El Paso Corp. (ticker: EP, exchange: New York Stock Exchange (.N))
News Release -
7-Aug-2006
El Paso Corporation Reports Sharp Increase in Second Quarter Earnings - Continued Progress on 2006 Goals HOUSTON, Aug. 7 /PRNewswire-FirstCall/ -- El Paso Corporation (NYSE: EP)
is providing today second quarter 2006 financial and operational results for
the company.
Highlights:
* $0.21 earnings per fully diluted share from continuing operations
versus $0.09 in 2005
* $1,421-million cash flow from continuing operations for first six
months
* $3-billion reduction in gross debt through July 31
* $500 million equity offering completed during second quarter
* Settlement of major shareholder and derivative litigation
* Pipeline and E&P on track to deliver on 2006 goals
"El Paso's second quarter results are another step toward the delivery of
our 2006 goals," said Doug Foshee, El Paso's president and chief executive
officer. "Our pipeline and E&P businesses both delivered solid results, and
we are on track to reduce our year-end 2006 debt, net of cash, to $14 billion.
More importantly, our pipeline and E&P businesses have solid growth
trajectories that point to further improvement in 2007."
Second Quarter Financial Results
For the three months ended June 30, 2006, El Paso reported net income
available to common stockholders of $141 million, or $0.21 per diluted share,
compared with a net loss of $246 million, or $0.38 per diluted share, for the
same period in 2005. Results for 2006 include $27 million ($0.02 per diluted
share) of non-cash, mark-to-market, pre-tax gains on derivatives intended to
hedge the price risk of natural gas and oil production. During the same
period in 2005, price risk management derivatives generated a $12-million
mark-to-market pre-tax loss. Results in 2005 were also impacted by
impairments, net of gains on the sale of assets and investments, of $88
million, driven primarily by the Power segment and $29 million of
restructuring costs in 2005.
For the six months ended June 30, 2006, El Paso reported net income
available to common stockholders of $487 million, or $0.70 per diluted share,
compared with a net loss of $140 million, or $0.19 per diluted share, for the
first six months of 2005. Results for 2006 include $189 million ($0.17 per
diluted share) of non-cash, mark-to-market, pre-tax gains on derivatives
intended to hedge the price risk of natural gas and oil production. During
the same period in 2005, price risk management derivatives generated a $118-
million mark-to-market pre-tax loss. Additionally, results for the first six
months of 2005 were impacted by net gains on the sale of assets and
investments of $17 million, driven primarily by gains associated with the sale
of the company's remaining interest in Enterprise Products Partners L.P.,
offset by impairments on certain power assets. Also, 2005 results were
impacted by a $59-million charge for the early payoff of the western energy
settlement and $30 million of restructuring costs.
A summary of financial results for the three months ended June 30, 2006
and 2005 are as follows:
Financial Results Three Months Ended
($ in millions, except per-share amounts) June 30,
2006 2005
Earnings before interest and taxes (EBIT)
Pipelines $335 $309
Exploration and Production 163 176
Marketing and Trading 13 (30)
Power 10 (2)
Field Services(A) --- (3)
Corporate (34) (12)
---------------------
Total $487 $438
====== ======
(A) El Paso completed its exit from the midstream business in 2005.
Income from continuing operations $153 $67
Discontinued operations, net of income taxes (3) (305)
---------------------
Net income (loss) 150 (238)
Preferred stock dividends 9 8
---------------------
Net income (loss) available to common stockholders $141 $(246)
====== ======
Three Months Ended
June 30,
2006 2005
Earnings (loss) per common share
Basic
Income from continuing operations $0.22 $0.09
Discontinued operations (0.01) (0.47)
---------------------
Net income (loss) $0.21 $(0.38)
====== ======
Diluted
Income from continuing operations $0.21 $0.09
Discontinued operations --- (0.47)
---------------------
Net income (loss) $0.21 $(0.38)
====== ======
In the first six months of 2006, the company generated cash flow from
continuing operations of $1,421 million, invested $1,024 million of capital,
and paid $71 million in dividends.
At June 30, 2006, El Paso's debt, net of cash, was $14.4 billion, a $1.7
billion reduction from December 31, 2005. Gross debt was at $16.2 billion on
June 30, 2006, a $2.0 billion reduction from year end. Net debt and gross
debt at December 31, 2005 include $225 million of Macae project debt that was
repaid in the second quarter 2006 upon the sale of the Macae power plant. In
May, the company issued 35.7 million shares of common stock with net proceeds
of approximately $500 million. This offering completes the financing of the
acquisition of Medicine Bow Energy last year. During the first six months of
2006, El Paso closed $854 million of asset sales as a part of its debt-
reduction program. In addition, approximately $160 million of assets sales
have either closed or are in various stages of completion.
In July, El Paso completed an early restructuring of its bank facilities
given the company's reduced liquidity requirements. Total borrowing and
letter of credit capacity was reduced from $3 billion to $2.25 billion. The
new facilities and reduced borrowings will provide approximately $40 million
in annualized cost savings. During the third quarter El Paso expects to take
a charge of $17 million associated with unamortized financing costs on the
previous credit agreement.
Business Unit Financial Update
Pipelines
The Pipelines segment's reported EBIT for the three months ended June 30,
2006 was $335 million, compared with $309 million for the same period in 2005.
The increase is primarily due to the expiration of discounted rates to certain
El Paso Natural Gas (EPNG) customers, the implementation of new rates at EPNG,
increased revenues from various interruptible services, and the contribution
of pipeline expansion projects, including the Cheyenne Plains pipeline, the
Piceance Basin expansion on the Wyoming Interstate Company system, and the
Elba Island LNG terminal expansion. Offsetting these positive factors were
higher O&M costs due to hurricane repair costs that will not be fully
reimbursed by insurance, and favorable contract restructurings and settlements
on the ANR Pipeline system in the second quarter of 2005.
Pipelines Results Three Months Ended
June 30,
($ in millions) 2006 2005
EBIT $335 $309
DD&A $115 $108
Total throughput (BBtu/d)(A) 21,042 20,316
(A) Includes proportionate share of jointly owned pipelines
Exploration and Production
The Exploration and Production segment's EBIT for the three months ended
June 30, 2006 was $163 million, compared with $176 million for the same period
in 2005. Second quarter 2006 consolidated production volumes averaged 719
million cubic feet equivalent per day (MMcfe/d), excluding unconsolidated
affiliate volumes of 66 MMcfe/d, compared with 784 MMcfe/d for the same period
in 2005. Average daily equivalent production volumes in the second quarter of
2006 were negatively impacted by approximately 15 MMcfe/d of continued shut-in
production volumes in the Gulf of Mexico and south Louisiana regions as a
result of last year's hurricanes. Despite shut-ins and greater-than-expected
delays in bringing on Gulf of Mexico production, El Paso believes it will
reach the low end of its 825 MMcfe/d to 850 MMcfe/d average production target
(including unconsolidated affiliate volumes) established for 2006.
El Paso's 2006 drilling program continues to deliver solid results. For
the first six months of the year, it has achieved a 99-percent success rate on
242 gross wells drilled.
The realized price for natural gas (net of transportation costs) during
the three months ended June 30, 2006, including the impact of hedges, was
$5.86 per thousand cubic feet (Mcf), compared with $5.96 per Mcf for the same
period in 2005. Oil, condensate, and natural gas liquids (NGL) realized
prices, including the impact of hedges, were $59.84 per barrel in second
quarter 2006, up 43 percent, compared with the same period in 2005. Total
per-unit cash costs increased to an average of $1.86 per Mcfe in the second
quarter 2006, compared with $1.52 per Mcfe for the same 2005 period, primarily
due to higher production taxes as a result of lower tax credits received in
2006 and higher maintenance, repair, and workover costs as compared with the
second quarter of 2005.
Exploration and Production Results Three Months Ended
($ in millions) June 30,
2006 2005
EBIT $163 $176
DD&A $156 $157
Average consolidated daily sales volumes
Natural gas sales volumes (MMcf/d) 589 635
Oil, condensate, and NGL sales volumes
(MBbls/d) 22 25
Total equivalent average daily sales volumes
(MMcfe/d) 719 784
Four Star equity average daily sales volumes(A)
Natural gas sales volumes (MMcf/d) 49 ---
Oil, condensate, and NGL sales volumes
(MBbls/d) 3 ---
Total equivalent average daily sales volumes
(MMcfe/d) 66 ---
Weighted average realized prices, including
hedges(B)(C)
Natural gas ($/Mcf) $5.86 $5.96
Oil, condensate, and NGL ($/Bbl) $59.84 $41.80
Per-unit costs ($/Mcfe)(C)
Unit of production depletion costs $2.24 $2.05
Cash costs(D) $1.86 $1.52
--------------------
Total costs $4.10 $3.57
===== =====
(A) Four Star is an equity investment acquired in the Medicine Bow
transaction. Amounts disclosed represent the company's proportionate
share in Four Star.
(B) Prices are stated after transportation costs.
(C) Price and costs per unit do not include the company's proportionate
share of Four Star volumes, revenue, or cost.
(D) Includes lease operating costs, production-related taxes, G&A
expenses, and other taxes.
Other Operations
Marketing and Trading
The Marketing and Trading segment reported EBIT of $13 million for the
three months ended June 30, 2006, compared with a loss of $30 million for the
same period in 2005. Second quarter 2006 results were primarily driven by $27
million of non-cash, mark-to-market gains on derivatives intended to manage
the price risk of the Exploration and Production segment's natural gas and oil
production. Second quarter 2005 results were significantly impacted by a $78-
million mark-to-market loss on the Cordova tolling agreement as natural gas
futures prices increased more than power prices during the quarter. During
the fourth quarter of 2005, El Paso completed the assignment of this agreement
to a third party.
Power
The Power segment reported EBIT of $10 million for the three months ended
June 30, 2006, compared with a loss of $2 million for the same period in 2005.
Second quarter 2006 results for the Power segment were primarily attributable
to earnings from the company's Brazilian investments. Second quarter 2005
results were negatively impacted by $89 million of impairments, net of gains
on sales, and were positively impacted by a $53-million gain on favorable
resolution of bankruptcy claim and earnings primarily from international
operations. Both the Macae and Araucaria power plants were sold during the
second quarter of 2006, and Macae's results are reflected in discontinued
operations.
Last week El Paso sold its interests in Midland Cogeneration Venture (MCV)
to GSO Capital Partners and Rockland Capital Energy Investments for $13
million. The sale includes El Paso's approximately 44-percent interest in
MCV, a 1,575-megawatt natural gas-fired power plant located in Midland,
Michigan. El Paso previously wrote down its interest in MCV to zero;
therefore, the sale will result in a third quarter pre-tax gain of
approximately $13 million. In addition, El Paso will record an estimated $135
million third-quarter non-cash mark-to-market loss in the Marketing and
Trading segment on natural gas supply agreements with MCV as a result of this
sale, based on El Paso's estimates of the value of these contracts as of June
30, 2006. The loss represents the cumulative unrecognized mark-to-market
losses on these contracts attributable to El Paso's ownership interest in MCV
that were not previously recognized due to their affiliated nature.
Field Services
El Paso completed its exit from the midstream business in 2005 and no
longer reports a Field Services segment.
Corporate
Corporate reported an EBIT loss of $34 million during the second quarter
of 2006, compared with an EBIT loss of $12 million in 2005. Second quarter
2006 results were negatively impacted by increases in litigation and
environmental liabilities and foreign currency losses on Euro-denominated debt
offset by lease-termination costs compared to the same period in 2005.
Other Operations Results Three Months Ended
($ in millions) June 30,
2006 2005
Marketing and Trading
EBIT $13 $(30)
DD&A $1 $1
Power
EBIT $10 $(2)
DD&A $1 $---
Field Services
EBIT $--- $(3)
DD&A $--- $1
Corporate
EBIT $(34) $(12)
DD&A $5 $17
Tax Rate
The effective tax rate for the quarter and six months ended June 30, 2006
is 1 percent and 24 percent respectively. These rates are lower than the
statutory rate of 35 percent primarily due to IRS settlements and tax benefits
on sales of foreign investments. Second quarter results include $34 million
of benefits recorded as a result of the IRS settlements. The tax rate for
ongoing operations is expected to be 34 percent to 36 percent.
Detailed operating statistics for each of El Paso's businesses will be
posted at http://www.elpaso.com in the Investors section.
Webcast Information
El Paso Corporation has scheduled a live webcast of its second quarter
2006 results on August 7, 2006 beginning at 10 a.m. Eastern Time, 9 a.m.
Central Time, which may be accessed online through El Paso's Web site at
http://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 (973) 582-2844 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 August 14, 2006 by dialing (973) 341-3080 (access code
7645202). 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 http://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; (iii)
interest and debt expense; and (iv) distributions on preferred interests of
consolidated subsidiaries. The company excludes interest and debt expense and
distributions on preferred interests of consolidated subsidiaries 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 substantial 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. Per-unit total
cash costs equal total operating expenses less DD&A and other non-cash charges
divided by total consolidated production. It is a valuable measure of
operating efficiency.
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, 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 http://www.elpaso.com .
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
the 2006 plan, including achieving our debt-reduction, 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 despite delays in resuming production shut-in due to hurricanes Rita
and Katrina; uncertainties and potential consequences associated with the
outcome of governmental investigations, including, without limitation, those
related to the reserve revisions and natural gas hedge transactions; the
outcome of litigation, including shareholder derivative and class actions
related to reserve revisions and restatements; 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; 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 and relevant basis spreads;
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 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.
EL PASO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per common share amounts)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2006 2005 2006 2005
------------------ -----------------
Operating revenues $1,214 $1,169 $2,745 $2,257
Operating expenses
Cost of products and services 85 54 146 148
Operation and maintenance 385 385 719 796
Depreciation, depletion and
amortization 278 284 550 553
Loss on long-lived assets --- --- --- 7
Taxes, other than income taxes 70 56 134 121
--------- ------- ------- --------
818 779 1,549 1,625
--------- ------- ------- --------
Operating income 396 390 1,196 632
Equity earnings and other income 91 48 179 269
--------- ------- ------- --------
Earnings before interest expense,
income taxes, and other charges 487 438 1,375 901
Interest and debt expense 332 333 680 676
Preferred interests of consolidated
subsidiaries --- 3 --- 9
--------- ------- ------- --------
Income before income taxes 155 102 695 216
Income taxes 2 35 167 36
--------- ------- ------- --------
Income from continuing operations 153 67 528 180
Discontinued operations, net of
income taxes (3) (305) (22) (312)
--------- ------- ------- --------
Net income (loss) 150 (238) 506 (132)
Preferred stock dividends 9 8 19 8
--------- ------- ------- --------
Net income (loss) available to
common stockholders $141 $(246) $487 $(140)
========= ======= ======= ========
Earnings (losses) per common share
Basic
Income from continuing
operations $0.22 $0.09 $0.77 $0.27
Discontinued operations, net of
income taxes (0.01) (0.47) (0.03) (0.49)
--------- ------- ------- --------
Net income (loss) $0.21 $(0.38) $0.74 $(0.22)
========= ======= ======= ========
Diluted
Income from continuing
operations $0.21 $0.09 $0.73 $0.26
Discontinued operations,
net of income taxes --- (0.47) (0.03) (0.45)
--------- ------- ------- --------
Net income (loss) $0.21 $(0.38) $0.70 $(0.19)
========= ======= ======= ========
Weighted average common shares
outstanding
Basic 671 641 664 640
========= ======= ======= ========
Diluted 732 643 732 699
========= ======= ======= ========
Dividends declared per common share $0.04 $0.04 $0.08 $0.08
========= ======= ======= ========
EL PASO CORPORATION
SEGMENT INFORMATION
(UNAUDITED)
2006 2005
--------------------------------------------------------------------------
(In millions) First Second First Second Third Fourth
--------------------------------------------------------------------------
Operating revenues
Pipelines $837 $705 $768 $653 $646 $716
Exploration and Production 466 462 439 452 449 447
Marketing and Trading 205 18 (175) (21) (389) (211)
Power 1 2 23 54 2 3
Field Services (A) --- --- 48 28 45 2
Corporate and eliminations 22 27 (15) 3 (1) 4
--------------------------------------------------------------------------
Consolidated total 1,531 1,214 1,088 1,169 752 961
--------------------------------------------------------------------------
Depreciation, depletion and
amortization
Pipelines 115 115 111 108 108 110
Exploration and Production 146 156 146 157 153 156
Marketing and Trading 1 1 1 1 1 1
Power --- 1 1 --- 1 ---
Field Services (A) --- --- 1 1 1 ---
Corporate 10 5 9 17 6 10
--------------------------------------------------------------------------
Consolidated total 272 278 269 284 270 277
--------------------------------------------------------------------------
Operating income (loss)
Pipelines 438 284 362 262 207 188
Exploration and Production 191 161 180 175 167 149
Marketing and Trading 200 8 (186) (32) (404) (233)
Power (15) (17) (25) 26 (20) (44)
Field Services (A) --- --- 2 (5) (26) 13
Corporate (14) (40) (91) (36) (79) (371)
--------------------------------------------------------------------------
Consolidated total 800 396 242 390 (155) (298)
--------------------------------------------------------------------------
Earnings (loss) before interest
expense and income taxes (EBIT)
Pipelines 478 335 412 309 272 233
Exploration and Production 199 163 183 176 169 168
Marketing and Trading 208 13 (185) (30) (398) (224)
Power 3 10 (39) (2) (46) (2)
Field Services (A) --- --- 182 (3) (22) 128
Corporate --- (34) (90) (12) (67) (352)
--------------------------------------------------------------------------
Consolidated total $888 $487 $463 $438 $(92) $(49)
--------------------------------------------------------------------------
EL PASO CORPORATION
SEGMENT INFORMATION
(UNAUDITED)
Year-to-Date
--------------------------------------------------------------------------
(In millions) 2006 2005
--------------------------------------------------------------------------
Operating revenues
Pipelines $1,542 $1,421
Exploration and Production 928 891
Marketing and Trading 223 (196)
Power 3 77
Field Services (A) --- 76
Corporate and eliminations 49 (12)
--------------------------------------------------------------------------
Consolidated total 2,745 2,257
--------------------------------------------------------------------------
Depreciation, depletion and
amortization
Pipelines 230 219
Exploration and Production 302 303
Marketing and Trading 2 2
Power 1 1
Field Services (A) --- 2
Corporate 15 26
--------------------------------------------------------------------------
Consolidated total 550 553
--------------------------------------------------------------------------
Operating income (loss)
Pipelines 722 624
Exploration and Production 352 355
Marketing and Trading 208 (218)
Power (32) 1
Field Services (A) --- (3)
Corporate (54) (127)
--------------------------------------------------------------------------
Consolidated total 1,196 632
--------------------------------------------------------------------------
Earnings (loss) before interest
expense and income taxes (EBIT)
Pipelines 813 721
Exploration and Production 362 359
Marketing and Trading 221 (215)
Power 13 (41)
Field Services (A) --- 179
Corporate (34) (102)
--------------------------------------------------------------------------
Consolidated total $1,375 $901
--------------------------------------------------------------------------
(A) By the end of 2005, we sold or transferred to other segments
substantially all of our Field Services assets.
SOURCE El Paso Corporation
-0- 08/07/2006
/CONTACT: Investor and Public Relations, Bruce L. Connery, Vice
President, +1-713-420-5855, or Media Relations, Chris Jones, Manager,
+1-713-420-4136, both of El Paso Corporation/
/Web site: http://www.elpaso.com /
(EP)
CO: El Paso Corporation
ST: Texas
IN: OIL
SU: ERN
AA-AH
-- DAM009 --
4300 08/07/2006 07:31 EDT http://www.prnewswire.com
|
El Paso Corp.
