El Paso Endures Declines in First-Quarter 2011, but Sees Potential in Ongoing Projects

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Researched by Industrial Info Resources (Sugar Land, Texas)--Natural gas production and transmission company El Paso Corporation (NYSE:EP) (Houston, Texas) posted declines in revenue and income for first-quarter 2011, as mark-to-market losses, lower natural gas prices, and economic weaknesses in California and the southwestern U.S. wore away at the company's bottom line. Net income for the quarter was reported to be $62 million, compared with $388 million in first-quarter 2010.

El Paso officials pointed out that these results were slightly different when using the "EBIT" method, which measures income without the effects of interest and debt expenses and income taxes; this also can be calculated as total segment EBIT minus net losses attributable to non-controlling interests. Using EBIT, income stood at $321 million for the quarter, compared with $817 million in the same period last year. Interest and debt expenses made up for the bulk of the difference with the standard, GAAP net income figures.

Total operating revenues were reported to be $989 million for the quarter, a 29.41% decrease from first-quarter 2010. The Exploration and Production segment took the largest hit, due to a $362 million change in the mark-to-market impacts of financial derivatives from first-quarter 2010, as well as lower natural gas prices and a higher per-unit rate of depletion, depreciation and amortization. However, production volumes in the quarter were up 5% from the same period last year, partly because of an 18% increase in oil and condensate production.

The Pipelines segment benefited from several expansion projects that began operations in 2010, spurring higher reservation revenues, but these results were partly offset a weaker-than-expected economy in California and the southwestern U.S. The company also was affected by a $41 million loss from the repurchase of debt, while the Marketing segment suffered from a $15 million loss related to settlements on an affiliated fuel supply agreement.

"We're ahead of our own internal plan in virtually every financial area," said Doug Foshee, the chairman, president and chief executive officer of El Paso, in a conference call. "The Exploration and Production team continues to hit on all cylinders, with volumes ahead of plan, unit costs coming down, and inflation being kept in check with continuing efficiency gains."

The Pipelines segment was the only one to see gains in revenue or EBIT for the quarter:

• The Pipeline segment reported $753 million in operating revenues, a 2.17% increase from first-quarter 2010, and $499 million in EBIT, a 10.4% increase.
• The Exploration and Production segment reported a $250 million gain in operating revenues, compared with a $647 million gain in the same period last year, and a $31 million EBIT loss, compared with a $390 million gain in first-quarter 2010.
• The Marketing segment reported a $12 million loss in operating revenues, compared with a $19 million gain in the same period last year, and a $14 million loss in EBIT, compared with a $17 million gain in first-quarter 2010.
• Corporate and other segments reported a total loss of $2 million in revenues, unchanged from the loss experienced in the same period last year, and a total loss of $59 million in EBIT, compared with an $11 million loss in first-quarter 2010.

El Paso officials remain confident that the company will finish numerous major projects before the end of 2011, including the $2.96 billion, 675-mile Ruby pipeline project and the $600 million, 127-mile TGP 300 Line pipeline project.

"By the end of the year, essentially all of the $8 billion backlog will be complete," said Jim Yardley, the president of El Paso's Pipelines segment, in the conference call. "Our focus in Pipelines remains very clear: It's to complete these projects successfully."

Industrial Info is tracking 44 active U.S. projects that are worth a total of more than $2 billion, including a $20 million addition at a compressor station in Bay Springs, Mississippi. The project, which is part of a $133 million expansion, involves constructing a building addition and installing a Solar Taurus T-70 turbine-driven compressor package, with auxiliary equipment to support Southern Natural Gas Company's Thomaston Griffin Pipeline Loop, which is being built to transport 367 million standard cubic feet per day of natural gas in Jefferson and Simpson counties in Georgia. For more information, visit Industrial Info's North American Oil and Gas Transmission Project Database.

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