El Paso reported second quarter 2010 financial and operational results for the company. Key highlights include:
"I am very pleased with our second quarter earnings as well as the execution by both businesses and our finance organization," said Doug Foshee, chairman, president, and chief executive officer of El Paso Corporation. "We have seven pipeline and LNG projects in various stages of construction, including the Ruby pipeline project, and we are highly focused on delivering them on-time and on-budget. Our E&P business continues to deliver excellent results and remains focused on managing for returns. So far this year, we have completed a highly successful Ruby Pipeline financing, the sale of non-core assets and two drop downs to El Paso Pipeline Partners that together provide well in excess of our $2.5 billion of funding requirements for 2010. We are confident about the outlook for the rest of the year and have a clear line of sight on delivering our 2010 goals."
The effective tax rate for the six months ended June 30, 2010 was approximately 31 percent, which is lower than the statutory rate, primarily due to an increase in income attributable to nontaxable noncontrolling interests and the tax impact on the sale of El Paso's interests in Mexican pipeline and compression assets in April 2010. 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 reduced the tax deduction for certain retiree prescription drug expenses.
Items Impacting Quarterly Results
Adjusted earnings per share for the second quarter 2009 do not include $50 million, or $0.04 per share, of early cash settlements of oil derivative contracts that hedged April through June 2009 production and were realized in the first quarter of 2009.
Financial Results -- Six Months Ended June 30, 2010
For the six months ended June 30, 2010, El Paso reported net income attributable to EPC common stockholders of $526 million, or $0.72 per diluted share, compared with a net loss of $899 million, or $1.29 per diluted share, for the first six months of 2009. Earnings for the six month periods of 2010 and 2009, after adjusting for the impacts of E&P financial derivatives and other items, were $0.55 and $0.72 per diluted share, respectively.
Exploration and Production
The Exploration and Production segment reported $103 million of EBIT for the quarter ended June 30, 2010, compared with $61 million for the same period in 2009. The increase was primarily due to higher realized commodity prices, excluding the impact of financial derivatives, and higher production volumes, partially offset by higher DD&A expense. DD&A expense was higher for the quarter due to a higher depletion rate and higher production volumes. The company expects its full year 2010 DD&A expense to be within its guidance range of $1.65 to $1.85 per Mcfe.
Second quarter 2010 production volumes averaged 788 MMcfe/d, including 61 MMcfe/d of Four Star unconsolidated affiliate volumes, representing an increase of 11 MMcfe/d from second quarter 2009 production volumes, which averaged 777 MMcfe/d, including 74 MMcfe/d of Four Star unconsolidated affiliate volumes. Consolidated production volumes increased 3 percent from second quarter 2009 to second quarter 2010. Cash operating costs for the second quarter 2010 averaged $1.77 per Mcfe, up from $1.68 per Mcfe for the same period in 2009, primarily due to higher lease operating expenses and higher production taxes. However, cash operating costs improved from $1.88 per Mcfe in the first quarter 2010.
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