El Paso Corporation reported an improved growth outlook for its E&P business, as well as financial and operational highlights for 2008.
"Our 2007 results mark five consecutive years of improved financial and operating performance for Team El Paso," said Doug Foshee, president and chief executive officer of El Paso Corporation. "As we move into 2008, for the first time in many years El Paso has visible, multi-year growth in both of our core businesses. In spite of having put more than $500 million of growth projects from our pipeline backlog in service during 2007, we ended the year having grown that backlog from $2 billion to $3 billion. This means a higher growth rate for the pipelines from known projects, with more on the horizon. The E&P business hit its targets in 2007, including being above the high end of the targeted range for production volumes including the Peoples acquisition, and the upper end of our range excluding this acquisition. And the results of the portfolio work done during the year allow us to increase our multi-year growth rates in E&P meaningfully. Finally, we structured El Paso Pipeline Partners with built-in growth, and we are committed to work to raise the distributions for its unit holders."
El Paso Exploration & Production made significant progress in 2007 and achieved its stated operational targets. Production averaged 862 million cubic feet equivalent per day (MMcfe/d), including the company's proportionate share of production (70 MMcfe/d) in Four Star Oil & Gas Company (Four Star) and 17 MMcfe/d from the Peoples acquisition. This total represents an 8-percent increase over 2006 production levels. Per-unit lease operating expense declined 7 percent to $0.88 per thousand cubic feet equivalent. In addition, El Paso expects to meet or exceed its 1 to 5 percent reserve growth target, without the reserve additions associated with the Peoples acquisition. Note that 2007 figures are current estimates and subject to change up to the filing of the 2007 Form 10-K.
The E&P 2008 capital budget is $1.7 billion, with roughly $500 million allocated to growth. Onshore will continue to receive the highest allocation of exploration and development capital with approximately $580 million targeted towards highly repeatable drilling projects. Texas Gulf Coast will spend $385 million, with a significant portion of the capital targeted to developing properties acquired in 2007. Gulf of Mexico spending is planned at $235 million, with lower activity following the expected downsizing of operations. Internationally, El Paso will spend $310 million, with the majority of capital devoted to the development of the Pinauna and Bia projects. The company will complete its seismic evaluation in Egypt, and is expected to drill two exploration wells in the second half of 2008.
Portfolio high grading efforts will improve the growth profile, as well as the predictability and consistency of El Paso's E&P operations. In 2008, El Paso expects to produce 870-930 MMcfe/d, including its proportionate interest in Four Star. The impact of the company's portfolio high grading and the improvements to its overall inventory enable El Paso to project an average 2007 - 2010 growth rate of 8 to 12 percent from its new asset base.
The 2008 objectives above assume commodity prices of $7.50 per million British thermal units (MMBtu) for natural gas (Henry Hub) and $70.00 per barrel for oil (WTI). These projections also assume the close of El Paso's planned domestic E&P divestitures on March 31, 2008. El Paso previously announced agreements to sell certain Onshore and Texas Gulf Coast properties for $517 million and is currently negotiating the sale of certain Gulf of Mexico properties. If the company does not sell the Gulf of Mexico properties, El Paso's earnings, operating cash flow, and per-unit operating expenses would all be higher than stated.
Through price risk management activities, El Paso has established an average floor price of $7.92 per MMBtu on 141 billion cubic feet (Bcf) and an average ceiling price of $10.05 per MMBtu on 141 Bcf of 2008 natural gas production. The floor volumes represent approximately 54 percent of the company's estimated domestic natural gas production for the year, including Four Star. El Paso has also established hedges for approximately 3.7 million barrels of oil with an average floor of $80.84 per barrel and an average ceiling of $81.44 per barrel, representing approximately 73 percent of domestic oil production.
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