El Paso Corp. Wednesday sold $500 million of seven-year senior notes, a move designed to enhance the company’s ability to handle $1 billion of debt maturities that expire in May.

Moody’s Investor Services rated the offering “Ba3” and said the outlook for El Paso and all four of its majority-owned pipeline subsidiaries — El Paso Natural Gas Co., Southern Natural Gas, Tennessee Gas Pipeline Co. and Colorado Interstate Gas Co. — remains “stable.” Standard & Poor’s Ratings Services (S&P) affirmed a “BB” credit rating on El Paso, and said the outlook is “negative.”

“The stable outlook reflects El Paso’s adequate liquidity position as it heads into 2009 with significant debt maturities and a still aggressive [capital expenditure] capex plan,” said Moody’s Senior Analyst Ken Austin. “While this additional debt will result in slightly higher leverage and can be accommodated at the current ratings, it has slowed the company’s progress in moving up the ratings scale.”

Moody’s “Ba3” rating, said the analyst, is a reflection of El Paso’s “combination of a very large and diversified network of natural gas pipelines tempered by a need to see clear positive results from the company’s exploration and production (E&P) business.” The pipelines maintain an investment-grade profile and contribute around 50% of El Paso’s consolidated earnings and cash flows. “However, Moody’s notes that given the number of large-scale projects planned for this business and the capital requirements to complete them, the credit accretion for this segment will be delayed as leverage for this segment will rise until the bulk of these projects are completed and start to contribute earnings and cash flow.”

S&P said El Paso has a “satisfactory overall business risk profile, which includes the stability of the company’s interstate natural gas pipeline systems, partly offset by the risks associated with its E&P segment and a significantly improved, although still aggressive, financial profile.”

El Paso on Tuesday reported that its proved natural gas and oil reserves at the end of 2008 totaled 2.5 Tcfe, including 222 Bcfe related to its 48.8% interest in Four Star Oil & Gas Co. The E&P unit of the company spent $1.7 billion in 2008. Extensions and discoveries were up 69% over 2007 results.

“The $2.87/Mcfe domestic reserve replacement costs, excluding price-related revisions, is our best performance since I joined El Paso in 2003,” said CEO Doug Foshee. About 74% of the proved reserves are proved developed, weighted 92% to natural gas. At the end of 3Q2008 El Paso had $13.3 billion in debt.

Because it was required to value its E&P reserves for 2008 based on closing commodity prices for Dec. 31, 2008, , El Paso said that for 4Q2008 it will take a noncash charge of $1.9 billion on its oil and natural gas reserves, and it will take a $100 million charge for an impairment to the reserves of Four Star. “However, these write-downs do not impact the ratings or outlook as we continue to remain focused on the impact on reserve volumes booked rather than on the accounting effect of a ceiling test write-down,” Moody’s noted.

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