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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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EL PASO CORPORATION
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NEWS [LOGO - EL PASO]
For Immediate Release
EL PASO CORPORATION REPORTS FIRST QUARTER 2003 RESULTS
HOUSTON, TEXAS, MAY 13, 2003--El Paso Corporation (NYSE:EP) today reported
results for the first quarter of 2003, updated its progress on its 2003
operational and financial plan, and provided further details on its plan to
achieve additional debt reduction beyond 2003.
QUARTERLY HIGHLIGHTS:
o Pipeline Group and Production businesses post strong results
o Field Services results reflect $1.6 billion of asset sales in
2002 to El Paso Energy Partners and other third parties
o Merchant Energy Group results reflect lower Power and Trading
results, partially offset by higher Petroleum refining operations
FIRST QUARTER RESULTS QUARTER ENDED MARCH 31
(In millions, except per share amounts) 2003 2002
---------- ---------
GAAP net income (loss) $(394) $383
Non-recurring items 534 119
Pro Forma net income $140 $502
GAAP earnings (loss) per share-diluted $(.66) $.72
Non-recurring items .90 .21
Pro forma earnings per share-diluted $.24 $.93
FIRST QUARTER RESULTS
El Paso reported a net loss of $394 million, or $.66 per diluted share, for
the first quarter of 2003, compared with earnings of $383 million, or $.72
per diluted share, in the first quarter of 2002. On a pro forma basis, the
company had first quarter 2003 income of $140 million, or $.24 per diluted
share, compared with earnings of $502 million, or $.93 per diluted share,
in the first quarter of 2002. First quarter 2003 non-recurring items total
$534 million, or $.90 per diluted share, mostly attributable to impairments
of assets to be sold during 2003, the write-down of El Paso's investment in
Chaparral (Project Electron) to fair market value in anticipation of its
consolidation in the second quarter of 2003, and net gains on asset sales
completed in the first quarter. A complete schedule of non-recurring items
is attached to this release. The primary components are detailed below.
o Write-down of El Paso's equity investment in Chaparral of $153
million after-tax, or $.26 per diluted share.
o Impairment of the company's investment in the Milford power
project of $64 million after-tax, or $.11 per diluted share.
o Impairment of the Eagle Point refinery of $186 million after-tax,
or $.31 per diluted share. El Paso signed a letter of intent to
sell this asset to Sunoco, Inc. in April.
o Cost to terminate LNG ship charters of $32 million after-tax, or
$.05 per diluted share.
o Adoption of SFAS 143 related to asset retirement obligations of
$22 million after-tax, or $.04 per diluted share.
o Various other items, including the impairment of the company's
nitrogen business, net gains on asset sales, and restructuring
costs of $77 million after-tax, or $.13 per diluted share.
"While the trading business was negatively impacted by the liquidity
constraints that existed in the first quarter, we are very pleased with the
performance of our pipeline, production, and midstream businesses," said
Ronald L. Kuehn, Jr., chairman and chief executive officer of El Paso
Corporation. "The combined pro forma earnings before interest and taxes
(EBIT) of these businesses totaled $713 million, which is up 27 percent
from the fourth quarter of 2002 and 8 percent from the first quarter of
2002. We are increasingly optimistic about the outlook for our natural gas
businesses as we expect the fundamentals for the natural gas industry to
remain strong for the foreseeable future. We are also very pleased with the
progress that we have made to date on our 2003 operational and financial
plan. While we have more work to do, we are confident that the company is
headed in the right direction, and we are determined to maximize value for
our shareholders."
FIRST QUARTER SEGMENT RESULTS
PIPELINE GROUP
The Pipeline Group's first quarter reported EBIT was $429 million, which
compares with reported EBIT of $399 million in 2002. The increase was
driven by expansion projects at Southern Natural Gas and Colorado
Interstate Gas (CIG), the reactivation of the Elba Island LNG facility,
higher equity earnings from pipeline joint ventures, and operating
efficiencies. Offsetting these benefits were the sale of CIG's production
properties in July 2002, the sale of ANR Pipeline's ownership in the
Alliance pipeline system in November 2002 and lower revenues at El Paso
Natural Gas. Total pipeline throughput rose 9 percent from 2002 levels due
to expansion projects and colder weather.
PIPELINE GROUP RESULTS FIRST QUARTER ENDED MARCH 31
(In millions) 2003 2002
------------ -----------
GAAP Operating Income $384 $357
Equity and Other Income 45 42
------ ------
Reported EBIT $429 $399
Total throughput (BBtu/d) 23,609 21,727
PRODUCTION
Production's reported EBIT for the first quarter 2003 totaled $244 million
versus $176 million in 2002. Reported results in 2003 include a $9-million
impairment of an intangible asset related to Canadian properties that have
been sold and $3 million in restructuring costs, while 2002 results include
$33 million of ceiling test charges associated with certain international
properties. First quarter equivalent production declined 24 percent due
largely to significant sales of proved reserves since early 2002. The
realized price for natural gas, net of hedges, rose to $4.60 per thousand
cubic feet (Mcf) in 2003 from $3.46 per Mcf in 2002, while the realized
price for oil, condensate, and liquids, net of hedges, rose to $27.33 from
$15.68 per barrel. While total operating costs declined on an absolute
dollar basis, total per-unit costs increased to an average $2.55 per
thousand cubic feet equivalent (Mcfe) in the first quarter 2003 compared
with $1.96 per Mcfe last year. The per-unit costs were affected by
increased production taxes due largely to higher commodity prices in 2003,
higher depletion costs, and increased corporate expense allocations on
lower equivalent production.
The company has hedged 162 trillion British thermal units (TBtu) or
approximately 47 percent of its remaining expected 2003 natural gas
production at a NYMEX price of $3.48 per million British thermal unit
(MMBtu) or $3.69 per Mcf. The company expects that its 2003 realized price
for natural gas will be approximately $.30 less than the NYMEX spot price
due to transportation costs and regional price differentials.
PRODUCTION RESULTS FIRST QUARTER ENDED MARCH 31
(In millions) 2003 2002
----------- -----------
GAAP Operating Income $235 $175
Equity and Other Income 9 1
------- -------
Reported EBIT 244 176
Non-recurring items(1) 12 33
------- -------
Pro forma EBIT $256 $209
Natural gas sales volumes (MMcf) 101,743 133,266
Oil, condensate and liquids sales 3,724 4,988
volumes (MBbls)
Total equivalent sales volumes 124,086 163,193
(MMcfe)
Weighted average realized prices:
Natural gas ($/Mcf) $4.60 $3.46
Oil, condensate and liquids ($/Bbl) $27.33 $15.68
1 Non-recurring items include an intangible asset impairment on Canadian
properties and restructuring costs (2003) and ceiling test charges on
certain international properties (2002).
FIELD SERVICES
Field Services reported EBIT of $27 million for the first quarter 2003
compared with $51 million in 2002. Reported results for 2003 include a
$1-million loss on an asset sale. First quarter 2003 pro forma EBIT was
lower than 2002 levels, primarily due to the sale of $1.6 billion of assets
to El Paso Energy Partners (NYSE:EPN) and other third parties during 2002.
The earnings contribution from El Paso Energy Partners increased to $29
million this quarter from $15 million during the first quarter of 2002. The
significant decrease in gathering and transportation volumes from
prior-year levels reflects the assets sales, as does the reduction in
year-over-year processing volumes. Gathering and transportation rates
improved in 2003 because the remaining midstream assets have a higher
average per-unit rate than the assets that were sold. Processing margins
improved as well, primarily due to higher natural gas liquids prices.
FIELD SERVICES RESULTS FIRST QUARTER ENDED MARCH 31
(In millions) 2003 2002
---------- ----------
GAAP Operating Income $-- $38
Equity and Other Income 27 13
------- -------
Reported EBIT 27 51
Non-recurring items(1) 1 --
------- -------
Pro forma EBIT $28 $51
Gathering and transportation 577 5,832
volumes (BBtu/d)
Weighted average gathering and $.22 $.16
transportation rate ($/MMBtu)
Total processing volumes (Inlet 3,307 4,117
BBtu/d)
Weighted average processing $.11 $.10
margins ($/MMBtu)
Total NGL production (Bbl/d) 97,117 162,052
1 Non-recurring item - loss on an asset sale
MERCHANT ENERGY
The Merchant Energy Group, consisting of domestic and international power,
petroleum and LNG, and energy trading reported a first quarter 2003 EBIT
loss of $756 million compared with EBIT of $93 million in the prior year
period. Results for 2003 include asset and equity investment impairments,
LNG exit costs, net gains on asset sales, and restructuring costs while
2002 results include a $342-million impairment of equity investments in
Argentina.
El Paso's power business had pro forma first quarter EBIT of $46 million
versus $303 million in 2002. Last year's results benefited from domestic
power plant contract restructurings as well as Project Electron management
fees.
Petroleum and LNG had pro forma EBIT of $47 million in the first quarter of
2003 versus EBIT of $87 million last year. The decrease was primarily due
to a steam contract termination fee received in 2002 partially offset by
improved current year refining margins at the Eagle Point and Aruba
refineries.
Trading operations had a first quarter pro forma EBIT loss of $186 million
compared with $45 million of EBIT in the same 2002 period. The company's
tight liquidity position during the first quarter of 2003 together with the
cost of exiting trading made it necessary to manage the trading business
for liquidity versus earnings. For example, El Paso sold or terminated
several contracts in order to eliminate the use of working capital to
service these commitments, as well as to continue liquidating its portfolio
pursuant to its announced decision to exit the trading business. These
early liquidations resulted in an estimated loss of $34 million in the
quarter.
Preserving liquidity was also a major factor in other trading losses. At
the start of the quarter, the company had a sizeable portfolio of firm
pipeline transportation and storage capacity that it used in conjunction
with the wholesale purchase and sale of natural gas in various areas of the
country. These capacity positions were hedged with financial derivatives.
During the first quarter of 2003, natural gas prices were extremely
volatile, and the basis spread between producing basins, such as the Gulf
of Mexico, and market areas, such as New York and Boston, periodically rose
to $10 per Mcf and higher. To preserve liquidity, the company at times
chose not to prepay for high-priced natural gas for shipment or storage and
was unable to fully offset the costs of these positions and their financial
hedges, which resulted in estimated losses of $66 million in the quarter.
Because El Paso's liquidity is significantly better now due to the
completion of additional asset sales and several financings, together with
a substantial reduction in the size of the transportation and storage
portfolios and their related hedges, these types of losses should be
mitigated in the future. The overall transportation capacity portfolio was
reduced by 50 percent in the quarter, from 4.4 billion cubic feet per day
(Bcf/d) to 2.2 Bcf/d, while the storage portfolio was reduced by 56
percent, from 125 Bcf to 55 Bcf. El Paso continues to make substantial
progress with respect to the overall liquidation of its trading book. The
company's total remaining contract positions declined by 33 percent in the
first quarter from approximately 40,000 positions at December 31, 2002 to
27,000 positions at March 31, 2003, and the company is still on track to
reduce the remaining contracts to below 12,000 positions by year-end 2003.
MERCHANT ENERGY RESULTS FIRST QUARTER ENDED MARCH 31
(In millions) 2003 2002
----------- -----------
GAAP Operating Income (Loss) $ (514) $ 455
Equity and Other Income (Loss) (242) (362)
------- -------
Reported EBIT (Loss) $ (756) $ 93
Non-recurring items(1) 663 342
------- -------
Pro forma EBIT (Loss) $(93) $ 435
1 Non-recurring items include asset and equity investment impairments,
LNG exit costs, net gains on asset sales and restructuring costs
(2003) and the impairment of equity investments in Argentina (2002).
Detailed operating statistics for each of El Paso's businesses are
available at www.elpaso.com in the For Investors section.
INTEREST EXPENSE
Interest expense on outstanding debt and preferred interests of
consolidated subsidiaries (which includes payments on financings such as
preferred securities, Clydesdale, and Trinity River) increased to $384
million in the first quarter of 2003 versus $347 million in the prior year.
The increase is due to higher average debt balances in 2003 and higher
interest rates on recent debt issuances compared with recent retirements.
INTEREST EXPENSE AND RETURN ON
PREFERRED INTERESTS OF
CONSOLIDATED SUBSIDIARIES FIRST QUARTER ENDED MARCH 31
(In millions) 2003 2002
Interest expense $345 $307
Return on preferred interests of
consolidated subsidiaries 39 40
------ ------
Total expense $384 $347
OUTLOOK
El Paso continues to make significant progress on its operational and
financial plan. So far this year, accomplishments include:
o $2.3 billion, or 67 percent, of the $3.4 billion asset sales
program have been announced or completed
o Significant improvement in liquidity
o Simplification of the balance sheet
o Settlement in principle for the Western energy crisis
o Extension of $3-billion bank facility
o $1.9 billion of financings
o Sale of European natural gas trading book
The company is making additional progress on other fronts. El Paso's Clean
Slate Initiative is moving forward with a goal of achieving a total of $400
million of cost savings and business efficiencies by the end of 2004. This
compares with the original 2003 goal of $150 million.
Based on current initiatives, El Paso expects to reduce debt and other
obligations by approximately $7.5 billion by mid 2005. This would reduce
its obligations senior to common stock from $25 billion at March 31, 2003,
to approximately $17.5 billion. The path to this goal is well
defined--asset sales, which now include the Aruba refinery,
telecommunications assets, and additional domestic power assets; the
recovery of working capital from the trading and petroleum businesses;
natural gas production hedges; and the use of excess cash to pay down debt.
In order to complete the restructuring of the company, El Paso has formed a
Board-level Long Range Planning Committee that is focused on optimizing and
streamlining the company's core natural gas businesses, achieving
additional debt reduction so that the company can restore an investment
grade rating, maximizing the company's earnings power, and generating free
cash flow.
El Paso now expects to achieve pro forma earnings per share for 2003 that
are consistent with the current First Call consensus estimate of $.87 per
share. This is primarily based on a better performance of the trading
business in the last nine months of the year and the continuance of current
natural gas prices. On March 31, 2003, the company said that it expected to
break even on a GAAP basis. Since then, the company has decided to sell the
Aruba refinery, telecommunications assets, and additional domestic power
assets. At this time, the company cannot estimate the impairment for these
assets, however the Aruba refinery and the telecommunications assets have a
combined book value of approximately $1.7 billion.
LIQUIDITY UPDATE
As of April 30, 2003, El Paso had $3.0 billion of available cash and lines
of credit as detailed below.
SOURCES
(in billions)
Available cash $1.9
2-year bank facility 3.0
Multi-year bank facility 1.0
------
Subtotal sources $5.9
USES
2-year bank facility ($1.5)
2-year facility letters of credit (0.5)
Multi-year bank facility (0.5)
Multi-year facility letters of credit (0.4)
------
Subtotal uses (2.9)
------
Net available cash and lines of credit $3.0
As of March 31, 2003, El Paso had $1.8 billion of total cash, $1.5 billion
of which was readily available.
CONFERENCE CALL REMINDER; SLIDES TO BE AVAILABLE ON WEB SITE
El Paso Corporation has scheduled a live webcast today at 11:30 a.m.
Eastern Daylight Time, 10:30 a.m. Central Daylight Time, to discuss its
financial results, which may be accessed online through our Web site at
www.elpaso.com in the For Investors section. A limited number of telephone
lines will also be available to participants by dialing 973-339-3086 ten
minutes prior to the start of the webcast.
During the webcast, management will refer to slides that will be posted on
our Web site. The slides will be available 30 minutes before the call and
can be accessed in the For Investors section.
The webcast replay will be available online through our Web site in the For
Investors section. A telephone audio replay will be also available through
May 20, 2003 by dialing 973-341-3080 (access code 3913607).
El Paso Corporation is the leading provider of natural gas services and the
largest pipeline company in North America. The company has core businesses
in pipelines, production, and midstream services. Rich in assets, El Paso
is committed to developing and delivering new energy supplies and to
meeting the growing demand for new energy infrastructure. For more
information, visit 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, our ability to attract and retain
qualified members of the Board of Directors; the successful recruitment and
retention of a qualified CEO; the successful implementation of the 2003
operational and financial plan; the successful implementation of the
settlement related to the Western Energy Crisis; material and adverse
impacts from our proxy contest with Selim Zilkha/Oscar Wyatt; actions by
the credit rating agencies; the successful close of financing transactions;
our ability to successfully exit the energy trading business; our ability
to divest of certain non-core assets; changes in commodity prices for oil,
natural gas, and power; 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; inability to realize anticipated synergies
and cost savings associated with restructurings and divestitures on a
timely basis; 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.
ADDITIONAL IMPORTANT INFORMATION
In this release and the attached income statement we include certain
financial information that is calculated and presented on the basis of
methodologies other than in accordance with generally accepted accounting
principles (GAAP). A presentation of the most directly comparable financial
measure calculated and presented in accordance with GAAP, and a
reconciliation of the differences between each non-GAAP financial measure
used in this presentation with the most directly comparable financial
measure calculated and presented in accordance with GAAP, is provided on
our Web site, www.elpaso.com. This information may be accessed in the For
Investors section by clicking on "First Quarter 2003 Operating Statistics"
or by clicking the "First Quarter 2003 Earnings Review" presentation in the
Presentations section of the For Investors section.
On May 12, 2003, El Paso Corporation began the process of mailing its
definitive proxy statement, together with a WHITE proxy card. Shareholders
are strongly advised to read El Paso's proxy statement as it contains
important information.
Shareholders may obtain an additional copy of El Paso's definitive proxy
statement and any other documents filed by El Paso with the Securities and
Exchange Commission for free at the Internet Web site maintained by the
Securities and Exchange Commission at www.sec.gov. Copies of the definitive
proxy statement are available for free at El Paso's Internet Web site at
www.elpaso.com or by writing to El Paso Corporation, Investor Relations,
P.O. Box 2511, Houston, TX 77252. In addition, copies of El Paso's proxy
materials may be requested by contacting El Paso's proxy solicitor,
MacKenzie Partners, Inc. at (800) 322-2885 Toll-Free or by email at
proxy@mackenziepartners.com.
Information regarding the names, affiliation and interests of individuals
who may be deemed participants in the solicitation of proxies of El Paso's
shareholders is contained in El Paso's definitive proxy statement.
CONTACTS
Communications and Government Affairs
Norma F. Dunn, Senior Vice President
Office: (713) 420-3750
Fax: (713) 420-3632
Investor Relations
Bruce L. Connery, Vice President
Office: (713) 420-5855
Fax: (713) 420-4417
Alternate Contacts
Joele Frank/Dan Katcher
Joele Frank, Wilkinson Brimmer Katcher
Office: (212) 355-4449
Fax: (212) 355-4554