El Paso Corporation has reported today second quarter 2008 financial and operational results for the company.
Highlights
- $0.25 earnings per diluted share from continuing operations versus $0.22 in 2007
- $0.39 earnings per share after adjusting for production-related derivatives and other items impacting second quarter 2008 results versus $0.29 in 2007
- Pipeline earnings before interest expense and taxes (EBIT) of $295 million
- Exploration & Production (E&P) EBIT of $304 million - up 29 percent versus second quarter 2007
- Production, including unconsolidated affiliate volumes, totaled 833 million cubic feet equivalent per day (MMcfe/d)
- Second quarter 2008 production rose 4 percent from first quarter 2008, pro forma for divested properties
- Hedge positions expanded for 2009
"This quarter we continued our solid financial and operational performance, while making tangible progress that enhances our multi-year growth outlook," said Doug Foshee, president and chief executive officer of El Paso Corporation. "Our Pipeline Group secured two major new projects - the Ruby pipeline and the TGP Line 300 expansion, which increase our committed backlog to $8 billion - a level that is more than two times larger than any time in our 80-year history. In E&P, our Peoples acquisition is delivering promising new drilling opportunities in the Texas Gulf Coast and the Arklatex, including the Haynesville Shale. In Brazil, our Bia/Camarupim project is accelerating with first production now expected in the first quarter of 2009. And our Pinauna project remains on schedule with first production expected in late 2009. In short, the outlook for our businesses has never been better."
Financial Results - Six Months Ended June 30, 2008
For the six months ended June 30, 2008, El Paso reported net income available to common stockholders of $391 million, or $0.54 per diluted share, compared with $776 million, or $1.11 per diluted share, for the first six 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 six-month periods of 2008 and 2007, after adjusting for the impacts of production-related derivatives and other items, are $0.74 and $0.47 per diluted share, respectively.
Pipeline Group
The Pipeline Group's EBIT for the three months ended June 30, 2008, was $295 million, compared with $318 million for the same period in 2007. EBIT before minority interest associated with El Paso Pipeline Partners, L. P., which completed its initial public offering in November 2007, was $303 million, a 5 percent decrease from 2007 levels. Higher reservation revenues, primarily from several expansion projects placed in-service during 2007 and 2008, were offset by higher operating costs. Higher operating costs primarily reflect increased labor costs and additional maintenance associated with required work on both the Tennessee Gas and SNG systems. While higher, these costs are on track with El Paso's 2008 plan, and the Pipeline Group is on track to achieve its 2008 financial targets. In addition, second quarter 2007 results were favorably impacted by a $10-million contract settlement received from a bankruptcy claim.
Exploration and Production
The Exploration and Production segment's EBIT for the three months ended June 30, 2008, was $304 million, compared with $235 million for the same period in 2007. The increase is primarily due to higher realized commodity prices, partially offset by losses of $75 million in 2008 and $5 million in 2007 related to changes in fair value of derivative contracts not designated as accounting hedges, higher production taxes, and higher depreciation, depletion and amortization expense.
Second quarter 2008 production volumes averaged 833 MMcfe/d, including 71 MMcfe/d of unconsolidated affiliate production volumes. Second quarter 2007 production volumes averaged 857 MMcfe/d, including 71 MMcfe/d of unconsolidated affiliate production volumes and 121 MMcfe/d related to properties that were divested in the first quarter of 2008. On a pro forma basis, adjusting 2007 production to include People's Energy and eliminating properties that were divested in the first half of 2008, second quarter 2008 production grew 4 percent from the first quarter of 2008.
Total per-unit cash operating costs increased to an average of $2.01 per thousand cubic feet equivalent (Mcfe) in second quarter 2008 from $1.92 per Mcfe for the same 2007 period. The increase is primarily a result of higher production taxes, which rise with commodity prices, and was partially offset by a decrease in controllable costs - direct lifting costs and G&A expenses, which were down 7 percent year-over-year.
Other Operations
Marketing
The Marketing segment reported an EBIT loss of $153 million for the three months ended June 30, 2008, compared with an EBIT gain of $5 million for the same period in 2007. The decline was due to a $105-million MTM loss on the company's power obligations that extend through 2016 in the Pennsylvania-New Jersey-Maryland (PJM) power market and a $52-million loss in the fair value of derivatives intended to manage the price risk of the company's natural gas and oil production. The PJM loss was driven by higher natural gas prices, which resulted in an 80-percent increase in locational power price differences within the region. The actual cash paid in the quarter relating to the basis positions was approximately $9 million. In the second quarter of 2007, the company realized a gain of $9 million on its production-related derivatives and a $36 million loss on its PJM power contracts. Additionally, 2007 included gains totaling $44 million relating to the California power price disputes and the sale of the company's NYMEX investment.
Power
The Power segment reported an EBIT of $12 million for the three months ended June 30, 2008, compared with EBIT of $16 million for the same period in 2007. Lower second quarter 2008 earnings were primarily due to gains recognized on the sale of investments in Asia and Central America, while 2007 earnings resulted primarily from the Porto Velho power plant in Brazil, which is expected to be sold later this year.
Corporate and Other
During the second quarter of 2008, Corporate and Other reported EBIT of $41 million compared with an EBIT loss of $104 million for the same period in 2007. Second quarter 2008 results were positively impacted by a MTM gain related to changes in fair value of a legacy indemnification from the sale of an ammonia facility and an adjustment to liabilities for legacy litigation. Second quarter 2007 results were impacted by the $86-million charge related to debt repurchase costs.