El Paso Corp. issued its long-awaited financial restatements for 1999 through 2003 last week, reporting an overall loss to shareholder equity in that period of about $2.4 billion. Of that amount, nearly $1.7 billion was lost from negative revisions to natural gas and oil reserves, while $700 million came from historical hedge accounting restatements.
In a 320-page Form 10-K filing with the Securities and Exchange Commission (SEC), El Paso reported a loss of $1.93 billion (minus $3.23/share) in 2003 on revenue of $6.7 billion. The 2002 previously reported loss increased to $2.38/share from $1.87. For 2001, earnings were restated to reflect a 77 cents/share loss instead of the previously reported earnings of 30 cents/share, and 2000 earnings were reduced to 93 cents/share from the previously reported $2.19. For 1999, the restatement increased reported earnings to 89 cents/share from 46 cents.
El Paso has until Nov. 30 to file its 1Q and 2Q 2004 Forms 10-Q, a deadline that the company expects to meet.
All of the restatements resulted from a 41% negative revision to El Paso’s natural gas and oil reserves in February following an internal, independent review. The company said in May it would be restating the four years of financials following the discrepencies (see NGI, May 31). The review, which led to a personnel shake up in El Paso’s exploration and production unit, resulted in a cut to proved and probable reserve estimates by about 1.8 Tcf.
Since its discovery of the accounting problems, El Paso has been correcting the deficiencies through changes to internal controls, and all of the remedial actions are expected to be implemented by the end of this year. The filing indicated that El Paso believes the restatements constituted “events of default” under its credit facilities, but it said it had received waivers from lenders to address the issues.
Besides the financial restatements, El Paso remains under investigation by the SEC into the revisions (see NGI, May 10). According to Thursday’s filing, the U.S. Attorney also is investigating the company’s hedge accounting, which may become a separate inquiry by the SEC. Any of the investigations may result in “significant fines,” the filing indicated.
El Paso also disclosed in the filing that it has been subpoenaed by the grand jury of the U.S. District Court for the Southern District of New York. The subpoena requires subsidiary El Paso CGP Co. to produce records regarding the United Nation’s Oil for Food program concerning sales of Iraqi oil. The CGP Co. was formerly part of Coastal Corp., which El Paso acquired in January 2001. According to El Paso, the grand jury is seeking records related to oil transactions with Iraq between 1995 and 2003. The filing indicated that other energy companies also have been subpoenaed.
The entire filing may be on the company’s web site at www.elpaso.com.
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