Ruby Pipeline, which ramped up late last month, is the third of five major pipeline projects El Paso Corp. will complete this year as it prepares to spin off its exploration and production (E&P) business, CEO Doug Foshee told financial analysts on Thursday.

El Paso's management team offered insights about the company's second quarter performance during a conference call. Ruby, which had its start-up last month (see Daily GPI, July 29), is carrying gas to West Coast markets from the Rockies. The start-up joined El Paso's completions this year of Southern Natural Gas South System III Phase II and Southeast Supply Header Phase II.

Still to come is El Paso's Gulf LNG (liquefied natural gas) project, which is scheduled to begin service in October, as well as the anticipated completion of Tennessee Gas Pipeline's TGP 300 Line, which is scheduled to begin carrying more gas from the Marcellus Shale in November.

The TPG Line 300 expansion is in "full swing" and on time for a November in-service date, said pipeline chief Jim Yardley. The expansion will offer 127 miles of looping, "much through rock" and is fully subscribed for 15 years.

Line 300 has been overwhelmed by production coming out of the Marcellus Shale. During July gas nominated into Tennessee's 300 leg in the key Marcellus producing counties of Tioga, Bradford and Susquehanna was trading on average between 50 and 65 cents below the Henry Hub (see Daily GPI, July 21).

TGP, which runs through the heart of the Marcellus Shale, is "having a record year," Yardley said. Throughput was up 21% in the latest quarter from a year ago and the pipeline is taking about 1.5 Bcf/d from the shale play today. "We continue to get our share of Marcellus growth."

El Paso's Pipeline Group earned $428 million in the second quarter, down from $472 million from a year earlier. Total throughput rose 2% year/year, with the biggest gains from TGP, which reported a 21% gain in throughput.

The El Paso Natural Gas system, which carries gas to California, reported an 8% decline in throughput because of storage withdrawals in the state, Yardley said. However, he noted that there are signs of a rebound in the West Coast economy during the third quarter.

Completing the pipeline backlog by the end of this year "will result in significant free cash flow," said Foshee. But El Paso has no plans to slow down. "We see excellent opportunities for future growth" for its pipelines in the Marcellus and Utica shales, as well as the power generation markets and through Mexico exports. "Pipelines will drive El Paso's yield story," he said.

El Paso in May said it would spin off the E&P business as a publicly traded company by the end of the year (see Daily GPI, May 25). "Great progress" has been made and the "critical plan to spin off the company remains...on track," said Foshee.

The capital structure for the corporation and the new E&P company have been finalized; boards of directors also are completed. Foshee would remain chairman and CEO of El Paso Corp. and become nonexecutive chairman of "E&P Spinco," the yet-unnamed exploration company.

El Paso's net income in the second quarter rose almost 67% year/year to $262 million (34 cents/share) from $157 million (21 cents). Revenue climbed 21% to $1.23 billion. Adjusted earnings rose 14% from a year ago to 25 cents/share, beating Wall Street forecasts by a penny.

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