With its restructuring essentially completed and earnings on the rise, El Paso Corp. is keeping its eye on possible acquisitions, CEO Doug Foshee said Thursday. The deals, he said, could range from “small” $5 million tactical add-ons for its exploration and production (E&P) business to properties “in excess of $1 billion.”
Regardless, Foshee said during a media briefing, “the bar is set pretty high for us” regarding new deals. “For the first time in a long time we’ve got enough organic growth capacity that we don’t feel we have a gun to our head to go do an acquisition just to do an acquisition.” However, he noted El Paso was in “data rooms constantly” to be aware of what’s for sale and who’s making the deals.
“You have to consistently go… even when you think prices are at levels where you might not be successful,” he said. “That’s something that you want to be ahead of at least six months before, and not read about the day of.”
A lot of thought will go into any acquisitions, Foshee said. All of El Paso’s noncore asset sales associated with the restructuring will be completed by the end of the year. But before buying any assets for its core businesses — E&P or natural gas pipelines — the company also wants to get the “skill sets associated with the acquisition.” There’s a huge demand for talent, he said, and finding and keeping qualified personnel is a challenge that has to be balanced with every possible transaction.
El Paso’s newfound stability has given it strength against volatile gas prices, too, said the CEO. El Paso’s revenue forecasts assume a base price of $5.50/MMBtu. But if gas prices dip below that, “We’re not going to yo-yo our capital budget up and down based on the prompt-month contract for natural gas.”
The company’s “ultimate goal,” said Foshee, is to return the company to investment-grade status.
Lisa Stewart, president of El Paso Production Co., joined Foshee at the briefing. She said the company’s 2006 outlook has set a goal of 5-10% reserve growth and an 8-11% increase in average production volumes to 825-850 MMcfe/d. El Paso is now the fifth largest acreage holder in the Gulf of Mexico, she said. But onshore, there is a “large inventory” of opportunities, including growing interest in unconventional gas plays. Already strong in coalbed methane production in the Rocky Mountains, she said the company also is optimistic about a shale play in Indiana, which is in the “very early stages” of development. There, El Paso and joint venture partner Pogo Producing Co. hold about 275,000 acres.
Overall, said Stewart, “our deep multi-year inventory across multiple basins provides us a lot of confidence in the next five years.” This year, El Paso plans to drill 620 total domestic wells: 133 conventional onshore gas wells, 43 wells on the Texas Gulf Coast, 353 nonconventional gas wells, 29 wells in the Gulf of Mexico (GOM) and 62 onshore oil wells. Over the next five years, El Paso has set its sights on drilling 2,590 domestic wells: 490 onshore gas wells, 80 Texas Gulf Coast wells, 1,630 nonconventional gas wells and 100 GOM wells. It also plans to drill 290 domestic oil wells over the next six years and 30 international wells over the next four years.
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