El Paso Demonstrates Substantial Progress in 1Q
El Paso reported first quarter 2010 financial and operational results for the company. Key highlights include:
- Ruby project financing closed; 2010 funding requirements substantially complete
- E&P production volumes up 39 million cubic feet equivalent per day (MMcfe/d), or 5 percent, from fourth quarter 2009 to 781 MMcfe/d, including Four Star Oil & Gas Company (Four Star) unconsolidated affiliate volumes
- Haynesville continues to outperform; Successful Eagle Ford test in gas condensate area
- Pipelines continue to deliver solid project execution
"Our first quarter results demonstrate substantial progress towards our 2010 goals and highlight our focused execution," said Doug Foshee, chairman, president, and chief executive officer of El Paso Corporation. "The pipeline group placed two growth projects in service, while also securing another Marcellus basin expansion. We received FERC approval for the Ruby pipeline in early April, passing another key milestone in the development of our largest capital project. The E&P company remains focused on generating solid returns, which is illustrated by our capital efficiency and success in the Haynesville, Eagle Ford and Altamont programs. Finally, I am very pleased with the execution on our 2010 financing plan. With the sale of our Mexican pipeline assets and the drop down to El Paso Pipeline Partners, we generated approximately $960 million in cash. These accomplishments, along with the close of the Ruby project financing, means that we have effectively addressed our 2010 funding requirements. We continue to deliver on our commitments, and I look forward to continued progress throughout the year."
The effective tax rate for the quarter ended March 31, 2010 was 31 percent, which is lower than the statutory rate, primarily due to an increase in income attributable to nontaxable noncontrolling interests. This increase was partially offset by $18 million of additional income tax expense due to healthcare legislation enacted in March 2010, which reduces the tax deduction for certain retiree prescription drug expenses.
The Pipeline Group's EBIT for the quarter ended March 31, 2010 was $421 million, compared with $396 million for the same period in 2009. First quarter 2010 results benefited from higher reservation revenues due to four expansion projects that went into service throughout 2009, including the TGP Carthage, TGP Concord, WIC Piceance, and CIG Totem storage projects. First quarter 2010 results were also favorably impacted by new rates on the Southern Natural Gas (SNG) system and an increase in allowance for funds used during construction (AFUDC) on our expansion projects. Offsetting the effects of these favorable items was a $10 million impairment of a storage project and reduced income from fuel not used in operations, primarily due to lower natural gas prices.
First quarter 2010 pipeline throughput decreased from the first quarter 2009 as a result of weaker demand due to slower economic conditions and increased competition, primarily on the El Paso Natural Gas system. However, throughput does not materially impact near-term financial results because a significant portion of pipeline revenues are derived from demand charges under long-term contracts.
Exploration and Production
The Exploration and Production segment reported $390 million of EBIT for the quarter ended March 31, 2010, compared with a $1.7 billion loss for the same period in 2009. First quarter 2010 EBIT includes a $2 million non-cash, full-cost ceiling test charge related to the relinquishment of a small portion of the company's Egypt acreage. First quarter 2009 results included $2.1 billion of non-cash, full-cost ceiling test charges, primarily due to lower domestic spot natural gas prices. Quarter-to-quarter results also reflect higher weighted average realized gas prices, before the impact of financial derivatives.
First quarter 2010 production volumes averaged 781 MMcfe/d, including 64 MMcfe/d of Four Star unconsolidated affiliate volumes. First quarter 2009 production volumes averaged 803 MMcfe/d, including 72 MMcfe/d of Four Star unconsolidated affiliate volumes. Total per-unit cash operating costs decreased to an average of $1.88 per Mcfe in the first quarter 2010, down from $2.00 per Mcfe for the same period in 2009, due to greater operating efficiencies and a reduction in the cost of certain materials and contracted expenses. El Paso is reducing its guidance for 2010 per-unit cash operating costs to $1.80 to $2.10 per Mcfe.
The Marketing segment reported $17 million of EBIT for the quarter ended March 31, 2010, compared with $52 million for the same period in 2009. First quarter 2010 includes an $18 million mark-to-market (MTM) gain on the remaining Pennsylvania-New Jersey-Maryland power contracts, compared with a $1 million gain in the first quarter of 2009. First quarter 2009 includes a $52 million MTM gain resulting from the implementation of new accounting requirements related to derivatives.
During the first quarter of 2010, Corporate and Other reported an EBIT loss of $11 million, compared with a loss of $3 million for the same period in 2009. First quarter 2010 results include losses of $8 million due to changes in legacy litigation, environmental and other reserves.
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