El Paso Corporation (EP) announced its first-quarter 2010 operating earnings of 30 cents per share, higher than the Zacks Consensus Estimate by 2 cents. The results of the company were lower than year-ago earnings by 3 cents.
GAAP earnings per share in the quarter were 8 cents versus 51 cents in the first quarter of 2010. The difference between the GAAP and operating earnings during the reported quarter was due to the impact of a few one-time items.
These include a 16 cent impact for E&P financial derivatives, 2 cents owing to ceiling test charges to a tax adjustment and 4 cents due to loss on debt extinguishment.
Revenue
Total revenue of the company at the end of the first quarter was $989 million versus $1.4 billion in the year-ago period, which reflects a decline of 29.4%. The year-over-year slide resulted from dismal performance at its Exploration and Production (E&P) segment, which fell 61.4% from the prior-year quarter.
Quarterly revenue was lower than the Zacks Consensus Estimate of $1.28 billion.
Quarterly Highlights
El Paso’s cash operating costs for the first quarter of 2011 averaged $1.85 per thousand cubic feet (Mcfe), down from $1.88 per Mcfe for the same period in 2010, primarily due to higher production volumes.
Total operating expenses of the company at the end of the first quarter of 2010 were $682 million versus $641 million in the year-ago period, reflecting an increase of 6.4%.The increase emanated from higher operating and maintenance expenses.
The decrease in revenue during the quarter plus the increase in costs impacted the operating income of the company. Operating income during the first quarter 2011 was $307 million versus $760 million in the year-ago quarter reflecting a decline of 59.6%.
Interest and debt expenses at the end of first quarter 2011 were $240 million, 1.3% lower than the first quarter of 2010.
Production and Realized Price
El Paso’s production in first quarter 2011 averaged 821 million cubic feet per day (MMcfe/d), up 40 MMcfe/d from first quarter 2010 production volumes, which averaged 781 MMcfe/d.
Pipeline throughput volumes were down 4.0% to 18,062 billion British thermal units per day (BBtu/d) in first quarter 2011 from 18,881 BBtu/d in the first quarter 2010. The decrease was due to the sale of the Mexican pipeline in 2010.
Realized natural gas and oil prices, including financial derivatives, in first quarter 2011 averaged $5.44 per Mcf, down 9.9% and $85.69 per barrel, up 17.0%, respectively, both on a year-over-year basis.
El Paso employs various hedging strategies to lower its risks from exposure to commodity prices. During the reported quarter the company further added to its hedged positions.
As of March 31, 2011, 85% of El Paso’s remaining 2011 oil production is hedged with a floor of $85.99 and a ceiling of $91.88. The company also hedged 80%of its remaining 2011 domestic natural gas production at an average floor price of $5.78 per MMBtu.
Financial Update
Cash capital expenditures in the first quarter of 2011 reached $1.1 billion versus $0.7 billion in first quarter 2010. The company invested 55% more on pipeline operations and an incremental 31.8% for exploration and production (E&P) over the preceding year.
Cash flow from operations during the first quarter 2011 was $531 million versus $478 million in the first quarter of 2010.
Peer Comparison
Williams Companies (WMB) competes directly with El Paso Corporation. The former announced operating earnings for the first quarter 2011 of 36 cents per share, beating the Zacks Consensus Estimate by a penny and at par with the year-ago results.
The operating revenue of the company in the first quarter 2011 was $2.58 billion, which surpassed both the year-ago figure of $2.33 billion and the Zacks Consensus Estimate of $2.56 billion.
Our View
El Paso had mixed earnings this quarter with its revenue failing to surpass our expectation. This pipeline company is coming up with four new projects this year, which we believe will help to boost its results in the coming years.
El Paso Corporation currently retains a Zacks #3 Rank (short-term Hold rating).
Based in Houston, Texas, El Paso Corporation involves in the natural gas transmission and in the exploration and production sectors of the energy industry. The company primarily operates in United States and has some exposure in Brazil and Egypt.
EL PASO CORP (EP): Free Stock Analysis Report
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