El Paso Swings to Loss in 3Q11
El Paso reported third quarter 2011 financial and operational results for the company. Key highlights include:
- $0.18 adjusted diluted earnings per share (EPS) for third quarter 2011
- E&P production volumes were 827 million cubic feet equivalent per day (MMcfe/d), including Four Star Oil & Gas Company (Four Star) unconsolidated affiliate volumes, up 8 percent from the third quarter of 2010
- Third quarter 2011 domestic oil production, including Four Star, up 25 percent from the third quarter of 2010
- Latest Wolfcamp shale well produced 1,369 barrels of oil equivalent per day (BOE/d) in a 24-hour test
- Eagle Ford oil production growing rapidly with completion of natural gas gathering facilities
- Tennessee Gas Pipeline (TGP) rate case settlement filed
- $1.1 billion Gulf LNG regasification terminal (50 percent owned by El Paso) placed in service October 1, on-time and on-budget
- $0.7 billion TGP 300 Line expansion placed in-service November 1, on-time and on-budget
- TGP added another Marcellus project - MPP pipeline expansion
"Our businesses are delivering excellent operational results," said Doug Foshee, chairman, president and chief operating officer of El Paso Corporation. "With the TGP 300 Line expansion now in service, we have completed what was an $8 billion backlog of pipeline projects, the largest in our company's history. And we continue to add new projects to meet our customers' infrastructure needs. The latest is another Marcellus-related expansion on TGP, bringing our total Marcellus expansions to $1.3 billion. E&P continues to hit on all cylinders, generating rapid oil production growth, through continued activity in the Eagle Ford, Wolfcamp, Altamont, and South Louisiana Wilcox programs. We expect this growth to continue given our leading positions in some of the most exciting and prolific areas in North America. We're of course very excited about our pending sale to Kinder Morgan, Inc. Our focus between now and the successful conclusion of that transaction remains on delivering excellent operational results."
Financial Results - Third Quarter 2011
For the third quarter 2011, El Paso reported a net loss attributable to EPC common stockholders of $368 million, or $0.48 per diluted share, compared with net income attributable to EPC common stockholders of $133 million, or $0.19 per diluted share, for the third quarter 2010. Earnings for third quarter 2011 and 2010, after adjusting for impacts of E&P financial derivatives and other items, were $0.18 and $0.22 per diluted share, respectively.
Exploration and Production
The Exploration and Production segment reported $183 million of Segment EBIT for the quarter ended September 30, 2011, compared with $261 million of Segment EBIT for the same 2010 period. The decline is due to $152 million of non-cash ceiling test charges in the company's Brazilian full cost pool, primarily due to the recent denial of a necessary environmental permit for the Pinauna development project. El Paso has filed an appeal and is awaiting a response. Excluding these charges, Segment EBIT increased by $74 million from the same 2010 period, primarily due to a $67 million increase in mark-to-market gains, higher oil, condensate and NGL prices, and higher production volumes, partially offset by higher DD&A expense.
Third quarter 2011 production volumes rose 8 percent from the third quarter of 2010, averaging 827 MMcfe/d, including 60 MMcfe/d of Four Star unconsolidated affiliate volumes. Third quarter 2010 production volumes averaged 764 MMcfe/d, including 62 MMcfe/d of Four Star unconsolidated affiliate volumes. El Paso's production is rising sharply, and the company expects its full-year 2011 production to be between 830 and 840 MMcfe/d, including Four Star. Fourth quarter 2011 production is expected to be between 850 and 890 MMcfe/d, including Four Star, which would be a 7 to 12 percent increase from the fourth quarter 2010. Fourth quarter 2011 oil production, including Four Star, is expected to rise to between 20 and 27 MBbls/d from 17 MBbls/d in the third quarter 2011. El Paso continues to operate at its forecasted levels with 13 operated rigs and staying within its $1.6 billion capital program.
Total per-unit cash operating costs increased to an average of $1.82 per Mcfe in the third quarter 2011 up from $1.62 per Mcfe for the same period in 2010, due mainly to temporary higher costs in the Eagle Ford and Wolfcamp programs due to infrastructure delays, higher maintenance and repair costs in Altamont and higher expenses in Brazil.
E&P Operational Update
Wolfcamp - El Paso has completed seven Wolfcamp horizontal wells, the most recent being the UL-43-17-1H, which tested at a 24-hour rate of 1,270 barrels of oil and 591 Mcf of natural gas, or 1,369 BOE/d. This well had a 7,500 foot lateral and was completed with 25 stages. El Paso continues to optimize its completion processes as well as its flow-back procedures in order to maximize fluid recovery. The company will operate two rigs in this area for the remainder of the year.
Eagle Ford - El Paso's Midstream Group has completed the natural gas gathering system for the Eagle Ford Central area, which eliminates what had been a major production constraint caused by limited natural gas takeaway capacity. Gross daily Eagle Ford production for the third quarter 2011 was approximately 10,500 BOE/d. Fourth quarter 2011 gross production is expected to rise significantly to 17,000 to 18,000 BOE/d. El Paso expects to operate three rigs in this area for the remainder of the year.
S. Louisiana Wilcox - El Paso controls 140,000 net acres in this new oil-focused program. Gross production has already reached approximately 2,500 BOE/d from 9 wells. Given the success to date and the premium pricing for production -- Louisiana Light Sweet for oil and approximately $3.00 per Mcf above Henry Hub pricing for natural gas, El Paso recently increased its activity to two rigs, and continues to appraise 3-D seismic in this area. The company expects that at year-end 2011 it will have 250 undrilled locations with approximately 55 MMBOE of net risked resource potential.
- E&Y: 2012 'Record Year' for O&G Deals (Jan 24)
- FTC Approves Kinder Morgan Acquisition of El Paso (May 01)
- Sources: KNOC A Partner in El Paso E&P Acquisition (Mar 19)