El Paso Corporation Reports Sharp Increase in Second Quarter Earnings - Continued Progress on 2006 Goals

HOUSTON, Aug. 7 /PRNewswire-FirstCall/ -- El Paso Corporation is providing today second quarter 2006 financial and operational results for the company.

Highlights: * $0.21 earnings per fully diluted share from continuing operations versus $0.09 in 2005 * $1,421-million cash flow from continuing operations for first six months * $3-billion reduction in gross debt through July 31 * $500 million equity offering completed during second quarter * Settlement of major shareholder and derivative litigation * Pipeline and E&P on track to deliver on 2006 goals

"El Paso's second quarter results are another step toward the delivery of our 2006 goals," said Doug Foshee, El Paso's president and chief executive officer. "Our pipeline and E&P businesses both delivered solid results, and we are on track to reduce our year-end 2006 debt, net of cash, to $14 billion. More importantly, our pipeline and E&P businesses have solid growth trajectories that point to further improvement in 2007."

Second Quarter Financial Results

For the three months ended June 30, 2006, El Paso reported net income available to common stockholders of $141 million, or $0.21 per diluted share, compared with a net loss of $246 million, or $0.38 per diluted share, for the same period in 2005. Results for 2006 include $27 million ($0.02 per diluted share) of non-cash, mark-to-market, pre-tax gains on derivatives intended to hedge the price risk of natural gas and oil production. During the same period in 2005, price risk management derivatives generated a $12-million mark-to-market pre-tax loss. Results in 2005 were also impacted by impairments, net of gains on the sale of assets and investments, of $88 million, driven primarily by the Power segment and $29 million of restructuring costs in 2005.

For the six months ended June 30, 2006, El Paso reported net income available to common stockholders of $487 million, or $0.70 per diluted share, compared with a net loss of $140 million, or $0.19 per diluted share, for the first six months of 2005. Results for 2006 include $189 million ($0.17 per diluted share) of non-cash, mark-to-market, pre-tax gains on derivatives intended to hedge the price risk of natural gas and oil production. During the same period in 2005, price risk management derivatives generated a $118- million mark-to-market pre-tax loss. Additionally, results for the first six months of 2005 were impacted by net gains on the sale of assets and investments of $17 million, driven primarily by gains associated with the sale of the company's remaining interest in Enterprise Products Partners L.P., offset by impairments on certain power assets. Also, 2005 results were impacted by a $59-million charge for the early payoff of the western energy settlement and $30 million of restructuring costs.

A summary of financial results for the three months ended June 30, 2006 and 2005 are as follows:

Financial Results Three Months Ended ($ in millions, except per-share amounts) June 30, 2006 2005 Earnings before interest and taxes (EBIT) Pipelines $335 $309 Exploration and Production 163 176 Marketing and Trading 13 (30) Power 10 (2) Field Services(A) --- (3) Corporate (34) (12) --------------------- Total $487 $438 ====== ====== (A) El Paso completed its exit from the midstream business in 2005. Income from continuing operations $153 $67 Discontinued operations, net of income taxes (3) (305) --------------------- Net income (loss) 150 (238) Preferred stock dividends 9 8 --------------------- Net income (loss) available to common stockholders $141 $(246) ====== ====== Three Months Ended June 30, 2006 2005 Earnings (loss) per common share Basic Income from continuing operations $0.22 $0.09 Discontinued operations (0.01) (0.47) --------------------- Net income (loss) $0.21 $(0.38) ====== ====== Diluted Income from continuing operations $0.21 $0.09 Discontinued operations --- (0.47) --------------------- Net income (loss) $0.21 $(0.38) ====== ======

In the first six months of 2006, the company generated cash flow from continuing operations of $1,421 million, invested $1,024 million of capital, and paid $71 million in dividends.

At June 30, 2006, El Paso's debt, net of cash, was $14.4 billion, a $1.7 billion reduction from December 31, 2005. Gross debt was at $16.2 billion on June 30, 2006, a $2.0 billion reduction from year end. Net debt and gross debt at December 31, 2005 include $225 million of Macae project debt that was repaid in the second quarter 2006 upon the sale of the Macae power plant. In May, the company issued 35.7 million shares of common stock with net proceeds of approximately $500 million. This offering completes the financing of the acquisition of Medicine Bow Energy last year. During the first six months of 2006, El Paso closed $854 million of asset sales as a part of its debt- reduction program. In addition, approximately $160 million of assets sales have either closed or are in various stages of completion.

In July, El Paso completed an early restructuring of its bank facilities given the company's reduced liquidity requirements. Total borrowing and letter of credit capacity was reduced from $3 billion to $2.25 billion. The new facilities and reduced borrowings will provide approximately $40 million in annualized cost savings. During the third quarter El Paso expects to take a charge of $17 million associated with unamortized financing costs on the previous credit agreement.

Business Unit Financial Update Pipelines

The Pipelines segment's reported EBIT for the three months ended June 30, 2006 was $335 million, compared with $309 million for the same period in 2005. The increase is primarily due to the expiration of discounted rates to certain El Paso Natural Gas (EPNG) customers, the implementation of new rates at EPNG, increased revenues from various interruptible services, and the contribution of pipeline expansion projects, including the Cheyenne Plains pipeline, the Piceance Basin expansion on the Wyoming Interstate Company system, and the Elba Island LNG terminal expansion. Offsetting these positive factors were higher O&M costs due to hurricane repair costs that will not be fully reimbursed by insurance, and favorable contract restructurings and settlements on the ANR Pipeline system in the second quarter of 2005.

Pipelines Results Three Months Ended June 30, ($ in millions) 2006 2005 EBIT $335 $309 DD&A $115 $108 Total throughput (BBtu/d)(A) 21,042 20,316 (A) Includes proportionate share of jointly owned pipelines Exploration and Production

The Exploration and Production segment's EBIT for the three months ended June 30, 2006 was $163 million, compared with $176 million for the same period in 2005. Second quarter 2006 consolidated production volumes averaged 719 million cubic feet equivalent per day (MMcfe/d), excluding unconsolidated affiliate volumes of 66 MMcfe/d, compared with 784 MMcfe/d for the same period in 2005. Average daily equivalent production volumes in the second quarter of 2006 were negatively impacted by approximately 15 MMcfe/d of continued shut-in production volumes in the Gulf of Mexico and south Louisiana regions as a result of last year's hurricanes. Despite shut-ins and greater-than-expected delays in bringing on Gulf of Mexico production, El Paso believes it will reach the low end of its 825 MMcfe/d to 850 MMcfe/d average production target (including unconsolidated affiliate volumes) established for 2006.

El Paso's 2006 drilling program continues to deliver solid results. For the first six months of the year, it has achieved a 99-percent success rate on 242 gross wells drilled.

The realized price for natural gas (net of transportation costs) during the three months ended June 30, 2006, including the impact of hedges, was $5.86 per thousand cubic feet (Mcf), compared with $5.96 per Mcf for the same period in 2005. Oil, condensate, and natural gas liquids (NGL) realized prices, including the impact of hedges, were $59.84 per barrel in second quarter 2006, up 43 percent, compared with the same period in 2005. Total per-unit cash costs increased to an average of $1.86 per Mcfe in the second quarter 2006, compared with $1.52 per Mcfe for the same 2005 period, primarily due to higher production taxes as a result of lower tax credits received in 2006 and higher maintenance, repair, and workover costs as compared with the second quarter of 2005.

Exploration and Production Results Three Months Ended ($ in millions) June 30, 2006 2005 EBIT $163 $176 DD&A $156 $157 Average consolidated daily sales volumes Natural gas sales volumes (MMcf/d) 589 635 Oil, condensate, and NGL sales volumes (MBbls/d) 22 25 Total equivalent average daily sales volumes (MMcfe/d) 719 784 Four Star equity average daily sales volumes(A) Natural gas sales volumes (MMcf/d) 49 --- Oil, condensate, and NGL sales volumes (MBbls/d) 3 --- Total equivalent average daily sales volumes (MMcfe/d) 66 --- Weighted average realized prices, including hedges(B)(C) Natural gas ($/Mcf) $5.86 $5.96 Oil, condensate, and NGL ($/Bbl) $59.84 $41.80 Per-unit costs ($/Mcfe)(C) Unit of production depletion costs $2.24 $2.05 Cash costs(D) $1.86 $1.52 -------------------- Total costs $4.10 $3.57 ===== ===== (A) Four Star is an equity investment acquired in the Medicine Bow transaction. Amounts disclosed represent the company's proportionate share in Four Star. (B) Prices are stated after transportation costs. (C) Price and costs per unit do not include the company's proportionate share of Four Star volumes, revenue, or cost. (D) Includes lease operating costs, production-related taxes, G&A expenses, and other taxes. Other Operations Marketing and Trading

The Marketing and Trading segment reported EBIT of $13 million for the three months ended June 30, 2006, compared with a loss of $30 million for the same period in 2005. Second quarter 2006 results were primarily driven by $27 million of non-cash, mark-to-market gains on derivatives intended to manage the price risk of the Exploration and Production segment's natural gas and oil production. Second quarter 2005 results were significantly impacted by a $78- million mark-to-market loss on the Cordova tolling agreement as natural gas futures prices increased more than power prices during the quarter. During the fourth quarter of 2005, El Paso completed the assignment of this agreement to a third party.

Power

The Power segment reported EBIT of $10 million for the three months ended June 30, 2006, compared with a loss of $2 million for the same period in 2005. Second quarter 2006 results for the Power segment were primarily attributable to earnings from the company's Brazilian investments. Second quarter 2005 results were negatively impacted by $89 million of impairments, net of gains on sales, and were positively impacted by a $53-million gain on favorable resolution of bankruptcy claim and earnings primarily from international operations. Both the Macae and Araucaria power plants were sold during the second quarter of 2006, and Macae's results are reflected in discontinued operations.

Last week El Paso sold its interests in Midland Cogeneration Venture (MCV) to GSO Capital Partners and Rockland Capital Energy Investments for $13 million. The sale includes El Paso's approximately 44-percent interest in MCV, a 1,575-megawatt natural gas-fired power plant located in Midland, Michigan. El Paso previously wrote down its interest in MCV to zero; therefore, the sale will result in a third quarter pre-tax gain of approximately $13 million. In addition, El Paso will record an estimated $135 million third-quarter non-cash mark-to-market loss in the Marketing and Trading segment on natural gas supply agreements with MCV as a result of this sale, based on El Paso's estimates of the value of these contracts as of June 30, 2006. The loss represents the cumulative unrecognized mark-to-market losses on these contracts attributable to El Paso's ownership interest in MCV that were not previously recognized due to their affiliated nature.

Field Services

El Paso completed its exit from the midstream business in 2005 and no longer reports a Field Services segment.

Corporate

Corporate reported an EBIT loss of $34 million during the second quarter of 2006, compared with an EBIT loss of $12 million in 2005. Second quarter 2006 results were negatively impacted by increases in litigation and environmental liabilities and foreign currency losses on Euro-denominated debt offset by lease-termination costs compared to the same period in 2005.

Other Operations Results Three Months Ended ($ in millions) June 30, 2006 2005 Marketing and Trading EBIT $13 $(30) DD&A $1 $1 Power EBIT $10 $(2) DD&A $1 $--- Field Services EBIT $--- $(3) DD&A $--- $1 Corporate EBIT $(34) $(12) DD&A $5 $17 Tax Rate

The effective tax rate for the quarter and six months ended June 30, 2006 is 1 percent and 24 percent respectively. These rates are lower than the statutory rate of 35 percent primarily due to IRS settlements and tax benefits on sales of foreign investments. Second quarter results include $34 million of benefits recorded as a result of the IRS settlements. The tax rate for ongoing operations is expected to be 34 percent to 36 percent.

Detailed operating statistics for each of El Paso's businesses will be posted at http://www.elpaso.com/ in the Investors section.

Webcast Information

El Paso Corporation has scheduled a live webcast of its second quarter 2006 results on August 7, 2006 beginning at 10 a.m. Eastern Time, 9 a.m. Central Time, which may be accessed online through El Paso's Web site at http://www.elpaso.com/ in the Investors section. During the webcast, management will refer to slides that will be posted on the Web site. The slides will be available one hour before the webcast and can be accessed in the Investors section. A limited number of telephone lines will also be available to participants by dialing (973) 582-2844 ten minutes prior to the start of the webcast.

A replay of the webcast will be available online through the company's Web site in the Investors section. A telephone audio replay will be also available through August 14, 2006 by dialing (973) 341-3080 (access code 7645202). If you have any questions regarding this procedure, please contact Margie Fox at (713) 420-2903.

Disclosure of Non-GAAP Financial Measures

The SEC's Regulation G applies to any public disclosure or release of material information that includes a non-GAAP financial measure. In the event of such a disclosure or release, Regulation G requires (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. The required presentations and reconciliations are attached. Additional detail regarding non-GAAP financial measures can be reviewed in El Paso's full operating statistics, which will be posted at http://www.elpaso.com/ in the Investors section.

El Paso uses the non-GAAP financial measure "earnings before interest expense and income taxes" or "EBIT" to assess the operating results and effectiveness of the company and its business segments. The company defines EBIT as net income (loss) adjusted for (i) items that do not impact its income (loss) from continuing operations, such as extraordinary items, discontinued operations, and the impact of accounting changes; (ii) income taxes; (iii) interest and debt expense; and (iv) distributions on preferred interests of consolidated subsidiaries. The company excludes interest and debt expense and distributions on preferred interests of consolidated subsidiaries so that investors may evaluate the company's operating results without regard to its financing methods or capital structure. El Paso's business operations consist of both consolidated businesses as well as substantial investments in unconsolidated affiliates. As a result, the company believes that EBIT, which includes the results of both these consolidated and unconsolidated operations, is useful to its investors because it allows them to evaluate more effectively the performance of all of El Paso's businesses and investments. Per-unit total cash costs equal total operating expenses less DD&A and other non-cash charges divided by total consolidated production. It is a valuable measure of operating efficiency.

El Paso believes that the non-GAAP financial measures described above are also useful to investors because these measurements are used by many companies in the industry as a measurement of operating and financial performance and are commonly employed by financial analysts and others to evaluate the operating and financial performance of the company and its business segments and to compare the operating and financial performance of the company and its business segments with the performance of other companies within the industry.

These non-GAAP financial measures may not be comparable to similarly titled measurements used by other companies and should not be used as a substitute for net income, earnings per share or other GAAP operating measurements.

El Paso Corporation provides natural gas and related energy products in a safe, efficient, dependable manner. The company owns North America's largest natural gas pipeline system and one of North America's largest independent natural gas producers. For more information, visit http://www.elpaso.com/ .

Cautionary Statement Regarding Forward-Looking Statements

This release includes forward-looking statements and projections, made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The company has made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable, and complete. However, a variety of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this release, including, without limitation, changes in unaudited and/or unreviewed financial information; our ability to implement and achieve our objectives in the 2006 plan, including achieving our debt-reduction, earnings and cash flow targets; the effects of any changes in accounting rules and guidance; our ability to meet production volume targets in our Exploration and Production segment despite delays in resuming production shut-in due to hurricanes Rita and Katrina; uncertainties and potential consequences associated with the outcome of governmental investigations, including, without limitation, those related to the reserve revisions and natural gas hedge transactions; the outcome of litigation, including shareholder derivative and class actions related to reserve revisions and restatements; our ability to comply with the covenants in our various financing documents; our ability to obtain necessary governmental approvals for proposed pipeline projects and our ability to successfully construct and operate such projects; the risks associated with recontracting of transportation commitments by our pipelines; regulatory uncertainties associated with pipeline rate cases; actions by the credit rating agencies; our ability to successfully exit the energy trading business; our ability to close our announced asset sales on a timely basis; changes in commodity prices for oil, natural gas, and power and relevant basis spreads; inability to realize anticipated synergies and cost savings associated with restructurings and divestitures on a timely basis; general economic and weather conditions in geographic regions or markets served by the company and its affiliates, or where operations of the company and its affiliates are located; the uncertainties associated with governmental regulation; political and currency risks associated with international operations of the company and its affiliates; competition; and other factors described in the company's (and its affiliates') Securities and Exchange Commission filings. While the company makes these statements and projections in good faith, neither the company nor its management can guarantee that anticipated future results will be achieved. Reference must be made to those filings for additional important factors that may affect actual results. The company assumes no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the company, whether as a result of new information, future events, or otherwise.

EL PASO CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In millions, except per common share amounts) (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- 2006 2005 2006 2005 ------------------ ----------------- Operating revenues $1,214 $1,169 $2,745 $2,257 Operating expenses Cost of products and services 85 54 146 148 Operation and maintenance 385 385 719 796 Depreciation, depletion and amortization 278 284 550 553 Loss on long-lived assets --- --- --- 7 Taxes, other than income taxes 70 56 134 121 --------- ------- ------- -------- 818 779 1,549 1,625 --------- ------- ------- -------- Operating income 396 390 1,196 632 Equity earnings and other income 91 48 179 269 --------- ------- ------- -------- Earnings before interest expense, income taxes, and other charges 487 438 1,375 901 Interest and debt expense 332 333 680 676 Preferred interests of consolidated subsidiaries --- 3 --- 9 --------- ------- ------- -------- Income before income taxes 155 102 695 216 Income taxes 2 35 167 36 --------- ------- ------- -------- Income from continuing operations 153 67 528 180 Discontinued operations, net of income taxes (3) (305) (22) (312) --------- ------- ------- -------- Net income (loss) 150 (238) 506 (132) Preferred stock dividends 9 8 19 8 --------- ------- ------- -------- Net income (loss) available to common stockholders $141 $(246) $487 $(140) ========= ======= ======= ======== Earnings (losses) per common share Basic Income from continuing operations $0.22 $0.09 $0.77 $0.27 Discontinued operations, net of income taxes (0.01) (0.47) (0.03) (0.49) --------- ------- ------- -------- Net income (loss) $0.21 $(0.38) $0.74 $(0.22) ========= ======= ======= ======== Diluted Income from continuing operations $0.21 $0.09 $0.73 $0.26 Discontinued operations, net of income taxes --- (0.47) (0.03) (0.45) --------- ------- ------- -------- Net income (loss) $0.21 $(0.38) $0.70 $(0.19) ========= ======= ======= ======== Weighted average common shares outstanding Basic 671 641 664 640 ========= ======= ======= ======== Diluted 732 643 732 699 ========= ======= ======= ======== Dividends declared per common share $0.04 $0.04 $0.08 $0.08 ========= ======= ======= ======== EL PASO CORPORATION SEGMENT INFORMATION (UNAUDITED) 2006 2005 -------------------------------------------------------------------------- (In millions) First Second First Second Third Fourth -------------------------------------------------------------------------- Operating revenues Pipelines $837 $705 $768 $653 $646 $716 Exploration and Production 466 462 439 452 449 447 Marketing and Trading 205 18 (175) (21) (389) (211) Power 1 2 23 54 2 3 Field Services (A) --- --- 48 28 45 2 Corporate and eliminations 22 27 (15) 3 (1) 4 -------------------------------------------------------------------------- Consolidated total 1,531 1,214 1,088 1,169 752 961 -------------------------------------------------------------------------- Depreciation, depletion and amortization Pipelines 115 115 111 108 108 110 Exploration and Production 146 156 146 157 153 156 Marketing and Trading 1 1 1 1 1 1 Power --- 1 1 --- 1 --- Field Services (A) --- --- 1 1 1 --- Corporate 10 5 9 17 6 10 -------------------------------------------------------------------------- Consolidated total 272 278 269 284 270 277 -------------------------------------------------------------------------- Operating income (loss) Pipelines 438 284 362 262 207 188 Exploration and Production 191 161 180 175 167 149 Marketing and Trading 200 8 (186) (32) (404) (233) Power (15) (17) (25) 26 (20) (44) Field Services (A) --- --- 2 (5) (26) 13 Corporate (14) (40) (91) (36) (79) (371) -------------------------------------------------------------------------- Consolidated total 800 396 242 390 (155) (298) -------------------------------------------------------------------------- Earnings (loss) before interest expense and income taxes (EBIT) Pipelines 478 335 412 309 272 233 Exploration and Production 199 163 183 176 169 168 Marketing and Trading 208 13 (185) (30) (398) (224) Power 3 10 (39) (2) (46) (2) Field Services (A) --- --- 182 (3) (22) 128 Corporate --- (34) (90) (12) (67) (352) -------------------------------------------------------------------------- Consolidated total $888 $487 $463 $438 $(92) $(49) -------------------------------------------------------------------------- EL PASO CORPORATION SEGMENT INFORMATION (UNAUDITED) Year-to-Date -------------------------------------------------------------------------- (In millions) 2006 2005 -------------------------------------------------------------------------- Operating revenues Pipelines $1,542 $1,421 Exploration and Production 928 891 Marketing and Trading 223 (196) Power 3 77 Field Services (A) --- 76 Corporate and eliminations 49 (12) -------------------------------------------------------------------------- Consolidated total 2,745 2,257 -------------------------------------------------------------------------- Depreciation, depletion and amortization Pipelines 230 219 Exploration and Production 302 303 Marketing and Trading 2 2 Power 1 1 Field Services (A) --- 2 Corporate 15 26 -------------------------------------------------------------------------- Consolidated total 550 553 -------------------------------------------------------------------------- Operating income (loss) Pipelines 722 624 Exploration and Production 352 355 Marketing and Trading 208 (218) Power (32) 1 Field Services (A) --- (3) Corporate (54) (127) -------------------------------------------------------------------------- Consolidated total 1,196 632 -------------------------------------------------------------------------- Earnings (loss) before interest expense and income taxes (EBIT) Pipelines 813 721 Exploration and Production 362 359 Marketing and Trading 221 (215) Power 13 (41) Field Services (A) --- 179 Corporate (34) (102) -------------------------------------------------------------------------- Consolidated total $1,375 $901 -------------------------------------------------------------------------- (A) By the end of 2005, we sold or transferred to other segments substantially all of our Field Services assets.