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8-K - FORM 8-K - EL PASO CORP/DE | h82018e8vk.htm |
Exhibit 99.A
News For Immediate Release |
El Paso Corporation Reports Strong First Quarter 2011 Results; Advancing 2011 Goals
HOUSTON, TEXAS, May 5, 2011El Paso Corporation (NYSE:EP) is today reporting first quarter 2011
financial and operational results for the company. Key highlights include:
- | $0.30 adjusted diluted earnings per share (EPS) for first quarter 2011 | ||
- | First quarter E&P production volumes of 821 million cubic feet equivalent per day (MMcfe/d), including Four Star Oil & Gas Company (Four Star) unconsolidated affiliate volumes, up 5 percent from first quarter 2010, including an 18 percent increase in oil and condensate production | ||
- | Florida Gas Transmission (FGT) Phase VIII pipeline expansion on budget and placed in-service April 1 | ||
- | Positive initial results from Wolfcamp Shale program | ||
- | Successful MLP drop-down with proceeds being used to reduce outstanding debt |
We are off to an excellent start, financially and operationally, said Doug Foshee, chairman,
president, and chief executive officer of El Paso Corporation. Our initial drilling results in
the Wolfcamp Shale are encouraging, and we are excited about the potential for our 138,000 net acre
position. This program, along with results in the Eagle Ford Shale and Altamont provide us with
many years of profitable oil inventory. In our Pipeline Group, we continue to work towards the
completion of what was an $8 billion pipeline backlog in 2008. On April 1, the FGT Phase VIII
expansion was placed in service on time and on budget, and we have four more major projects coming
on-line this year. And we continue to execute our MLP strategy, with a major drop-down completed
in March, the proceeds of which are being used to pay down debt and accelerate our balance sheet
improvement. This, along with other future drop-downs to El Paso Pipeline Partners, L.P. are
expected to result in continued distribution growth for limited partner unit holders and rapid
growth in El Paso Corporations general partner distributions. We look forward to continued
progress across all of our businesses during the remainder of the year.
Items Impacting Quarterly Results
First Quarter 2011 | Before | After | Diluted | |||||||||
($ millions, except per share amounts) | Tax | Tax | EPS | |||||||||
Net income attributable to El Paso Corp. (EPC) common stockholders |
$ | 62 | $ | 0.08 | ||||||||
Adjustments1 |
||||||||||||
Impact of E&P financial derivatives2 |
$ | 190 | $ | 122 | $ | 0.16 | ||||||
Loss on debt extinguishment |
41 | 26 | 0.04 | |||||||||
Impact of estimated annual effective tax rate3 |
| 17 | 0.02 | |||||||||
Adjusted EPS4 |
$ | 0.30 | ||||||||||
1 | All individual adjustments assume a 36 percent statutory tax rate, and assume 768 million diluted shares | |
2 | Includes $109 million of mark-to-market losses on financial derivatives, adjusted for $81 million of cash settlement proceeds | |
3 | Reflects the impact on quarterly earnings using the companys current estimate of its overall annual effective tax rate including the effects of adjustments | |
4 | Reflects fully diluted shares of 768 million |
Financial Results First Quarter 2011
For the first quarter 2011, El Paso reported net income attributable to EPC common stockholders of
$62 million, or $0.08 per diluted share, compared with net income of $379 million, or $0.51 per
diluted share, for the first quarter 2010. Earnings for first quarter 2011 and 2010, after
adjusting for impacts of E&P financial derivatives and other items, were $0.30 and $0.33 per
diluted share, respectively.
El Pasos effective tax rate for reported earnings for the quarter ended March 31, 2011 was 12
percent, which was favorably impacted by the resolution of several tax matters and earned state tax
credits. Absent these items, the effective rate for the quarter would have been 22 percent. The
companys effective tax rate is expected to remain well below the statutory rate due to the growth
of earnings attributable to noncontrolling interests as a result of its drop-down activities with
El Paso Pipeline Partners, L.P.
Business Unit Financial Results
Segment EBIT
Quarters Ended | ||||||||
March 31, | ||||||||
($ in millions) | 2011 | 2010 | ||||||
Pipeline Group |
$ | 499 | $ | 452 | ||||
Exploration and Production |
(31 | ) | 390 | |||||
Marketing |
(14 | ) | 17 | |||||
Other |
(59 | ) | (11 | ) | ||||
$ | 395 | $ | 848 | |||||
Note: On January 1, 2011, El Paso began using the non-GAAP financial measure, Segment EBIT, and
the 2010 amounts have been conformed to reflect this current performance measure. Refer to the
Disclosure of Non-GAAP Financial Measures later in this release for a definition of Segment EBIT.
Pipeline Group
The Pipeline Groups Segment EBIT for the quarter ended March 31, 2011 was $499 million, compared
with $452 million for the same period in 2010. First quarter 2011 results benefited from higher
reservation revenues due to several expansion projects that went into service during 2010. First
quarter 2011 results were also favorably impacted by allowance for equity funds used during
construction on expansion projects that are not yet in service, principally the Ruby pipeline.
Offsetting the effects of these favorable items was lower reservation revenue on the El Paso
Natural Gas system due to competitive pressures and the effects of a weak economy in California and
the southwest portion of the country.
Quarters Ended | ||||||||
Pipeline Group Results | March 31, | |||||||
($ in millions) | 2011 | 2010 | ||||||
Operating income |
$ | 375 | $ | 381 | ||||
Other income, net |
124 | 71 | ||||||
Segment EBIT |
$ | 499 | $ | 452 | ||||
DD&A |
$ | 114 | $ | 106 | ||||
Total throughput (BBtu/d)1 |
18,062 | 18,063 |
1 | Includes proportionate share of jointly-owned pipelines and excludes volumes relating to Mexican pipeline assets which were sold in 2010. |
Exploration and Production
The Exploration and Production segment reported a $31 million loss in Segment EBIT for the quarter
ended March 31, 2011, compared with $390 million of Segment EBIT for the same period in 2010. The
principal reason for the decline was a $362 million quarter-to-quarter change in the mark-to-market
impacts of financial derivatives. Also contributing to the decline were lower natural gas prices
and a higher per-unit DD&A rate. Partially offsetting these factors were higher production volumes
and higher oil and condensate prices.
First quarter 2011 production volumes averaged 821 MMcfe/d, including 63 MMcfe/d of Four Star
unconsolidated affiliate volumes. First quarter 2010 production volumes averaged 781 MMcfe/d,
including 64 MMcfe/d of Four Star unconsolidated affiliate volumes. While total volumes rose 5
percent, oil and condensate volumes were 18 percent higher as a result of an
increased focus on oil
programs. Total per-unit cash operating costs decreased to an average of $1.85 per Mcfe in the
first quarter 2011, down from $1.88 per Mcfe for the same period in 2010, primarily due to higher
production volumes.
Exploration and Production Results | Quarters Ended | |||||||
March 31, | ||||||||
($ in millions, except price and unit cost amounts) | 2011 | 2010 | ||||||
Physical salesnatural gas, oil, condensate, and NGL revenue |
$ | 358 | $ | 381 | ||||
Realized and unrealized (losses) gains on financial derivatives |
(109 | ) | 253 | |||||
Other revenues |
1 | 13 | ||||||
Total operating revenues |
$ | 250 | $ | 647 | ||||
Operating expenses1 |
(280 | ) | (259 | ) | ||||
Other (expenses) income |
(1 | ) | 2 | |||||
Segment EBIT |
$ | (31 | ) | $ | 390 | |||
DD&A |
$ | 134 | $ | 107 | ||||
Consolidated volumes: |
||||||||
Natural gas sales volumes (MMcf/d) |
659 | 624 | ||||||
Oil and condensate sales volumes (MBbls/d) |
13 | 11 | ||||||
NGL sales volumes (MBbls/d) |
3 | 5 | ||||||
Total consolidated equivalent sales volumes (MMcfe/d) |
758 | 717 | ||||||
Four Star total equivalent sales volumes (MMcfe/d)2 |
63 | 64 | ||||||
Total combined |
821 | 781 | ||||||
Weighted average realized price on physical sales |
||||||||
Natural gas ($/Mcf) |
$ | 4.06 | $ | 5.13 | ||||
Oil and condensate ($/Bbl) |
$ | 86.27 | $ | 75.00 | ||||
NGL ($/Bbl) |
$ | 50.37 | $ | 44.67 | ||||
Weighted average realized price, including financial derivatives |
||||||||
Natural gas ($/Mcf) |
$ | 5.44 | $ | 6.04 | ||||
Oil and condensate ($/Bbl) |
$ | 85.69 | $ | 73.26 | ||||
Transportation costs |
||||||||
Natural gas ($/Mcf) |
$ | 0.31 | $ | 0.29 | ||||
Oil and condensate ($/Bbl) |
$ | 0.06 | $ | 0.05 | ||||
NGL ($/Bbl) |
$ | 5.01 | $ | 2.79 | ||||
Per-unit costs ($/Mcfe) |
||||||||
DD&A |
$ | 1.96 | $ | 1.67 | ||||
Cash operating costs3 |
$ | 1.85 | $ | 1.88 |
1 | 2010 includes $2 million of non-cash ceiling test charges | |
2 | Four Star is an equity investment; volumes disclosed represent the companys proportionate share | |
3 | Includes direct lifting costs, production taxes, G&A expenses, and taxes other than production and income |
Hedge Positions
The company actively manages its exposure to commodity prices using various hedging strategies. During the quarter, the company entered into additional natural gas hedges for the remainder of 2011. After adding these positions, approximately 80 percent of the companys remaining 2011 domestic natural gas production is hedged at an average floor price of $5.78 per MMBtu. Approximately 85 percent of the companys remaining 2011 oil production is hedged with a floor of $85.99 and a ceiling of $91.88. Further information on the companys hedging activities will be available in El Pasos Financial and Operational Reporting Package for First Quarter 2011, which can be found in the Investors section of El Pasos website.
The company actively manages its exposure to commodity prices using various hedging strategies. During the quarter, the company entered into additional natural gas hedges for the remainder of 2011. After adding these positions, approximately 80 percent of the companys remaining 2011 domestic natural gas production is hedged at an average floor price of $5.78 per MMBtu. Approximately 85 percent of the companys remaining 2011 oil production is hedged with a floor of $85.99 and a ceiling of $91.88. Further information on the companys hedging activities will be available in El Pasos Financial and Operational Reporting Package for First Quarter 2011, which can be found in the Investors section of El Pasos website.
Marketing
Marketing reported a Segment EBIT loss of $14 million for the quarter ended March 31, 2011,
compared with $17 million of Segment EBIT for the same period in 2010. First quarter 2011 includes
a $15 million loss related to settlements on an affiliated fuel supply agreement. First quarter
2010 includes an $18 million mark-to-market gain on the remaining Pennsylvania-New Jersey-Maryland
power contracts.
Other Operations
During the first quarter of 2011, Segment EBIT from Other Operations was a loss of $59 million,
compared with a loss of $11 million for the same period in 2010. First quarter 2011 results
include a $41 million loss associated with the repurchase of approximately $148 million of debt.
Other activities also include the companys midstream operations. In late 2010, El Paso sold
a 50-percent interest in its Altamont gathering and processing assets to a private equity investor
as a part of the formation of a joint-venture, El Paso
Midstream Investment Co. El Pasos interest in this company is reported as an unconsolidated
affiliate. The joint-venture expects to develop future midstream projects as well as expand the
Altamont assets. For the quarter
ended March 31, 2011, the midstream operations contributed $2 million to Segment EBIT, which
included $3 million of equity earnings from El Paso Midstream Investment Co.
Detailed financial and operational information for the company will be posted at www.elpaso.com in
the Investors section.
Webcast Information
El Paso Corporation has scheduled a live webcast to review its first quarter 2011 results on May 5,
2011, beginning at 10 a.m. Eastern Time, 9 a.m. Central Time, which may be accessed online through
El Pasos website at www.elpaso.com in the Investors section. During the webcast, management will
refer to slides that will be posted on the website. 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 (866) 865-6644 (conference ID # 60175156) 10
minutes prior to the start of the webcast.
A replay of the webcast will be available online through the companys website in the Investors
section. A telephone audio replay will be also available through May 13, 2011, by dialing (800)
642-1687 (conference ID # 60175156). If you have any questions regarding this procedure, please
contact Margie Fox at (713) 420-2903.
Disclosure of Non-GAAP Financial Measures
The Securities and Exchange Commissions 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 Pasos Financial and Operational Reporting
Package, which will be posted at www.elpaso.com in the Investors section.
On January 1, 2011, El Paso began using the non-GAAP financial measure segment earnings before
interest expense and income taxes or Segment EBIT to assess the operating results and
effectiveness of the company and its business segments. The company believes that
Segment EBIT is
useful to its investors because it allows them to use the same performance measure analyzed
internally by our management to evaluate the performance of our businesses and investments without
regard to the manner in which they are financed or the companys capital structure. The company
defines Segment EBIT as net income (loss) adjusted for interest and debt expense and income taxes.
Segment EBIT does not reflect a reduction for any amounts attributable to noncontrolling interests.
The 2010 amounts have been conformed to reflect the companys current performance measure.
Adjusted EPS is defined as diluted earnings per share adjusted for certain items that the company
considers to be significant to understanding our underlying performance for a given period.
Adjusted EPS is useful in analyzing the companys on-going earnings potential and understanding
certain significant items impacting the comparability of El Paso Corporations results. For 2011,
Adjusted EPS is earnings per share attributable to El Paso Corporation common stockholders adjusted
for the impact of E&P financial derivatives, and excluding a loss on debt extinguishment and the
impact of the estimated annual effective tax rate. For 2010, Adjusted EPS is earnings per share attributable to El Paso Corporation common stockholders adjusted
for the impact of E&P financial derivatives, and excluding ceiling test charges, changes in legacy
derivative contracts and other legacy items, the impact of health care legislation, and impact of
the estimated annual effective tax rate.
Exploration and Production per-unit total cash operating costs is a non-GAAP measure calculated on
a per Mcfe basis equal to total operating expenses less DD&A, transportation costs, costs of
products and services, and ceiling test charges and other impairment divided by total consolidated
equivalent production. It is a valuable measure used by oil and gas companies and analysts to
evaluate operating performance and 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 it
with the performance of other companies within the industry. These non-GAAP financial measures may
not be comparable to similarly titled measures used by other companies and should not be used as a
substitute for net income, earnings per share or other measures of financial performance presented
in accordance with GAAP.
El Paso Corporation provides natural gas and related energy products in a safe, efficient, and
dependable manner. The company owns North Americas largest interstate natural gas pipeline
system, one of North Americas largest independent oil and natural gas producers and an emerging
midstream business. 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, our ability to execute our
strategy of selling assets to El Paso Pipeline Partners, L.P.; our ability to pay dividends
declared; changes in unaudited and/or unreviewed financial information; volatility in, and access
to, the capital markets; our ability to implement and achieve objectives in our 2011 plan and
guidance, 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; the uncertainty of estimating proved reserves and unproved resources, the
future level of service and capital costs, the availability and cost of financing to fund our
future exploration and production operations; the success of our drilling programs with regard to
proved undeveloped reserves and unproved resources; our ability to successfully identify new
midstream opportunities; 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; 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; 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 companys (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.
Contacts
Investor and Media Relations
Bruce Connery, Vice President
(713) 420-5855
Bruce Connery, Vice President
(713) 420-5855
Media Relations
Bill Baerg, Manager
(713) 420-2906
Bill Baerg, Manager
(713) 420-2906
Appendix to El Paso Corporation May 5, 2011 Earnings Press Release
A summary of reported financial results for the quarters ended March 31, 2011 and 2010 is as
follows:
Financial Results
Quarters Ended | ||||||||
March 31, | ||||||||
($ in millions, except per share amounts) | 2011 | 2010 | ||||||
Net income attributable to EPC |
$ | 62 | $ | 388 | ||||
Preferred stock dividends |
| 9 | ||||||
Net income attributable to EPC common stockholders |
$ | 62 | $ | 379 | ||||
Basic per common share amounts |
||||||||
Net income attributable to EPC common stockholders |
$ | 0.09 | $ | 0.54 | ||||
Diluted per common share amounts |
||||||||
Net income attributable to EPC common stockholders |
$ | 0.08 | $ | 0.51 | ||||
Items Impacting Quarterly Results
First quarter 2010 net income includes the following items:
First Quarter 2010
Before | After | Diluted | ||||||||||
($ millions, except per share amounts) | Tax | Tax | EPS | |||||||||
Net income attributable to EPC common stockholders |
$ | 379 | $ | 0.51 | ||||||||
Adjustments1 |
||||||||||||
Impact of E&P financial derivatives2 |
$ | (203 | ) | $ | (130 | ) | $ | (0.17 | ) | |||
Ceiling test charges |
2 | 2 | | |||||||||
Change in legacy derivative contracts and other legacy items3 |
(14 | ) | (9 | ) | (0.01 | ) | ||||||
Impact of health care legislation |
| 18 | 0.02 | |||||||||
Impact of estimated annual effective tax rate4 |
| (19 | ) | (0.02 | ) | |||||||
Adjusted EPS5 |
$ | 0.33 | ||||||||||
1 | All individual adjustments assume a 36 percent statutory tax rate, except for the ceiling test charges and assume 768 million diluted shares | |
2 | Includes $253 million of gains on financial derivatives, adjusted for $50 million of cash settlement proceeds. Cash proceeds on settlements do not reflect $52 million, or $0.04 per share, of option premiums paid in 2009 for financial derivatives settled during the first quarter 2010 | |
3 | Legacy items consist of changes in the value of power contracts and the resolution of an indemnification | |
4 | Reflects the impact on quarterly earnings using the companys current estimate of its overall annual effective tax rate | |
5 | Reflects fully diluted shares of 768 million and includes a $12 million income impact from dilutive securities |
Reconciliation of Segment EBIT to Net Income
Quarters Ended | ||||||||
March 31, | ||||||||
($ in millions, unaudited) | 2011 | 2010 | ||||||
Segment EBIT |
$ | 395 | $ | 848 | ||||
Interest and debt expense |
(240 | ) | (243 | ) | ||||
Income tax expense |
(19 | ) | (186 | ) | ||||
Net income |
$ | 136 | $ | 419 | ||||
Net income attributable to noncontrolling interest |
(74 | ) | (31 | ) | ||||
Net income attributable to EPC |
$ | 62 | $ | 388 | ||||
Reconciliation of Cash Operating Costs
Quarter Ended | Quarter Ended | |||||||||||||||
March 31, 2011 | March 31, 2010 | |||||||||||||||
Total | Per Unit | Total | Per Unit | |||||||||||||
(unaudited) | ($ MM) | ($/Mcfe) | ($ MM) | ($/Mcfe) | ||||||||||||
Total operating expenses |
$ | 280 | $ | 4.11 | $ | 259 | $ | 4.01 | ||||||||
Depreciation, depletion, and amortization |
(134 | ) | (1.96 | ) | (107 | ) | (1.67 | ) | ||||||||
Transportation costs |
(20 | ) | (0.30 | ) | (18 | ) | (0.28 | ) | ||||||||
Cost of products |
| | (10 | ) | (0.15 | ) | ||||||||||
Ceiling test charges |
| | (2 | ) | (0.03 | ) | ||||||||||
Total cash operating costs and
per unit cash costs1 |
$ | 126 | $ | 1.85 | $122 | $ | 1.88 | |||||||||
Total equivalent volumes (MMcfe)1 |
68,187 | 64,557 |
1 | Excludes volumes and costs associated with equity investment in Four Star |