El Paso Corp. shares rose 6% by mid-day today in response to slightly improved fourth quarter earnings. Higher transportation rates and lower costs on El Paso Natural Gas, as well as higher production and a favorable hedging program in the production unit, helped earnings improve to 72 cents per share for the quarter (after special charges including Coastal merger-related costs and asset impairments) compared to 65 cents per share in 4Q2000. Earnings before special items were 79 cents per share, a penny above Wall Street estimates. Net income was $375 million compared to $335 million in 4Q2000 ($408 million compared to $403 million excluding special items).

Milder weather cut throughput on El Paso and Tennessee Gas by 4% to 18,936 billion Btu/d, but the Pipeline Group’s earnings rose 6% to $362 million because of lower operating expenses and higher transportation rates on recontracted capacity on El Paso Natural Gas.

El Paso Production Co. more than doubled its earnings from 2000 levels to $277 million earnings before income tax (EBIT) because of favorable hedges on gas production and a 15% increase in total production. Gas production was 1,578 MMcf/d, up 11% from 4Q2000. Realized prices increased to $3.33/Mcf from $2.87. Liquids production rose 40% to 47,098 b/d, but realized liquids prices dropped sharply to $16.58/bbl from $21.46.

El Paso Merchant Energy earnings were flat. While earnings from natural gas and power trading were strong, there was a $62 million decrease from refining, chemical and coal operations. In addition, Merchant Energy established a $46 million reserve for Enron receivables. Physical power volumes rose 165% and natural gas physical volumes declined 23% from 2000 levels.

Under the Financial Accounting Standards Board Statement No. 133, El Paso made some additional financial disclosures regarding Merchant Energy’s trading activities. The company reported a forward book value in the fourth quarter of $1.3 billion compared to $2.2 billion in 4Q2000. It reported physical gas sales of 9,468 billion Btu/d compared to 12,373 BBtu/d in 4Q2000 and power sales of 77,726 MMWh compared to 29,306 MMWh in 4Q2000. Financial settlements amounted to 262,571 BBtue/d in the fourth quarter, up from 202,702 BBtue/d. The company also reported details on value at risk and mark to market valuations. For details go to www.elpaso.com.

The Field Services segment reported fourth quarter 2001 EBIT of $61 million, up slightly from a pro forma $59 million the previous year. Gathering volumes rose 65% to 6,157 BBtu/d while processing volumes rose 80% to 4,647 Bbtu/d. Both increases resulted from the acquisition of South Texas assets in December 2000. However, average gathering and processing margins dropped sharply from 2000 levels.

For the full year, El Paso reported earnings per share of 18 cents after special items compared to $2.57/share in 2000. The company took after-tax merger-related costs, asset impairments and other non-recurring charges of $1.6 billion, or $2.96 per share, and a ceiling test charge of $135 million, or 17 cents per share. Earnings per share excluding the special items increased 27% to $3.31 compared with $2.60 in 2000.

CEO William A. Wise called it an “outstanding year” for the company. “We achieved record financial results across all of our business units in a very difficult market, while successfully completing our merger with The Coastal Corporation. Looking forward, El Paso’s strong asset base, financial strength and commercial skills make it the company best positioned to prosper in a future where most of North America’s incremental energy demand will be served by natural gas.”

“Additionally, we continue to make excellent progress on our balance sheet enhancement program, which will reduce the company’s debt-to-total capital ratio to 50% or below by year end, including the Project Electron and Gemstone debt,” Wise continued. “The company issued $863 million of common equity in December 2001 and is making excellent progress on its planned disposition of $2.25 billion in assets. El Paso expects to have firm sales agreements completed for more than half of the targeted sales by the end of the first quarter.”

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