El Paso Posts 190% Earnings Increase for 2008 Third Quarter
El Paso has reported its third quarter 2008 financial and operational results for the company.
- $0.58 earnings per diluted share from continuing operations versus $0.20 in 2007.
- $0.35 earnings per diluted share, after adjusting for production-related derivatives and other items impacting third quarter 2008 results,versus $0.22 in 2007.
- Pipeline earnings before interest expense and taxes (EBIT) of $278 million, which includes a $12 million negative impact from Hurricanes Ike and Gustav.
- Exploration & Production (E&P) EBIT of $532 million -- up 129 percent versus third quarter 2007, including $214 million of mark-to-market (MTM) gains on derivative contracts not designated as accounting hedges.
- Production, including unconsolidated affiliate volumes, totaled 793 million cubic feet equivalent per day (MMcfe/d), which reflects a production loss of 41 MMcfe/d due to hurricanes and a tropical storm.
"We had another solid quarter, with improved earnings in both the Pipeline Group and E&P," said Doug Foshee, president and chief executive officer of El Paso Corporation. "In addition, we placed three pipeline projects in-service, and we made continued progress on the Ruby Pipeline Project. On the E&P side, we completed our first two wells in the Haynesville Shale. As we announced, we have taken steps to maintain our already strong liquidity position as we enter 2009 so that we can execute on our pipeline backlog and meet our financial obligations, even if current capital market constraints persist."
Financial Results - Nine Months Ended September 30, 2008
For the nine months ended September 30, 2008, El Paso reported net income available to common stockholders of $827 million, or $1.12 per diluted share, compared with $922 million, or $1.31 per diluted share, for the first nine months of 2007, which includes a $674 million, or $0.96 per share, gain on the sale of ANR and related assets. Earnings for the nine-month periods of 2008 and 2007, after adjusting for the impacts of production-related derivatives and other items, are $1.09 and $0.69 per diluted share, respectively.
The Pipeline Group's EBIT for the quarter ended September 30, 2008 was $278 million, compared with $275 million for the same quarter in 2007. EBIT before minority interest associated with El Paso Pipeline Partners, L. P. (NYSE:EPB - News), which completed its initial public offering in November 2007, was $285 million, a 4 percent increase from 2007 levels.
In the third quarter of 2008, EBIT includes a $12 million unfavorable impact related to lost natural gas and higher operations and maintenance costs due to facility damage caused by Hurricanes Ike and Gustav. The company continues to assess the damages resulting from the hurricanes and the corresponding impact on estimated costs to repair and abandon impacted facilities.
El Paso anticipates additional costs to occur in the fourth quarter and into 2009. During the third quarter of 2008, EBIT was favorably impacted by higher reservation revenues due to additional capacity sold on the pipeline systems and several expansion projects that went into service in 2007 and 2008. Offsetting the favorable impact were higher operating costs, primarily due to increased labor costs to support growth and customer activities, as well as additional maintenance work required on several of the pipeline systems.
Exploration and Production
The Exploration and Production segment's EBIT for the quarter ended September 30, 2008, was $532 million, compared with $232 million for the same period in 2007. The increase was primarily due to higher realized commodity prices, and $214 million of net MTM gains in 2008, versus $6 million in 2007, on derivative contracts not designated as accounting hedges, partially offset by lower production volumes and higher production taxes.
Third quarter 2008 production volumes averaged 793 MMcfe/d, including 75 MMcfe/d of unconsolidated affiliate production volumes. Third quarter 2007 production volumes averaged 848 MMcfe/d, including 61 MMcfe/d of unconsolidated affiliate production volumes and 117 MMcfe/d related to properties that were divested in the first quarter of 2008. Production volumes during the third quarter of 2008 were negatively impacted by Hurricanes Ike, Gustav, and Dolly, and Tropical Storm Edouard by approximately 41 MMcfe/d. Approximately 80 MMcfe/d of production in the Gulf of Mexico remains shut-in due to repairs to certain systems owned and operated by third parties. The operators currently estimate these systems will be repaired and back in-service by mid-December 2008. In addition, two platforms that produced a total of 15 MMcfe/d remain shut-in pending damage assessments.
Total per-unit cash operating costs increased to an average of $1.89 per thousand cubic feet equivalent (Mcfe) in third quarter 2008 from $1.77 per Mcfe for the same 2007 period. The increase is primarily a result of lower production volumes and higher production taxes, which rise with commodity prices, partially offset by a decrease in G&A expenses, which were lower due primarily to the reversal of an accrual as a result of a favorable ruling on a legal matter.
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