El Paso Corp. Monday reported fourth-quarter results that were buried deep in red ink due largely to the company’s exodus from trading and its settlement with California and three other western states of charges related to manipulation of energy prices in the region two years ago.

The Houston-based energy company posted a net loss of $1.736 billion, or $2.92 per diluted share, in the fourth quarter of 2002 compared to earnings of $375 million, or 72 cents per diluted share, in the year-earlier period. El Paso’s results for the fourth quarter included one-time charges totaling $1.329 billion, or $2.23 a share, in three key areas, including the western energy agreement.

For all of 2002, El Paso posted a net loss of $1.467 billion, or $2.62 a share, compared to earnings of $93 million, or 18 cents a share, for 2001. The results for 2002 and 2001 included $1.828 billion and $1.636 billion in one-time charges, respectively. Excluding one-time charges, the company said earnings for 2002 were $361 million, or 64 cents a share, compared with $1.729 billion, or $3.31 a share, in 2001.

The western energy settlement, which was announced on March 21, accounted for an after-tax charge of $644 million, or $1.08 diluted share, in the 4Q, according to El Paso. The agreement, which offers an estimated $1.7 billion in cash and non-cash concessions, seeks to resolve all regulatory and legal actions related to El Paso’s sale and delivery of gas and electricity to California and three western states from September 1996 to the present.

The company further said various asset impairments, including the company’s Australian pipeline investment, were included in a $463 million after-tax charge, or 78 cents per diluted share. El Paso also booked a $222 million after-tax charge, or 37 cents per diluted share, for implementing a rule to eliminate the use of mark-to-market accounting for certain contracts during the period.

Excluding the special charges, El Paso reported its loss in the fourth quarter was $407 million, or 69 cents per diluted share, against earnings of $412 million, or 79 cents a share, in the comparable period for 2001.

Even after accounting for the western energy settlement and higher overall interest expense, El Paso said it expects to earn approximately $1 a share on a pro-forma basis for 2003.

The biggest fourth-quarter loss was sustained by its Merchant Energy Group ($1.620 billion earnings before income and taxes), compared with an EBIT of $257 million for the same period in 2001. The red ink stemmed primarily from the group’s trading activities, which reported losses of $1.209 billion, including a $620 million reduction in the value of its trading portfolio and a one-time charge of $487 million for the western energy settlement, El Paso said.

The Pipeline Group, usually considered a profit center, saw a loss of $206 million for the fourth quarter, compared with an EBIT of $362 million for the same period in 2001. The fourth-quarter loss included a charge of $412 million for the western energy settlement and a $153 million asset impairment charge for El Paso’s pipeline investment in Australia.

Expansion projects at Southern Natural Gas Co. and Colorado Interstate Gas (CIG), the reactivation of the Elba Island liquefied natural gas facility, higher equity earnings from pipeline joint ventures and lower operating expenses benefited the quarter’s results, according to El Paso. These were offset by the sale of CIG’s production properties in July 2002, the sale of ANR Pipeline’s ownership in the Alliance Pipeline system in November 2002, and lower revenue on the El Paso Natural Gas system.

El Paso’s Production Group reported an EBIT of $172 million for the fourth quarter, versus $277 million a year ago. The fourth-quarter results included a $6 million loss related to an asset impairment for certain of the company’s international operations. Equivalent production for the period dropped 21% over a year ago due primarily to the sale of El Paso’s proved reserves of approximately 1.8 Tcf equivalent during 2002.

The realized price for natural gas, net of hedges, rose to $3.61/Mcf in 2002 from $3.33/Mcf in 2001, while the realized price for oil condensate and liquids, net of hedges, rose to $22.39 from $16.58 per barrel, El Paso said. The company said it has hedged 215 TBtu, or about 44% of its expected 2003 natural gas production, at a Nymex price of $3.43/MMBtu or $3.63/Mcf. It expects its 2003 realized price for natural gas to be about 30 cents less than the Nymex spot price due to transportation costs and regional price differentials.

The company’s Field Services Division, which oversees its midstream assets, posted the only earnings gain due largely to asset sales. It reported EBIT of $193 million in the fourth quarter compared with $61 million a year ago. The reported results for 2002 include a net benefit of $166 million from asset sale gains offset by an asset impairment charge, the company said. Gathering and transportation volumes, as well as processing volumes, were down from 2001 levels due

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