While the company braces for a proxy battle at its next annual meeting, El Paso Corp. on Tuesday moved forward with its plan to sell $3.4 billion in assets this year. So far it has sold $1.5 billion in assets including the sale on Tuesday of interests in 275 coal bed methane and conventional gas wells in the Rosa Federal Unit located in San Juan and Rio Arriba Counties, NM, to the Sacramento Municipal Utility District (SMUD) for $135 million.
The wells have a current net production of 16 MMcf/d and total proved reserves of 163.4 Bcfe. The wells currently are operated by Williams Production Co. LLC. El Paso said it expects subsidiary El Paso Production Oil & Gas Co. to close the sale by March 31.
The sale supports the company’s previously announced 2003 five-point business plan, which includes exiting non-core businesses quickly but prudently, and strengthening and simplifying the balance sheet while maximizing liquidity.
About $1 billion in debt owed in the company’s Project Electron facility is due next Monday, and a $200 million equity purchase obligation is due in the second quarter. Although the proceeds from this sale to SMUD won’t be available before the end of the month, El Paso recently recorded $375 million in capital from the overfunding of the Trinity River takeout facility, $562 million in pipeline debt offerings and another $700 million from asset sales ($500 million from E&P asset sales, $155 million from oil terminals and $45 million from a refinery sale).
The $1.6 billion in capital shows the company has adequate liquidity without a further credit line drawdown, assuming asset sale proceeds are received and available.
Nevertheless, Selim K. Zilkha, who is El Paso’s largest shareholder with 8.9 million El Paso shares, believes the company shouldn’t even be in this position. Zilkha said mismanagement led to the more than 90% drop in El Paso shares from about $70/share in February 2001 to $3 this February. El Paso shares were up 2.7% on the asset sale on Tuesday but still were in the basement at $4.62.
Zilkha filed preliminary proxy documents with the Securities and Exchange Commission Tuesday that would to replace the current 12-member El Paso board with a nine-member board hand picked by Zilkha (see Daily GPI, Feb. 19 and March 10). The proxy materials will be presented to El Paso’s shareholders at the company’s annual meeting. The new board would consist of a number of energy industry veterans, including Stephen Chesebro’, a former executive with PennzEnergy, Pennzoil and Tenneco and Ronald Burns, a former COO with Entergy and CEO of Enron Gas Pipeline Group.
Zilkha also would be on the board. He currently owns 50% of Zilkha Renewable Energy LLC and is former majority owner of Zilkha Energy Co. LLC which was bought by Sonat Inc. prior to Sonat being purchased by El Paso. Zilkha served as a director of El Paso from November 1999 to February 2001 and as an advisory director from February 2001 to June 2002.
“The incumbent directors presided over a loss in shareholder value of more than 90%. That record speaks for itself — the incumbents must be replaced,” Zilkha said in a letter to be presented to shareholders.
The proxy filing states that if Zilkha’s slate is elected, it expects interim operating control will be assumed by a committee of the new directors consisting of Chesebro’, who will head the committee, Burns, Ted E. Davis, formerly president of international exploration and production at Conoco, and John J. Murphy, former CEO at Dresser Industries. Additional information regarding Zilkha’s nominees, his proposals and the full text of the preliminary proxy materials is available at https://www.saveelpasonow.com.
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