El Paso Corporation. Doug Foshee. President & Chief Executive Officer. Raymond James 30th Annual Institutional Investor Conference March 10, 2009

Transcription

1 El Paso Corporation Doug Foshee President & Chief Executive Officer Raymond James 30th Annual Institutional Investor Conference March 10, 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 , available by writing; Investor Relations, El Paso Corporation, 1001 Louisiana St., Houston, TX You can also obtain this form from the SEC by calling SEC 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, 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 Meeting Challenges, Preserving Opportunities Today Raised liquidity to $3.3 billion Reduced capital thoughtfully Reviewing capital and financing options continuously Delivering pipeline backlog Longer-Term On-time, on-budget Preserving E&P inventory Improving credit metrics 5

6 2009 Financial Targets $ Billions, Except EPS 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 Capex: $2.7 $3.1 Pipelines: $1.7; E&P: $0.9 $1.3 Note: 2009 Plan assumes natural gas price of $5.00 per MMBtu (NYMEX) and oil prices of $40.00 per Bbl (WTI) *Excludes MTM changes on hedge derivatives and includes cash proceeds on settlements based on Plan prices 6

7 Substantial Increase in Liquidity $ Billions $3.3 $1.9 $1.2 $2.2 $1.0 $2.5 $1.2 $1.9 $0.7 $1.2 $1.3 $1.4 Sep. 30, 2008 Dec. 31, 2008 Jan. 31, 2009 Feb. 28, 2009 Bank Lines Cash 7

8 Liquidity Outlook $1.9 $0.2 $0.9 $0.2 $ Billions $2.2 $1.1 E&P Capex $2.7 $3.1 $1.2 $1.6 12/31/08 YTD Net Financings & Asset Sales OCF Remaining Asset Sales May Maturity Dividends & Minority Interest Capex YE Liquidity Ample liquidity for 2009 Note: Forecast assumes most of $500 MM LC facility replaced and EPEP $300 MM facility renewed 8

9 Premier Pipeline Franchise Colorado Interstate Gas Wyoming Interstate Tennessee Gas Pipeline Mojave Pipeline Cheyenne Plains Pipeline Southern Natural Gas El Paso Natural Gas Elba Island LNG Mexico Ventures Gulf LNG (50%) Florida Gas Transmission (50%) 19% of total U.S. interstate pipeline mileage 26 Bcf/d capacity (15% of total U.S.) 19 Bcf/d throughput (30% of gas delivered to U.S. consumers) Source: El Paso Corporation 2008 data Note: Includes El Paso Corporation and El Paso Pipeline Partners, L.P. 9

10 Committed Growth Backlog: Large, Profitable ~$8 billion capex; construct at 7x run rate EBITDA WIC System Expansion $71 MM MMcf/d WIC Piceance Lateral $62 MM 4Q MMcf/d Ruby Pipeline $3 Billion Bcf/d CIG Raton 2010 Expansion $146 MM 2Q MMcf/d El Paso Pipeline Partners, LP El Paso Pipeline CIG Totem Storage $154 MM (100%) July MMcf/d TGP Carthage Expansion $39 MM May MMcf/d TGP 300 Line Project $750 MM MMcf/d Gulf LNG $1+ Billion (100%) Bcf / 1.3 Bcf/d TGP Concord $21 MM Nov MMcf/d Elba Expansion III & Elba Express $1.1 Billion Bcf / 0.9 Bcf/d & 1.2 Bcf/d SNG Cypress Phase III $86 MM MMcf/d SNG South System III/ SESH Phase II $352 MM / $69 MM MMcf/d / 350 MMcf/d FGT Phase VIII Expansion $2.4 Billion (100%) MMcf/d Note: As of February 26, 2009; El Paso Pipeline Partners owns 25% of SNG & 40% of CIG 10

11 Financing the Pipeline Backlog $7.8 $1.3 $1.0 $1.3 $2.4 $ Billions $1.8 Backlog Spent to Date Gulf LNG/ 2009 Funded Expected FGT Financing Capital Remaining Ruby Backlog expected to generate $1.2 billion of incremental EBITDA * Remaining Backlog *EBITDA run-rate on proportional basis 11

12 Construction Risk Management El Paso Capital ($ Billions) Steel Construction Elba Expansion Elba Express Gulf LNG (50%) $ 1.1 $ 0.5 Fixed-Price EPC Contract Fixed Unit-Priced Fixed-Price EPC Contract Ruby $ 3.0 Fixed Incentive-Based FGT Phase VIII (50%) $ 1.2 Fixed Unit-Priced TGP 300 Line $ 0.8 Fixed Negotiating Backlog has been significantly de-risked 12

13 Pipeline Outlook Stability from demand-based revenues Highly focused on execution of project backlog Significant risk mitigation in place Committed to grow El Paso Pipeline Partners $3.0 B NOL offsets potential gains on drop downs Selectively review future opportunities Mitigate potential financing and steel costs 13

14 Top 10 Domestic Independent Nile Delta Brazil Egypt Rio de Janeiro Brazil 2 significant development projects Additional exploration potential Egypt Onshore conventional exploration 1.05 MM net acres First drilling January 09 Domestic Low to medium-risk repeatable plays 98% drilling success rate Growing unconventional inventory Note: Based on 2008 data except Egypt acres include January 2009 transaction with RWE 14

15 Exploration & Production Significant progress in Bcfe of reserves adds in % domestic reserve replacement ratio 2 27% inventory growth in 2008 $0.9 B $1.3 B capital for 2009 Focused on: value creation, inventory preservation, low-risk programs Highly flexible capital plan MMcfe/d production 3 1 Prior to revisions; does not include Four Star 2 Prior to price-related revisions; does not include Four Star 3 Includes Four Star 15

16 Improving Domestic Reserve Metrics Reserve Replacement Costs (RRC, $/Mcfe) $3.26 Reserve Replacement Ratio (RRR) 255% $3.92 $3.22 $ % 129% 195% 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 16

17 2009 Capital Program Focused on Lower-Risk Programs $0.9 billion $1.3 billion capital program Flexible capital program focusing on value creation Increased focus on low-risk programs with significant inventory and repeatability Haynesville Cotton Valley Horizontal Altamont Oil Black Warrior CBM International completing development of Camarupim Capital Spending ($ MM) $1,742 $1, Central Western TGC GOM Intl Acq. 17

18 Preserving Significant Resource Inventory* Upside Potential Additional shale gas potential (Raton, Haynesville) International exploration success 3.5 Tcfe Risked Unproved Inventory 2.5 Tcfe Proved Reserves 6.6 Tcfe unrisked non-proved resources 2.8 Tcfe risked unconventional and low risk Infill drilling (Raton CBM, Altamont oil) Heavily weighted to U.S. Onshore (75%) 645 Bcfe Proved Undeveloped Reserves R/P of 8.6 * As of 12/31/08 and includes interest in Four Star 18

19 Raton Basin: CBM Production (MMcfe/d) CO Vermejo Park Ranch NM Key Plays Vermejo & Raton Coals Depth of 2,000' 2, Production: 76 MMcfe/d R/P of 20.5 years Upside 80-acre CBM in-fills Cost reductions 606 M net fee and mineral acres 19

20 Altamont UT WY Production (MMcfe/d) 20% CAGR before 2008 acquisition Altamont-Bluebell Key Plays Wasatch, Green River Depth of 9,000' 14, Production: 32 MMcfe/d Upside Workovers and recompletions Infill Secondary recovery 20

21 Arklatex AK Production (MMcfe/d) 12% CAGR Vacherie Dome/ Bear Creek Minden/SE Brachfield TX LA Holly/Bethany Longstreet/Logansport Key Plays Hosston/Cotton Valley, Haynesville Depth of 7,500' 12, Production: 152 MMcfe/d R/P of 10 years Upside Horizontal Cotton Valley Haynesville Infill drilling 21

22 Improving Results in Arklatex Program Haynesville Shale (currently producing 27 MMcfe/d as of February 21, 2009) 4 Wells Producing IP (MMcfe/d) Miller Land Co 10H #1 4.5 Travis Lynch GU #4-H 8.0 RF Gamble 24H # Blake 10H # Activity Spud in March: Hamilton 12H #1 and Annette Green 22H #1 J R Gamble will TD in March with first sales in April Spud to First Sales (Days) Miller Land Co. 10H #1 Travis Lynch GU #4-H R.F. Gamble 24H #1 Blake 10H #1 4,000 3,500 3,000 2,500 2,000 1,500 1, Drilling Completion $/Lateral Ft. 0 $/Lateral Ft. 2 4 rigs running during

23 Brazil to Become a Meaningful Contributor Brazil Pinaúna (100%) MBOE/d peak production Environmental permitting has slowed pace Rio de Janeiro Tot Well (35%) Drilled and currently evaluating Copaiba Well (18%) Drilled, testing and currently evaluating Camarupim (24%) MMcfe/d peak rate First production 2Q

24 E&P Outlook 2009 capital program focused on low-risk, value-adding programs Plan is highly flexible Capital pace slowed while seeking to capture lower service costs Preserving inventory while advancing key programs 24

25 2009 Hedge Positions Full-Year 2009 Ceiling 2009 Gas Floor 2009 Oil TBtu $9.10 floor 151 TBtu Average cap $14.97/MMBtu 143 TBtu $15.41 ceiling 176 TBtu Average floor $9.02/MMBtu 1.5 MMBbls $45.00 fixed price 8 TBtu $7.33 fixed price Balance at Market Price ~75% of domestic natural gas 2 ; 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 1 Reflects positions after monetization of oil swaps 2 Includes proportionate share of Four Star equity volumes 25

26 2010 Hedge Positions Positions as of March 3, 2009 Ceiling 2010 Gas Floor 41.7 TBtu $7.00 floor 45 TBtu Average cap $7.88/MMBtu 19.8 TBtu $9.45 ceiling 66 TBtu Average floor $6.86/MMBtu 24.7 TBtu $6.61 fixed price Balance at Market Price Note: See full Production-related related Derivative Schedule in Appendix 26

27 Focus Going Forward Execute on committed pipeline backlog On time/budget Majority of capital risk has been mitigated Create value at E&P Flexible capital expenditures Preserve inventory of opportunities Ensure adequate liquidity 27

28 El Paso Corporation Doug Foshee President & Chief Executive Officer Raymond James 30th Annual Institutional Investor Conference March 10, 2009

29 Appendix 29

30 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 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. 30

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33 Committed Projects In-Service Timeline $ Billions & 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 33

34 YE 2008 Reserves Approx. 3.0 Tcfe at $7/$70 Bcfe 3,109 2,547 YE 2007 Extensions & Discoveries Production Purchases & Sales Revisions YE 2008 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 1 Includes (303) Bcfe of sales and 18 Bcfe of acquisitions 2 Includes (490) Bcfe of price-related revisions and (70) Bcfe of performance-related revisions 34

35 Production-Related Derivatives Schedule Natural Gas Notional Volume (TBtu) Avg. Hedge Price ($/MMBtu) Notional Volume (TBtu) Avg. Hedge Price ($/MMBtu) Notional Volume (TBtu) Avg. Hedge Price ($/MMBtu) Economic EPEP Fixed price Legacy Fixed price Ceiling Floor $ 3.56 $12.06 $15.41 $ $3.70 $ $ $3.88 Avg. ceiling Avg. floor $14.97 $ $7.88 $ $3.88 $3.88 Crude Oil Notional Volume (MMBbls) 2009 Avg. Hedge Price ($/Bbl) Economic EPEP Fixed price 1.50 $45.00 Note: Positions are as of March 3, 2009 (Contract months: Jan 2009 Forward) 35

36 Reserves Update (Bcfe) Domestic Int l Subtotal Four Star Total E&P 1/1/08 2, , ,109 Production (268) (4) (272) (27) (299) Extensions & Discoveries Purchases Sales (303) (303) (303) Price Revisions (299) (177) (476) (14) (490) Perform. Revisions (72) (72) 2 (70) 12/31/08 2, , ,547 36

37 Non-GAAP Reconciliation 2009 EBIT & EBITDA $ Billions, Except EPS EBITDA Less: DD&A EBIT Less: Interest Less: Taxes Net Income EPS $0.85 $1.05 Note: Numbers may not foot due to rounding 37