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el paso D7A9D355-197F-480A-8FF4-86834B0DD876_EP_4Q_2008_Earnings_FINAL(ColorPrint)
1. El Paso Corporation
Fourth Quarter 2008
Financial & Operational Update
February 26, 2009
2. Cautionary Statement
Regarding Forward-looking Statements
This presentation includes certain forward-looking statements and projections. 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 release, including, without
limitation, changes in unaudited and/or unreviewed financial information; our ability to meet our 2009 debt maturities; volatility in, and access to, the
capital markets; our ability to implement and achieve our objectives in our 2009 plan, including achieving our earnings and cash flow targets; the effects of
any changes in accounting rules and guidance; our ability to meet production volume targets in our Exploration and Production segment; our ability to
comply with the covenants in our various financing documents; our ability to obtain necessary governmental approvals for proposed pipeline and E&P
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; our ability to close asset sales, as well as transactions with partners on one or more of our expansion projects that are included in the plan
on a timely basis; credit and performance risk of our lenders, trading counterparties, customers, vendors and suppliers ;changes in commodity prices and
basis differentials for oil, natural gas, and power; our ability to obtain targeted cost savings in our businesses; inability to realize anticipated synergies
and cost savings on a timely basis or at all; 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, including the risk of a global recession and negative impact on natural gas
demand; 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.
Certain of the production information in this presentation include the production attributable to El Paso’s 49 percent interest in Four Star Oil & Gas
Company (“Four Star”). El Paso’s Supplemental Oil and Gas disclosures, which are included in its Annual Report on Form 10-K, reflect its proportionate
share of the proved reserves of Four Star separate from its consolidated proved reserves. In addition, the proved reserves attributable to its proportionate
share of Four Star represent estimates prepared by El Paso and not those of Four Star.
Cautionary Note to U.S. Investors—The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to
disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally
producible under existing economic and operating conditions. We use certain terms in this presentation that the SEC's guidelines strictly prohibit us from
including in filings with the SEC. U.S. Investors are urged to consider closely the disclosures regarding proved reserves in this presentation and the
disclosures contained in our Form 10-K for the year ended December 31, 2007, File No. 001-14365, available by writing; Investor Relations, El Paso
Corporation, 1001 Louisiana St., Houston, TX 77002. You can also obtain this form from the SEC by calling 1-800-SEC-0330.
Non-GAAP Financial Measures
This presentation includes certain Non-GAAP financial measures as defined in the SEC’s Regulation G. More information on these Non-GAAP financial
measures, including EBIT, EBITDA, adjusted EBITDA, adjusted EPS, cash costs, and the required reconciliations under Regulation G, are set forth in this
presentation or in the appendix hereto. El Paso defines Resource Potential or Resource Inventory as subsurface volumes of oil and natural gas the
company believes may be present and eventually recoverable. The company utilizes a net, geologic risk mean to represent this estimated ultimate
recoverable amount.
2
3. Our Purpose
El Paso Corporation provides
natural gas and related energy
products in a safe, efficient, and
dependable manner
3
4. Our Vision & Values
the place to work
the neighbor to have
the company to own
4
5. 2008 Accomplishments
Pipelines Project execution Placed 7 projects in-service
New expansions Committed backlog increased to $8 billion
$1.2 B future EBITDA1
E&P Inventory growth Haynesville, Altamont, Raton CBM
595 Bcfe proven reserve additions2
Reserve metrics
195% domestic reserve replacement ratio3
$3.25/Mcfe RRC3 total; $2.87/Mcfe domestic3
Brazil Camarupim nearing production
Exploration discoveries at Copaiba and Tot
Hedges Improved 2009 position 176 TBtu with $9 floor
Natural gas hedges valued at $730 MM
at 12/31/08
New 2010 positions $6.79 floor on 47 TBtu
Financial Cash flow Cash from operations up 31%
Improved liquidity position Opportunistically accessed capital markets
Progressed on non-core asset sales
$2.2 B liquidity at 12/31/08; $3.3 B now
1EBITDA run rate on proportional basis
2Excludes revisions; does not include Four Star
3Excludes price-related revisions; does not include Four Star
5
6. Managing to the Current Realities
Plenty of challenges—capital markets, low
commodity prices, uncertain economy
Acted swiftly to address 2009 liquidity needs
Cut capital thoughtfully
Pipelines—execute pipeline backlog
E&P—preserve future inventory; focused on returns
Board and management reviewing capital spending
and financing options on continuous basis
6
7. Key Priorities
Pipelines Exploration & Production
Construct backlog on-time/budget Create value; prioritize investments
$1.2 billion incremental EBITDA* Preserve inventory of opportunities
Be selective on new opportunities Live within means
Complete pipeline integrity program Continue to high-grade portfolio
Financial
Maximize liquidity
Maintain pipeline investment-grade rating
Use full suite of funding tools
Continually improve return on total capital
Improve credit metrics
*Proportional future run-rate 7
9. Fourth Quarter & Annual
2008 Financial Results
Annual Fourth Quarter
($ Millions, Except EPS) ($ Millions, Except EPS)
Adjusted Adjusted
Diluted EPS Adjusted EBITDA* Diluted EPS
$1.31 $4,097 $0.27
$1.00 $0.21
$3,073
2008 2007 2008 2007 2008 2007
Operating Cash Flow Adjusted EBITDA*
$2,370
$1,000
$1,805 $872
2008 2007 2008 2007
Significant improvement in full-year adjusted earnings and operating cash flow
Note: Appendix and slides 10 and 11 include details on non-GAAP terms
*Reflects El Paso’s proportionate interest in Citrus and Four Star 9
10. Items Impacting 4Q 2008 Results
Diluted
($ Millions, Except EPS) Pre-tax After-tax EPS
Net income (loss) available to common stockholders $(1,687) $(2.43)
Adjustments1
Ceiling test charges and Four Star impairment $2,785 2,015 2.90
Change in fair value of power contracts (37) (24) (0.03)
Change in fair value of legacy indemnification (16) (10) (0.01)
Legal restructuring benefit – (40) (0.06)
Change in fair value of
production-related derivatives in Marketing (9) (6) (0.01)
(0.15)
(164) (105)
MTM impact of E&P derivatives2
$ 0.21
Adjusted EPS—continuing operations3
1Alladjustments assume a 36% tax rate, except for the International portion of the ceiling test charges, and
694 MM diluted shares
2Includes $201 MM of MTM gains on derivatives adjusted for $37 MM of realized gains from cash settlements
3Reflects fully diluted shares of 754 MM and includes income impact from dilutive securities
10
11. Business Unit Contribution
Quarter Ended
December 31, 2008
Adjusted
($ Millions) EBIT DD&A EBITDA EBITDA*
Core Businesses
$ 319 $ 100 $ 419 $ 450
Pipelines
259 199 458 474
E&P before ceiling test charges & Four Star impairment
578 299 877 924
Core businesses subtotal
(2,785) – (2,785) –
Ceiling test charges & Four Star impairment
$(2,207) $ 299 $(1,908) $ 924
Core businesses total
Other Businesses
27 – 27 27
Marketing
(3) 1 (2) (2)
Power
49 2 51 51
Corporate & Other
$(2,134) $ 302 $(1,832) $ 1,000
Total
*Adjusted Pipeline EBITDA for 50% interest in Citrus and adjusted E&P EBITDA for 49% interest in Four Star,
ceiling test charges and Four Star impairment. Appendix includes details on non-GAAP terms 11
12. Marketing Financial Results
$ Millions
Quarters Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
EBIT
Strategic
Change in fair value of
production-related derivatives $ 9 $ (26) $ (50) $ (89)
Other
Change in fair value of natural gas
derivative contracts (11) (5) 7 (31)
Change in fair value of power contracts 37 (34) (46) (77)
Settlements, demand charges & other (4) 6 6 (22)
Operating expenses & other income (4) (5) (21) 17
Other total 18 (38) (54) (113)
EBIT $ 27 $ (64) $(104) $(202)
12
13. Operating Cash Flow and Capital Investment
$ Millions
Twelve Months Ended
December 31,
2008 2007
$ (823) $ 436
Income (loss) from continuing operations
3,900 1,712
Non-cash adjustments
3,077 2,148
Subtotal
(707) (310)
Working capital changes and other*
2,370 1,838
Cash flow from continuing operations
– (33)
Discontinued operations
$2,370 $1,805
Cash flow from operations
$2,757 $2,495
Capital expenditures
$ 362 $1,197
Acquisitions
$ 682 $ 106
Proceeds from divestitures
$ 157 $ 149
Dividends paid
31% increase in operating cash flow
*Includes change in margin collateral of $24 MM in 2008 and $90 MM in 2007
13
14. Recent Significant Financing Activities
El Paso Corp. 5-year, $500 MM 12% Notes (15.25% yield)
Ended high-yield offering drought
El Paso Exploration & Production $300 MM Revolver
Secured borrowing base facility (LIBOR + 350 bps)
TGP 7-year, $250 MM 8% Notes (9% yield)
Investment-grade unsecured notes
El Paso Corp. 7-year, $500 MM 8.25% Notes
Significant reduction in yield—9.125%
After financings, weighted average cost of debt at 7.1%
14
16. Increased Liquidity Has Reduced
EP Borrowing Costs
15
14
13
BB Index
Yield (%)
12
11
10
BBB Index
9
8 El Paso 7%, Due 2017
7
Dec. 01, Dec. 14, Dec. 27, Jan. 09, Jan. 22, Feb. 04,
2008 2008 2008 2009 2009 2009
Source: Citigroup/Bloomberg 16
17. Excellent 2009 Hedge Positions
Full-Year 2009
151 TBtu
Ceiling Average cap $14.97/MMBtu
143 TBtu
168 TBtu 8 TBtu
2009 Gas $15.41
$9.10 $7.33
ceiling
floor fixed price
176 TBtu
Floor
Balance at
Average floor $9.02/MMBtu
Market Price
1.5 MMBbls
2009 Oil1 $45.00
fixed price
~75% of domestic natural gas2; gas hedges valued at $730 MM as of 12/31/08
$110/Bbl oil swaps monetized for $186 MM
Note: See full Production-related Derivative Schedule in Appendix
1Reflects positions after monetization of oil swaps
2Includes proportionate share of Four Star equity volumes
17
18. 2010 Natural Gas Hedge Positions
Positions as of February 23, 2009
22 TBtu 25 TBtu Balance at
2010 Gas $7.00 $6.61 Market Price
floor fixed price
47 TBtu
Floor
Average floor $6.79/MMBtu
Note: See full Production-related Derivative Schedule in Appendix 18
19. 2009 Guidance Assumptions
$5.00/MMBtu (NYMEX); $40.00/Bbl (WTI)
$2.7 billion–$3.1 billion capital
Pipelines: $1.7 billion
E&P: $0.9 billion–$1.3 billion (~ $250 MM International)
725–815 MMcfe/d production (including Four Star)
E&P plans are highly flexible
Emphasis on maximizing returns on capital
Reduced pace of capital spend
Will adjust based on prices and service costs
Leads to wide range of outcomes, but more efficient
use of capital
19
20. 2009 Financial Targets
$ Billions, Except EPS and Sensitivity
EPS*: $0.85–$1.05
EBIT* total: $2.0–$2.3
Pipelines: $1.4; E&P $0.8–$0.9
EBITDA*: $3.1– $3.3
Pipelines: $1.8; E&P $1.4–$1.6
Cash flow from operations: $1.7–$2.0
Sensitivity Gas Oil
-$1 +$1 -$10 +$10
EBITDA ($MM) (40) 40 (40) 40
EPS ($) (0.04) 0.04 (0.04) 0.04
*Excludes MTM changes on hedge derivatives and includes cash proceeds on settlements based on Plan prices 20
21. Liquidity Outlook
$ Billions
$0.2
$0.9
$1.9
$0.2
$2.7–
$1.1 $3.1
$2.2 $1.2–
$1.6
E&P Capex
12/31/08 YTD Net OCF Remaining May Dividends Capex YE
Financings Asset Maturity & Minority Liquidity
& Asset Sales Interest
Sales
Ample liquidity for 2009
Note: Forecast assumes most of $500 MM LC facility replaced and EPEP $300 MM facility renewed 21
22. Summary
Significant progress on building liquidity
As reflected by EP bond spreads
2009 capital program reflects balance
Provide funding for Pipeline expansion backlog
Manage E&P for value vs. growth
Maximize liquidity
Will continue to be opportunistic in capital markets
22
24. 2008 Highlights
Favorable 4Q and YTD EBIT
4% increase from 4Q 2007
Throughput increase
Progress on growth
$0.7 billion of growth projects placed in-service
~$8 billion committed back-log at year-end
Adding Ruby, FGT Phase VIII, TGP 300 Line project
Best-ever safety performance
24
25. Pipeline Group Financial Results
Quarters Ended Twelve Months Ended
December 31, December 31,
($ Millions) 2008 2007 2008 2007
$1,308 $ 1,268
EBIT before minority interest1 $ 330 $ 311
35 3
Less minority interest 11 3
$1,273 $ 1,265
EBIT $ 319 $ 308
$1,668 $ 1,638
EBITDA $ 419 $ 402
$1,798 $ 1,769
Adjusted EBITDA2 $ 450 $ 430
$1,198 $ 1,099
Capital expenditures $ 368 $ 334
$ 303 $ –
Acquisition capital3 $– $ –
9% EBITDA growth in 4Q before hurricane impact
1 Included
unfavorable impact from Hurricanes Gustav & Ike—$18 MM in 4Q, $31 MM YTD
2AdjustedPipeline EBITDA for 50% interest in Citrus
3Gulf LNG and TGP Blue Water acquisitions
Note: Appendix includes details on non-GAAP terms 25
26. Throughput Growth Varied by Region
Full-year % Increase 2008 vs. 2007
Throughput Ups Downs
TGP 0% Independence Hub Hurricanes
SNG 0% Elba deliveries to Florida Milder summer/
4Q industrial demand
EPNG +5% California –
CIG +10% Rockies supply, expansions Milder winter
4% overall increase
Note: CIG includes Colorado Interstate Gas, Cheyenne Plains and Wyoming Interstate
EPNG includes El Paso Natural Gas and Mojave 26
27. ~$700 MM Projects Placed in Service in 2008
WIC Kanda Lateral
Medicine Bow 2008
Cheyenne Plains—Coral
High Plains
TGP Blue Water
SNG Cypress II
SNG SESH I*
7x run rate EBITDA
* Operated by Spectra Energy
27
28. Committed Growth Backlog:
Large, Profitable
~$8 billion capex; construct at 7x run rate EBITDA
Ruby Pipeline
$3 Billion TGP Concord
TGP 300 Line Project
2011 $21 MM
$750 MM
1.3–1.5 Bcf/d Nov 2009
2011 30 MMcf/d
290 MMcf/d
WIC System Expansion
$71 MM
2010–2011 Elba Expansion III & Elba
320 MMcf/d Express
CIG Totem Storage
$1.1 Billion
$154 MM (100%)
2010–2014
WIC Piceance Lateral July 2009
8.4 Bcf / 0.9 Bcf/d & 1.2 Bcf/d
$62 MM 200 MMcf/d
4Q 2009
220 MMcf/d
SNG Cypress Phase III
$86 MM
2011
CIG Raton 2010
160 MMcf/d
Expansion
$146 MM
2Q 2010
SNG South System III/
TGP Carthage
130 MMcf/d
SESH Phase II
Expansion
$352 MM / $69 MM
$39 MM
2011–2012
May 2009
Gulf LNG 370 MMcf/d / 350 MMcf/d
100 MMcf/d
$1+ Billion (100%)
2011
El Paso Pipeline Partners, LP FGT Phase VIII
6.6 Bcf / 1.3 Bcf/d
Expansion
$2.4 Billion (100%)
El Paso Pipeline 2011
800 MMcf/d
Note: As of February 26, 2009; El Paso Pipeline Partners owns 25% of SNG & 40% of CIG 28
29. Construction Risk Management
El Paso Capital
($ Billions) Steel Construction
Elba Expansion Fixed-Price EPC Contract
$ 1.1
Elba Express Fixed Unit-Priced
Gulf LNG (50%) Fixed-Price EPC Contract
$ 0.5
Ruby Fixed Incentive-Based
$ 3.0
FGT Phase VIII (50%) Fixed Unit-Priced
$ 1.2
TGP 300 Line Fixed Negotiating
$ 0.8
Backlog has been significantly de-risked
29
30. Pipeline Summary
Stability from demand-based revenues
Visible multi-year growth profile
Highly focused on execution of
project backlog
Significant risk mitigation in place
30
32. 2008 Highlights
$2.3 billion adjusted EBITDA
817 MMcfe/d production1 (pro forma)
195% domestic reserve replacement ratio2
$2.87/Mcfe domestic RRC2
27% inventory growth
Brazil Camarupim development progress
Domestic divestitures closed
1Includesinterest in Four Star
2Beforeprice-related revisions; does not include Four Star
Note: Appendix includes details on non-GAAP terms
32
33. E&P Results
Quarters Ended Twelve Months Ended
December 31, December 31,
($ Millions) 2008 2008
2007 2007
EBIT before ceiling test charges &
Four Star impairment1 $ 259 $ 263 $ 1,346 $ 909
Ceiling test charges &
Four Star impairment (2,785) – (2,794) –
EBIT (2,526) 263 (1,448) 909
EBITDA1 (2,327) 490 (649) 1,689
Adjusted EBITDA2 474 525 2,267 1,803
Capital expenditures 567 341 1,681 1,425
Acquisition capital – 24 61 1,178
Cash costs ($/Mcfe) $ 2.09 $ 1.83 $ 1.97 $ 1.88
1Quarters ended includes MTM gains on derivatives of $201 MM in 2008 and $3 MM in 2007. Received cash related to settlements of
these derivatives of $37 MM in 2008 and paid cash of $6 MM in 2007. Year-to-date includes MTM gains on derivatives of $305 MM in
2008 and $7 MM in 2007. Received cash related to settlements of these derivatives of $18 MM in 2008 and paid cash of $31 MM in 2007
2Adjusted E&P EBITDA includes proportionate share of Four Star but excludes non-cash ceiling test charges and
Four Star impairment
Note: Appendix includes details on non-GAAP terms 33
34. Total Cash Costs
$/Mcfe
$2.09 $1.97
$1.88
$1.83 $0.28
$0.44
$0.31
$0.33 $0.06
$0.05 $0.04
$0.04
$0.71
$0.59
$0.57 $0.64
$1.81
$1.53
$1.57
$1.50
$0.90
$1.04
$0.89 $0.88
4Q 2007 4Q 2008 FY 2007 FY 2008
Production Taxes
Taxes Other Than Production & Income
General & Administrative
Direct Lifting Costs
34
35. FY 2008 Production
MMcfe/d
As Reported Pro Forma*
862 817
816 798
14 25 792
11 14 without
11
114
191 102
135 hurricanes
215
225
213 196
154 154
147 148
305 310
312
297
FY 2007 FY 2008
FY 2007 FY 2008
Central Western TGC GOM/SLA Intl Hurricane Volumes
Note: Includes proportionate share of Four Star equity volumes
Appendix includes details on non-GAAP terms
*Excludes volumes from domestic assets sold in 2008, adjusts volumes for the effects of the hurricanes in 2008, and
35
assumes full year of Peoples volumes in 2007
36. YE 2008 Reserves
Bcfe
582 Approx.
3.0 Tcfe at
$7/$70
299
2851
5602
3,109 2,547
YE 2007 Extensions & Production Purchases & Revisions YE 2008
Discoveries Sales
Commodity Prices Henry Hub WTI
YE07 $6.80/MMbtu $95.98/Bbl
YE08 $5.71/MMbtu $44.60/Bbl
Note: Includes proportionate share of Four Star equity volumes
1Includes (303) Bcfe of sales and 18 Bcfe of acquisitions
36
2Includes (490) Bcfe of price-related revisions and (70) Bcfe of performance-related revisions
37. Domestic Reserve Metrics
Reserve Replacement Costs Reserve Replacement Ratio
(RRC, $/Mcfe) (RRR)
255%
$3.26
$3.92
195%
$3.22
$2.87
129%
109%
2006 2007 2008 2006 2007 2008
Reflects acquisitions
Note: 2008 RRC and RRR do not include price revisions. Prior years RRC and RRR include proved reserves
additions, acquisitions, price, and performance revisions. Results do not include Four Star 37
39. 2009 Capital Program
$0.9 billion–$1.3 billion
Capital Spending ($ MM)
capital program
Flexible capital program $1,742
focusing on value creation
$1,300
Increased focus on low-risk
programs with significant
inventory and repeatability
Haynesville
Cotton Valley Horizontal
Altamont Oil
2008 2009
Black Warrior CBM
International focused on Central Western TGC
Brazil’s Camarupim, ES-5 GOM Intl Acq.
block and Egypt exploration
39
41. Arklatex Programs Progressing
Haynesville Shale
(currently producing 27 MMcfe/d
as of February 21, 2009)
120 4,000
4 Wells Producing IP (MMcfe/d)
3,500
Spud to First Sales (Days)
100
Miller Land Co 10H #1 4.5 3,000
80
Travis Lynch GU #4-H 8.0
$/Lateral Ft.
2,500
RF Gamble 24H #1 14.6 60 2,000
Blake 10H #1 20.3 1,500
40
1,000
20
2009 Activity 500
Spud in March: Hamilton 12H #1 and 0 0
Miller Travis R.F. Blake
Annette Green 22H #1 Land Co. Lynch Gamble 10H #1
10H #1 GU #4-H 24H #1
J R Gamble will TD in March with
first sales in April Drilling Completion $/Lateral Ft.
2–4 rigs running during 2009
41
42. Arklatex Programs Progressing
Cotton Valley Horizontal
(currently producing 10 MMcfe/d
as of February 21, 2009)
6 Wells Producing IP (MMcfe/d)
Lindy Britton #2H 7.0
Sample H #5 3.2
Weyerhauser 15H #1 9.6
Lindy Britton #4H 4.2
Means Family Trust #26H 6.4
Malone H #1* 3.0
2009 Activity
1Q wells: Shadowens 4H#1 and KMI
Continental Royalty H#1
1–2 rigs running during 2009
*Well is still cleaning up from hydraulic fracturing 42
43. Egypt Update
Fields
Gas
Oil
South
Mariut Tanta
EP 60%, RWE 40% RWE 60%, EP 40%
South Mariut
Swapped 40% of our WI for an equal interest in RWE’s Tanta block located east of South Mariut
Plan to drill 3 to 4 exploratory wells in 2009; first well spud January 31, 2009
Tanta Exploration
Same plays as South Mariut
First well late 2009 / early 2010
43
44. Brazil Update
Camarupim BM-ES-5
TOT 1 KM
First gas in second quarter of 2009 1 MILE
Commercial agreements executed
Unitization agreement and
development plan approval
expected March 2009
CAMARUPIM
Currently drilling second and third
horizontal gas development wells
Tot
Drilled and currently testing
44
45. E&P Summary
2009 capital program focused on
low-risk, value-adding programs
Maintain capital discipline while seeking
to capture lower service costs
Maintain flexibility while preserving inventory
and advancing key programs
45
46. Summary
Solid results in volatile market
Balancing growth with financial stability
Managing business for future success
Deliver pipeline backlog
Preserve E&P opportunities
46
47. El Paso Corporation
Fourth Quarter 2008
Financial & Operational Update
February 26, 2009
49. Disclosure of Non-GAAP
Financial Measures
The SEC’s Regulation G applies to any public disclosure or release of material information that includes a non-GAAP financial measure. In the event of
such a disclosure or release, Regulation G requires (i) the presentation of the most directly comparable financial measure calculated and presented in
accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly
comparable financial measure calculated and presented in accordance with GAAP. The required presentations and reconciliations are attached.
Additional detail regarding non-GAAP financial measures can be reviewed in El Paso’s full operating statistics, which will be posted at
www.elpaso.com in the Investors section.
El Paso uses the non-GAAP financial measure “earnings before interest expense and income taxes” or “EBIT” to assess the operating results and
effectiveness of the company and its business segments. The company defines EBIT as net income (loss) adjusted for (i) items that do not impact its
income (loss) from continuing operations, such as extraordinary items and discontinued operations; (ii) income taxes; and (iii) interest and debt
expense. The company excludes interest and debt expense so that investors may evaluate the company’s operating results without regard to its
financing methods or capital structure. EBITDA is defined as EBIT excluding depreciation, depletion and amortization. El Paso’s business operations
consist of both consolidated businesses as well as investments in unconsolidated affiliates. As a result, the company believes that EBIT, which
includes the results of both these consolidated and unconsolidated operations, is useful to its investors because it allows them to evaluate more
effectively the performance of all of El Paso’s businesses and investments. Adjusted EBITDA is defined as EBITDA including the proportional share of
EBITDA less our recorded equity earnings from our equity investments in Citrus and Four Star. The company believes that adjusted EBITDA is useful
to its investors because it allows them to evaluate more effectively the performance of our businesses regardless of the type of ownership structure.
Exploration and Production per-unit total cash costs or cash operating costs equal total operating expenses less DD&A, cost of products and services,
transportation costs, and ceiling test charges divided by total production. It is a valuable measure of operating efficiency. For 2008, Adjusted EPS is
earnings per share from continuing operations excluding the gain or loss related to the change in fair value of an indemnification from the sale of an
ammonia plant in 2005, the gain related to an adjustment of the liability for indemnification of medical benefits for retirees of the Case Corporation, the
gain related to the disposition of a portion of the company’s investment in its telecommunications business, changes in fair value of power contracts,
changes in fair value of the production-related derivatives in Marketing, impact of mark-to-market E&P derivatives, ceiling test charges and Four Star
impairment, other legacy litigation adjustments, legal restructuring benefit, and the effect of the change in the number of diluted shares. For 2007,
Adjusted EPS is earnings per share from continuing operations excluding changes in fair value of production-related derivatives in Marketing, the loss
related to Brazilian power impairments, the gain related to the crude oil trading liability, changes in the fair value of power contracts, the loss related to
an adjustment of the liability for indemnification of medical benefits for retirees of the Case Corporation, debt repurchase costs, and the effect of the
change in the number of diluted shares. Adjusted EPS is useful in analyzing the company’s on-going earnings potential.
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 the operating and financial performance
of the company and its business segments with the performance of other companies within the industry.
These non-GAAP financial measures may not be comparable to similarly titled measurements used by other companies and should not be used as a
substitute for net income, earnings per share or other GAAP operating measurements.
49
52. Financial Results
Quarters Ended Twelve Months Ended
December 31, December 31,
($ Millions, Except EPS) 2008 2007 2008 2007
$ 1,652
$ (2,134) $ (154)
$ 483
EBIT
(994)
(239) (914)
(252)
Interest and debt expense
658
(2,373) (1,068)
231
Income (loss) before income taxes
222
(695) (245)
71
Income taxes
436
(1,678) (823)
160
Income (loss) from continuing operations
674
– –
–
Discontinued operations, net of income taxes
1,110
(1,678) (823)
160
Net income (loss)
Preferred stock dividends 37
9 37
9
Net income (loss) available to
common stockholders $ 1,073
$ (1,687) $ (860)
$ 151
Diluted EPS from continuing operations $ 0.57
$ (2.43) $ (1.24)
$ 0.21
Diluted EPS from discontinued operations 0.96
– –
–
Total diluted EPS $ 1.53
$ (2.43) $ (1.24)
$ 0.21
Diluted shares (millions) 699
694 696
759
52
53. 2008 Analysis of
Working Capital and Other Changes
$ Millions
Twelve Months Ended
December 31, 2008
Margin collateral $ 24
Changes in price risk management activities (189)
Settlements of derivative instruments (272)
Net changes in trade receivable/payable (16)
Settlement of liabilities (85)
Other (169)
Total working capital changes & other $(707)
53
54. Items Impacting YTD 2008 Results
($ Millions, Except EPS) Pre-tax After-tax Diluted EPS
Net income (loss) available to common stockholders $ (860) $(1.24)
Adjustments1
Ceiling test charges and Four Star impairment $ 2,794 2,024 2.90
Change in fair value of power contracts 46 29 0.04
Change in fair value of legacy indemnification 30 19 0.03
Case Corporation indemnification (65) (27) (0.04)
Other legacy litigation adjustments (23) (26) (0.03)
Gain on sale of portion of telecommunications business (18) (12) (0.01)
Legal restructuring benefit – (40) (0.06)
Effect of change in number of diluted shares – – (0.06)
Change in fair value of
production-related derivatives in Marketing 50 32 0.04
MTM impact of E&P derivatives2 (287) (183) (0.26)
Adjusted EPS—continuing operations3 $ 1.31
1Alladjustments assume a 36% tax rate, except the International portion of the ceiling test charges, the Case Corporation
indemnification and other legacy litigation adjustments, and 696 MM diluted shares
2Includes $305 MM of MTM gains on derivatives adjusted for $18 MM of realized gains from cash settlements
3Reflects fully diluted shares of 766 MM and includes income impact from dilutive securities
54
55. Items Impacting 4Q 2007 Results
Diluted
Pre-tax After-tax EPS
($ Millions, Except EPS)
Net income available to common stockholders $151 $ 0.21
Adjustments1
Change in fair value of power contracts $ 34 22 0.03
Brazilian power impairments 8 8 0.01
Change in fair value of
production-related derivatives in Marketing 26 17 0.02
Adjusted EPS—continuing operations2 $ 0.27
1All adjustments assume a 36% tax rate, except for Brazilian power impairments, and 759 MM diluted shares
2Reflects diluted shares of 759 MM and includes income impact from dilutive securities
55
56. Items Impacting YTD 2007 Results
Diluted
Pre-tax After-tax
($ Millions, Except EPS) EPS
Net income available to common stockholders $1,073 $ 1.53
Adjustments1
Sale of ANR and related assets $(1,043) (674) (0.96)
Crude oil trading liability (77) (49) (0.07)
Brazilian power impairments 72 72 0.10
Change in fair value of power contracts 77 49 0.07
Case Corporation indemnification 11 7 0.01
Debt repurchase costs 291 186 0.27
Effect of change in number of diluted shares2 – – (0.03)
Change in fair value of
production-related derivatives in Marketing 0.08
89 57
Adjusted EPS—continuing operations2 $ 1.00
1Adjustments assume 36% tax rate, except for Brazilian power impairments and sale of ANR and related
assets, and 699 MM diluted shares
2Based upon 757 MM diluted shares and includes the income impact from dilutive securities
56
57. Business Unit Contribution
Twelve Months Ended
December 31, 2008
Adjusted
EBITDA EBITDA*
($ Millions) EBIT DD&A
Core Businesses
Pipelines $ 1,273 $ 395 $ 1,668 $ 1,798
E&P before ceiling test charges & Four Star impairment 1,346 799 2,145 2,267
Core business subtotal 2,619 1,194 3,813 4,065
Ceiling test charges & Four Star impairment (2,794) – (2,794) –
Core businesses total $ (175) $ 1,194 $ 1,019 $ 4,065
Other Businesses
(104) – (104) (104)
Marketing
1 1 2 2
Power
124 10 134 134
Corporate & Other
Total $ (154) $ 1,205 $ 1,051 $ 4,097
*Adjusted Pipeline EBITDA for 50% interest in Citrus and adjusted E&P EBITDA for 49% interest in Four Star, ceiling test
57
charges, and Four Star impairment
58. Business Unit Contribution
Twelve Months Ended
December 31, 2007
Adjusted
($ Millions) EBIT DD&A EBITDA EBITDA*
Core Businesses
Pipelines $1,265 $ 373 $1,638 $1,769
E&P 909 780 1,689 1,803
Core businesses total $2,174 $1,153 $3,327 $3,572
Other Businesses
Marketing $ (202) $ 3 $ (199) $ (199)
Power (37) 1 (36) (36)
Corporate & Other (283) 19 (264) (264)
Total $1,652 $1,176 $2,828 $3,073
*Adjusted Pipeline EBITDA for 50% interest in Citrus and adjusted E&P EBITDA for 49% interest in Four Star 58
59. Business Unit Contribution
Quarter Ended
December 31, 2007
Adjusted
EBIT DD&A EBITDA EBITDA*
($ Millions)
Core Businesses
$430
$402
$ 94
$ 308
Pipelines
525
490
227
263
E&P
$955
$892
$321
$ 571
Core businesses total
Other Businesses
(63)
(63)
1
(64)
Marketing
(4)
(4)
–
(4)
Power
(16)
(16)
4
(20)
Corporate & Other
$872
$809
$326
$ 483
Total
*Adjusted Pipeline EBITDA for 50% interest in Citrus and adjusted E&P EBITDA for 49% interest in Four Star
59
60. Reconciliation of EBIT/EBITDA
Quarters Ended Twelve Months Ended
December 31, December 31,
($ Millions) 2008 2007 2008 2007
EBITDA $(1,832) $ 809 $2,828
$ 1,051
Less: DD&A 302 326 1,176
1,205
EBIT (2,134) 483 1,652
(154)
Interest and debt expense (239) (252) (994)
(914)
Income (loss) before income taxes (2,373) 231 658
(1,068)
Income taxes (695) 71 222
(245)
Income (loss) from continuing operations (1,678) 160 436
(823)
Discontinued operations, net of taxes – – 674
–
Net income (loss) (1,678) 160 1,110
(823)
Preferred stock dividends 9 9 37
37
Net income (loss) available to
common stockholders $(1,687) $ 151 $1,073
$ (860)
60
61. Reconciliation of
Adjusted Pipeline EBITDA
Quarters Ended Twelve Months Ended
December 31, December 31,
2008 2007
2007
2008
($ Millions)
Citrus equity earnings $ 12 $ 16 $ 64 $ 81
50% Citrus DD&A 14 13 53 50
50% Citrus interest 13 9 41 37
50% Citrus income taxes 5 7 37 46
Other* (1) (1) (1) (2)
50% Citrus EBITDA $ 43 $ 44 $ 194 $ 212
El Paso Pipeline EBITDA $419 $ 402 $1,668 $1,638
Add: 50% Citrus EBITDA 43 44 194 212
Less: Citrus equity earnings 12 16 64 81
Adjusted Pipeline EBITDA $450 $ 430 $1,798 $1,769
Citrus debt at December 31 (50%) $ 689 $ 477
*Other represents the excess purchase price amortization and differences between the estimated and
actual equity earnings on our investment 61
62. Committed Projects In-Service Timeline
$ Billions 2009 2010 2011 & Beyond
WIC Piceance Elba III Phase A Ruby
TGP Carthage Elba Express WIC System Expansion
TGP Concord CIG Raton 2010 TGP 300 Line Project
CIG Totem (50%) FGT Phase VIII (50%)
Gulf LNG (50%)
Elba III Phase B
SNG South System III
SNG SESH Phase II
Cypress III
Net project cost $0.2 $1.1 $6.5
Note: $ in each column represents total costs for each project, shown in year placed in service (actual spend over
multiple years). WIC is owned by El Paso Pipeline Partners 62
63. Reconciliation of
Adjusted E&P EBITDA
Quarters Ended Twelve Months Ended
December 31, December 31,
($ Millions) 2008 2007 2008 2007
$ (93) $ 12
$ (129) $8
Four Star equity earnings
23 22
6 6
Proportionate share of Four Star DD&A
– –
– –
Proportionate share of Four Star interest
46 39
(3) 13
Proportionate share of Four Star income taxes
178 53
138
Other* 16
$ 154 $ 126
$ 12 $ 43
Proportionate share of Four Star EBITDA
$ (649) $1,689
$ (2,327) $ 490
El Paso E&P EBITDA
2,669 –
2,660 –
Add: Ceiling test charges
154 126
12 43
Add: Proportionate share of Four Star EBITDA
(93) 12
(129) 8
Less: Four Star equity earnings
$ 2,267 $1,803
$ 474 $ 525
Adjusted E&P EBITDA
*Represents impairment charge of $125 MM in 2008 and the excess purchase price amortization
Note: In the third quarter of 2007, E&P increased its interest in Four Star from 43% to 49% 63
68. 4Q 2008 Production Update
MMcfe/d
As Reported Pro Forma*
924
13 814 805
752 53
175 13 752
9 9
123 without
57 57 hurricanes
254 220
220 212
153 148 157
157
329 318 309
309
4Q 2007 4Q 2008 4Q 2007 4Q 2008
Central Western TGC GOM/SLA Intl Hurricane Volumes
Note: Includes proportionate share of Four Star equity volumes
Appendix includes details on non-GAAP terms.
*Excludes volumes from domestic assets sold in 2008, adjusts volumes for the effects of the hurricanes in 2008, and
68
assumes full year of Peoples volumes in 2007
69. Reconciliation of
Pro Forma Production Volumes—4Q
Equivalents (MMcfe/d)
4Q 2007 4Q 2008
Add:
Add: Less: Domestic Add: Less: Domestic Hurricane
Reported Peoples Assets Sold Pro Forma* Reported Peoples Assets Sold Impact Pro Forma*
Central 252 – 11 241 236 – – – 236
Western 153 – 5 148 157 – – – 157
TGC 254 – 42 212 220 – – – 220
GOM/SLA 175 – 52 123 57 – – 53 110
International 13 – – 13 9 – – – 9
Total Consolidated 847 – 110 737 679 – – 53 732
– – –
Proportionate share of Four Star 77 – – 77 73 – – – 73
– – –
Total with Four Star 924 – 110 814 752 – – 53 805
*Excludes volumes from domestic assets sold in 2008 and adjusts volumes for the effects of the hurricanes in 2008 and assumes full year of Peoples volumes in 2007
69
70. Reconciliation of
Pro Forma Production Volumes—YTD
Equivalents (MMcfe/d)
2007 2008
Add:
Add: Less: Domestic Add: Less: Domestic Hurricane
Reported Peoples Assets Sold Pro Forma* Reported Peoples Assets Sold Impact Pro Forma*
Central 227 22 14 235 238 – 2 0 236
Western 147 6 5 148 154 – – – 154
TGC 213 23 40 196 225 – 10 2 217
GOM/SLA 191 1 57 135 114 – 12 23 125
International 14 – – 14 11 – – – 11
Total Consolidated 792 52 116 728 742 – 24 25 743
Proportionate share of Four Star 70 – – 70 74 – – – 74
Total with Four Star 862 52 116 798 816 – 24 25 817
*Excludes volumes from domestic assets sold in 2008 and adjusts volumes for the effects of the hurricanes in 2008 and assumes full year of Peoples volumes in 2007
70
