el paso marketing_summary
TRANSCRIPT
115
Outlook
116
2008 Focus Areas:Accelerating Our Move to “Top Tier”
Progress International projects
Complete divestitures
Achieve production targets
Grow non-proved inventory
Improve capital and expense efficiency
117
$1.7 Billion Capital Program in 2008
Increased capital developmentfor recent acquisitions
Central up 20%Western up 5%Texas Gulf Coast up 25%
Decreased capital 15% in GOM/SLA
International up 50%Pinaúna and Bia developmentsEgypt exploration
Total = $1.7 billion
TGC25%
INTL 21%
Central25%
GOM/SLA16%
2008 Capital by Division
Note: Percent change excludes acquisitions
Western13%
Onshore 63%
118
Majority of Capital Program is Low Risk
High
Med
Low PC > 80%Low Risk Domestic Developmentand Pinauna & Bia Development
Ris
k
2008PGross Wells
Drilled
% of Drilling Capital
20–25
25–30
455-470
14%
17%
69%
PC < 40%High Impact Exploration
PC 40%–80%Medium Risk Development
and Exploration
500-525
119
2008 Key Metrics
Production (MMcfe/d)Cash costs2 ($/Mcfe)EBITDA ($MM)DD&A ($/Mcfe)
860–9201
$1.75–$1.90$1,700–$1,900
$2.80–$3.20
1Includes our proportionate share of Four Star Oil and Gas volumes, production range updated to reflect actual divestiture volumes and timing
2Includes direct lifting costs, production taxes, administrative expenses and other taxes
Metric Target
120
Summary
High-quality inventory
Repeatable drilling programs
Greater onshore weighting
Creating more value
Clear focus on continued improvement
Visible 8%–12% multi-year production growth
El Paso on Path to “Top-Tier” Performer
Q&A
Marketing Book Update
123
Mark-to-Market Book: Remaining Exposure
Natural GasFixed price supply
Physical basis
PowerPhysical energy supply
Financial basis
Physical capacity supply
Economic HedgesMedicine Bow hedges
Total
Fully hedged through term; no MTM volatility
Locational price differences from 2010–2012
Fully hedged at PJM West Hub through term(April 2016); no MTM volatility
Pricing differentials between PJM West Hub and Contract delivery points through April 2016
Fully hedged through PJM auctions andfixed price purchase through term
Cal-08 WTI collars (0.93 MMBbls, $55 x $57.03)Cal-09 NG calls (16.8 Bcf at $8.75)
$(363)
(269)
(101)
(83)
(48)
$(864)
DescriptionValue at12/31/07
1% change in LIBOR equals ~ $24 MM gain or loss in MTM value
($ Millions)
None
Minimal
None
Moderate
None
Moderate
Volatility
124
Transport Capacity andDemand Charges
$0
$20
$40
$60
$80
$100
$120
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Alliance EP OwnedKern Third Party
Gas SupplyIndex-based contracts through 2028Key volatility driver is cost to terminate contractsExposure to intra-month pricing risk and counterparty credit risk
Annual Demand Charge ($ Millions)
Financial Overview
126
Financial Objectives
Maintain capital discipline
Preserve financial flexibility
Drive down cost of capital
Continue to improve returns on capital
Create shareholder value grow core businesses
127
Capital Discipline
Disciplined Pipeline project developmentCapital cost management—risk allocationProven track recordWalk away from low-return projects
E&P program also focused on value creationConservative price deck for investment decisionsPVR targets with ongoing monitoring of resultsF&D score cards
Established lookback process at Board and Business UnitsValue creation key compensation metric
128
Financial Flexibility + Cost of Capital
Balance sheet in good shapePipes at investment gradeCorporation’s metrics are closeDebt not likely to drop near term given pipeline growth backlog
Credit metrics improve as pipelines placed in-servicePipeline projects financeable at attractive rates
01/08 Gulf LNG project financing $870 MM LIBOR + 150 bpsEPB—low-cost financing option
Manageable maturity profile$331 MM 2008; $1.1 billion 2009
129
El Paso 5-Year Change in ROTC vs. Peers
-8.0%-6.0%-4.0%-2.0%
0.0%2.0%
4.0%6.0%8.0%
10.0%12.0%
Source: Capital IQPeers: APA, APC, D, DVN, CNP, CHK, EOG, EQT, ENB, NBL, NI, NFX, NFG, OKE, PXO, SRE, SUG, STR, SE,
TRP, WMB, XTO Notes: ROTC = (Net Income + (Interest Expense * (1- Effective Tax Rate))) / (Average Debt + Average Preferred Equity +
Average Common Equity - Average Cash)*Adjusted to exclude one time gains and losses
13.0%14.0%15.0%
2003–2007 Change in Adjusted ROTC*
El PasoPure E&P PeerNon-E&P Peer
ReportedROTC Change
130
Value Driven Growth
Attractive risk adjusted returns on Pipeline backlog$3.9 billion at 7x EBITDA
High return E&P investment opportunitiesE&P created $3.3 billion value since 2005Balanced portfolio allows for growth and value creation even in unfavorable commodity price environment
El Paso Pipeline Partners will enhance shareholder value over time
131
Conclusions
Pipelines best franchise, superior growth outlook
E&P significantly improved, high-quality inventory, visible production growth
El Paso Pipeline Partners the MLP to own; committed to growth
Return on capital have improved; continued stewardship
Governance fully aligned with shareholders
Q&A
El Paso Corporation
Analyst MeetingApril 16, 2008
134
Appendix
135
Disclosure of Non-GAAPFinancial 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 directlycomparable 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, discontinued operations, and the impact of accounting changes; (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 and EBITDA, 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. Exploration and Production per-unit total cash costs or cash operating costs equal total operating expenses less DD&A and cost of products and services divided by total production. Net debt is defined as debt less cash and cash equivalents and is useful in analyzing the company’s liabilities. Net capital is the company’s proportionate share of estimated capital requirements and is useful to indicate the amount of capital the company may spend.
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.
136
137
Reconciliation of EBIT/EBITDA
EBITDALess: DD&AEBITInterest and debt expenseIncome before income taxesIncome taxes Income from continuing operationsDiscontinued operations, net of taxes
Net IncomePreferred stock dividends
Net income available tocommon stockholders
$2,8281,1761,652(994)658222436674
1,11037
$1,073
$ 2,7971,0471,750
(1,228)522
(9)531(56)475
37
$ 438
Twelve Months EndedDecember 31, 2007
Twelve Months EndedDecember 31, 2006
$ Millions
138
Reconciliation of Exploration & Production EBITDA/Mcfe
EBIT
Add: DD&A
EBITDA
MMcfe
EBITDA/Mcfe
$ 640
645
$ 1,285
266,518
$ 4.82
$ 909
780
$ 1,689
289,242
$ 5.84
Twelve Months EndedDecember 31, 2006
Twelve Months EndedDecember 31, 2007
$ Millions, Except $/Unit
139
E&P Cash Costs
Total operating expense
Depreciation, depletion and amortization
Costs of products & services
Per unit cash costs*
Total equivalentvolumes (MMcfe)*
*Excludes volumes and costs associated with equity investment in Four Star
$1,229
(645)
(87)
$ 4.61
(2.42)
(0.33)
$1.86
Total($ MM)
Per Unit($/Mcfe)
266,518
FY 2006
$1,414
(780)
(92)
289,242
$4.89
(2.70)
(0.31)
$1.88
Total($ MM)
Per Unit($/Mcfe)
FY 2007
140
Production & ReservePro Forma Reconciliation
Production (MMcfe/d)2007 reported
Adjustments*Pro forma
Reserves (Bcfe)Ending reserves 1/1/08
Adjustments*Pro forma ending reserves 1/1/08
298
9
307
1,328
(58)
1,270
146
1
147
715
(40)
675
213
(16)
197
550
(93)
457
191
(58)
133
269
118
151
14
–
14
247
–
247
862
(64)
798
3,109
(309)
2,800
OnshoreCentral Western TGC GOM Int’l Total
*Adjustments reflect elimination of divestiture properties and addition of Peoples for full-year 2007
141
Reconciliation Schedule:PV10 After Tax & Before Tax
$ Millions
2007Consolidated reservesUnconsolidated investment in Four Star
2004Consolidated reservesUnconsolidated investment in Four Star
Change in ValueConsolidated reservesUnconsolidated investment in Four Star
$ 6,882444
$ 7,326
$ 4,212–
$ 4,212
$ 2,670444
$ 3,114
$1,639273
$ 1,912
$ 557–
$ 557
$ 1,082273
$ 1,355
$ 8,521717
$ 9,238
$ 4,769–
$ 4,769
$ 3,752717
$ 4,469
PV10After Tax
TaxAdjustment
PV10Before Tax
142
Normalized Net Income Reconciliation
Net incomeDiscontinued operationsCrude oil trading liabilityRestructuring chargesEquity investment (gain)/lossLoss on sale of assetsCumulative effect of accounting changeLoss on debt extinguishmentMinority interestIncome taxesNormalized pretax income
Normalized tax (37.5%)Normalized net income
$1,110(674)
(77)–
(24)––
2916
222854
320534
$ (1,883)1,269
–224
5860
937
–(484)
37
1423
2007 2003
$ Millions
143
PVR (Present Value Ratio)
Represents the present value of future after-tax cash flows discounted at 10.5% over total investment
Target ratio is 1.15: Every $1.00 investedreturns $1.15 on an after-tax, discounted basis over the life of the project