el paso 08_11_Leland_UBS

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el paso 08_11_Leland_UBS

  1. 1. Mark Leland Chief Financial Officer El Paso Update August 11, 2005 the place to work the neighbor to have the company to own
  2. 2. Cautionary Statement Regarding Forward-looking Statements This presentation includes forward-looking statements and projections, made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The company has made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable, and complete. However, a variety of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this presentation, including, without limitation, our ability to implement and achieve our objectives in the long-range plan, including achieving our debt-reduction targets; changes in reserve estimates based upon internal and third party reserve analyses; our ability to meet production volume targets in our Production segment; uncertainties associated with exploration and production activities; our ability to successfully execute, manage, and integrate acquisitions; uncertainties and potential consequences associated with the outcome of governmental investigations, including, without limitation, those related to the reserve revisions and natural gas hedge transactions; outcome of litigation, including shareholder derivative and class actions related to reserve revisions and restatements; our ability to comply with the covenants in our various financing documents; our ability to obtain necessary governmental approvals for proposed pipeline projects and our ability to successfully construct and operate such projects; the risks associated with recontracting of transportation commitments by our pipelines; regulatory uncertainties associated with pipeline rate cases; actions by the credit rating agencies; the successful close of our financing transactions, including the issuance of equity; our ability to successfully exit the energy trading business; our ability to close our announced asset sales on a timely basis; changes in commodity prices for oil, natural gas, and power; inability to realize anticipated synergies and cost savings associated with restructurings and divestitures on a timely basis; general economic and weather conditions in geographic regions or markets served by the company and its affiliates, or where operations of the company and its affiliates are located; the uncertainties associated with governmental regulation; political and currency risks associated with international operations of the company and its affiliates; competition; and other factors described in the company’s (and its affiliates’) Securities and Exchange Commission filings. While the company makes these statements and projections in good faith, neither the company nor its management can guarantee that anticipated future results will be achieved. Reference must be made to those filings for additional important factors that may affect actual results. The company assumes no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the company, whether as a result of new information, future events, or otherwise. 2
  3. 3. Our Purpose El Paso Corporation provides natural gas and related energy products in a safe, efficient, and dependable manner 3
  4. 4. Turnaround Objectives ► Focus on 2 core businesses – Pipelines – Production ► Reduce debt ► Address liquidity concerns ► Simplify corporate structure ► Reduce costs 4
  5. 5. Significant Progress in Turnaround December 2003 Current ► Liquidity ► Stressed ► Strong ► Net debt ► $20.5 billion ► $15.9 billion* ► Asset sales ► Long-Range Plan (LRP) goal: ► $4.3 billion sold under LRP $3.3 billion–$3.9 billion ► Incremental goal: ► $1.2 billion announced or $1.2 billion–$1.6 billion closed ► Range of businesses ► Pipes, E&P, marketing & ► Pipes, E&P, marketing (out of trading, petroleum, chemical, or exiting all other) domestic & international power, midstream ► Corporate structure ► Large corporate center ► Small corporate center—push ► 5 divisions functions to Bus ► 2 divisions *As of June 30, 2005 5
  6. 6. U.S. Natural Gas Market Macro Overview Demand Growth 35 2004–2014 ► Gas consumption in Domestic supply Consumption and Supply in Tcf 30 the power sector will +5.0 Tcf grow substantially 25 Power Generation – 200 GWs of new gas- 20 based generating +1.0 Tcf capacity Industrial 15 ► Domestic supply grows Commercial +0.4 Tcf 10 slowly 5 Residential +0.7 Tcf ► Large scale LNG imports necessary 0 Other +0.3 Tcf 2002 2004 2006 2008 2010 2012 2014 6
  7. 7. Pipeline Group Overview
  8. 8. Leading Natural Gas Infrastructure Great Lakes Gas Transmission (50%) Wyoming Interstate 2,100 miles; 3 Bcf/d 600 miles; 2 Bcf/d Colorado Interstate Gas Cheyenne Plains 4,000 miles; 3 Bcf/d Pipeline 380 miles; 0.6 Bcf/d El Paso Natural Gas ANR Pipeline 10,500 miles; Tennessee Gas 11,000 miles; 6 Bcf/d Pipeline 7 Bcf/d 14,200 miles; 7 Bcf/d Mojave Pipeline Elba Island LNG 400 miles; 4 Bcf 0.4 Bcf/d Mexico Ventures Florida Gas 106 miles; 2 Bcf/d Transmission (50%) 4,800 miles; 2 Bcf/d Southern Natural Gas 8,000 miles; 3 Bcf/d 8
  9. 9. Pipeline Group Key Drivers ► Expand franchise – New wave of opportunities (LNG, Rockies) ► Successful recontracting ► Capital and operating efficiency ► Management of rate and regulatory issues 9
  10. 10. Portfolio of Growth Projects ANR Wisconsin 2006 Expansion TGP Distrigas $46 MM $35 MM WIC Medicine Bow 2006 2007 Expansion 168 MMcf/d 72 MMcf/d $58 MM 2007–2009 ANR Northleg 560 MMcf/d $13 MM TGP ANR Westleg 2005 Northeast $48 MM 110 MMcf/d ConneXion WIC Mainline 2004 New England Expansion 218 MMcf/d $102 MM $63 MM 0.2 2008 2007 136 MMcf/d 198 MMcf/d ANR Eastleg Cheyenne Plains $416 MM $17 MM 2005 TGP Northeast WIC Piceance Lateral 2004-2007 ConneXion Expansion 0.5 961 MMcf/d 142 MMcf/d NY/NJ $120 MM $24 MM December 2005 2006 333 MMcf/d CIG Raton Basin Expansion 41 MMcf/d $91 MM 2005–2008 175 MMcf/d SNG North and South System EPNG Cadiz to Ehrenberg $445 MM (Line 1903) 2002–2003–2004 SNG Elba Island $74 MM 699 MMcf/d Expansion 0.6 December 2005 EPNG SNG Cypress $157 MM 372 MMcf/d Phoenix East Valley Line Expansion 1Q 2006 $49 MM $240 MM 3.5 Bcf September 2005 TGP/ANR 2007 305 MMcf/d Eugene Island 371 220 MMcf/d EPNG Line 2000 Power Up $14 MM $136 MM April 2006 June 2004 350 MMcf/d FGT Phase VII TGP LPG Reynosa TGP/ANR Supply 320 MMcf/d $63 MM $44 MM (50%) Attachment Projects 2006 $113 MM TGP May 2007 TGP/EPNG Sonora Project 30,000 Bbl/d 2005-2009 LA Deepwater Link 100 MMcf/d $TBD $28 MM 2009 April 2007 TBD MMcf/d 850 MMcf/d Seafarer Pipeline $354 MM 2008 Completed Projects Signed PA’s 800 MMcf/d FERC Certificated Future Projects 10
  11. 11. Pipeline Outlook ► Fundamentals remain excellent ► Growth projects driven by: – Access to new natural gas supplies – Market growth ► Recontracting progress has been good ► Portfolio effect of franchise is evident ► Near-term cost increases overshadowing underlying growth 11
  12. 12. Production Company Overview
  13. 13. Early Culture Shifts/Focus Items Old New ► Basin dominance ► Best in basin ► Inadequate pre-investment ► Consistent and disciplined risk analysis and reserve determination ► Poor portfolio management ► Comprehensive mapping with life-of-property exploitation plans ► Deep exploration emphasis ► Capital allocation to full risk spectrum ► Production growth through ► Short-term focus on existing capex properties and base production. Long-term emphasis on value creation 13
  14. 14. Production Summary Potiguar Basin Brazil Brazil ► UnoPaso acquisition performing well ► Substantial exploration potential Camamu/ Almada Basin Espírito Onshore Santo Basin ► Large inventory of low-risk Santos prospects Basin ► Closed $179 MM East Texas acquisition in February 2005 ► Medicine Bow pending Texas Gulf Coast ► Closed $32 MM South Texas acquisition in January ► Developing lower-risk Gulf of Mexico inventory ► Realigned drilling program yields results—West Cameron 75 and 62 14
  15. 15. Capital Management System Managing Our Drilling Program Monitor pre/post- Adjust program Pre-drill Monthly post- drill assumptions based on monthly evaluation drill analysis and results results Present Value Ratio (PVR): After-tax PV of future cash flows discontinued at 12% Total Investment 15
  16. 16. 0 200 400 600 800 1000 1200 1400 1600 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 and San Juan Dec-03 Jan-04 Sale of Weatherford Production Profile Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Canada sale Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 MMcfe/d 16
  17. 17. Draft Stabilizing E&P Average Daily Production (MMcfe/d) 901 860–900 814 810+ 8% 3% 7% 41% 25% 34% 27% 20% 26% 34% 35% 47% 40% 25% 28% 24 Equity 70 Equity 1Q2004 2004 2005E 2005 Exit Onshore TGC GOM International 17
  18. 18. Stabilizing E&P $ Millions Operations fund base capital $2,000 $1,800 75 $1,600 45 140 $1,282 180 $1,324 $1,200 Acquisition $800 $749 $1,100 63 1,360 1,324 88 1,282 143 $400 224 231 $0 2 Capex 1 EBITDA Capex EBITDA 2004 2005 Onshore GOM TGC Int'l Other 1Cash basis less discontinued ops less cash received from UnoPaso acquisition 21H05 annualized 18
  19. 19. Stabilizing E&P R/P has lengthened… Year-end Year-end Year-end reserves: reserves: reserves: 2,520 Bcfe 2,184 Bcfe 2,706 Bcfe 2003 2004 Pro Forma 2004E 1 Full-year Full-year Full-year production: production: production: 410 Bcfe 303 Bcfe 369 Bcfe R/P Ratio: 6.1 7.2 7.4 …and should lengthen further as Onshore assets are developed 1ProForma represents 2005 acquired reserves at time of purchase plus production from 1/1/05 to purchase date; production is full year 2004 19
  20. 20. Governance Update ► Continued Board evolution ► 8 of 12 new since January 2003 ► 7 of 8 have significant upstream experience ► 2 of 8 qualify as financial experts ► Guidelines exemplify good corporate governance – No staggered board – No pill – 11 of 12 board members are independent – Separate Chairman and CEO positions 20
  21. 21. Summary ► Will build upon recent success ► 2005 measured by: – Positioning company to generate meaningful free cash flow – Completing turnaround of production business – Meeting $15 billion net debt target – Achieving further cost reduction 21
  22. 22. Appendix
  23. 23. Asset Sales Completed Incremental Non-recourse ($ Millions) 1/1/05 to 3/15/05 Asset Sales Debt Cedar Brakes I & II $ 94 $575 Enterprise investment 425 – S. Louisiana processing plants 75 – Other 56 – $650 $575 Field Services (pending) $ 500 Korean power plant 284 Lakeside telecom facility 140 Asian power plants (pending) 109 Chinese power plant (pending) 71 Montreal paraxylene plant 74 London power plant 47 Turbine sales 16 $ 1,240 Remaining Incremental Assets: ► Domestic merchant plants ► Asian power plant ► Midland Cogeneration interest ► Central American power plants ► Mohawk River Funding II ► Midstream plant Incremental $1.2 billion to $1.6 billion expected proceeds in 2005/2006 23
  24. 24. Mark Leland Chief Financial Officer El Paso Update August 11, 2005 the place to work the neighbor to have the company to own

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