El Paso Corp. has completed the “creation of a fit-for-purpose organization” that resulted in job losses for about 40% of its corporate officers, 21% of its directors and 9% of the rest of the organization, not including field operations or field services businesses.

Although El Paso declined to elaborate on who was laid off (apparently March 26), an estimated 360 were listed as eligible for severance pay; another 640 employees were listed as not eligible.

The Houston-based pipeline operator also “pushed processes and cost accountability into its business units,” according to CEO Doug Foshee.

Foshee, who was in New Orleans last Monday to attend the Howard Weil Energy Conference, said that the shakeup was an “important step” toward the company’s goal of achieving $150 million of annual cost savings by the end of 2005.

“Most of the keys to our future success are within our control,” said Foshee. The company is “on track to achieve 2006 goals, our debt reduction is well ahead of schedule…and underlying factors are on target.”

El Paso’s long-range plans were detailed at the conference, and Foshee said that by 2006, the embattled company should be earning in the range of 75 cents to $1.10 per share. So far, he said, El Paso has made “significant progress” toward selling $3.3-3.9 billion of assets by year-end 2005.

Most of the asset sales will come from the company’s nearly discontinued Power business, where it already has or will sell $900 million to $1.2 billion of assets. It plans another $1 billion in sales from its Field Services Unit; $600-700 million from Production; $500-600 million from Petroleum; and $250-350 million from Pipeline and Other. To date, the company has closed or announced $2.9 billion of asset sales and has contracted for every “significant” asset in the plan.

Foshee noted that El Paso’s debt also is steadily falling. On Sept. 30, 2003, El Paso’s debt totaled $21.9 billion. By the end of 2003, it stood at $20.4 billion and by the end of this year, it plans to be at a target of $17-18 billion. The goal is to reach $15 billion by the end of 2005.

El Paso’s bread-and-butter, its U.S.-focused natural gas pipeline business, is expected to retain its leadership position in North America, Foshee said. Post-2004, El Paso is forecasting earnings growth for the Pipeline unit of 2-5% a year. Expansion opportunities are there, he said, because “the macro environment for natural gas in North America appears favorable for continued infrastructure development opportunities.”

In North America, the highest gas demand growth areas are projected to be in the Southeast and Northeast on power demand, said Foshee. Gas supply increases will come from remote areas, such as the Rocky Mountains, deepwater Gulf of Mexico and imported liquefied natural gas.

“El Paso’s pipeline projects are well positioned to serve both supply and market growth,” said Foshee. He added that the company’s “broad footprint and project opportunities provide the basis for stable growth in earnings.”

But the CEO admitted that there is still a lot of work ahead. With a Securities and Exchange Commission investigation into the company’s oil and gas reserve revisions (see NGI, March 29), Foshee said the Production unit needs to regain its credibility. “We have touched bottom,” but with new leadership and capital discipline and execution, the unit will once again be strong.

“We are reviewing our opportunities in each core area,” he said, and added that the company will provide a production update in the second quarter.

However, the 1.8 Tcf in reserve revisions that were announced in February “will likely cause restatements of periods prior to 2003,” but there is no expected impact on its long-range production assumptions.

El Paso’s 1Q2004 oil and gas production is expected to average 940-950 MMcfe/d, which includes 55 MMcfe/d from Canadian properties recently sold. Its annual average 2004 production target remains 850-950 MMcfe/d.

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