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el paso 04_08FosheeHowardWeil(Web)2


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el paso 04_08FosheeHowardWeil(Web)2

  1. 1. a meaningful company doing meaningful work delivering meaningful results Doug Foshee President and Chief Executive Officer Howard Weil Energy Conference April 8, 2008
  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, changes in unaudited and/or unreviewed financial information; our ability to implement and achieve our objectives in the 2008 plan, including earnings and cash flow targets; the effects of any changes in accounting rules and guidance; our ability to meet production volume targets in our E&P segment; uncertainties and potential consequences associated with the outcome of governmental investigations, including, without limitation, those related to the reserve revisions; outcome of litigation; 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; 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 and basis differentials 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. 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 and the required reconciliations under Regulation G, are set forth in this presentation or in the appendix hereto. El Paso defines Resource Potential 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. 3. Sustainable Long-Term Growth Pipelines E&P 6%–8% EBIT Growth 2007–2012 8%–12% production growth 2007–2010 • 2.8 Tcfe proved reserves* • Unprecedented infrastructure opportunities • Multi-year drilling inventory • Committed project inventory nearly $4 billion *Post 2008 divestitures—Includes proportionate share of Four Star 3
  4. 4. Outlook Favors Both Businesses Pipelines Favorable Macro Outlook • Assets well positioned • Increasing demand for natural gas – Rockies expansions: CIG, WIC, Ruby • Strong commodity prices – LNG related: Elba Express, Cypress • Infrastructure opportunities with shifting supply source E&P Environmental • Improved portfolio • Carbon emissions • Increased profitability • Power generation turning to natural gas • Drilling success 4
  5. 5. El Paso Pipeline Group North America’s Leading Natural Gas Pipeline Company Tennessee Wyoming Gas Pipeline Colorado Interstate Interstate Gas Cheyenne Mojave Plains Pipeline Southern Pipeline Natural Gas Elba Island LNG El Paso Natural Gas Mexico Gulf LNG Florida Gas Ventures (50%) Transmission (50%) • 19% of total U.S. interstate pipeline mileage • 24 Bcf/d capacity (16% of total U.S.) • 17 Bcf/d throughput (28% of gas delivered to U.S. consumers) Source: El Paso Corporation based on 2007 data 5 Note: Includes El Paso Corporation and El Paso Pipeline Partners, L.P.
  6. 6. The Enduring Value of “Last Mile” and “First Mile” Service Integrated with Point-to-Point Integrated with Suppliers Transportation Markets Pipeline LDC Citygate Storage Storage Market Supply LNG Wellheads Hub Hub Direct Connects (Industrial, Power Gen) Processing Pipelines Commodity High Value High Value Service 6
  7. 7. Excellent Connectivity in Markets ID VT SD NH WY NE Boston MA NY RI CT Denver UT CO NJ New York PA • 66 supply meters in the Rockies • 110 delivery meters along the Front Range • 97 delivery meters into 26 LDCs UT NV SC Atlanta Birmingham CA AZ NM Phoenix GA AL FL • 348 delivery meters in Arizona • 155 delivery meters into Alagasco and AGL
  8. 8. Committed Growth Backlog Approaching $4 Billion WIC Medicine Bow TGP Concord Expansion $21 MM $32 MM Nov 2009 July 2008 CIG High Plains Pipeline 30 MMcf/d 330 MMcf/d $196 MM (100%) November 2008 WIC Piceance 900 MMcf/d Lateral CP Coral Expansion Elba Expansion III & $62 MM SNG SESH –Phase I $23 MM Elba Express 4Q 2009 $137 MM CIG Totem Storage July 2008 $1.1 Billion 219 MMcf/d Jun 2008 $120 MM (100%) 70 MMcf/d 2010–2013 140 MMcf/d July 2009 1.2 Bcf/d 200 MMcf/d SNG Cypress Phase II & III $20 MM/$82 MM May 2008/ Jan 2011 TGP Carthage 114 MMcf/d/ 161 MMcf/d Expansion $39 MM May 2009 100 MMcf/d SNG South System III/ SESH Phase II Gulf LNG $286 MM/ $33 MM $1.1 Billion (100%) 2010–2012 Oct 2011 375 MMcf/d/ 360MMcfd El Paso Pipeline Partners 1.3 Bcf/d El Paso FGT Phase VIII Expansion $2+ Billion (100%) 2011 0.8 Bcf/d 8 Note: El Paso Pipeline Partners owns 10% of SNG and CIG
  9. 9. Market Demand Driving Pipeline Growth Florida Gas Transmission VIII Project Natural Gas Demand Proposed Pipeline Expansion Growth (Bcf) FGT Florida 4.0 3.0 $2+ billion (100%) 2.0 • • 50% EP, 50% SUG 1.0 • 500 miles 0.0 • 0.8 Bcf/d capacity FL 2007 2017 • PA with FPL for 0.4 Bcf/d for 25-year term Power generation • 2011 in-service Residential, Commercial, & Industrial 9 Source: EEA/ICF
  10. 10. Leveraging LNG Experience Elba Island LNG Gulf LNG Savannah, GA Pascagoula, MS • $1.1 billion terminal expansion and • $1.1 Billion (100%); 50% EP Elba Express Pipeline • $870 MM non-recourse financing completed • 8.4 Bcf incremental storage capacity • 1.3 Bcf/d base sendout • 0.9 Bcf/d incremental send-out capacity • Fully contracted with Angola LNG and ENI • Fully contracted with Shell and BG • EPC with Aker Kvaerner • Current expansion will double facility • 2011 In-service Investing more than $2 billion on LNG and related projects 10
  11. 11. De-risking of Backlog Capital Costs Typical Pipeline Capex Breakdown 30%–35% 35%–40% 25%–35% • Pipe • Contractor-related • Right-of-way • Other Primary Party $ Billion At-Risk for Capex $1.7 Contractor 0.8 Customer 1.4 El Paso $3.9 11
  12. 12. El Paso Pipeline Partners • Primary focus is natural gas transmission and storage assets • Three FERC regulated interstate pipelines: – 100% of WIC: 800 miles, 2.7 Bcf/d – 10% of CIG: 4,000 miles, 3.0 Bcf/d – 10% of SNG: 7,600 miles, 3.7 Bcf/d • Demand-based revenues from high-quality customers with strong credit profiles • Several organic expansions underway WIC SNG CIG Diverse, Growing Supply Regions High Connectivity to Growing Markets 12
  13. 13. Pipeline Summary • High-quality, committed growth backlog – Approaching $4 billion • Focus on project execution • Manage capital costs • Long-term EBIT growth expectation 6%–8% – Higher with continued success 13
  14. 14. Total Company Top 10 Domestic Independent • Well-situated in key U.S. basins • Focused on unconventional and low-risk conventional programs Nile Onshore-US Delta • ~80% natural gas Sinai • Primarily coal seam and Gulf • 97% drilling success rate Egypt of tight-gas programs Egypt • 2.8 Tcfe of proved reserves Suez • Low to medium risk • 798 MMcfe/d of production repeatable plays • 9.6-year reserve life • 98% drilling success rate Egypt • 2.4 Tcfe of proved reserves • Onshore conventional • 650 MMcfe/d of production exploration • 10.1-year reserve life Brazil • 1 MM acres • First drilling 2H 2008 Rio de Janeiro GOM Brazil • Medium to high-risk exploration • 2 discoveries in 2007 • Large acreage position • 15,000–20,000 BOE/d • 46% success rate in 2007 beginning 2H 2009 • 152 Bcfe of proved reserves • 20 undrilled prospects • 133 MMcfe/d of production • 247 Bcfe of proved reserves • 3.1-year reserve life • 14 MMcfe/d of production Note: All data is pro forma 2007 to exclude production and reserves related to properties divested in 2008 and to include a full year of production from our Peoples acquisition in 2007 14
  15. 15. High Grading Our Portfolio • Divested 309 Bcfe of properties for $845 MM (sales price and assumed asset retirement obligation)—$2.73/Mcfe – Low inventory, high operating costs • Purchased Peoples Energy Production for $887 MM • End result—more focused; more profitable, faster growing; added 450 total gross drilling locations 15
  16. 16. Reserves More Weighted to Onshore Region 2007 Post 2007 YE Reported Divestitures GOM/SLA GOM/SLA 5% INTL INTL 9% 9% 8% TGC 16% TGC Onshore Onshore 18% 65% 70% 3.1 Tcfe 2.8 Tcfe Note: Includes proportionate share of Four Star 16
  17. 17. E&P Production Solid Growth Trajectory Through 2010 MMcfe/d R CAG %–12% 8 870–930 862 798 20082 2007 2007 2009 2010 Pro Forma1 Note: Includes proportionate share of Four Star 1 Excludes volumes from domestic assets sold; assumes full year of Peoples 17 2 Assumes 25 MMcfe/d annualized contributed by the divestiture assets prior to closing
  18. 18. E&P Profitability Growing Faster Than Peers EBITDA*/Mcfe, Including Hedging $5.75– $6.04 $6.00 $5.84 $5.61 $5.58 $4.82 2006 2007A 2008E Peer Average El Paso Peer group: APA, APC, CHK, DVN, EOG, FST, NBL, NFX, PXD, PXD, XEC, XTO Actual results from Peer company reports for 2006 and 2007; Analyst 2008E * EBITDA excludes exploration and dry hole expense for successful efforts companies 18
  19. 19. Significant Undrilled Inventory • 6.1 Tcfe unrisked non-proved resources 3,400 • 2.8 Tcfe risked non-proved resources • Risked resources grew 12% in 2007 Resource Potential (Bcfe) • Excludes domestic divestiture properties Non-Proved Risked Unrisked 2,130 1,460 869 835 495 530 PUD* Unconventional Conventional Conventional Low-Risk Higher-Risk Raton, Arkoma, Black Warrior, Arklatex, Rockies, GOM, TGC, New Albany TGC, Brazil Int’l Exploration, Brazil, Egypt *As of 12/31/07 and Includes proportionate share of Four Star 19
  20. 20. Arklatex AK Production (MMcfe/d) Vacherie Dome/ 200 Bear Creek 150 TX Minden/SE 100 Brachfield LA 50 0 Holly/Bethany 2006 2007 2008 2009 2010 Longstreet/Logansport Program Statistics: 2008 Plan: 1,047 operating wells 111 gross wells 80% avg. WI $319 MM net capital 426 PUD locations 222 Bcfe PUD reserves Value Upside: 404 non-proved locations Cotton Valley Horizontals 540 Bcfe unrisked resource potential Haynesville Shale 504 Bcfe risked resource potential Infill potential 11 R/P 20
  21. 21. Arklatex Economics Objective: Hosston, Cotton Valley Hosston 8,500 ft. Depth: 7,500'–12,800' Well costs: $2.5 MM–$3.1 MM Cotton Valley 10,500 ft. Reserves: 1.0–1.4 Bcfe Initial prod: 1–5 MMcfe/d Type Curve Spacing: 40–80 acres 1,000 800 IRR: 20%–30% Mcfe/d 600 PVR: 1.15–1.25 400 200 F&D: $2.70–$3.10/Mcfe 0 1 2 3 4 5 6 7 8 9 10 Normalized Years 21 Note: PVR and rate of return based on $7.50 MMBtu and $70.00/Bbl
  22. 22. Haynesville Shale Play Outline—North Louisiana Approx. 36,000Claiborne gross/ Webster Marion 27,000 net acres of Caddo Haynesville leases Bossier Chesapeake Petrohawk TX Discovery Discovery Harrison Bienville LA Red River Panola Encana Test Desoto Comstock Test Natchitoches Shelby 22
  23. 23. E&P Summary • E&P better positioned post high grading • Greater Onshore focus • More profitable • Deeper inventory • Visible 8% – 12% multi-year production growth E&P moving towards top-tier performance 23
  24. 24. 2008 Natural Gas and Oil Hedge Positions Positions as of April 4, 2008 (Positions are for full-year 2008) 188 TBtu Average cap $10.21/MMBtu Ceiling 155 TBtu 33 TBtu 2008 Gas $10.75 ceiling/ $7.65 $8.00 floor fixed price Floors 188 TBtu Balance at Average floor $7.94/MMBtu Market Price 4.0 MMBbls Ceiling Average cap $82.76/Bbl 3.1 MMBbls 0.9 MMBbls 2008 Oil $90.48 $57.03 ceiling/ fixed price $55.00 floor Floors 4.0 MMBbls Average floor $82.29/Bbl 24 Note: See full Production-Related Derivative Schedule in Appendix
  25. 25. Substantial Leverage to Higher Commodity Prices $ Earnings Per Share $1.62– $1.72 Current $1.70 $1.44– Market $1.54 $1.50 $1.25– Base Case $1.35 $1.30 $1.00– $1.10 $1.10 $0.90 $0.70 $0.50 Assumes Assumes Assumes Assumes $7.50 Gas $9.00 Gas $10.00 Gas $11.00 Gas 25 Note: All data includes $70.00 WTI assumption
  26. 26. El Paso Offers Sustainable Long-Term Growth • Focus on growth opportunities • Pipelines working to expand committed inventory • E&P more profitable, more focused, increased opportunities post high grading • Committed to grow El Paso Pipeline Partners • Visible multi-year growth for both businesses – Pipelines 6%–8% EBIT growth – E&P 8%–12% production growth 26
  27. 27. a meaningful company doing meaningful work delivering meaningful results Doug Foshee President and Chief Executive Officer Howard Weil Energy Conference April 8, 2008
  28. 28. Appendix 28
  29. 29. 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. 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. EBITDA is defined as EBIT plus depreciation, depletion, and amortization. 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 and EBITDA, which include 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. El Paso defines Resource Potential 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. 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. 29
  30. 30. 30
  31. 31. Production-Related Derivative Schedule 2008 2009 2010 2011–2012 Notional Avg. Hedge Notional Avg. Hedge Notional Avg. Hedge Notional Avg. Hedge Natural Gas Volume Price Volume Price Volume Price Volume Price (TBtu) ($/MMBtu) (TBtu) ($/MMBtu) (TBtu) ($/MMBtu) (TBtu) ($/MMBtu) Designated—EPEP Fixed price—Legacy 4.6 $ 3.42 4.6 $ 3.56 4.6 $3.70 6.8 $3.88 Fixed price 21.0 $ 8.37 Ceiling 121.1 $ 10.84 Floor 121.1 $ 8.00 Economic—EPEP Fixed price 7.3 $ 8.24 Ceiling 33.8 $ 10.43 47.5 $ 11.01 Floor 33.8 $ 8.00 47.5 $ 8.35 Economic—EPM Ceiling 16.8 $ 8.75 Floor Avg. ceiling 187.8 $ 10.21 68.9 $ 9.96 4.6 $3.70 6.8 $3.88 Avg. floor 187.8 $ 7.94 52.1 $ 7.93 4.6 $3.70 6.8 $3.88 2008 Notional Avg. Hedge Crude Oil Volume Price (MMBbls) ($/Bbl) Designated—EPEP 3.10 $ 90.48 Fixed price Economic—EPM 0.93 $ 57.03 Ceiling 0.93 $ 55.00 Floor 4.0 $ 82.76 Avg. ceiling 4.0 $ 82.29 Avg. floor 31 Note: Positions are as of April 4, 2008 (positions for full-year 2008)