El Paso Corp. prepares investors for disappointing news; stock falls


Feb. 6, 2003 -- El Paso Corp. on Wednesday shared its plans to keep its business going and announced it expected a loss for the fourth-quarter and the year 2000.

Two investors' companies downgraded El Paso shares, and in response the company's shares dropped 97 cents, or 15.6 percent, to $5.23 per share in Thursday morning trading, CBS MarketWatch.com reported.

The financial web site also reported that several other power providers were trading lower, possibly as a result of El Paso's announcement. These included CMS Energy, Williams Cos., Calpine, Mirant, Dynegy and TXU. TXU Corp., which reported a $4.88 billion loss Wednesday ($16.24 per share), saw its shares fall in value by 3.6 percent to $17.29 per share.

El Paso said its 2003 business plan includes financing and liquidity components as well as specific plans for each of the company's business units.

Five Point Plan

El Paso's 2003 business plan is based upon five key principles:

* Preserve and enhance the value of the company's core businesses
* Exit non-core businesses quickly, but prudently
* Strengthen and simplify the balance sheet while maximizing liquidity
* Aggressively pursue additional cost reductions
* Continue to work diligently to resolve litigation and regulatory matters

El Paso's goals:

* Preserving and enhancing the value of its core businesses-natural gas pipelines, production, midstream and non-merchant power. The company will continue to invest efficiently in these businesses to maintain its leadership positions. The company's capital expenditure plan reflects that commitment with 87 percent of 2003 capital devoted to the pipeline and production businesses.

* Exiting non-core businesses quickly, but prudently. As previously announced, El Paso is exiting the trading business and is aggressively working to liquidate its remaining portfolio. In addition to the $3.9 billion of non-core assets already sold in 2002, the company plans to sell $2.9 billion of non-core assets in 2003, including the majority of its remaining petroleum assets, excluding the Aruba refinery. The petroleum assets have been a drag on earnings and a significant user of working capital. Exiting the petroleum business will not only provide cash to pay down debt but will increase liquidity. Finally, the company intends to exit the LNG business, since the credit and capital demands of the LNG business are inconsistent with the current financial capacity of the company.

* Strengthening and simplifying the balance sheet while maximizing liquidity. Capital expenditures have been reduced substantially to $2.6 billion for 2003. This represents a decrease of 35 percent from 2002 and a 54 percent decrease from 2001.

As part of its ongoing effort to improve liquidity, the company also announced that it will be reducing its common stock dividend to $.16 per share annually. While this decision was difficult for the Board of Directors, this action will provide the company with approximately $425 million in cash per year and will reduce the company's balance sheet leverage by more than 1.5 percent per year. Accordingly, the Board declared a quarterly dividend of $.04 per share payable April 7, 2003 to shareholders of record as of the close of business on March 7, 2003.

Through cash flow from operations, the reduced capital program, lower common stock dividends, and proceeds from asset sales, El Paso expects to pay down approximately $2.5 billion of debt and minority interest financings in 2003.

* Aggressively pursuing additional cost reductions. The company has set a target of $150 million in cost reductions for 2003. Reducing costs is an ongoing effort for the company.

* Continuing to work diligently to resolve litigation and regulatory matters facing the company.

As of January 31, 2003, the Company had $2.6 billion in available liquidity.

As part of its efforts to maximize liquidity, El Paso may draw all or part of its remaining availability under its existing bank facilities. El Paso's financial team is working with its lenders to determine whether it would be advantageous for the company to renegotiate the current bank facilities and two minority interest structures.

Core Business Strategies

Pipelines

El Paso is committed to preserving and enhancing the value of its pipeline business through continuous efficiency gains and prudent capital spending while remaining dedicated to operating its pipelines in a safe and dependable manner. There is a significant inventory of expansion projects that are required to meet customer commitments and are supported by long-term contracts with attractive returns. The company intends to deliver these expansions on time and on budget, and will continue to look for further cost reductions.

Production

El Paso believes its position as the leader in deep drilling provides the company with superior economic returns while continuing to build its reserve base. El Paso Production Company was the most active driller in the U.S. in 2002, and since the Coastal merger in January 2001, the company's prospect inventory has almost doubled. In large part, this is due to the successful transfer of the company's South Texas deep-drilling expertise to the Gulf of Mexico, Canada, and Louisiana. Moving forward, the company's 2003 plan is focused on South Texas, coalbed methane, and the deep-shelf play in the Gulf of Mexico. El Paso has been the industry's most active driller in the deep-shelf play and has rapidly grown its reserve position there due to a 67-percent success rate since 2000. The 2003 capital plan of $1.3 billion, which is down 48 percent from $2.5 billion last year, is expected to keep production roughly level with 2002 results.

The company has hedged 40 percent of its expected 2003 natural gas production at a NYMEX price of $3.43 per million British thermal units (MMBtu) or $3.63 per thousand cubic feet, and 9 percent of its expected crude oil production at a NYMEX price of $23.49 per barrel.

Midstream

El Paso has demonstrated that El Paso Energy Partners (NYSE:EPN) is the most financially efficient way for the company to continue to participate in the ongoing growth of the midstream sector. The company's past sales to the master limited partnership have been successful for both the partnership's unitholders and El Paso. This process is essentially complete, and going forward the company intends to invest only minimal capital in the midstream business.

Power

El Paso's core power business consists of plants with long-term sales agreements that generate dependable earnings and cash flow. Over time, the company will rationalize the assets in its portfolio that do not earn adequate returns. As part of the non-core asset disposition program, the company intends to divest approximately $1.1 billion of power assets in 2003.

Earnings Guidance

For 2003, the company estimates that it will achieve ongoing earnings of approximately $1.00 per diluted share. This estimate assumes a NYMEX natural gas spot price of $4.00 per MMBtu.

El Paso plans to make the fourth quarter and full year 2002 financial statements available concurrent with the filing of its 2002 Form 10-K with the Securities and Exchange Commission in mid-March 2003.

Fourth quarter 2002 earnings are not yet final as a result of the complexity associated with the company's planned exit from trading and other businesses as well as the early implementation of EITF 02-3, which eliminates the use of mark-to-market accounting for certain energy contracts that are not derivatives. Fourth quarter charges resulting from these decisions are now estimated to total $500 million to $600 million after-tax.

In addition, El Paso expects to recognize a $450 million to $700 million after-tax asset impairment charge in the fourth quarter of 2002 relating principally to the company's Western Australian pipeline investment, telecom dark fiber, turbine inventory, and other miscellaneous power and merchant assets.

The combination of these charges will result in a reported loss for the quarter and year.

Conference Call, Webcast, and Presentation Slides

El Paso hosted a webcast and conference call Thursday to review the 2003 operating and financial plan. The presentation slides to be discussed on the call will be available for downloading and printing on the company's Web site at www.elpaso.com in the For Investors section.

An audio replay of the conference call will be available through February 12, 2003 at 973-341-3080 (access code 3728221). The replay will also be available online through the Web site.

El Paso Corp. is a provider of natural gas services and the largest pipeline company in North America. The company has core businesses in production, pipelines, midstream services, and power. El Paso Corporation, rich in assets and fully integrated across the natural gas value chain, is committed to developing new supplies and technologies to deliver energy. For more information, visit www.elpaso.com.

Sponsored by FLSmidth

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