El Paso Unveils New Game Plan, 6 LNG Facilities

Strengthened by its merger with The Coastal Corp. earlier this month that made it the fourth largest U.S. energy company, the former El Paso Energy Corp. unveiled an impressive show of strength last week as it began a two-day analysts' conference in Houston, showcasing a new energy trading floor, new corporate identify and details to grow earnings at least 25% in the coming year.

The company also announced last week that it would substantially grow its liquefied natural gas business, spending $1.5 billion in the next five years to build six LNG terminals to serve the North American marketplace.

Now doing business as El Paso Corp., the company has a new logo, which CEO William A. Wise said reflects the company's "emergence as a leader in all phases of the natural gas industry." Wise said that the "combination of closing the Coastal merger, announcing yet another year of record earnings, simplifying the company name and presenting a new face to the world creates an unrivaled platform to sustain El Paso's track record of success."

Wise and members of the company's management team laid out a detailed blueprint for its earnings backbone, the Merchant Energy segment, which now includes the company's North American natural gas and power merchant operations, international assets and the petroleum assets and trading. El Paso said it expects to generate $1.7 billion of net income this year, about $3.25 a share, which will match First Call/Thomson Financial analysts' averages for the year. Long-term growth will exceed 25%, Wise said.

The growth will be tied to success is several areas, with a lot of hopes in trading activities, which now will be hubbed in a new 80,000-square-foot energy trading facility in downtown Houston, adjacent to the company's headquarters. The facility supports more than 500 commercial, trading, risk management and administrative staff to manage marketing and trading activities, including natural gas, power, natural gas liquids, crude oil, refined products, weather derivatives and related commodities.

Ralph Eads, president of the Merchant Energy Group, called the completion of the facility and next-generation trading platform, dubbed THERMS, an important step in El Paso's move to the front of the line in energy marketing and trading.

The long anticipated telecommunications strategy, first promised last July, also was detailed by the company's Global Networks segment. El Paso, which has already started acquiring fiber optic cable assets and building cable throughout the United States, plans to leverage its knowledge of commodity and capital markets with telecommunications market skills to "identify and capture value" in the young industry --- a market in which El Paso's Houston neighbors Enron Corp. and Dynegy Corp. already are succeeding.

In the next four years, the Global Networks segment plans to pour about $2 billion into its multi-pronged strategy that will leverage El Paso's pipeline network --- "end-to-end liquidity" --- using three major components:

Access to fiber across metropolitan markets to aggregate supply in major U.S. cities;

Use of fiber rings and key points of interconnection of major carriers and service providers to allow for liquidity to develop in major markets; and

Installation of a high-capacity, fiber-efficient national long-haul backbone.

The first step is its home base, Texas, where El Paso is finalizing its deployment of an extensive fiber optic network in the state's major markets. Once the Texas network is completed, El Paso will branch out across the United States.

Using the business model that CEO Wise asserted has made El Paso's Merchant Energy platform a leader, he said that the Global Networks segment would bring a "unique vision" to the bandwidth industry, duplicating success already found in the natural gas and power markets.

"We expect this business to generate positive operating cash flow by the end of 2003, but more important, we firmly believe that El Paso Global Networks has created $7 billion to $10 billion of current value based upon opportunities that have already been identified."

To capitalize on the growing North American LNG market (see related story), El Paso plans to spend $1.5 billion over the next five years to build projects, including three in the United States, two in Mexico and one in the Bahamas, with five serving the U.S. marketplace.

Eads said the company predicts that LNG will grow at a rate between 10% and 15% for the next 10 years --- a faster rate than any other energy business. To be worth the expense, however, Eads said that natural gas prices would have to stay above $3/Mcf for the next 10 years as well, something analysts predict will occur.

Sites for the new projects now include a proposed plant in a remote region of Baja California to feed the San Diego and Mexican gas markets, and another in Florida. El Paso also has options on land in the Bahamas and is finalizing its options on a site in the Carolinas. Other potential sites include Baja, San Diego and San Francisco. A terminal already is scheduled to be built in Altamira, Mexico for the Mexican market.

The terminals would cost between $250 million and $350 million each, according to El Paso.

As if to underscore how important it thinks the LNG market is becoming, El Paso's Tennessee Gas Pipeline last week announced an open season for firm natural gas transportation service from CMS Trunkline LNG's terminal in Lake Charles, LA into Tennessee's system, coinciding with a planned deliverability expansion at the Trunkline plant, which would add up to 300 MMcf/d.

The open season for Tennessee Gas Pipeline from CMS Trunkline began last Monday and closes at 2 p.m. CST on Friday (Feb. 16). The open season is concurrent with the final two weeks of CMS Energy's current open season for LNG terminal services at the facility. Service is scheduled to begin in the fall of 2002.

Interested parties may obtain a detailed information package, which includes guidelines and subscription forms, by contacting Bob Fleming at (713) 420-3740 or by sending a fax request to (713) 420-5225. The guidelines are also available on the Internet at www.tennesseeadvantage.com.

El Paso now is also free of at least a few of the legal hassles that have pursued it in recent months. The Federal Trade Commission finalized a consent order against El Paso and Pacific Gas & Electric Corp. to remedy the "likely anti-competitive effects" from El Paso's Jan. 27, 2000 announced acquisition of two PG&E subsidiaries, PG&E Gas Transmission Teco Inc. and PG&E Gas Transmission Texas Corp. [No. C-3997, Jan. 30]. In those purchase agreements, El Paso proposed acquiring the subsidiaries for $840 million.

The FTC had ordered the companies to divest themselves of certain properties because it said the original agreements would reduce competition in three natural gas transportation markets: the Permian Basin, Central Texas and Matagorda Island offshore.

The order, which will allow El Paso's acquisition to proceed, requires El Paso and PG&E to divest to Duke Energy Field Services LLC the PG&E Teco stock. The Teco pipeline is three segments of natural gas pipeline that runs from the Permian Basin through Central Texas to a market trading area in Katy, TX near Houston.

They also were ordered to divest interest in the El Paso Oasis Pipe Line to Oasis Pipe Line Co., Aquila Gas Pipeline Corp. and Dow Hydrocarbons and Resources Inc. and to divest to Panther Pipeline Ltd. the PG&E Matagorda Pipeline system.

Carolyn Davis, Houston

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