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MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
MerrillLynch111406
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MerrillLynch111406

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  • 1. John Hopper Vice President and Treasurer Merrill Lynch Leveraged Finance Conference November 14, 2006 the place to work the neighbor to have the company to own
  • 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, changes in unaudited and/or unreviewed financial information; our ability to implement and achieve our objectives in the 2006 plan, including achieving our debt-reduction, 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 despite delays in resuming production shut-in due to hurricanes Rita and Katrina; 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; the outcome of litigation, including 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; 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 and relevant basis spreads; 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. 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, net debt, and total liquidity, and the required reconciliations under Regulation G, are set forth in the appendix hereto. 2
  • 3. Our Purpose El Paso Corporation provides natural gas and related energy products in a safe, efficient, and dependable manner 3
  • 4. Strong Results Continue ■ 3Q 2006—Third consecutive profitable quarter ■ Pipelines continue to deliver • Outstanding financial results • Continued progress on expansions • Continued progress on rate cases ■ E&P has solid quarter • New leadership on board • Volumes up • New deep shelf discovery ■ Continued progress on legacy issues 4
  • 5. Significant Progress on Legacy Items First Six Months 2006 July To-Date ■ Shareholder litigation ■ Exit domestic power ■ Macaé, Araucaria disputes ■ Downsize gas trading book ■ Power book sale ■ Completed sale of ICE shares ■ SEC & DOJ investigations ■ Closed $61 MM of international power sales More issues now behind us 5
  • 6. Continued Strong Cash Flow Nine Months Ended September 30, ($ Millions) 2006 2005 $ (113) Net income (loss) from continuing operations $ 663 903 Non-cash adjustments 983 790 Subtotal 1,646 (1,177) Working capital changes and other 356 (387) Cash flow from continuing operations 2,002 (11) Discontinued operations 10 $ (398) Cash flow from operations $2,012 $1,260 Capital expenditures $1,639 $1,023 Acquisitions, net of cash acquired $ – $ 85 Dividends paid $ 108 6
  • 7. Improved Balance Sheet ($ Millions) September 30, 2006 December 31, 2005 Total financing obligations $15,179 $18,009 Macaé project debt* $ – $ 225 Total book capitalization $19,950 $21,654 Cash $ 759 $ 2,132 Net debt $14,420 $16,102 7.9% Weighted average cost of debt 8.1% $ 2,303 Total liquidity $ 1,651 $3.1 billion reduction in gross debt through September 30, 2006 *Macaé project debt is included in liabilities for discontinued operations and was subsequently retired in April 2006 7
  • 8. Liquidity Needs Have Changed ■ Simplified business model Revolver requires less liquidity Capacity High • Roll-off of legacy production hedges Available Cash • Exit from non-core Volatility businesses Total: $2.3 billion As of 12/31/05 ■ EP will hold lower cash balances Total: $1.7 billion As of 9/30/06 ■ Liquidity needs will be Low largely met through Complexity Low High revolver capacity 8
  • 9. 2006 Finance Accomplishments ■ May • $500 MM equity offering ■ May • S&P upgrades Sr. Unsecured credit rating 1 notch—positive outlook • Moody’s upgrades Sr. Unsecured credit rating 2 notches—positive outlook ■ July • New credit facility in place with improved terms and lower costs ■ October • Completed exit of domestic power business $3.1 billion gross debt reduction through September 30, 2006 9
  • 10. Leading Natural Gas Pipelines Great Lakes Gas ► 26% total U.S. Transmission (50%) Wyoming interstate pipeline Interstate mileage Colorado Cheyenne Interstate Gas ► 1/3 of daily U.S. Plains Pipeline throughput Tennessee Mojave Gas Pipeline Pipeline ► Best market ANR Pipeline connectivity Southern Natural Gas ► Best supply access El Paso Elba Island ► Leading pipeline Natural Gas LNG integrity program Mexico Ventures Florida Gas Transmission (50%) 10
  • 11. Strong Financial Performance $ Millions Pipeline EBIT Through September 30 $1,118 $993 ■ 13% increase 2005 to 2006 ■ Results driven by higher rates and expansions ■ Expansion projects to provide further growth 2005 2006 11
  • 12. Outlook for Continued Growth is Excellent Growth project portfolio approximately $3 Billion TGP Essex- TGP NE ConneXion Middlesex New England $38 MM $103 MM November 2007 ANR Wisconsin 2006 November 2007 ANR STEP 82 MMcf/d $47 MM 136 MMcf/d $95 MM WIC Kanda Lateral November 2006 2007/08 $141 MM 168 MMcf/d 27 Bcf/412 MMcf/d January 2008 Up to 410 MMcf/d TGP NE ConneXion Cheyenne Plains NY/NJ Expansion $26 MM CP Yuma Lateral CIG High Plains Project $26 MM November 2006 $23 MM $145 MM April 2008 42 MMcf/d December 2006 December 2008/July 2009 90 MMcf/d 49 MMcf/d 965 MMcf/d CIG Raton Expansion EPNG $12 MM SNG Elba Expansion Arizona Storage November 2007 III & Elba Express $118 MM 29 MMcf/d $930 MM June 2010 2010–2012 3.5 Bcf/350 MMcf/d SNG New Home TGP Carthage 8.4 Bcf/900 MMcfd Storage Expansion Mexico JV—LPG $145 MM $34 MM SNG Cypress Phase I / II Reynosa EPNG Sonora Lateral 3Q 2010 May 2009 $244 MM/$19 MM $53 MM (50%) $152 MM 7 Bcf/700 Mcf/d 100 MMcf/d May 2007/Mid-2008 July 2007 April 2011 220 MMcf/d/116 MMcf/d 30,000 Bbl/d 1,000 MMcf/d TGP/ANR Eugene Island 371 FGT Phase VII—Part I and II Mexico JV— Sonora $41 MM $63 MM/$0 MM $406 MM (33%) January 2007 May 2007/ May 2008 2010/2011 200 MMcf/d 60 MMcf/d/20 MMcf/d 1,000–1,250 MMcf/d TGP SNG Cypress LA Deepwater Link Phase III $55 MM FERC Certificated/ Under Construction $61 MM January 2007 May 2010 850 MMcf/d Signed PA’s Future Projects 164 MMcf/d 12
  • 13. E&P Accomplishments ■ Continued sequential production growth ■ Continued drilling success ■ GOM hurricane recovery complete ■ New deep shelf discovery ■ Price risk management for 2007 13
  • 14. South Texas Acquisition ■ Complements existing operations ■ Re-entry into Lobo trend ■ 27,000 gross acres (23,000 net) Speaks ■ 84 Bcf estimated proved reserves Dry Hollow/Big Holler ■ 19 MMcfe/d current production Lobo Acquisition Bob West Monte Christo Jeffress EPPC leases 14
  • 15. Drilling Success Success Rate YTD Gross Wells Drilled Predicted Actual High 3 35% 67% GOM Int'l (Pc<40%) Expl. Expl. Risk GOM Ons. TGC Int'l Med 35 68% 94% Dev. Expl. Expl. Dev. Low Onshore TGC 336 100% 100% Dev. Dev. (Pc>80%) Continued drilling success through 3Q 99% success rate YTD 15
  • 16. Third Consecutive Quarter of Production Growth MMcfe/d 810 785 765 23 22 32 189 165 133 183 187* 195 415 405 411 1Q 2006 2Q 2006 3Q 2006 Onshore TGC GOM/SLA International Averaged approximately 830 MMcfe/d in October Note: Includes proportionate share of Four Star equity volumes *Sold properties in South Texas in 2Q producing 5 MMcfe/d 16
  • 17. 2007 Natural Gas Hedge Program ■ Supports significant portion of 2007 production ■ Current positions • 55 Bcf of collars—$8 MMBtu floor, $16.89/MMBtu ceiling • 89 Bcf floors at $7.50/MMBtu • 66 Bcf fixed price swaps at $7.53/MMBtu ■ Expands previous 2007 positions ■ No margin requirements Summary: ■ 210 Bcf average floor price $7.64/MMBtu ■ 121 Bcf capped at $11.80/MMBtu ■ Remainder of 2007 production—Market price 17
  • 18. EP Value Proposition ■ High visibility growth ■ Low-beta business Pipelines ■ Emerging growth ■ Low commodity risk 60% E&P ■ Significant commodity upside 40% ■ 2007 hedge program mitigates downside ■ Acquisition opportunities Visible Growth + High-Impact Growth Opportunities + Limited Commodity Downside + Improved Balance Sheet = Great Outlook 18
  • 19. Appendix
  • 20. 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 provided herein. Additional detail regarding non-GAAP financial measures can be reviewed in our full operating statistics 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, discontinued operations, and the impact of accounting changes; (ii) income taxes; (iii) interest and debt expense; and (iv) distributions on preferred interests of consolidated subsidiaries. The company excludes interest and debt expense and distributions on preferred interests of consolidated subsidiaries so that investors may evaluate the company’s operating results without regard to its financing methods or capital structure. El Paso’s business operations consist of both consolidated businesses as well as substantial 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. Net Debt is defined as El Paso's total Financing Obligations as disclosed on the company's consolidated balance sheet net of cash and cash equivalents. Net Debt is an important measure of the company's total leverage. Investor’s should be aware that some of El Paso’s cash is restricted and not available for debt repayment. Per Unit Total Cash Expenses equal total operating expenses less DD&A and other non-cash charges divided by total consolidated production. Total Liquidity is defined as cash that is easily available for general corporate purposes and available capacity under El Paso's $1.25 billion credit agreement, El Paso’s $500 MM letter of credit facility and El Paso Exploration and Production Company’s $500 MM credit agreement. Total Liquidity demonstrates the company’s ability to meet current obligations and commitments. 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 measurements. 20
  • 21. 21
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  • 23. Non-GAAP Reconciliation: Net Debt $ Billions September 30, December 31, 2006 2005 Total debt $15.2 $18.0 Macaé project debt – 0.2 Total cash and cash equivalents (0.8) (2.1) Outstanding net debt $14.4 $16.1 23
  • 24. Non-GAAP Reconciliation: Total Liquidity $ Millions September 30, December 31, 2006 2005 Readily available cash $ 614 $ 1,975 Available capacity under credit facilities 1,037 328 Total liquidity $1,651 $ 2,303 24
  • 25. Production-Related Derivative Schedule 2006 2007 2008 2009–2012 Notional Average Average Notional Average Notional Average Notional Average Natural Gas Volume Hedge Cash Volume Hedge Volume Hedge Volume Hedge (Bcf) Price Price (Bcf) Price (Bcf) Price (Bcf) Price Designated—EPEP Fixed Price—Legacy 1 20.9 $6.30 $3.93 4.6 $3.28 4.6 $3.42 16.0 $3.74 Fixed Price 0.5 $5.28 $5.28 0.8 $5.23 Fixed Price 60.2 $7.90 Ceiling 54.8 $16.89 Floor 54.8 $8.00 Economic—EPM Fixed Price 6.3 $8.11 $8.11 Ceiling 15.0 $9.50 $9.50 18.0 $10.00 16.8 $8.75 Floor 30.0 $7.00 $7.00 89.4 $7.50 18.0 $6.00 16.8 $6.00 Avg Ceiling 42.7 $7.68 $6.52 120.4 $11.80 22.6 $8.66 32.8 $6.31 Avg Floor 57.7 $6.85 $5.99 209.8 $7.64 22.6 $5.47 32.8 $4.90 2006 2007 2008 Notional Average Average Notional Average Notional Average Crude Oil Volume Hedge Cash Volume Hedge Volume Hedge (MMBbls) Price Price (MMBbls) Price (MMBbls) Price Economic—EPEP Fixed Price 0.09 $35.15 $35.15 0.19 $35.15 Economic - EPM Fixed Price 0.26 $58.81 $58.81 Ceiling 1.01 $60.38 0.93 $57.03 Floor 1.01 $55.00 0.93 $55.00 See El Paso’s Form 10-Q filed 11/06/06 for additional information on the company’s derivative activity *Hedge price and cash price are identical for 2007–2012 Note: 2006 data is as of September 30, 2006 (contract months October–December) 2007 positions are as of November 6, 2006 (updated for transactions announced 11/9/06) 25
  • 26. John Hopper Vice President and Treasurer Merrill Lynch Leveraged Finance Conference November 14, 2006 the place to work the neighbor to have the company to own

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