SOURCE: El Paso Corporation

El Paso Corporation

January 26, 2011 16:10 ET

El Paso Corporation Reports $1.40 per Mcfe Reserve Replacement Costs; 22 Percent Increase in Proved Reserves and 30 Percent Increase in Risked Unproved Resources

HOUSTON, TX--(Marketwire - January 26, 2011) - El Paso Corporation (NYSE: EP)

Highlights:

  • Proved reserves rose 22 percent to 3.4 trillion cubic feet equivalent (Tcfe), including the Company's 48.8 percent interest in Four Star Oil & Gas Company (Four Star)
  • $1.40 per thousand cubic feet equivalent (Mcfe) total company reserve replacement costs compared with $2.04 per Mcfe for 2009
  • 347 percent total company reserve replacement ratio, excluding Four Star, compared with 212 percent in 2009
  • Substantial shift in the company's product mix with a much greater oil component in both proved reserves and unproved resources
  • Risked unproved resources rose 30 percent to 6.7 Tcfe. Eagle Ford and Wolfcamp shale oil programs represent more than one third of total unproved resources

El Paso Corporation (NYSE: EP) reported today that its proved oil and natural gas reserves as of December 31, 2010 rose 22 percent to 3.4 Tcfe, including 192 Bcfe related to its interest in Four Star. Total company reserve replacement costs dropped sharply to $1.40 per Mcfe from $2.04 per Mcfe in 2009, while domestic reserve replacement costs, before acquisitions, performance and price-related revisions, increased slightly to $1.65 per Mcfe from $1.57 per Mcfe in 2009. Domestic capital for 2010 included significant strategic leasehold investments in both the Eagle Ford oil and Wolfcamp shale programs. El Paso's favorable reserve statistics were achieved primarily from organic growth through its Haynesville and Eagle Ford shale programs. 

"The reserve metrics for 2010 are outstanding, and they validate that our E&P program has risen to top-tier level among domestic independent producers," said Doug Foshee, chairman, president and chief executive officer of El Paso Corporation. "This progress reflects a successful strategy, which focuses on large, repeatable programs, our ability to broaden and improve our asset base and our success in attracting and retaining superior talent to our organization. And we made significant progress during 2010 to shift the product mix of our drilling inventory towards a greater oil balance. We are focused on continuous improvement and look forward to another great performance in 2011." 

Below is a reconciliation of proved reserves from December 31, 2009 to December 31, 2010. 

Proved Reserves (Bcfe)*

Proved Reserves at Dec. 31, 2009 2,750
Production (285)
Sales of Reserves in Place (27)
Extensions and Discoveries 693
Purchases of Reserves in Place 43
Revisions Due to Price 173
Revisions Other than Price 15
Proved Reserves at Dec. 31, 2010 3,362
   
*Natural gas equivalent units are based on a six to one natural gas to oil ratio. December 31, 2010 reserve estimates are based on first day 12-month average prices of $4.38 per MMBtu of natural gas (Henry Hub) and $79.43 per barrel of oil (WTI) and include El Paso's interest in Four Star. 

Proved reserves are comprised of 2,636 Bcf of natural gas, 107.5 million barrels of oil and 13.5 million barrels of natural gas liquids. The liquids component of El Paso's proved reserves increased from 16 percent to 22 percent. On a 6:1 basis, approximately 38 percent of the December 31, 2010 proved reserves are undeveloped. El Paso's reserves to production ratio increased to 12 years from 10 years at year-end 2009. 

El Paso E&P's 2010 capital expenditures were approximately $1.3 billion, which includes approximately $265 million for the acquisition of leases, principally in the Wolfcamp and Eagle Ford oil shale programs, and approximately $85 million for international expenditures. 

2010 Production Update
El Paso also reported that its 2010 production, including its interest in Four Star, averaged 782 MMcfe/d, which exceeds its previous guidance of 760-780 MMcfe/d. 

Unproved Resources
El Paso also reported that, in addition to its proved reserves, it had 6.7 Tcfe of estimated total risked unproved resources. The company's total risked unproved resources rose approximately 1.6 Tcfe, or 30 percent, from year-end 2009 levels, with the majority of the increase coming from oil-focused drilling opportunities in the Wolfcamp and Eagle Ford shale programs. Total unrisked unproved resources were 10.5 Tcfe. 

The corporation's future drilling inventory, which includes proved undeveloped reserves and unproven resources has more than 7,020 identified future drilling locations, roughly 2,680 of which are located in the oil-focused areas of Altamont, Wolfcamp, and Eagle Ford. At current activity levels, this represents more than 10 years of drilling inventory.

Click here to view charts showing proved reserves and
unproved resources in El Paso's major programs.

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

Cautionary Note to U.S. Investors

In this press release, we have disclosed our proved reserves using the SEC's definition of proved reserves under rules effective December 31, 2009. Proved reserves are estimated quantities of hydrocarbons that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under the assumed economic conditions. Although the SEC now allows companies to report probable and possible reserves, we have elected not to report on such basis in our filings with the SEC. In this press release, we have provided estimates of our "risked" and "unrisked" unproved resources, which are different than probable and possible reserves as defined by the SEC. Note that we are not permitted to include or refer to our unproved resources on such a basis in any SEC filings, and these estimates of risked and unrisked unproved resources should not be construed as comparable to our disclosures of our proved reserves. Risked and unrisked unproved resources are estimates of potential reserves that are made using accepted geological and engineering analytical techniques. Unrisked resources are less certain than risked resources as they do not contemplate the likelihood of a successful outcome. Investors are urged to closely consider the disclosures and risk factors in our Forms 10-K and 10-Q, available from our offices or from our website at http://www.elpaso.com, including the inherent uncertainties in estimating quantities of proved reserves. 

Cautionary Statement

The information contained in this release is based on estimates. While the company has made every reasonable effort to ensure that the information and assumptions contained in this release are current, reasonable, and complete, a variety of factors could cause actual results to differ materially from the estimates contained in this release, including, without limitation, the uncertainty of estimating proved reserves and unproved reserves, the future level of service and capital costs, the availability and cost of financing to fund our future exploration and production operations; the success of our drilling programs with regard to proved undeveloped reserves and unproved resources, the effects of any changes in accounting rules and guidance; our ability to meet production estimates in our Exploration and Production segment; changes in commodity prices and basis differentials for oil and natural gas, 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, including the risk of a global recession and negative impact on natural gas demand; changes in government 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 estimates in good faith neither the company nor its management can guarantee that such estimates will be achieved. Reference must be made to El Paso's filings for additional important factors that may affect actual results. The company assumes no obligation to publicly update or revise any of the estimates made herein whether as a result of new information, future events, or otherwise.

The reserves and production information in this press release include the production attributable to El Paso's 48.8 percent interest in Four Star Oil & Gas Company ("Four Star"). The proved reserves attributable to its interest in Four Star represent estimates prepared by El Paso and not those of Four Star.

Reserve Metrics

We calculate two primary metrics, (i) a reserve replacement ratio and (ii) reserve replacement costs, to measure our ability to establish a trend of adding reserves at a reasonable cost in our asset areas. The reserve replacement ratio is an indicator of our ability to replenish annual production volumes and grow our reserves. It is important for us to economically find and develop new reserves that will more than offset produced volumes and provide for future production given the inherent decline of hydrocarbon reserves. In addition, we calculate reserve replacement costs to assess the cost of adding reserves which is ultimately included in depreciation, depletion and amortization expense. We believe the ability to develop a competitive advantage over other oil and natural gas companies is dependent on adding reserves in our asset areas at lower costs than our competition. We calculate these metrics as follows:

Reserve replacement ratio:   Sum of reserve additions1   
    Actual production for the corresponding period
     
Reserve replacement costs/Mcfe:   Total oil and gas capital costs2          
    Sum of reserve additions1
 
1 Reserve additions include proved reserves and reflect reserve revisions for prices and performance, extensions, discoveries and other additions and acquisitions and do not include unproved reserve quantities or proved reserve additions attributable to investments accounted for using the equity method.
 
2 Total oil and gas capital costs include the costs of development, exploration and proved property acquisition activities conducted to add reserves and exclude asset retirement obligations.

We show the calculation of domestic reserve replacement costs excluding the impact of acquisitions, performance and price-related revisions on reserves to demonstrate the effectiveness of our domestic drilling program exclusive of economic factors (such as price) outside of our control.

The reserve replacement ratio and reserve replacement costs per unit are statistical indicators that have limitations, including their predictive and comparative value. As an annual measure, the reserve replacement ratio is limited because it typically varies widely based on the extent and timing of new discoveries, project sanctioning and proved property acquisitions. In addition, since the reserve replacement ratio does not consider the cost or timing of future production of new reserves, it cannot be used as a measure of value creation.

The exploration for and the acquisition and development of oil and natural gas reserves is inherently uncertain as further discussed in the Company's SEC filings. One of these risks and uncertainties is our ability to spend sufficient capital to increase our reserves. While we currently expect to spend such amounts in the future, there are no assurances as to the timing and magnitude of these expenditures or the classification of the proved reserves as developed or undeveloped.

We calculate the statistical measure "reserves to production ratio" to estimate the life of our proved reserves which is calculated by dividing end of year proved reserves by total production for the year. This ratio includes our interest in Four Star. Actual results may differ from this estimate.

These reserves metrics may not be comparable to similarly titled measurements used by other companies.

Contact Information

  • Contacts:

    Investor & Media Relations
    Bruce Connery
    Vice President
    (713) 420-5855

    Bill Baerg
    Manager
    (713) 420-2906