The proxy battle that began Tuesday for control of El Paso’s board is unlikely to be forestalled by the actions last week of El Paso’s directors, according to analysts. El Paso CEO Williams Wise stepped down despite earlier plans to retire at the end of the year and the company named director Ronald Kuehn, a former Sonat executive, as its new CEO.

El Paso also named another independent director and made progress getting its finances in order. EP shares were up 71 cents to $5.11 on Friday.

However, El Paso’s largest independent shareholder, Selim Zilkha, and his associate, former Coastal Corp. CEO Oscar Wyatt, who also is a large El Paso shareholder, are unlikely to be deterred in any way by the improvements. Zilkha said as much in a prepared statement on Thursday. El Paso’s moves have been “far too little and far too late,” he said.

“There is a zero chance” that these moves will change the picture, said John Olson, an analyst with Sanders Morris Harris who admitted that he is an El Paso shareholder.

At least one other analyst believes Zilkha, a former El Paso director and 1.49% shareholder, still harbors bad feelings for El Paso — and its new CEO. Anatol Feygin said there’s “bad blood” between Zilkha and Kuehn that goes back several years. Kuehn was the CEO of Sonat when it purchased Zilkha Energy in 1998. However, a collapse in natural gas prices forced Sonat to take a write-down on the Zilkha acquisition, which then paved the way for El Paso to merge with Sonat in 2000.

However, in his statement, Zilkha said the proxy battle, rather than being about personalities, was seeking a systemic change in the company that “can only take place with a new leadership and fresh thinking.”

Zilkha filed preliminary proxy documents with the Securities and Exchange Commission Tuesday that would replace the current 12-member El Paso board with a nine-member board hand picked by Zilkha. The proxy materials will be presented to El Paso’s shareholders at the company’s annual meeting on May 20.

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. 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.

“Zilkha’s board pound for pound is one of the finest energy boards in the country,” said Olson. “You can critique individuals, but pound for pound it is a heck of a board. And the incumbent board better have a very strong agenda and argument in order to survive against someone as tough and capable as Oscar Wyatt. He will have an active role in the restructuring if they are the winning ticket. He would not be on the board or in the management. The CEO would be Steve Chesebro’ who had a long and very honorable record with Tenneco Oil exploration and production and Tennessee Gas Transmission before they were sold to El Paso.”

However, Olson noted El Paso management and the existing board have the “virtues and power of incumbency.” In addition, he said, El Paso has been headed in the right direction because they are “beginning to manage the company for cash and this was not being done until the recent departure of Bill Wise. They are selling off loads of asset. They have sold them off at good prices. They are doing what should be expected of them in a cash strapped situation.”

On Thursday, El Paso also closed a $1.2 billion two-year loan, and completed the $500 million sale of its Mid-Continent natural gas and oil reserves to Chesapeake Energy Corp.

Following the loan announcement, Gordon Howald, a Credit Lyonnais Securities analyst, raised his rating on El Paso’s stock to “buy” from “hold.”

“While we recognize that many uncertainties still exist for El Paso, we believe the steps already taken position the company to survive 2003 — the likelihood of default, in our opinion, has decreased significantly,” Howald said in a research note. “We do not believe it is in anyone’s best interest…to bankrupt El Paso.” Howald raised his price target to $6 from $5.

With the loan and the upgrade, El Paso’s stock was the third-largest percentage gainer on the New York Stock Exchange Friday morning, up nearly 16% to more than $5.

However, John Edwards, a Deutsche Bank analyst, dismissed the price jump. “When the price of a stock is this low, and in a really volatile and fluid situation, you can’t really read too much into percentage moves,” he said. Edwards has a “sell” rating on El Paso with a $4 price target.

El Paso also announced Thursday that John L. Whitmire, chairman of Consol Energy Inc., would join the board as an independent director on Monday (March 17). Whitmire, former chairman and CEO of Union Texas Petroleum Holdings Inc., and former executive vice president of Worldwide E&P for Phillips Petroleum Co., was voted to the board unanimously.

“We welcome the addition of another strong independent leader to El Paso’s board,” said Kuehn in a statement. “Mr. Whitmire’s extensive knowledge of the exploration and production business will further enhance the leadership capacity of our highly qualified board. We are confident that his more than 35 years of experience in the oil and gas industry will bring great value to our world-class natural gas assets.”

Although these moves are positive, El Paso still has the difficult challenge of explaining away the very dismal results of the last three years, when the stock has gone from $75 to $4.50-$5, Olson noted. “They also will have to out-Oscar Oscar Wyatt. [You do that] by trying to improve upon the game plan that Mr. Wyatt and his team of people are putting together as an alternative.”

It also may be difficult for shareholders to side with the incumbents when they don’t know who the long term chief executive will be. El Paso has had a tough time trying to find a new CEO because of the proxy contest and because of the California regulatory battle over charges of pipeline capacity mismanagement and alleged natural gas price manipulation.

The California matter could be settled shortly or it will be decided soon by the Federal Energy Regulatory Commission. “The ball is in the California camp right now, but otherwise there will be a decision on March 26 by FERC,” said Olson.

“El Paso’s management has come back to Jesus and is doing all of the right things now. Whether they do it or Oscar Wyatt and Zilkha do it, the company is headed in the right direction. If the Wyatt-Zilkha team were to prevail, it would be a lot more aggressive than the current management’s agenda in terms of asset sales and everything else,” Olson predicted.

Zilkha’s proxy filing states that if his slate of directors is elected, 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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