With 85% now “welded up,” El Paso Corp. can see the finish line for its anticipated Ruby Pipeline, which will carry natural gas from the Rocky Mountains to West Coast markets, but winter weather, permit delays and sage grouse habitat concerns have forced the completion schedule to slip to July, the pipeline chief told investors on Thursday.

Ruby originally was scheduled to go into service in March at a cost of about $3 billion. Jim Yardley, speaking during a conference call, said the pipeline now is scheduled to be flowing gas in July at a cost of about $3.55 billion.

Forward progress has been strong. Just one month ago 70% of the pipeline had been welded out, compared with 30% in November (see NGI, Jan. 31). Some things, however, just couldn’t be overcome to hit the June deadline.

“We’ve made substantial progress,” Yardley said. But the “slippage” in costs and the schedule were considered a possibility a month ago. The new deadline has resulted from “the combined impacts” of wet winter weather in Nevada and Oregon, delays in obtaining some cultural clearances, as well as jumping a hurdle over fish and game habitat issues.

Construction crews won’t be able to complete some sections of pipe in sage grouse habitat before mating season begins next month, said Yardley. The sage grouse is listed as “threatened” under the Endangered Species Act.

“We expected to be completed before mating season March 1,” Yardley said. “We haven’t been able to do this because of delays in obtaining cultural clearances” related to some national historic sites that the pipeline will be near. Construction will be temporarily shut down on spread five of the pipe until mating season ends in mid-May, and crews won’t be able to finish that section of pipe before July.

Spread five of the pipeline is in Central and Western Nevada, from Milepost 363 to 509, El Paso spokesman Richard Wheatley told NGI.

“The good news is we believe we have greater clarity” on the pipeline’s costs, Yardley told investors. “The worst of the winter weather is behind us; permitting and cultural issues are for the most part complete and we have greater clarity on fish and game…We have a better line of sight on the finish line…”

As a “general statement,” he said, “we are simply further down the road” on Ruby. “We’ve got a grand total of about 100 miles to weld out; three distinct pieces” which include about 40 miles on spread five. Another 30 miles each remain to be completed on spreads six and seven in Oregon.

The 680-mile pipeline is to extend from near Opal, WY, through northern Utah and Nevada and terminate near the California-Oregon state line in Klamath County, OR. Ruby extends across an estimated 280 miles of land managed by the Bureau of Land Management, 18 miles of national forest land, and three miles of Bureau of Reclamation land. It also runs near historic sites and extends into protected sage grouse habitat.

“Within that 40-mile stretch on spread five, only about 14 miles are impacted by this sage grouse mating issue,” Yardley said. “We are clearing through what we can clear through now. As soon as we can we will start stringing [pipe], welding up…From a construction viewpoint, we won’t be able to do any appreciable welding [on the 14 miles] until mid May.”

Spread five should be completely welded out in June, and El Paso then would complete tie-ins by early July, leaving “plenty of time for purging and packing” before the end of the month. “On spread six and seven in Oregon, we’re very close to having all of the permits there…we’re continuing to grind it out as we have been doing,” said the pipeline chief.

“We fully expect that, with the exception of spread five, to be completely welded out by the end of April, then tying in, testing out will commence.”

In the final three months of 2010, El Paso delivered three onshore natural gas pipeline projects on time and collectively 25% under budget, while the exploration unit lifted natural gas and oil output by 7% from the year-ago period.

Lower realized commodity prices hit the bottom line in 4Q2010. Net profits totaled $136 million (9 cents/share) in the latest quarter, versus earnings of $301 million (38 cents) in 4Q2009. Operating revenues were $984 million, down from $1.19 billion in the year-ago period. Operating income was at $381 million, compared with $498 million.

Lower commodity prices cut into 4Q2010 earnings by an estimated 10 cents, said CEO Doug Foshee. However, operations continue to improve, he told investors.

“We believe that 2010 ranks as one of El Paso’s best years ever,” said Foshee. “We delivered full-year financial results at the high end of our targeted range and had solid execution in each of our business units as well as the funding of our capital program.”

The Pipeline Group earned $374 million in the last three months of 2010, compared with earnings of $367 million in 4Q2009. Several expansion projects that went into service during 2010 and at the end of 2009 were favorably impacted by an increase in allowance for funds used during construction on expansion projects that are not yet in service, principally the Ruby Pipeline.

Pipeline throughput in 4Q2010 was essentially flat with the year-ago quarter at 17,242 billion Btu/d, versus 17,885 billion Btu/d. Five new pipeline projects are to ramp up this year. In addition to Ruby, El Paso’s backlog, which remains “on time and on budget,” includes FGT Phase VIII, Gulf LNG, Phase II of SNG’s South System II expansion, and the TGP 300 line.

Financial hedging losses and lower commodity prices led a loss in the latest quarter in the Exploration and Production (E&P) segment. The E&P segment lost $27 million in 4Q2010, versus earnings of $187 million for the same period of 2009. Production volumes averaged in the latest quarter averaged 795 MMcfe/d, which was 7% higher than in 4Q2009.

Higher production volumes “reflect substantial growth from the company’s core programs, particularly the Haynesville Shale,” said E&P chief Brent Smolik. “Total per-unit cash operating costs averaged $1.84/Mcfe in 4Q2010, up slightly from $1.81/Mcfe for the same period in 2009.”

The E&P segment, Smolik said, continues to advance drilling programs “with an increasing capital focus on oil-directed drilling in the Eagle Ford, Altamont, and Wolfcamp areas” of Texas.

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