El Paso Corp., which has doubled its natural gas pipeline backlog from a year ago with eight projects on the drawing board, delivered a solid quarterly report on Wednesday, with profit rising 22% from a year ago.

Net income from continuing operations in 2Q2008 totaled $191 million (25 cents/share), compared with $156 million (22 cents) in the prior-year period. Adjusting for production-related derivatives and one-time items, El Paso’s profit amounted to 39 cents/share versus 29 cents in 2Q2007. Revenue fell 11% to $1.15 billion from $1.2 billion.

El Paso’s pipeline group, which traditionally carries its earnings, reported a drop in profit for the quarter to $295 million from $318 million a year earlier. El Paso’s pipeline chief Jim Yardley, who shared a microphone with the company’s management team during a conference call Wednesday, said higher reservation revenues, primarily from several expansion projects placed in service during 2007 and 2008, were offset by higher operating costs.

The pipeline group’s higher operating costs “primarily reflect increased labor costs and additional maintenance associated with required work on both the Tennessee Gas and SNG [Southern Natural Gas Co.] systems,” Yardley noted. Still, even with the higher costs, El Paso’s plan to achieve this year’s targets remains on target, he said. “The pipeline group is at full throttle.” El Paso now has eight pipeline projects it is readying for the next several years — which is double the number it had just a few months ago, he noted.

Among the pipes now in the pipeline: “two major new projects — the Ruby Pipeline and the TGP [Tennessee Gas Pipeline] Line 300 expansion, which increase our committed backlog to $8 billion — a level that is more than two times larger than any time in our 80-year history,” said CEO Doug Foshee. He estimated that future earnings from the new pipes would be around $1.2 billion per year.

Subsidiary Ruby Pipeline LLC announced in June it would move forward with the east-to-west Rocky Mountain pipeline, which would have an initial capacity of between 1.3 Bcf/d and 1.5 Bcf/d (see Daily GPI, June 26). El Paso plans to file with the Federal Energy Regulatory Commission in early 2009 to build the 42-inch diameter pipe, and it could be in service by 2011, Yardley said.

“We have a market commitment of 1.1 Bcf/d, and 100% of the pipe has been ordered,” Yardley noted. Ten shippers have committed to the project, which he said would be a “green pipeline with a neutral” environmental footprint.

The TGP Line 300 expansion in Pennsylvania, announced in June (see Daily GPI, June 4), would tap the Marcellus Shale, said Yardley. “Because of Line 300’s existing route, it also sets up to follow expansions for producers,” he said.

El Paso’s exploration and production (E&P) group, which has undergone a revamping in the past three years, reported a 29% increase in earnings for 2Q2008 to $304 million, compared with $235 million in the year-ago period. Costs, however, rose this year, said E&P chief Brent Smolik. Total per-unit cash operating costs increased to an average of $2.01/Mcfe in the quarter from $1.92 in 2Q2007. The increase resulted from higher production taxes, which rose with commodity prices, and was partially offset by a decrease in controllable costs — direct lifting costs and general expenses, which were down 7% year-over-year.

Oil and gas production, including unconsolidated affiliate volumes, averaged 833 MMcfe/d; output was sequentially 4% higher than in the first three months of 2008. Total quarterly natural gas sales volumes fell to 662 MMcf/d from 679 MMcf/d in 2Q2007. The biggest drop in volumes was in El Paso’s Gulf of Mexico and South Louisiana operations, which fell to 113 MMcf/d from 134 MMcf/d in the same period a year ago. Weighted average realized prices for natural gas, including hedges, jumped to $9.52/Mcf in 2Q2008, up from $7.57 in 2Q2007. Natural gas prices excluding hedges rose to $10.46/Mcf in the period, well ahead of the $7.72 received in the prior-year period.

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.