El Paso Production Acquires Stake in Drilling JV

El Paso has purchased the interest held by one of its partners in a joint drilling venture the company entered into in 2003. El Paso acquired 100 percent of the interest held by a wholly owned subsidiary of Lehman Brothers (Lehman), the global investment bank, in a number of oil and natural gas properties in the Gulf of Mexico, South Texas, and the ArkLaTex regions. El Paso paid approximately $62.5 million for the assets.

El Paso entered into the joint drilling venture with Lehman and a wholly owned subsidiary of Nabors Industries Ltd. (Nabors) in October 2003. Under terms of the original agreement, Lehman committed to contribute 50 percent of the total cost to develop two specified packages of wells in exchange for a 50-percent net profits interest, and Nabors committed to contribute 20 percent in exchange for a 20-percent net profits interest in the wells. The remaining 30 percent of the cost was contributed by El Paso as part of its 2003 and 2004 capital budget. Lehman's and Nabors' net profits interest was designed to convert to an overriding royalty interest in the wells once a specified payout was achieved. Nabors' interest in the joint venture was unaffected by the transaction announced today.

El Paso estimates proved reserves associated with the properties to be approximately 14.6 billion cubic feet equivalent. Approximately 73 percent of the reserves are natural gas, approximately 95 percent are classified as proved developed and 88 percent are proved developed producing. Incremental average daily production for the remainder of 2005 is estimated to be 23 million cubic feet equivalent. Hedges have been put in place for most of the expected volumes.

"This acquisition is an attractive tactical step in our continuing efforts to reshape the production business," said Lisa Stewart, president of El Paso's Production and Non-regulated Operations. "We have acquired reserves that are short-lived but low risk. We already own an interest in the reserves, and we operate all 86 wells, which are in our core operating areas. Additionally, we have assured an attractive return through hedging."