el paso 11_14_foshee_bofaconferencefinalv2(web)
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El Paso Corporation
Doug FosheePresident & Chief Executive Officer
Bank of America2008 Energy Conference
November 14, 2008
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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 2008 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 MeasuresThis 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 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.
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Defining Our Purpose
El Paso Corporation provides natural gas and related energy
products in a safe, efficient, and dependable manner
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the place to workthe neighbor to havethe company to own
Our Vision & Values
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Beyond the Credit Crisis
Credit crisis is a big issue for entire marketEl Paso has implemented comprehensive plan
Will meet our maturitiesWill fund our pipeline backlogWill preserve E&P opportunities
Looking past the stormPipeline backlog generates $1.2 billion EBITDA*E&P opportunities have expandedCredit metrics improve
*Pro rata to El Paso’s interest
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Has the Need forNew Infrastructure Changed?
NoNatural gas fueling most incrementalelectric generationNew infrastructure required to meet producers’ needs
Especially in the Rockies
Fundamentals remain strong
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CIG High Plains Pipeline$216 MM (100%)November 2008
900 MMcf/d
TGP Carthage Expansion
$39 MMMay 2009
100 MMcf/d
SNG South System III/ SESH Phase II
$352 MM / $69 MM2011–2012
370 MMcf/d / 350 MMcf/d
Elba Expansion III & Elba Express
$1.1 Billion2010–2013
8.4 Bcf / 0.9 Bcf/d & 1.2 Bcf/d
SNG Cypress Phase III $86 MM
2011160 MMcf/d
CIG Totem Storage$154 MM (100%)
July 2009200 MMcf/d
WIC Piceance Lateral$62 MM4Q 2009
220 MMcf/d
El Paso PipelineEl Paso Pipeline Partners, LP
TGP Concord$21 MM
Nov 200930 MMcf/d
Gulf LNG$1+ Billion (100%)
20116.6 Bcf / 1.3 Bcf/d
CIG Raton 2010 Expansion$146 MM2Q 2010
130 MMcf/d
Executing on $8 Billion Backlog ofCommitted Growth
FGT Phase VIII Expansion
$2.4 Billion (100%)2011
800 MMcf/d
Construct at 7x run rate EBITDA
TGP Blue Water / 800 Ln Exp$25 MM
Dec 2008340 MMcf/d
Note: As of November 6, 2008; El Paso Pipeline Partners owns 25% of SNG & 40% of CIG
Ruby Pipeline$3 Billion
20111.3–1.5 Bcf/d
WIC System Expansion $71 MM
2010–2011320 MMcf/d
TGP Line 300 Expansion $750 MM
2010–2011290 MMcf/d
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Pipeline Construction Report CardRemains Excellent
WIC Kanda Lateral In-service
Cheyenne Plains—Coral In-service
SNG Cypress Phase II In-service
WIC Medicine Bow In-service
CIG High Plains Pipeline 4Q
TGP Blue Water/800 Line Exp 4Q
4 operated pipelines completed—on-budget
2008 Projects
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Construction Risk Management
Elba ExpansionElba Express
Gulf LNG (50%)
Ruby
FGT Phase VIII (50%)
TGP Line 300
$ 1.1
$ 0.5
$ 3.0
$ 1.2
$ 0.8
El Paso Capital($ Billions) Steel Construction
Fixed-Price EPC ContractFixed
Fixed-Price EPC Contract
Fixed
Fixed
Fixed
United-Priced
Incentive-Based
Unit-Priced
Negotiating
Backlog has been significantly de-risked
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E&P 2008 Progress
Completed 2007/2008 portfolio high gradingReduced unit LOE and G&AExpanded non-proved resources
Cotton Valley horizontalsHaynesville shaleNiobrara shaleRaton in-fillAltamont in-fill
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UpsidePotential
Heavily weighted to U.S. Onshore (86%)869 Bcfe Proved Undeveloped ReservesR/P of 9.6
6.1 Tcfe unrisked non-proved resources2.0 Tcfe risked unconventional and low risk
Infill drilling (CBM, Altamont, Arklatex)Emerging shale gas plays(Niobrara and Haynesville)International exploration leads
Significant Resource Inventory*
2.8 TcfeProved
Reserves
2.8 TcfeUnprovedInventory
*As of 12/31/2007 adjusted for 2008 domestic divestitures
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2009 Program Overview
Favor lower-risk, repeatable programsMore Onshore, resource-based
Less TGC and GOM
Delivers production in line with 2008
Generates very predictable cash flow
Preserves opportunity for future ramp up
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Significant Inventory ofLower-Risk Programs
Altamont100%
Texas Gulf Coast(non-exploration)
94%
Black Warrior100%
Note: 2008 success rates through September 30, 2008
Raton100%
Arlatex100%
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Continue to Develop Shale OpportunitiesHaynesville Niobrara
NM
CO
Niobrara ShaleTest well locations
3 wells drilled and completed 2 horizontal and 1 vertical
Initial flow rates of 0.4–1.8 MMcfe/d$2 MM–$3 MM completed well costs> 300,000 prospective net acres
Approximately 42,500 net acres2 wells completed1 well drillingSignificant resource potential
Harrison
Marion
CaddoBossier
DesotoRed River
Natchitoches
Bienville
ClaiborneUpshur
Gregg
PanolaRusk
Shelby
Webster
Current prospective areaEl Paso operated wellsHorizontal wells drilled by others
Miller 10H #1Completed
IP 4 MMcfe/d
Travis Lynch #4H Completed
IP 8 MMcfe/d
Gamble 24HDrilling
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Rio deJaneiro
Brazil
Brazil to Become a Meaningful Contributor
Copaiba Well (18%)Drilled and testing
Tot Well (35%)Drilling and evaluating
Pinaúna (100%)15–20 MBOE/d peak productionSlowed pace of development
Camarupim (24%)35–50 MMcfe/d in 1Q 2009
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Balance atMarket Price
Note: See full Production-related Derivative Schedule in Appendix* Includes proportionate share of Four Star equity volumes
151 TBtuAverage cap $14.97/MMBtu
8 TBtu$7.33
fixed price
176 TBtuAverage floor $9.02/MMBtu
Ceiling
Floor
3.4 MMBbls$109.93
fixed price
2009 Gas
2009 Oil
Significant Value in 2009 Hedges
143 TBtu$15.41ceiling
168 TBtu$9.10floor
~70% of domestic natural gas and ~60% domestic oil production hedged*2009 hedge program valued at ~$500 MM at November 3, 2008
Positions as of October 2, 2008
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Summary
Will meet 2009 maturities
Will execute pipeline backlog
While preserving E&P opportunities
Long-term growth potential in tact
El Paso Corporation
Doug FosheePresident & Chief Executive Officer
Bank of America2008 Energy Conference
November 14, 2008
Appendix
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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.
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.
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Reserves Pro Forma Reconciliation
Reserves (Bcfe)1
Ending reserves 1/1/08
Adjustments2
Pro forma ending reserves 1/1/08
1,328
(58)
1,270
715
(40)
675
550
(93)
457
269
(118)
151
247
–
247
3,109
(309)
2,800
OnshoreCentral Western TGC GOM Int’l Total
1 Reserves data includes proportionate share of Four Star2 Adjustments reflect elimination of divestiture properties and addition of Peoples for full-year 2007
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Production-Related Derivative Schedule
Designated—EPEPFixed price—LegacyFixed priceCeilingFloor
Economic—EPEPFixed priceCeilingFloor
Avg. ceilingAvg. floor
Designated—EPEPFixed price
Economic—EPEPFixed price
Economic—EPMCeilingFloor
Avg. ceilingAvg. floor
1.15.3
27.527.5
1.86.56.5
42.242.2
0.43
0.20
0.220.22
0.850.85
$ 3.49$ 8.37$ 10.87$ 8.00
$ 8.24$ 10.32$ 8.00
$ 10.16$ 7.93
$ 88.57
$ 88.28
$ 56.10$ 55.00
$ 80.10$ 79.81
4.6
101.0125.8
3.641.941.9
151.1175.9
1.39
2.04
3.433.43
$ 3.56
$ 14.58$ 8.93
$ 12.06$ 17.40$ 9.61
$ 14.97$ 9.02
$110.00
$109.87
$109.93$109.93
4.6
4.64.6
$3.70
$3.70$3.70
2008NotionalVolume(TBtu)
Avg. HedgePrice
($/MMBtu)
2009NotionalVolume(TBtu)
Avg. Hedge Price
($/MMBtu)
NotionalVolume(TBtu)
Avg. Hedge Price
($/MMBtu)
2010
NotionalVolume
(MMBbls)
Avg. HedgePrice
($/Bbl)
2008
Natural Gas
Crude Oil
6.8
6.86.8
$3.88
$3.88$3.88
NotionalVolume(TBtu)
Avg. Hedge Price
($/MMBtu)
2011–2012
Note: Positions are as of October 2, 2008 (Contract months: Oct 2008–Forward)
NotionalVolume
(MMBbls)
Avg. HedgePrice
($/Bbl)
2009