El Paso Beats Estimates – Analyst Blog

El Paso Corporation (EP) reported an adjusted earnings of 33 cents per share for the first quarter of 2010, above the Zacks Consensus Estimate of 26 cents, but lower than the year-ago earnings of 47 cents. On a reported basis, the company earned 51 cents per share, a far cry from the loss of $1.41 per share in the year-ago quarter.

Revenues in the quarter dropped 5.6% year over year to $1.4 billion. In the quarter, operating income totaled $760 million compared with the last year’s operating loss of $1.3 billion.

Production volumes in the quarter averaged 781 MMcfe/d (down 2.7%), including 64 MMcfe/d of Four Star volumes. In 2009, production volumes averaged 763 MMcfe/d (down 6.5%), including Four Star volumes. Pipeline throughput volumes were down 4.5% to 18,811 billion British thermal unit per day (BBtu/d) in the quarter, as a result of  a weaker demand due to slower economic conditions and increased competition, primarily on the El Paso Natural Gas system.

Realized natural gas and oil prices, including financial derivatives, averaged $6.04 per Mcf (down 29%) and $65.04 per Bbl (down 7.2%), respectively. Excluding the impact of derivatives, realized prices improved 16% for natural gas and 112% for oil.

In the first quarter, operating income of the Pipeline segment grew 6.3% year over year to $421 million, driven primarily by incremental reservation revenues from four expansion projects that went into service in 2009, including the TGP Carthage, TGP Concord, WIC Piceance and CIG Totem storage projects.

Exploration and Production segment operating income was $390 million compared with an operating loss of $1.7 billion last year. The Marketing segment posted an operating income of $17 million compared with $52 million a year ago; the decline largely stemmed from hedging losses.

However, operating costs in the quarter improved to $1.88 per Mcfe from $2.00 per Mcfe, largely due to greater operating efficiencies and a reduction in the cost of certain materials and contracted expenses. For 2010, the company lowered its guidance for per-unit cash costs to $1.80 – $2.10 per Mcfe.

The company actively manages its exposure to commodity prices using various hedging strategies. As of May 5, 2010, El Paso has hedged approximately 75% of its estimated April through December 2010 domestic natural gas production. The natural gas positions have an average floor price of $6.33 per million British thermal units (MMBtu) on 123 trillion British thermal units (TBtu) and an average ceiling price of $6.80 per MMBtu on 73 TBtu. The company has also hedged roughly 3.6 million barrels (or substantially all) of its expected oil production through December 2010 at an average floor price of $76.32 per barrel and an average ceiling of $82.01 per barrel.

For 2011, El Paso has hedged 147 TBtu of natural gas production at an average floor price of $6.00 per MMBtu and an average ceiling price of $8.47 per MMBtu. For 2011, oil hedges are projected to be 3.7 million barrels at an average floor price of $84.17 per barrel and an average ceiling price of $92.52 per barrel.