Following a review of accounting statements between 1999 and 2003, El Paso Corp. on Tuesday affirmed that its financial statements likely will be restated to eliminate hedge accounting for some of its past natural gas transactions. The company already had indicted in late May that the downward revisions to its natural gas and oil reserves earlier this year would require financial restatements (see Daily GPI, June 1).

The company expects to file the required 2003 Form 10-Ks and 10-Qs before the end of the third quarter for the corporation and subsidiaries El Paso Production Holding Co. and El Paso CGP Co. It has received additional waivers on its $3 billion revolving credit facility and other financings until Sept. 30 to file the 2003 Form 10-K and until Nov. 30 file 1Q and 2Q Form 10-Qs.

Initiated by the board of director’s audit committee, El Paso launched an independent investigation after announcing in February that it would revise its reserves downward by about 41%. This process, said the company, “is essentially complete,” and will be discussed during a conference call on Aug. 23.

“The restatement procedures have included a comprehensive review of the company’s accounting during the periods from 1999 through 2003 by both the company and its independent auditor,” El Paso said. “As part of this internal process and an ongoing investigation of wash trade transactions by the U.S. Attorney’s office, the company and its auditor have examined the accounting for natural gas hedges which involved offsetting transactions in the company’s merchant energy segment. The company believes that the basis for concluding that those transactions qualified under hedge accounting guidelines is no longer applicable and its financial statements will likely need to be further restated.”

Eliminating the hedge accounting is expected to revise incremental ceiling test charges, “primarily during a period of very low natural gas prices in 2001.” The restatement to segment earnings “should be largely offset by changes in other comprehensive income. However, stockholder’s equity will be reduced by the after-tax impact of ceiling test charges.”

For the restatement, gas sales for prior and future periods will be reported at market prices and will not be impacted by restated hedges, and there is no expected change in cash flow. The company also does not expect the restatement to impact the subsidiaries, El Paso Production Holding Co. or El Paso CGP Co.

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