El Paso plans to write down $3.7 billion in restatements

HOUSTON -- El Paso Corp., the nation's largest natural gas pipeline company, said yesterday it will write down the value of its oil and gas properties by $2.67 billion and reduce the value of its shareholder equity by $1 billion to reflect accounting revisions for natural gas hedges.

The balance-sheet changes are a consequence of El Paso's announcement in February that it was slashing its proven oil and gas reserves by 41 percent, which triggered a review of its financial statements from 1999 through 2003.

The impact on El Paso earnings has yet to be disclosed. The company held off on releasing quarterly 2004 earnings pending completion of the review and restatements.

The company expects to file its 2003 annual report with the Securities and Exchange Commission by the end of the third quarter this year, and quarterly reports for the first two quarters of 2004 by Nov. 30.

El Paso last reported earnings for the third quarter of 2003, posting a net loss of $146 million, or 24 cents per share, because of disappointing production results, writedowns for liquefied natural gas and power assets, and losses associated with domestic power asset sales.

The noncash writedowns announced yesterday, which will come to $2.4 billion after an adjustment for taxes, will have no cash impact, said Doug Foshee, El Paso's president and chief executive.

''The punchline to all of this is, while we know we still have challenges, we are beginning to see the clouds part," he said.

''Apparently the portfolio managers liked what they heard and are willing to wait two or three years to see a turnaround materialize," said John Olson, an analyst with Sanders Morris Harris.

Olson said these one-time write-offs should improve profitability in El Paso's production arm by reducing depletion costs.

He called the writedown because of elimination of accounting hedges ''a good old-fashioned writedown" that would not affect future profits.

Earlier this month, El Paso announced that its review of both proven reserves and accounting revealed problems with accounting of natural gas hedges, and financial statements would likely be further restated to eliminate those hedges, which are designed to protect the company against swings in natural gas prices.

Proven oil and gas reserves are closely monitored by analysts as an estimate of a company's future profit potential.

The company said yesterday its debt stands at $18.6 billion, and El Paso aims to cut that to $15 billion by the end of 2005.

Foshee said the company has announced or closed on $3.5 billion in asset sales.

El Paso had access to $2.7 billion in cash as of the end of July, the company said.

El Paso was one of many energy merchants battered by investors and increased regulatory scrutiny throughout 2002 and into 2003 in the aftermath of Enron Corp.'s 2001 collapse.

The company weathered a bitter proxy battle in mid-2003 that was fueled by a 90 percent drop in shareholder value since early 2001.

The company pushed out its former chief executive, William Wise; investors elected the incumbent slate of directors; and Foshee came on board a year ago.