El Paso Corporation (NYSE: EP) is today reporting first quarter
2009 financial and operational results for the company.
Highlights:
-- $0.47 adjusted diluted earnings per share (EPS) versus $0.33 in 2008.
The improvement is due to realized gains on oil and natural gas hedges and
continued pipeline growth.
-- First quarter 2009 reported loss of $1.41 per diluted share versus
earnings of $0.29 in 2008. 2009 results include $1.3 billion after-tax, or
$1.92 per share, of non-cash, full-cost ceiling test charges.
-- Pipeline first quarter 2009 earnings before interest expense and taxes
(EBIT) rose 4 percent from first quarter 2008
-- Exploration & Production (E&P) first quarter 2009 production of 803
million cubic feet equivalent per day (MMcfe/d), including 72 MMcfe/d of
unconsolidated affiliate volumes
-- $3.3 billion of liquidity at March 31, 2009
-- Hedge positions significantly expanded for 2010; new hedges in place
for 2011
"We had another solid quarter, which reflects the stable growth
of our pipeline group and very good execution by our E&P
business," said Doug Foshee, chairman, president, and chief
executive officer of El Paso Corporation. "Our Pipeline Group
delivered another strong quarter of earnings while executing on our
backlog of projects, and our E&P business continued to generate
significant operating cash flow, while reducing costs and slowing
capital spending in light of current commodity prices. We have
maintained a strong liquidity position with more than sufficient
liquidity to meet 2009 debt maturities, fund our 2009 capital
program, and carry us well into 2010. In addition, we have taken
steps to shore up our 2010 and 2011 cash flow by significantly
adding to our natural gas hedge program."
A summary of financial results for the quarters ended March 31,
2009 and 2008 is as follows:
Financial Results Quarters Ended
March 31,
($ in millions, except per share amounts) 2009 2008
-------- ---------
Net income (loss) attributable to El Paso Corporation
(EPC) $ (969) $ 219
Preferred stock dividends(1) 9 19
-------- ---------
Net income (loss) attributable to EPC common
stockholders $ (978) $ 200
======== =========
Basic and diluted per common share amounts
Net income (loss) attributable to EPC common
stockholders $ (1.41) $ 0.29
======== =========
(1) Due to timing, 2008 includes two quarters of preferred stock dividends
Items Impacting Quarterly Results
First quarter 2009 and 2008 net income (loss) includes the
following items:
First Quarter 2009
Before After Diluted
($ millions, except per share amounts) Tax Tax EPS
------- ------- -------
Net income (loss) attributable to EPC common
stockholders $ (978) $ (1.41)
Adjustments(1)
Ceiling test charges $ 2,068 $ 1,332 $ 1.92
Change in fair value of power contracts (34) (22) (0.03)
Change in fair value of legacy natural gas
contracts (21) (13) (0.02)
Mark-to-market (MTM) impact of E&P financial
derivatives(2) 45 29 0.04
Effect of change in number of diluted shares - - (0.03)
-------
Adjusted EPS(3) $ 0.47
=======
(1) Assumes a 36 percent tax rate, except for international portion of
ceiling test charges, and 695 million diluted shares
(2) Consists of $394 million of MTM gains on financial derivatives,
adjusted for $439 million of realized cash settlements
(3) Based upon 763 million fully diluted shares and includes income impact
from dilutive securities
Adjusted earnings include $149 million, or $0.12 per share, of
early cash settlements of oil derivative contracts that hedged
April though December 2009 production.
First Quarter 2008
Before After Diluted
($ millions, except per share amounts) Tax Tax EPS
------- ------- -------
Net income attributable to EPC common
stockholders $ 200 $ 0.29
Adjustments(1)
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)
Change in fair value of production-related
derivatives in Marketing 21 13 0.02
-------
Adjusted EPS(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
Business Unit Financial Update
Segment EBIT Results Quarters Ended
March 31,
($ in millions) 2009 2008
-------- --------
Pipeline Group $ 396 $ 381
Exploration and Production (1,685) 242
Marketing 52 (60)
Power 4 (2)
Corporate and Other (7) 39
-------- --------
$ (1,240) $ 600
======== ========
Pipeline Group
The Pipeline Group's EBIT for the quarter ended March 31, 2009
was $396 million, compared with $381 million for the same period in
2008. EBIT before adjustment for noncontrolling interests
associated with El Paso Pipeline Partners, L.P. (NYSE: EPB), which
completed its first acquisition from El Paso Corporation on
September 30, 2008, was $408 million, a 5 percent increase from
2008 levels. First quarter 2009 results benefited primarily from
incremental revenues from several expansion projects that went into
service in 2008 and higher capacity sales in the Rocky Mountain
region and on the El Paso Natural Gas Pipeline and Tennessee Gas
Pipeline systems. First quarter 2008 results benefited from the
receipt of $29 million in proceeds relating to Calpine's approved
reorganization plan, partially offset by $16 million of impairment
losses principally related to a project cancellation.
Pipeline Group Results Quarters Ended
March 31,
($ in millions) 2009 2008
-------- --------
EBIT before adjustment for noncontrolling interests $ 408 $ 390
Net income attributable to noncontrolling interests (12) (9)
-------- --------
EBIT $ 396 $ 381
DD&A $ 104 $ 99
Total throughput (BBtu/d)(1) 19,704 19,321
(1) Includes proportionate share of jointly owned pipelines
Exploration & Production
The Exploration & Production segment reported an EBIT loss
of $1.7 billion for the quarter ended March 31, 2009, compared with
EBIT of $242 million for the same period in 2008. First quarter
2009 EBIT includes $2.1 billion of non-cash, full-cost ceiling test
charges primarily in the company's domestic full cost pool, which
was based on lower domestic spot natural gas prices at the end of
the first quarter of 2009. Excluding these charges, EBIT increased
approximately $142 million compared with the same period in 2008,
primarily due to $394 million of MTM gains on financial derivatives
intended to hedge production volumes and lower DD&A expense,
partially offset by lower physical sales due to lower production
volumes and lower realized commodity prices.
During the first quarter, the company received $439 million of
cash related to settlements of derivative contracts hedging natural
gas and oil production. Of this amount, approximately $149 million
related to the early settlement of 2009 oil derivative contracts
hedging April through December production.
First quarter 2009 production volumes averaged 803 MMcfe/d,
including 72 MMcfe/d of unconsolidated affiliate volumes. First
quarter 2008 production volumes averaged 886 MMcfe/d, including 75
MMcfe/d of unconsolidated affiliate volumes. First quarter 2008
production volumes included 88 MMcfe/d associated with properties
sold during the first quarter of 2008.
Although overall cash operating costs were lower, total per-unit
cash operating costs increased to an average of $2.00 per thousand
cubic feet equivalent (Mcfe) in first quarter 2009, compared with
$1.92 per Mcfe for the same 2008 period, reflecting lower
production volumes.
The per-unit DD&A rate for the first quarter 2009 was $2.28
per Mcfe. As a result of the ceiling test charges, the full-year
2009 DD&A rate is expected to drop to between $1.70 and $1.90
per Mcfe.
Exploration & Production Results Quarters Ended
March 31,
($ in millions, except price and unit cost amounts) 2009 2008
-------- --------
Physical sales - natural gas, oil, condensate and NGL $ 298 $ 642
Realized and unrealized gains (losses) on financial
derivatives(1) 394 (50)
Other revenues 8 11
-------- --------
Total operating revenues $ 700 $ 603
Operating expenses(2) (2,375) (377)
Other income (expenses) (10) 16
-------- --------
EBIT $ (1,685) $ 242
DD&A $ 150 $ 212
Consolidated volumes:
Natural gas sales volumes (MMcf/d) 632 679
Oil, condensate, and NGL sales volumes (MBbls/d) 16 22
Total consolidated equivalent sales volumes (MMcfe/d) 731 811
Four Star total equivalent sales volumes (MMcfe/d)(3) 72 75
Weighted average realized prices, including financial
derivative settlements
Natural gas ($/Mcf) $ 8.52 $ 7.60
Oil, condensate, and NGL ($/Bbl)(4) $ 70.14 $ 80.14
Transportation costs
Natural gas ($/Mcf) $ 0.34 $ 0.28
Oil, condensate, and NGL ($/Bbl) $ 0.93 $ 0.71
Per-unit costs ($/Mcfe)
DD&A $ 2.28 $ 2.87
Cash operating costs(5) $ 2.00 $ 1.92
(1) Includes amounts reclassified from accumulated other comprehensive
income (loss) associated with accounting hedges of $128 million in 2009
and $(15) million in 2008
(2) 2009 includes $2,068 million non-cash ceiling test charges primarily
related to the company's domestic full cost pool
(3) Four Star is an equity investment. Amounts disclosed represent the
company's proportionate share
(4) 2009 does not include approximately $149 million related to early
settlement of 2009 oil derivative contracts hedging April through
December 2009 production
(5) Includes direct lifting costs, production taxes, G&A expenses, and
taxes other than production and income
Hedge Positions
As of May 7, 2009, El Paso had natural gas hedges for the last
nine months of 2009 with an average floor price of $9.02 per
million British thermal unit (MMBtu) on 120 trillion British
thermal units (TBtu) and an average ceiling price of $14.35 per
MMBtu on 96 TBtu. In addition, following the early settlement of
the $110 per barrel oil derivative contracts during the first
quarter of 2009, the company entered into fixed-price hedges on 1.5
million barrels of crude oil with an average price of $45 per
barrel. El Paso has approximately 1.35 million barrels of crude oil
hedged at $45 for the last nine months of 2009. The company has
significantly expanded its 2010 natural gas hedge position and now
has an average floor price of $6.41 per MMBtu on 175 TBtu and an
average ceiling price of $7.24 per MMBtu on 113 TBtu. In addition,
the company established a 2011 natural gas hedge position, locking
in 125 TBtu with an average floor price of $6.00 per MMBtu and an
average ceiling price of $8.62 per MMBtu. 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 EBIT of $52 million for the
quarter ended March 31, 2009, compared with an EBIT loss of $60
million for the same period in 2008. First quarter 2009 results
reflect an improvement in the value of natural gas and power
derivative contracts principally due to the adoption of new
accounting guidance relating to determining the fair value of
derivative liabilities that have third party credit enhancements
associated with them. First quarter 2008 results include a $21
million MTM loss on derivative contracts used to manage the price
risk of the company's natural gas and oil production and a $41
million MTM loss on remaining power contracts in the
Pennsylvania-New Jersey-Maryland power region.
Power
The Power segment reported first quarter EBIT of $4 million
compared with an EBIT loss of $2 million for the same period in
2008. In the first quarter of 2009, the company sold its interest
in the Porto Velho power generation facility in Brazil for $101
million in cash and $78 million in notes. This sale completed the
company's exit from the power business in Brazil.
Corporate and Other
During the first quarter of 2009, Corporate and Other reported
an EBIT loss of $7 million, compared with EBIT of $39 million for
the same period in 2008. 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 MTM loss related to
changes in fair value of a legacy indemnification from the sale of
an ammonia facility.
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 2009 results on May 8, 2009, beginning at 10 a.m. Eastern
Time, 9 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 # 96178675) 10 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, 2009, by dialing
(800) 642-1687 (conference ID # 96178675). 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, or
included in the body of this release. 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 items such as (i) interest and debt expense; (ii) income taxes;
and (iii) net income attributable to noncontrolling interests. 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 operating costs
equal total operating expenses less DD&A, transportation costs,
ceiling test charges, and cost of products and services divided by
total production. It is a valuable measure of operating efficiency.
For 2009, Adjusted EPS is earnings per share attributable to El
Paso Corporation common stockholders excluding changes in fair
value of power contracts, changes in fair value of legacy natural
gas contracts, impact of mark-to-market E&P financial
derivatives, ceiling test charges, and the effect of the change in
the number of diluted shares. For 2008, Adjusted EPS is earnings
per share attributable to El Paso Corporation common stockholders
excluding the gain or 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, the 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 Marketing. 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.
Cautionary Statement Regarding Forward-Looking Statements
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; our ability to meet our 2009 debt maturities;
volatility in, and access to, the capital markets; our ability to
implement and achieve our objectives in our 2009 plan, including
achieving our earnings and cash flow targets; the effects of any
changes in accounting rules and guidance; our ability to meet
production volume targets in our Exploration and Production
segment; our ability to comply with the covenants in our various
financing documents; our ability to obtain necessary governmental
approvals for proposed pipeline and E&P 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 asset
sales, as well as transactions with partners on one or more of our
expansion projects that are included in the plan on a timely basis;
credit and performance risk of our lenders, trading counterparties,
customers, vendors and suppliers ;changes in commodity prices and
basis differentials for oil, natural gas, and power; our ability to
obtain targeted cost savings in our businesses; 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; 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.
EL PASO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per common share amounts)
(UNAUDITED)
Quarters Ended
March 31,
----------------
2009 2008
------- -------
Operating revenues $ 1,484 $ 1,269
Operating expenses
Cost of products and services 61 56
Operation and maintenance 300 271
Ceiling test charges 2,068 -
Depreciation, depletion and amortization 256 313
Taxes, other than income taxes 68 79
------- -------
2,753 719
------- -------
Operating income (loss) (1,269) 550
Earnings from unconsolidated affiliates 19 37
Other income, net 22 22
Noncontrolling interests (12) (9)
------- -------
29 50
------- -------
Earnings (loss) before interest expense and income taxes
(EBIT) (1,240) 600
Adjustment for noncontrolling interests 12 9
Interest and debt expense (255) (233)
------- -------
Income (loss) before income taxes (1,483) 376
Income tax expense (benefit) (526) 148
------- -------
Net income (loss) (957) 228
Net income attributable to noncontrolling interests (12) (9)
------- -------
Net income (loss) attributable to El Paso Corporation
(EPC) (969) 219
Preferred stock dividends (1) 9 19
------- -------
Net income (loss) attributable to EPC's common
stockholders $ (978) $ 200
======= =======
Basic and diluted earnings (loss) per common share
Net income (loss) per common share $ (1.41) $ 0.29
======= =======
Weighted average common shares outstanding
Basic 695 697
======= =======
Diluted 695 701
======= =======
Dividends declared per common share(1) $ 0.05 $ 0.08
======= =======
(1) Due to timing, 2008 includes two quarters of dividends
EL PASO CORPORATION
SEGMENT INFORMATION
(UNAUDITED)
2009 2008
-------- --------------------------------------
(In millions) Q1 Q1 Q2 Q3 Q4
-------- -------- -------- -------- --------
Operating revenues
Pipelines $ 733 $ 720 $ 646 $ 628 $ 690
Exploration and
Production 700 603 655 881 623
Marketing 53 (57) (146) 89 31
Power - - - - -
Corporate and other,
including eliminations
(1) (2) 3 (2) - (1)
-------- -------- -------- -------- --------
Consolidated total $ 1,484 $ 1,269 $ 1,153 $ 1,598 $ 1,343
-------- -------- -------- -------- --------
Depreciation, depletion
and amortization
Pipelines $ 104 $ 99 $ 99 $ 97 $ 100
Exploration and
Production 150 212 197 191 199
Marketing - - - - -
Power - - - - 1
Corporate and other (1) 2 2 2 4 2
-------- -------- -------- -------- --------
Consolidated total $ 256 $ 313 $ 298 $ 292 $ 302
-------- -------- -------- -------- --------
Operating income (loss)
Pipelines $ 367 $ 357 $ 263 $ 241 $ 291
Exploration and
Production (1,675) 226 281 528 (2,393)
Marketing 52 (60) (154) 82 29
Power (3) (8) (5) (5) (4)
Corporate and other (1) (10) 35 36 (7) 37
-------- -------- -------- -------- --------
Consolidated total $ (1,269) $ 550 $ 421 $ 839 $ (2,040)
-------- -------- -------- -------- --------
Earnings before interest
expense and income taxes
(EBIT)
Pipelines $ 396 $ 381 $ 295 $ 278 $ 319
Exploration and
Production (1,685) 242 304 532 (2,526)
Marketing 52 (60) (153) 82 27
Power 4 (2) 12 (6) (3)
Corporate and other (1) (7) 39 41 (5) 49
-------- -------- -------- -------- --------
Consolidated total $ (1,240) $ 600 $ 499 $ 881 $ (2,134)
-------- -------- -------- -------- --------
E&P Cash Costs First Quarter 2009 First Quarter 2008
($MM) ($/Mcfe) ($MM) ($/Mcfe)
-------- -------- -------- --------
Total operating
expense $ 2,375 $ 36.14 $ 377 $ 5.11
Depreciation,
depletion and
amortization (150) (2.28) (212) (2.87)
Transportation Costs (20) (0.30) (19) (0.25)
Cost of products (5) (0.08) (5) (0.07)
Ceiling Test Charge (2,068) (31.48) - -
-------- -------- -------- --------
Per unit cash costs(2) $ 132 $ 2.00 $ 141 $ 1.92
-------- -------- -------- --------
Total equivalent volumes
(Mmcfe)(2) 65,700 73,762
------------------ ------------------
(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.
Contacts Investor and Public Relations Bruce L. Connery Vice
President Office: (713) 420-5855 Media Relations Bill Baerg Manager
Office: (713) 420-2906
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