Natural gas pipeline giant El Paso Corp. on Wednesday reported a one-time quarterly loss for its investment in the Ruby Pipeline, which is carrying Rocky Mountain gas to West Coast markets, but the company completed a historic $8 billion pipeline backlog and continues to add new projects to meet customers’ infrastructure needs, said CEO Doug Foshee.

The company, which made a deal last month to be acquired by Kinder Morgan Inc., said it lost $368 million net (minus 48 cents/share) in 3Q2011, versus a profit of $133 million (19 cents) in the same period a year ago. Included in the latest quarter’s report was a $475 million one-time charge to write down the value of the company’s investment in the Ruby Pipeline. The pipeline, which cost an estimated $3.7 billion, went into service in July and in October throughput has averaged 800 MMcf/d (see Daily GPI, July 29).

El Paso’s revenues jumped in the latest quarter to $653 million from $519 million a year ago. The company now has completed its historic $8 billion backlog of pipeline projects, which was the largest in its history. Included in the pipeline completions was the recent ramp-up of Tennessee Gas Pipeline Co.’s (TGP) 300 Line forward-haul expansion in the Marcellus Shale, which increased capacity on the pipe’s system by almost half to 350 MMcf/d (see Daily GPI, Nov. 2).

“Our businesses are delivering excellent operational results,” said Foshee. “With the TGP 300 Line expansion now in service, we have completed what was an $8 billion backlog of pipeline projects, the largest in our company’s history. And we continue to add new projects to meet our customers’ infrastructure needs. The latest is another Marcellus-related expansion on TGP, bringing our total Marcellus expansions to $1.3 billion.”

The exploration and production (E&P) unit, which is expected to be sold or spun off, “continues to hit on all cylinders, generating rapid oil production growth, through continued activity in the Eagle Ford, Wolfcamp, Altamont and South Louisiana Wilcox programs. We expect this growth to continue given our leading positions in some of the most exciting and prolific areas in North America…

El Paso’s focus between now and the completion of the KMI transaction “remains on delivering excellent operational results,” said the CEO.

The company’s Midstream Group completed a gas gathering system in the Eagle Ford Shale of South Texas in 3Q2011, which includes 83 miles of pipeline with a capacity of 150 MMcf/d. Also, the group is developing a 68-mile oil gathering system with a capacity of 80,000 b/d in the Eagle Ford area, which is expected to be operational before year-end. However, the company did not receive ” adequate commitments” for its Marcellus Ethane Pipeline System project, and for now it won’t proceed, the company said (see Daily GPI, Aug. 10, 2010).

In large part because of the Ruby writedown, the Pipeline Group reported a loss of $209 million in 3Q2011, versus earnings of $375 million for the same period in 2010. Partially offsetting one-time charges were higher reservation revenues because of expansion projects that went into service in 2010 and 2011, and higher transportation rates on TGP that became effective June 1.

The E&P segment reported $183 million in earnings for the latest quarter, down from $261 million for the same 2010 period. The decline was blamed on one-time charges related to operations in Brazil, primarily because of the recent denial of a necessary environmental permit for the Pinauna development project. However, E&P production volumes were up 8% year/year to 827 MMcfe/d, including unconsolidated affiliate volumes. Domestic oil production rose by 25%.

El Paso said “production is rising sharply, and the company expects its full-year 2011 production to be between 830 and 840 MMcfe/d,” including its affiliate Four Star. Oil-weighted fourth quarter output now is forecast to be up 7-12% year/year. The company said it is operating at its forecasted levels with 13 operated rigs and staying within its $1.6 billion capital program.

Cash operating costs rose in the latest period to an average of $1.82/Mcfe from $1.62 a year ago, on “temporary higher costs in the Eagle Ford and Wolfcamp programs due to infrastructure delays, higher maintenance and repair costs in Altamont and higher expenses in Brazil.”

Earlier this year El Paso announced that it planned to raise its 2011 capital program to $1.6 billion from $1.3 billion and to fund the increase through the sale of noncore assets. The company said it now has received about $570 million to date from the sale of natural gas properties in the Arkansas-Louisiana-Texas region, along with the Black Warrior Basin, which is a Powder River oil asset. The proceeds surpass a target of $400-500 million. The properties were producing a total of 36 MMcfe/d and had about 200 Bcfe of estimated proved reserves.

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