El Paso Corporation (NYSE: EP)
Highlights:
-- 2.5 trillion cubic feet equivalent (Tcfe) proved
reserves, including the Company's proportionate interest
in Four Star Oil & Gas (Four Star)
-- 595 billion cubic feet equivalent (Bcfe) of reserve
additions prior to revisions
-- 192 percent reserve replacement prior to price-related
revisions
-- $2.87 per million cubic feet equivalent (Mcfe) domestic
reserve replacement costs prior to price-related revisions
-- Increased risked resource potential (which is in addition
to proved reserves) to 3.5 Tcfe
Note: Reserve additions include extensions, discoveries and
purchases of reserves in place
El Paso Corporation (NYSE: EP) reported today that its proved
natural gas and oil reserves at December 31, 2008 totaled 2.5 Tcfe,
including 222 Bcfe related to its 48.8 percent interest in Four
Star.
"El Paso had a very good year in terms of reserve additions,
percentage of reserves replaced and domestic reserve replacement
costs, excluding the effects of significant price-related revisions
at year-end," said Doug Foshee, president and chief executive
officer of El Paso Corporation. "Extensions and discoveries were up
69 percent over 2007 results, which demonstrate significant
improvement in our E&P business. And the $2.87 per Mcfe
domestic reserve replacement costs, excluding price-related
revisions, is our best performance since I joined El Paso in 2003.
While a sharp drop in commodity prices had a significant impact on
year-end reserves, it is important to note that the year-end
reserve calculation assumed very little reduction in service costs,
which have fallen since year end and continue to decline. If we had
calculated our year-end reserves assuming a Henry Hub natural gas
price of $7.00 per MMBtu, $70.00 per barrel WTI pricing and
assuming no further reduction in service costs, El Paso's reserves,
including our interest in Four Star, would have been approximately
3.0 Tcfe."
Below is a reconciliation of consolidated proved reserves from
December 31, 2007 to December 31, 2008, and a summary of El Paso's
proportionate interest in Four Star proved reserves at December 31,
2008.
Consolidated Proved Reserves (Bcfe)*
------------------------------------
Proved Reserves at Dec. 31, 2007 2,853
Production (272)
Sales of Reserves in Place (303)
Extensions and Discoveries** 577
Purchases of Reserves in Place 18
Revisions Due to Price (476)
Revisions Other than Price (72)
Proved Reserves at Dec. 31, 2008 2,325
El Paso's Interest in Four Star Proved Reserves (Bcfe)
-----------------------------------------------------
Four Star at December 31, 2008 222
* Year end reserve estimates are based on $5.71 per MMBtu natural gas
(Henry Hub) and $44.60 per barrel (WTI) oil prices
** 128 Bcfe of reserve extensions and discoveries related to our Altamont
oil properties were based upon a $70 per barrel (WTI) oil prices, but were
ultimately eliminated due to price-related revisions at year end.
Approximately 74 percent of the December 31, 2008, proved
reserves are proved developed, and 92 percent are natural gas.
Approximately 85 percent of price-related revisions are
attributable to the decline in oil and NGL prices. Of the
price-related revisions, approximately 300 Bcfe were domestic, the
largest portion of which was related to the company's Altamont oil
properties. In addition, El Paso did not book any reserves from the
Camarupim (Bia) project in Brazil due to the sharp drop in oil
prices.
El Paso E&P's oil and gas 2008 capital expenditures were
approximately $1.7 billion, which includes approximately $50
million for acquisitions of producing properties and approximately
$200 million for international expenditures.
El Paso Corporation expects to take a fourth quarter after-tax
full-cost ceiling test charge of $1.9 billion and a $0.1 billion
impairment of its investment in Four Star. Approximately $1.4
billion of the full-cost ceiling test charge is attributable to the
domestic full-cost pool and $0.5 billion to the Brazilian full-cost
pool. The company uses the full-cost method of accounting for its
oil and natural gas properties. The carrying value of these assets,
net of related deferred income taxes, is evaluated on a quarterly
basis and is limited to the present value of estimated net revenues
of proved reserves using a 10-percent discount rate based on prices
and costs at the end of the quarter plus the cost of unevaluated
oil and natural gas properties (i.e. a cost center ceiling). A
ceiling test charge occurs when the carrying value of the natural
gas and oil assets exceeds the cost center ceiling.
El Paso has derivative positions that are intended to manage the
price risk of its natural gas and oil production for 2009 and
beyond. They are recorded on a mark-to-market basis and therefore
were not included in the ceiling test calculation. These positions
had a net asset value of approximately $700 million at December 31,
2008.
The ceiling test and impairment charges are non-cash items that
do not impact any of the covenants on the debt obligations of El
Paso Corporation or its subsidiaries. Based on current reserves and
the expected fourth quarter 2008 ceiling test charge, the company
estimates its first quarter 2009 per-unit DD&A rate will
decline by approximately $0.90 per Mcfe from the rate used in the
fourth quarter of 2008 to approximately $2.30 per Mcfe.
27 Percent Increase in Non-Proved Resources
El Paso also reported today that at December 31, 2008, it had an
estimated 3.5 Tcfe of net risked or 6.6 Tcfe of net unrisked
non-proved resource potential in addition to its 2.5 Tcfe of proved
natural gas and oil reserves. The company's risked non-proved
resource potential rose 0.7 Tcfe, or 27 percent, from 2007 levels.
The majority of the increase was primarily due to the addition of
new opportunities in the Haynesville Shale, infill opportunities in
the Altamont Field and the Raton Basin coal bed methane program.
Non-proved resources include the company's proportionate share of
Four Star.
Foshee added, "One of our key successes in 2008 was the
expansion of our future drilling inventory. The 2009 E&P
capital program will optimize our current investment opportunities
while preserving the drilling inventory that we have worked hard to
develop, most of which is operated by El Paso and held by
production."
A breakout of non-proved resources (risked/unrisked) is as
follows:
Unconventional - 1,080/1,560 Bcfe - Unconventional resources
primarily consist of the company's coal bed operations in the
Raton, Black Warrior, and Arkoma Basins and its holdings in the New
Albany and Haynesville shale plays.
Conventional, low-risk (probability of geologic success greater
than or equal to 40 percent) - 1,770/2,300 Bcfe - This consists of
conventional resources in the Rockies, south Texas, and Brazil
development programs. It also includes tight-sand drilling in the
ArkLaTex area.
Conventional, higher-risk (probability of geologic success less
than 40 percent) - 700/2,785 Bcfe - This includes higher-risk
exploration in the Gulf of Mexico, Texas Gulf Coast, and undrilled
international exploration prospects in Brazil and Egypt.
Click here to view a chart showing the change in year end
reserves, including the Company's proportionate interest in Four
Star.
El Paso Corporation provides natural gas and related energy
products in a safe, efficient, and dependable manner. The company
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.
Cautionary Note to U.S. Investors
Note that the SEC permits oil and gas companies, in their
filings with the SEC, to disclose only proved reserves that a
company has demonstrated by actual production or conclusive
formation tests to be economically and legally producible under
existing economic and operating conditions. We have used certain
terms in this news release, such as risked and unrisked non-proved
resource potential, that the SEC's guidelines strictly prohibit us
from including in filings with the SEC. The SEC defines proved
reserves as estimated quantities that geological and engineering
data demonstrate with reasonable certainty to be recoverable in the
future from known reservoirs under the assumed economic conditions.
Risked and unrisked non-proved resource potential are estimates of
potential reserves that are made using accepted geological and
engineering analytical techniques, but which are estimated with
reduced levels of certainty than for proved reserves. Unrisked
resource potential is less certain than those for risked resource
potential. Investors are urged to closely consider the disclosures
and risk factors in our Forms 10-K and 10-Q, available from our
offices or from our website at http://www.elpaso.com, including the
inherent uncertainties in estimating quantities of proved reserves
and non-proved resource potential.
CAUTIONARY STATEMENT
This release includes certain forward-looking statements and
projections. 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; the uncertainty of estimating proved reserves and
non-proved potential, the future level of service costs, the
availability and cost of financing to fund our future exploration
and production operations; the effects of any changes in accounting
rules and guidance; our ability to meet production volume targets
in our Exploration and Production segment; changes in commodity
prices and basis differentials for oil, natural gas, and power,
including the impact upon our hedge positions and our full-cost
ceiling test in the future; 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, including the risk of a global recession and negative
impact on natural gas demand; 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. The reserve replacement
ratio and reserve replacement costs are two metrics we use to
measure our ability to establish a long-term trend of adding
reserves at a reasonable cost in our core asset areas. In this
press release, we have excluded price-related revisions from the
calculations of these metrics. These revisions are included in the
calculations of these metrics as presented in company's Annual
Report on Form 10-K. See the company's Annual Report on Form 10-K
for further discussions of these metrics.
Contacts: Investor-Media Relations Bruce L. Connery Vice
President Office: (713) 420-5855 Media Relations Bill Baerg Manager
Office: (713) 420-2906
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