El Paso Corporation (NYSE: EP) is today reporting first quarter
2012 financial and operational results for the company. First
quarter 2012 highlights include:
- $0.20 adjusted diluted earnings per share (EPS) for first
quarter 2012
- Total pipeline throughput increased 10 percent year-over-year,
partially driven by a 15 percent increase on the Tennessee Gas
Pipeline (TGP) system
- First quarter E&P production volumes rose 11 percent to 908
million cubic feet equivalent per day (MMcfe/d), including Four
Star Oil & Gas Company (Four Star) unconsolidated affiliate
volumes
- Oil and condensate production rose 66 percent to 23.4 thousand
barrels per day (MBbls/d), including Four Star unconsolidated
affiliate volumes
Items Impacting Quarterly Results
First Quarter 2012 Before After Diluted
($ millions, except per share amounts) Tax Tax EPS
--------- --------- ---------
Net income attributable to El Paso
Corporation (EPC) $ 86 $ 0.11
Adjustments(1)
Impact of E&P financial derivatives(2) $ 6 $ 4 $ -
Ceiling test charges - Egypt 62 62 0.08
Change in fair value of legacy
indemnification and other legacy items(3) 9 6 0.01
Merger-related costs 12 8 0.01
Impact of estimated annual effective tax
rate(4) - (6) (0.01)
---------
Adjusted EPS(5) $ 0.20
=========
(1) All individual adjustments, excluding ceiling test charges, assume a 36
percent statutory tax rate, and assume 781 million diluted shares
(2) Includes $76 million of gains on financial derivatives, adjusted for
$82 million of cash settlement proceeds
(3) Legacy items consist of the change in fair value of legacy
indemnification and environmental remediation costs
(4) Reflects the impact on quarterly earnings using the company's current
estimate of its overall annual effective tax rate including the effects of
adjustments
(5) Reflects fully diluted shares of 781 million
Financial Results - First Quarter 2012
For the first quarter 2012, El Paso reported net income
attributable to EPC of $86 million, or $0.11 per diluted share,
compared with $62 million, or $0.08 per diluted share, for the
first quarter 2011. Earnings for first quarter 2012 and 2011, after
adjusting for impacts of E&P financial derivatives and other
items, were $0.20 and $0.30 per diluted share, respectively.
El Paso's effective tax rate for reported earnings for the
quarter ended March 31, 2012 was 32 percent. The company's
effective tax rate is below the statutory rate due to income
attributable to nontaxable noncontrolling interests and dividend
exclusions on earnings from unconsolidated affiliates where El Paso
anticipates receiving dividends. Partially offsetting these items
was the tax impact of an Egyptian ceiling test charge without a
corresponding tax benefit. In first quarter 2011, El Paso's
effective tax rate for reported earnings was 12 percent, which was
favorably impacted by the resolution of several tax matters and
earned state tax credits.
Business Unit Financial Results
Quarters Ended
Segment EBIT March 31,
------------------------
($ in millions) 2012 2011
----------- -----------
Pipeline Group $ 434 $ 499
Exploration and Production 60 (31)
Marketing (15) (14)
Other (30) (59)
Eliminations (4) -
----------- -----------
$ 445 $ 395
=========== ===========
Pipeline Group
The Pipeline Group's Segment EBIT for the quarter ended March
31, 2012 was $434 million, compared with $499 million for the same
period in 2011. First quarter 2012 results decreased due to lower
allowance for equity funds used during construction on expansion
projects placed in service, principally Ruby, and lower revenues
from retained fuel volumes on the TGP system, due to the
implementation of a fuel volume tracker following its rate case
settlement. During the same period, El Paso benefited from higher
reservation revenues due to expansion projects that have gone into
service and higher rates on TGP resulting from its rate case
settlement, which became effective June 1, 2011.
Quarters Ended
Pipeline Group Results March 31,
-----------------------
($ in millions) 2012 2011
----------- -----------
Operating income $ 397 $ 375
Other income, net 37 124
----------- -----------
Segment EBIT $ 434 $ 499
DD&A $ 122 $ 114
Total throughput (BBtu/d)(1) 19,864 18,038
(1) Includes proportionate share of jointly-owned pipelines.
Exploration and Production
The Exploration and Production segment reported $60 million in
Segment EBIT for the quarter ended March 31, 2012, compared with a
$31 million loss for the same period in 2011. During the first
quarter 2012, the segment recorded a non-cash charge of
approximately $62 million as a result of El Paso's decision to no
longer explore or develop the company's acreage in Egypt. The
charge principally relates to unevaluated costs in that country,
but also includes approximately $2 million related to equipment. On
April 30, 2012, El Paso entered into a purchase and sale agreement
to sell all interests in Egypt. The sale will represent an exit
from Egyptian exploration activities. Excluding this charge,
Segment EBIT increased by $153 million from the same period in
2011. The increase was attributable to higher oil, natural gas and
NGL production volumes, higher oil prices and a $185 million
increase in mark-to-market gains, partially offset by lower natural
gas and NGL prices and increased DD&A expense. The per-unit
DD&A rate increased to $2.59 per Mcfe in the first quarter of
2012, up from $1.96 per Mcfe for the same period in 2011,
reflecting a shift to developing oil resources.
First quarter 2012 production volumes averaged 908 MMcfe/d,
including 57 MMcfe/d of Four Star unconsolidated affiliate volumes.
First quarter 2011 production volumes averaged 821 MMcfe/d,
including 63 MMcfe/d of Four Star unconsolidated affiliate volumes.
Total volumes rose 11 percent, largely driven by a 66 percent
increase in oil and condensate. Total per-unit cash operating costs
decreased to an average of $1.74 per Mcfe in the first quarter
2012, down from $1.85 per Mcfe for the same period in 2011,
primarily due to higher production volumes and lower G&A costs,
offset by higher lease operating expenses.
Quarters Ended
Exploration and Production Results March 31,
------------------------
($ in millions, except price and unit cost
amounts) 2012 2011
----------- -----------
Physical sales -- oil, condensate, natural gas,
and NGL revenue $ 408 $ 358
Realized and unrealized gains (losses) on
financial derivatives 76 (109)
Other revenues - 1
----------- -----------
Total operating revenues $ 484 $ 250
Operating expenses(1) (422) (280)
Other income (expense), net (2) (1)
----------- -----------
Segment EBIT $ 60 $ (31)
DD&A $ 201 $ 134
Consolidated volumes:
Natural gas sales volumes (MMcf/d) 688 659
Oil and condensate sales volumes (MBbls/d) 22.6 13.2
NGL sales volumes (MBbls/d) 4.6 3.3
Total consolidated equivalent sales volumes
(MMcfe/d) 851 758
Four Star total equivalent sales volumes
(MMcfe/d)(2) 57 63
----------- -----------
Total combined 908 821
Weighted average realized price on physical sales
Natural gas ($/Mcf) $ 2.90 $ 4.06
Oil and condensate ($/Bbl) $ 101.81 $ 86.27
NGL ($/Bbl) $ 40.96 $ 50.37
Weighted average realized price, including
financial derivatives
Natural gas ($/Mcf) $ 4.27 $ 5.44
Oil and condensate ($/Bbl) $ 100.16 $ 85.69
Transportation costs
Natural gas ($/Mcf) $ 0.33 $ 0.31
Oil and condensate ($/Bbl) $ 1.11 $ 0.06
NGL ($/Bbl) $ 5.47 $ 5.01
Per-unit costs ($/Mcfe)
DD&A $ 2.59 $ 1.96
Cash operating costs(3) $ 1.74 $ 1.85
(1) 2012 includes $62 million of non-cash ceiling test charges
(2) Four Star is an equity investment; volumes disclosed represent the
company's proportionate share
(3) Includes direct lifting costs, production taxes, G&A expenses, and
taxes other than production and income
Hedge Positions
The company actively manages its exposure to commodity prices
using various hedging strategies. Further information on the
company's hedging activities is available in El Paso's Financial
and Operational Reporting Package for First Quarter 2012, which can
be found in the Investors section of El Paso's website or in El
Paso's 2012 Form 10-Q.
Marketing
Marketing reported a Segment EBIT loss of $15 million for the
quarter ended March 31, 2012, compared with a Segment EBIT loss of
$14 million for the same period in 2011. The first quarter 2012
results were primarily driven by increased demand charges due to an
increase in transportation tariff rates on existing contracts and
changes in natural gas prices. The first quarter 2011 results
include a $15 million loss related to settlements on an affiliated
fuel supply agreement.
Other Operations
During the first quarter of 2012, Segment EBIT from Other
Operations was a loss of $30 million, compared with a loss of $59
million for the same period in 2011. El Paso's midstream operations
contributed $8 million in earnings during the first quarter of
2012, benefitting from Eagle Ford area gathering systems that were
placed in-service during October 2011 and February 2012. First
quarter 2012 results were impacted by $12 million of costs
associated with the anticipated merger with Kinder Morgan, Inc.
(NYSE: KMI). First quarter 2011 results include a $41 million loss
associated with the repurchase of approximately $148 million of
debt. Also impacting first quarter 2012 and 2011 results were $16
million and $11 million, respectively, of unfavorable changes to
legal, environmental and other reserves.
El Paso's financial statements are available in the Investors
section of its web site at www.elpaso.com. El Paso's First Quarter
Form 10-Q will be filed with the Securities and Exchange Commission
(SEC) and will be available on our website. Copies of all documents
filed with the SEC, including the company's financial statements,
are also available, free of charge, by calling (877) 357-2766.
El Paso Corporation provides natural gas and related energy
products in a safe, efficient, and dependable manner. The company
owns North America's largest interstate natural gas pipeline
system, one of North America's largest independent exploration
& production companies and an emerging midstream business. El
Paso owns a 42 percent limited partner interest, and the 2 percent
general partner interest in El Paso Pipeline Partners, L.P. On
October 16, 2011, El Paso Corporation announced that it has entered
into a definitive agreement whereby Kinder Morgan, Inc. will
acquire all of the outstanding shares of El Paso Corporation. For
more information, visit www.elpaso.com.
IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC
Kinder Morgan, Inc. ("KMI") has filed with the SEC a
Registration Statement on Form S-4 in connection with the proposed
transactions contemplated by the Merger Agreement, including a
definitive Information Statement/Prospectus of KMI and a definitive
Proxy Statement of El Paso Corporation ("EP"). The Registration
Statement was declared effective by the SEC on January 30, 2012.
Post-effective amendments to the Registration Statement were filed
on February 27, 2012 and on March 1, 2012 and have been declared
effective. KMI and EP mailed the definitive Information
Statement/Prospectus of KMI and definitive Proxy Statement of EP on
or about January 31, 2012. INVESTORS AND SECURITY HOLDERS ARE URGED
TO READ THE REGISTRATION STATEMENT AND THE DEFINITIVE INFORMATION
STATEMENT/PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT
DOCUMENTS FILED OR TO BE FILED BY KMI OR EP, BECAUSE THEY CONTAIN
OR WILL CONTAIN IMPORTANT INFORMATION. Investors and security
holders are able to obtain free copies of the Registration
Statement and the definitive Information Statement/Proxy
Statement/Prospectus and other documents filed with the SEC by KMI
and EP through the web site maintained by the SEC at www.sec.gov or
by phone, e-mail or written request by contacting the investor
relations department of KMI or EP at the following:
Kinder Morgan, Inc. El Paso Corporation
Address: 500 Dallas Street, Suite 1000 1001 Louisiana Street
Houston, Texas 77002 Houston, Texas 77002
Attention: Investor Relations Attention: Investor Relations
Phone: (713) 369-9490 (713) 420-5855
Email: kmp_ir@kindermorgan.com investorrelations@elpaso.com
This press release shall not constitute an offer to sell or the
solicitation of an offer to buy any securities, nor shall there be
any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such jurisdiction.
No offering of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities
Act of 1933, as amended.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements in this document regarding the proposed transaction
between KMI and EP, the expected timetable for completing the
proposed transactions, future financial and operating results,
benefits and synergies of the proposed transaction, future
opportunities for the combined company, the expected timetable for
completing the sale of EP's exploration and production assets, the
possible drop-down of assets and any other statements about KMI or
EP managements' future expectations, beliefs, goals, plans or
prospects constitute forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Any
statements that are not statements of historical fact (including
statements containing the words "believes," "plans," "anticipates,"
"expects," "estimates" and similar expressions) should also be
considered to be forward-looking statements. There are a number of
important factors that could cause actual results or events to
differ materially from those indicated by such forward-looking
statements, including: the ability to consummate the proposed
merger of EP with KMI; the ability to obtain the requisite
regulatory approvals and the satisfaction of other conditions to
consummation of the transaction; the possibility that financing
might not be available on the terms agreed to; the ability to
consummate contemplated asset sales; the ability of KMI to
successfully integrate EP's operations and employees; the ability
to realize anticipated synergies and cost savings; the potential
impact of announcement of the transaction or consummation of the
transaction on relationships, including with employees, suppliers,
customers and competitors; the ability to achieve revenue growth;
national, international, regional and local economic, competitive
and regulatory conditions and developments; technological
developments; capital and credit markets conditions; inflation
rates; interest rates; the political and economic stability of oil
producing nations; energy markets, including changes in the price
of certain commodities; weather conditions; environmental
conditions; business and regulatory or legal decisions; the pace of
deregulation of retail natural gas and electricity and certain
agricultural products; the timing and success of business
development efforts; terrorism; and the other factors described in
KMI's and EP's Annual Reports on Form 10-K for the year ended
December 31, 2011 and their most recent Exchange Act reports filed
with the SEC. Except as required by law, KMI and EP disclaim any
intention or obligation to update any forward-looking statements as
a result of developments occurring after the date of this
document.
Appendix to El Paso Corporation May 3, 2012
Earnings Press Release
Items Impacting Quarterly Results
First Quarter 2011 Before After Diluted
($ millions, except per share amounts) Tax Tax EPS
--------- --------- ---------
Net income attributable to EPC $ 62 $ 0.08
Adjustments(1)
Impact of E&P financial derivatives(2) $ 190 $ 122 $ 0.16
Loss on debt extinguishment 41 26 0.04
Impact of estimated annual effective tax
rate(3) - 17 0.02
---------
Adjusted EPS(4) $ 0.30
=========
(1) All individual adjustments assume a 36 percent statutory tax rate and
assume 768 million diluted shares
(2) Includes $109 million of losses on financial derivatives, adjusted for
$81 million of cash settlement proceeds. Cash proceeds on settlements do
not reflect approximately $6 million, or less than $0.01 per share, of
option premiums paid in 2009 and 2010 for financial derivatives settled
during the first quarter 2011
(3) Reflects the impact on quarterly earnings using the company's current
estimate of its overall annual effective tax rate including the effects of
adjustments
(4) Reflects fully diluted shares of 768 million
Quarters Ended
Reconciliation of Segment EBIT to Net Income March 31,
------------------------
($ in millions, unaudited) 2012 2011
----------- -----------
Segment EBIT $ 445 $ 395
Interest and debt expense (226) (240)
Income tax expense (70) (19)
----------- -----------
Net income $ 149 $ 136
Net income attributable to noncontrolling interest (63) (74)
----------- -----------
Net income attributable to EPC $ 86 $ 62
=========== ===========
Reconciliation of Cash Operating Quarter Ended Quarter Ended
Costs March 31, 2012 March 31, 2011
------------------ ------------------
Total Per Unit Total Per Unit
(unaudited) ($ MM) ($/Mcfe) ($ MM) ($/Mcfe)
-------- -------- -------- --------
Total operating expenses $ 422 $ 5.45 $ 280 $ 4.11
Depreciation, depletion, and
amortization (201) (2.59) (134) (1.96)
Transportation costs (25) (0.32) (20) (0.30)
Ceiling test charges (62) (0.80) - -
-------- -------- -------- --------
Total cash operating costs and per
unit cash costs(1) $ 134 $ 1.74 $ 126 $ 1.85
======== ======== ======== ========
Total equivalent volumes (MMcfe)(1) 77,465 68,187
(1) Excludes volumes and costs associated with equity investment in Four
Star
Disclosure of Non-GAAP Financial
Measures
This release includes non-GAAP financial measures. The
presentations and reconciliations related to such non-GAAP
financial measures required by the Securities and Exchange
Commission's (SEC) Regulation G are attached or included in the
body of this release. Additional detail regarding non-GAAP
financial measures can be reviewed in El Paso's Financial and
Operational Reporting Package, which will be posted at
www.elpaso.com in the Investors section.
El Paso uses the non-GAAP financial measure "segment earnings
before interest expense and income taxes" or "Segment EBIT" to
assess the operating results and effectiveness of the company and
its business segments. The company believes that Segment EBIT is
useful to its investors because it allows them to use the same
performance measure analyzed internally by our management to
evaluate the performance of our businesses and investments without
regard to the manner in which they are financed or the company's
capital structure. The company defines Segment EBIT as net income
(loss) adjusted for interest and debt expense and income taxes.
Segment EBIT does not reflect a reduction for any amounts
attributable to noncontrolling interests. Adjusted EPS is defined
as diluted earnings per share adjusted for certain items that the
company considers to be significant to understanding our underlying
performance for a given period. Adjusted EPS is useful in analyzing
the company's on-going earnings potential and understanding certain
significant items impacting the comparability of El Paso
Corporation's results. For 2012, Adjusted EPS is earnings per share
attributable to El Paso Corporation adjusting for the impact of
E&P financial derivatives, ceiling test charges, changes in
fair value of legacy indemnification and other legacy items,
merger-related costs, and the impact of the estimated annual
effective tax rate. For 2011, Adjusted EPS is earnings per share
attributable to El Paso Corporation adjusted for the impact of
E&P financial derivatives, a loss on debt extinguishment and
the impact of the estimated annual effective tax rate.
Exploration and Production per-unit total cash operating costs
is a non-GAAP measure calculated on a per Mcfe basis equal to total
operating expenses less DD&A, transportation costs, costs of
products, and ceiling test and other impairment charges, divided by
total consolidated equivalent production. It is a valuable measure
used by oil and gas companies and analysts to evaluate operating
performance and efficiency.
El Paso believes that the non-GAAP financial measures described
above are also useful to investors because these measurements are
used by many companies in the industry as a measurement of
operating and financial performance and are commonly employed by
financial analysts and others to evaluate the operating and
financial performance of the company and its business segments and
to compare it with the performance of other companies within the
industry. These non-GAAP financial measures may not be comparable
to similarly titled measures used by other companies and should not
be used as a substitute for net income, earnings per share or other
measures of financial performance presented in accordance with
GAAP.
Contacts Investor and Media Relations Bruce Connery Vice
President (713) 420-5855 Media Relations Bill Baerg Manager (713)
420-2906
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