El Paso to reduce 2003 capital spending by $900 million
HOUSTON, Aug. 8, 2002 — El Paso Corp. recently announced its earnings for the second quarter of 2002, which are summarized in the table below, as well as significant progress on its strategic repositioning plan.
El Paso Corporation’s second quarter 2002 pro forma earnings were $234 million, or $.44 per diluted share, which compares with pro forma earnings of $414 million, or $.79 per diluted share, in the second quarter of 2001.
The company reported a second quarter 2002 loss of $45 million, or $.08 per diluted share, which included $279 million, or $.52 per diluted share, of various non-recurring items. The most significant non-recurring item was a $234-million (pre-tax), or $.29 per diluted share, ceiling test charge, primarily for Canadian oil and natural gas properties.
El Paso reported a loss of $93 million, or $.18 per diluted share, for the second quarter of 2001, which included merger-related charges and other non-recurring items totaling $507 million, or $.97 per diluted share.
Pro forma second quarter earnings before interest expense and taxes (EBIT) totaled $698 million compared with $957 million in 2001. Reported second quarter 2002 EBIT was $411 million compared with $153 million last year.
“Our second quarter pro forma results from operations are a strong endorsement of our asset-rich business model and, we believe, a direct result of the hard work and dedication of our employees,” said William A. Wise, chairman, president, and chief executive officer of El Paso. “Although the industry in general, and the energy trading market in particular, have been under severe pressure, our diversified mix of pipelines, production, and midstream assets has allowed us to continue to provide positive operating results. Brent Austin, our chief financial officer, and I will certify the company’s financial statements with the Securities and Exchange Commission when the company files its second quarter Form 10-Q next week.”
“We continue to deliver on our previously announced commitments to address the current credit and business environments. Since December, we have sold or contracted for the sale of approximately $2.5 billion of assets, issued approximately $2.5 billion of equity securities, eliminated $4 billion of ratings triggers, reduced annual operating expenses by $300 million, and implemented working capital and credit limits on our trading business. Our balance sheet is strong and improving, our liquidity has never been more solid, and our dividend is secure,” Wise continued.
“Despite the significant progress the company has made, industry and capital market conditions are increasingly difficult. This environment dictates that we take additional steps to increase financial flexibility while advancing our most promising growth initiatives. Beginning in 2003, we intend to fund our capital expenditures with operating cash flow from our core businesses. To that end, we plan to reduce 2003 capital spending and sell additional non-strategic assets to reduce debt further. We are confident that these steps will further strengthen El Paso’s position as North America’s leading provider of natural gas services,” Wise concluded.
Detailed operating statistics for each of El Paso’s businesses are available at www.elpaso.com in the “For Investors” section.
Balance sheet and liquidity update
El Paso announced plans recently to reduce 2003 capital spending by $900 million to approximately $3.0 billion, with most of the decrease coming from exploration and production activities. In addition, El Paso intends to sell between $1.5 billion and $2 billion of additional non-strategic production, pipeline, and power assets to reduce debt further.
El Paso has already completed approximately $2.5 billion of equity financing since December 2001. The company announced or completed $2.5 billion of asset sales and implemented $300 million of cost reductions. El Paso has eliminated senior executive bonuses for 2002 and terminated certain long-term incentives for senior executives. Parent company expenses in all areas have been significantly reduced. El Paso has also scaled back its energy trading operations and personnel.
In July 2002, El Paso announced that it had completed the elimination of $4 billion in ratings triggers covering its Chaparral and Gemstone investments and its Trinity River and Clydesdale minority interest financings as part of the company’s balance sheet enhancement plan.
As of July 31, 2002, El Paso had $5.8 billion in total available liquidity, comprised of $1.8 billion of cash on hand, an available $3-billion, 364-day revolving credit line, and a $1-billion multiple-year bank revolver. The company has debt maturities totaling approximately $490 million for the remainder of 2002 and $1.7 billion in 2003.
El Paso expects that it will achieve core earnings between $2.05 and $2.15 per diluted share in 2002 and $1.80 to $2.00 per share in 2003. These estimates assume a NYMEX natural gas price of $3.36 per Mcf ($3.17 per million British thermal units (MMBtu)) for the second half of 2002 and a $3.82 per Mcf ($3.60 per MMBtu) for 2003. The earnings estimates also reflect lower natural gas and liquids production in 2003 given the capital spending reduction, reduced expectations for trading operations, and loss of income from the impact of asset sales.
El Paso Corporation is a North American provider of natural gas services. The company has core businesses in natural gas production, gathering and processing, and transmission, as well as liquefied natural gas transport and receiving, petroleum logistics, power generation, and merchant energy services. El Paso Corporation, rich in assets and fully integrated across the natural gas value chain, is committed to developing new supplies and technologies to deliver energy to communities around the world. For more information, visit www.elpaso.com.