El Paso Corp. reported third quarter 2010 financial and operational results for the company.
"Each quarter's progress brings us closer to our long term goals," said Doug Foshee, chairman, president, and chief executive officer of El Paso Corporation. "Both of our businesses continue to create value in the face of a challenging economic climate. Our pipeline group delivered another good quarter, and is poised to complete three expansions before year-end, all on-time and significantly under budget. In E&P, we continue to improve our execution, and, with our early entrance into the emerging Wolfcamp shale oil play, we have further expanded our portfolio of oil opportunities. In addition, the hedges we have in place through 2012 separate us from our peers in what could be a sustained period of low natural gas prices. Every aspect of our business remains focused on execution, which will allow us to reach our objective of substantial free cash flow in 2012."
The effective tax rate for the nine months ended September 30, 2010 was approximately 30 percent, which is lower than the statutory rate, primarily due to an increase in income attributable to nontaxable noncontrolling interests, the tax impact of the sale of El Paso's interests in Mexican pipeline and compression assets, and liquidation of certain foreign entities. The impact of these items was partially offset by $18 million of additional income tax expense recorded in the first quarter due to healthcare legislation enacted in March 2010, which reduces the tax deduction for certain retiree prescription drug expenses.
Financial Results -- Nine Months Ended September 30, 2010
For the nine months ended September 30, 2010, El Paso reported net income attributable to EPC common stockholders of $659 million, or $0.90 per diluted share, compared with a net loss of $841 million, or $1.21 per diluted share, for the first nine months of 2009. Earnings for the nine month periods of 2010 and 2009, after adjusting for the impacts of E&P financial derivatives and other items, were $0.77 and $0.95 per diluted share, respectively.
Exploration and Production
The Exploration and Production segment reported $261 million of EBIT for the quarter ended September 30, 2010 compared with $88 million for the same period in 2009. Higher EBIT was primarily due to the mark-to-market impact of financial derivatives, higher volumes and commodity prices and a 9 percent reduction in per-unit cash costs. As a result of its successful efforts to reduce cash operating expenses, El Paso is updating its 2010 cash cost guidance to $1.75 to $1.85 per Mcfe. Third quarter 2010 DD&A expense was higher due to a higher depletion rate and higher production volumes. The company updated its full year 2010 DD&A guidance to be $1.80 to $1.85 per Mcfe.
Third quarter 2010 production volumes averaged 764 MMcfe/d, including 62 MMcfe/d of Four Star unconsolidated affiliate volumes, representing an increase of 32 MMcfe/d, or 4 percent, from third quarter 2009 production volumes, which averaged 732 MMcfe/d, including 71 MMcfe/d of Four Star unconsolidated affiliate volumes. Higher year to year volumes reflect substantial growth from the company's Haynesville shale program and increased production in Brazil.
During the third quarter 2010, El Paso was the winning bidder for leases covering approximately 123,000 acres in Reagan, Crockett, Upton, and Irion counties in the September 22, 2010 University of Texas lease sale. The leases, when added to approximately 12,000 net acres of existing leasehold nearby, give the company a large position for its newest horizontal oil program, the Wolfcamp shale.
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