Low Natural Gas Prices Diminish El Paso Corporation's Exploration and Production Earnings

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Researched by Industrial Info Resources (Sugar Land, Texas)--Natural gas production and transmission company El Paso Corporation (NYSE:EP) (EPC) (Houston, Texas) recently reported earnings for the company's third fiscal quarter of 2009, which ended September 30. Net income for the company was down 85% year over year, moving from $445 million in 3Q08 to $67 million in 3Q09. Lower natural gas prices caused a substantial drop in EBIT (earnings before interest and taxes) in the company's Exploration and Production business unit.

"Compared to the same period last year, natural gas prices on our physical sales were down 65%," said Chief Financial Officer Mark Leland in a conference call. "Offsetting the lower commodity prices was pipeline EBIT, which was up 17%." EBIT for the company's Pipeline Group, at $326 million for the quarter, was up 17% year over year. The company's Exploration and Production business unit has suffered greatly in 2009. The business unit's EBIT of $88 million for the quarter is down more than 83% from 3Q08's $532 million. For the first nine months of 2009, the Exploration and Production unit brought an EBIT loss of $1.5 billion, compared with gains of more than $1 billion in the same period last year.

Chairman and CEO Doug Foshee discussed EPC's strategies that will result in $150 million of net savings. "The savings come from a myriad of places within and outside the organization: workforce reductions in certain areas, contractor reductions, and leveraging the total company spend covered by our supply chain management professionals, to name just a few. In addition, we expect to sell $300 million to $500 million dollars in assets in 2010 as we continue to optimize the overall portfolio."

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