company believes that EBIT, which
includes the results of both these consolidated and unconsolidated
operations, is useful to its investors because it allows them to
evaluate more effectively the performance of all of El Paso's
businesses and investments. Exploration and Production per-unit
total cash costs or cash operating costs equal total operating
expenses less DD&A and cost of products and services divided by
total production. It is a valuable measure of operating efficiency.
For 2008, Adjusted EPS is earnings per share from continuing
operations excluding the loss related to the change in fair value of
an indemnification from the sale of an ammonia plant in 2005, the
gain related to an adjustment of the liability for indemnification
of medical benefits for retirees of the Case Corporation, gain
related to the disposition of a portion of the company's investment
in its telecommunications business, changes in fair value of power
contracts and changes in fair value of the production-related
derivatives in the Marketing segment during the quarter. For 2007,
Adjusted EPS is earnings per share from continuing operations
excluding changes in fair value of production-related derivatives in
the Marketing segment and debt repurchase costs. Adjusted EPS is
useful in analyzing the company's on-going earnings potential.
El Paso believes that the non-GAAP
financial measures described above are also useful to investors
because these measurements are used by many companies in the
industry as a measurement of operating and financial performance and
are commonly employed by financial analysts and others to evaluate
the operating and financial performance of the company and its
business segments and to compare the operating and financial
performance of the company and its business segments with the
performance of other companies within the industry.
These non-GAAP financial measures may
not be comparable to similarly titled measurements used by other
companies and should not be used as a substitute for net income,
earnings per share or other GAAP operating measurements.
El Paso Corporation provides natural gas
and related energy products in a safe, efficient, and dependable
manner. El Paso owns North America's largest interstate natural gas
pipeline system and one of North America's largest independent
natural gas producers. For more information, visit
www.elpaso.com.
EL PASO
CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per common share amounts)
(UNAUDITED)
Three Months
Ended
March
31,
--------------------
2008
2007
---------
---------
Operating
revenues $ 1,269 $ 1,022
Operating expenses
Cost of products and services
56 55
Operation and maintenance
271 301
Depreciation, depletion and amortization
313 271
Taxes, other than income taxes
79 60
---------
---------
719 687
---------
---------
Operating income
550 335
Earnings from unconsolidated affiliates
37 37
Loss on debt extinguishment
- (201)
Other income, net
22 46
Minority Interest
(9) (1)
---------
---------
50 (119)
---------
---------
Earnings before interest expense, income
taxes, and
other charges
600 216
Interest and debt expense
(233) (283)
---------
---------
Income (loss) before income
taxes 367 (67)
Income
taxes 148 (19)
---------
---------
Income (loss) from continuing
operations 219 (48)
Discontinued operations, net of income
taxes - 677
---------
---------
Net
income 219
629
Preferred stock dividends
19 9
---------
---------
Net income available to common
stockholders $ 200 $ 620
=========
=========
Earnings (losses) per common share
Basic
Income (loss) from continuing operations $ 0.29 $
(0.08)
Discontinued operations, net of income taxes
- 0.97
---------
---------
Net income per common share $ 0.29
$ 0.89
=========
=========
Diluted
Income (loss) from continuing operations $ 0.29 $
(0.08)
Discontinued operations, net of income taxes
- 0.97
---------
---------
Net income per common share $ 0.29
$ 0.89
=========
=========
Weighted average common shares
outstanding
Basic
697 694
=========
=========
Diluted
701 694
=========
=========
Dividends declared per common
share $ 0.08 $ 0.04
=========
=========
EL PASO
CORPORATION
SEGMENT INFORMATION
(UNAUDITED)
2008 2007
-------
----------------------------------
(In millions) First First Second Third
Fourth
------- ------- ------- -------
-------
Operating revenues
Pipelines $ 720 $ 644 $ 614 $ 586
$ 650
Exploration and Production 603 505 575
575 645
Marketing (57) (135) (16)
(9) (59)
Power - - -
- -
Corporate and other,
including eliminations (1) 3 8 25
14 26
------- ------- ------- -------
-------
Consolidated total $ 1,269 $ 1,022 $ 1,198 $ 1,166 $
1,262
------- ------- ------- -------
-------
Depreciation, depletion and
amortization
Pipelines $ 99 $ 94 $ 91 $ 94
$ 94
Exploration and Production 212 170 189
194 227
Marketing - 1 1
- 1
Power - - -
1 -
Corporate and other (1) 2 6 5
4 4
------- ------- ------- -------
-------
Consolidated total $ 313 $ 271 $ 286 $ 293
$ 326
------- ------- ------- -------
-------
Operating income (loss)
Pipelines $ 357 $ 324 $ 276 $ 234
$ 277
Exploration and Production 226 177 229
228 252
Marketing (60) (136) (20)
(13) (65)
Power (8) (5) (9)
(9) (3)
Corporate and other (1) 35 (25) (25)
(23) (19)
------- ------- ------- -------
-------
Consolidated total $ 550 $ 335 $ 451 $ 417
$ 442
------- ------- ------- -------
-------
Earnings (losses) before
interest expense and income
taxes (EBIT)
Pipelines $ 381 $ 364 $ 318 $ 275
$ 308
Exploration and Production 242 179 235
232 263
Marketing (60) (135) 5
(8) (64)
Power (2) 18 16
(67) (4)
Corporate and other (1) 39 (210) (104)
51 (20)
------- ------- ------- -------
-------
Consolidated total $ 600 $ 216 $ 470 $ 483
$ 483
------- ------- ------- -------
-------
E&P Cash Costs First Quarter 2008 First Quarter 2007
Per Per
Total Unit Total Unit
($ MM) ($/Mcfe) ($ MM) ($/Mcfe)
------- ------- ------- -------
Total operating expense $ 377 $ 5.11 $ 328 $ 4.86
Depreciation, depletion and
amortization (212) (2.87) 170 (2.52)
Cost of products & services (24) (0.32) 24 (0.35)
------- ------- ------- -------
Per unit cash costs (2) $ 1.92 $ 1.99
------- ------- ------- -------
Total equivalent volumes
(Mmcfe) (2) 73,762 67,442
------- -------
(1) Includes our corporate businesses,
telecommunications business and
residual assets and liabilities of previously sold or
discontinued
businesses.
(2) Excludes volumes and costs associated with equity investment in
Four
Star.
For more information contact :
Investor and Public Relations
Bruce L. Connery
Vice President
Office: (713) 420-5855
Media Relations
Bill Baerg
Manager
Office: (713) 420-2906
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, changes in unaudited and/or unreviewed financial information; our ability to implement and achieve our objectives in our 2008 plan, including achieving our earnings and cash flow targets; changes in reserve estimates based upon internal and third party reserve analyses; the effects of any changes in accounting rules and guidance; our ability to meet production volume targets in our Exploration and Production segment; uncertainties and potential consequences associated with the outcome of governmental investigations, including, without limitation, those related to the reserve revisions; outcome of litigation; our ability to comply with the covenants in our various financing documents; our ability to obtain necessary governmental approvals for proposed pipeline projects and our ability to successfully construct and operate such projects; the risks associated with recontracting of transportation commitments by our pipelines; regulatory uncertainties associated with pipeline rate cases; actions by the credit rating agencies; the successful close of our financing transactions; our ability to close our announced asset sales on a timely basis; changes in commodity prices and basis differentials for oil, natural gas, and power; inability to realize anticipated synergies and cost savings associated with restructurings and divestitures on a timely basis or at all; general economic and weather conditions in geographic regions or markets served by the company 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; 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.
Certain of the production information in this press release include the production attributable to El Paso's 49 percent interest in Four Star Oil & Gas Company ("Four Star"). El Paso's Supplemental Oil and Gas disclosures, which are included in its Annual Report on Form 10-K, reflect its proportionate share of the proved reserves of Four Star separate from its consolidated proved reserves. In addition, the proved reserves attributable to its proportionate share of Four Star represent estimates prepared by El Paso and not those of Four Star.
InvestorIdeas.com Disclaimer: Issuers of press releases are solely responsible for the accuracy of the content.
Source: El Paso Corporation
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