<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-14365
---------------------
EL PASO ENERGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 76-0568816
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
EL PASO ENERGY BUILDING
1001 LOUISIANA STREET 77002
HOUSTON, TEXAS (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
Registrant's Telephone Number, Including Area Code: (713) 420-2131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, par value $3.00 per share. Shares outstanding on August 7,
2000: 232,240,986
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EL PASO ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS
JUNE 30, ENDED JUNE 30,
--------------- ---------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Operating revenues.......................................... $4,227 $2,597 $7,333 $4,875
------ ------ ------ ------
Operating expenses
Cost of gas and other products............................ 3,451 1,949 5,829 3,590
Operation and maintenance................................. 226 223 436 469
Merger-related costs and asset impairment charges......... 46 131 46 135
Ceiling test charges...................................... -- -- -- 352
Depreciation, depletion, and amortization................. 148 141 293 289
Taxes, other than income taxes............................ 36 36 77 76
------ ------ ------ ------
3,907 2,480 6,681 4,911
------ ------ ------ ------
Operating income (loss)..................................... 320 117 652 (36)
Other income
Equity investment earnings................................ 34 26 38 49
Interest income........................................... 8 9 28 20
Net gain on sale of assets................................ 1 19 24 22
Other, net................................................ (1) 10 10 22
------ ------ ------ ------
42 64 100 113
------ ------ ------ ------
Income before interest, income taxes, and other charges..... 362 181 752 77
------ ------ ------ ------
Interest and debt expense................................... 127 110 250 212
Minority interest........................................... 27 4 49 8
Income tax expense (benefit)................................ 68 23 142 (52)
------ ------ ------ ------
222 137 441 168
------ ------ ------ ------
Income (loss) before preferred dividends of subsidiary,
extraordinary gain, and
cumulative effect of accounting change.................... 140 44 311 (91)
Preferred stock dividends of subsidiary..................... 6 6 12 12
------ ------ ------ ------
Income (loss) before extraordinary gain and cumulative
effect of accounting change............................... 134 38 299 (103)
Extraordinary gain, net of income taxes..................... -- -- 89 --
Cumulative effect of accounting change, net of income
taxes..................................................... -- -- -- (13)
------ ------ ------ ------
Net income (loss)........................................... $ 134 $ 38 $ 388 $ (116)
====== ====== ====== ======
Comprehensive income (loss)................................. $ 131 $ 40 $ 386 $ (124)
====== ====== ====== ======
Basic earnings per common share
Income (loss) before extraordinary gain and cumulative
effect of accounting change............................. $ 0.58 $ 0.17 $ 1.30 $(0.45)
Extraordinary gain, net of income taxes................... -- -- 0.39 --
Cumulative effect of accounting change, net of income
taxes................................................... -- -- -- (0.06)
------ ------ ------ ------
Net income (loss)......................................... $ 0.58 $ 0.17 $ 1.69 $(0.51)
====== ====== ====== ======
Diluted earnings per common share
Income (loss) before extraordinary gain and cumulative
effect of accounting change............................. $ 0.56 $ 0.17 $ 1.27 $(0.45)
Extraordinary gain, net of income taxes................... -- -- 0.37 --
Cumulative effect of accounting change, net of income
taxes................................................... -- -- -- (0.06)
------ ------ ------ ------
Net income (loss)......................................... $ 0.56 $ 0.17 $ 1.64 $(0.51)
====== ====== ====== ======
Basic average common shares outstanding..................... 230 227 229 226
====== ====== ====== ======
Diluted average common shares outstanding................... 242 230 240 226
====== ====== ====== ======
Dividends declared per common share......................... $ 0.21 $ 0.20 $ 0.41 $ 0.40
====== ====== ====== ======
</TABLE>
See accompanying notes.
1
<PAGE> 3
EL PASO ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 129 $ 545
Accounts and notes receivable, net........................ 2,479 1,662
Materials and supplies.................................... 74 74
Assets from price risk management activities.............. 1,802 233
Other..................................................... 369 397
------- -------
Total current assets.............................. 4,853 2,911
Property, plant, and equipment, net......................... 10,484 10,261
Investments in unconsolidated affiliates.................... 2,200 2,029
Other....................................................... 1,798 1,456
------- -------
Total assets...................................... $19,335 $16,657
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts and notes payable................................ $ 2,439 $ 1,658
Short-term borrowings (including current maturities of
long-term debt)........................................ 732 1,344
Liabilities from price risk management activities......... 1,061 197
Other..................................................... 975 499
------- -------
Total current liabilities......................... 5,207 3,698
Long-term debt, less current maturities..................... 4,998 5,223
Deferred income taxes....................................... 1,771 1,738
Other....................................................... 1,860 1,358
Commitments and contingencies
Company-obligated preferred securities of El Paso Energy
Capital Trust I and IV.................................... 625 325
Minority interest........................................... 1,581 1,368
Stockholders' equity
Common stock, par value $3 per share; authorized
750,000,000 shares; issued 240,778,311 and 238,542,335
shares, respectively................................... 722 716
Additional paid-in capital................................ 1,434 1,367
Retained earnings......................................... 1,500 1,207
Accumulated other comprehensive income.................... (31) (29)
Treasury stock (at cost); 8,836,727 and 8,947,565 shares,
respectively.................................... (272) (273)
Deferred compensation..................................... (60) (41)
------- -------
Total stockholders' equity........................ 3,293 2,947
------- -------
Total liabilities and stockholders' equity........ $19,335 $16,657
======= =======
</TABLE>
See accompanying notes.
2
<PAGE> 4
EL PASO ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
------------------
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)......................................... $ 388 $ (116)
Adjustments to reconcile net income (loss) to net cash
from operating activities
Depreciation, depletion, and amortization.............. 293 289
Ceiling test charges................................... -- 352
Deferred income tax expense............................ 41 4
Net gain on sale of assets............................. (24) (22)
Undistributed earnings in equity investees............. (10) (42)
Non-cash portion of merger related charges............. -- 112
Extraordinary gain on sales............................ (149) --
Cumulative effect of accounting change................. -- 13
Other.................................................. (13) (9)
Working capital changes, net of non-cash transactions..... (665) (241)
Other..................................................... (38) (83)
------- -------
Net cash provided by (used in) operating
activities....................................... (177) 257
------- -------
Cash flows from investing activities
Purchases of property, plant, and equipment............... (639) (403)
Net proceeds from sale of assets.......................... 506 27
Additions to investments.................................. (938) (595)
Proceeds from sale of investments......................... 253 24
Change in cash deposited in escrow related to equity
investee............................................... 24 (89)
Repayment of notes receivable from Chaparral.............. 647 --
Cash paid for acquisitions, net of cash received.......... (163) (36)
------- -------
Net cash used in investing activities............. (310) (1,072)
------- -------
Cash flows from financing activities
Net borrowings (repayments) of commercial paper and
short-term notes....................................... (799) 179
Revolving credit borrowings............................... 425 532
Revolving credit repayments............................... (460) (872)
Net proceeds from issuance of long-term debt.............. -- 496
Payments to retire long-term debt......................... (40) (32)
Increase in notes payable to Chaparral.................... 477 --
Increase (decrease) in notes payable to equity investee... (15) 89
Net proceeds from issuance of Company-obligated preferred
securities of El Paso Energy Capital Trust IV.......... 293 --
Net proceeds from issuance of minority interests in
subsidiaries .......................................... 245 493
Dividends paid............................................ (93) (104)
Other..................................................... 38 9
------- -------
Net cash provided by financing activities......... 71 790
------- -------
Decrease in cash and cash equivalents....................... (416) (25)
Cash and cash equivalents
Beginning of period............................... 545 104
------- -------
End of period..................................... $ 129 $ 79
======= =======
</TABLE>
See accompanying notes.
3
<PAGE> 5
EL PASO ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Our 1999 Annual Report on Form 10-K includes a summary of our significant
accounting policies and other disclosures. You should read it in conjunction
with this Quarterly Report on Form 10-Q. The condensed consolidated financial
statements at June 30, 2000, and for the quarters and six months ended June 30,
2000 and 1999, are unaudited. The condensed consolidated balance sheet at
December 31, 1999, is derived from the audited financial statements. These
financial statements do not include all disclosures required by accounting
principles generally accepted in the United States, but have been prepared
pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission. In our opinion, all material adjustments, all of which are of a
normal, recurring nature, have been made to fairly present our results of
operations. Information for any interim period may not necessarily indicate the
results of operations for the entire year due to the seasonal nature of our
businesses. The financial information for the quarter and six months ended June
30, 1999, includes the combined historical results of El Paso and Sonat Inc. to
reflect our October 1999 merger with Sonat, which was accounted for as a pooling
of interests. The prior period information also includes reclassifications which
were made to conform to the current presentation. These reclassifications have
no effect on our reported net income or stockholders' equity.
Ceiling Test Charges
Under the full cost method of accounting for natural gas and oil
properties, we perform quarterly ceiling tests to ensure that the carrying value
of natural gas and oil properties is not overstated. At March 31, 1999, our
capitalized costs exceeded this ceiling test limit by $352 million. This
write-down is included as ceiling test charges in our statements of income.
Cumulative Effect of Accounting Change
In the first quarter of 1999, we adopted the American Institute of
Certified Public Accountants Statement of Position 98-5, Reporting on the Costs
of Start-Up Activities. This statement defined start-up activities and required
companies to expense start-up and organization costs as incurred. It also
required that, upon adoption, companies expense any such costs that existed on
their balance sheet. We adopted the pronouncement effective January 1, 1999, and
reported a charge of $13 million, net of income taxes, as a cumulative effect of
an accounting change.
2. MERGERS AND ACQUISITIONS
Coastal
In January 2000, we entered into a merger agreement with The Coastal
Corporation. See Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations, Recent Developments for a discussion of
this agreement.
Texas Midstream Operations
In January 2000, we entered into an agreement to purchase the natural gas
and natural gas liquids businesses of PG&E Gas Transmission, Texas Corporation
and PG&E Gas Transmission Teco, Inc. See Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations, Recent Developments
for a discussion of this agreement.
4
<PAGE> 6
Other
During 2000, we made smaller acquisitions and acquired interests in new
assets, including power generation facilities, oil and natural gas
transportation systems, and energy management businesses for cash and notes.
3. EXTRAORDINARY GAIN
During the first quarter of 2000, we sold East Tennessee Natural Gas
Company and Sea Robin Pipeline Company to comply with a Federal Trade Commission
(FTC) order related to our merger with Sonat. Net proceeds from the sales were
$457 million and we recognized an extraordinary gain of $89 million, net of
income taxes of $60 million. In May 2000, we also disposed of our one-third
interest in Destin Pipeline Company to comply with the same FTC order. Net
proceeds from this sale were $159 million and no material gain or loss was
recognized on this transaction.
4. EARNINGS PER SHARE
Our computation of basic and diluted earnings per common share are
presented below.
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
------------------------------------
2000 1999
--------------- ------------------
BASIC DILUTED BASIC DILUTED(1)
----- ------- ----- ----------
(IN MILLIONS, EXCEPT PER
COMMON SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Income before extraordinary gain and cumulative effect of
accounting change........................................ $ 134 $ 134 $ 38 $ 38
Interest on trust preferred securities................... -- 3 -- --
----- ----- ----- -----
Adjusted net income........................................ $ 134 $ 137 $ 38 $ 38
===== ===== ===== =====
Average common shares outstanding.......................... 230 230 227 227
Effect of dilutive securities
Restricted stock......................................... -- -- -- --
Stock options............................................ -- 4 -- 3
Trust preferred securities............................... -- 8 -- --
----- ----- ----- -----
Average common shares outstanding.......................... 230 242 227 230
===== ===== ===== =====
Earnings per common share.................................. $0.58 $0.56 $0.17 $0.17
===== ===== ===== =====
</TABLE>
---------------
(1) The addition of trust preferred securities to potential average common
shares outstanding would have increased earnings per share for the quarter
ended June 30, 1999. Therefore, the trust preferred securities and the
interest on these securities have not been factored into dilutive earnings
per share for this period.
5
<PAGE> 7
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
2000 1999(1)
----------------- -------
BASIC DILUTED BASIC
------ -------- -------
(IN MILLIONS, EXCEPT PER
COMMON SHARE AMOUNTS)
<S> <C> <C> <C>
Income (loss) before extraordinary gain and cumulative
effect of accounting change............................... $ 299 $ 299 $ (103)
Interest on trust preferred securities.................... -- 5 --
----- ----- ------
Adjusted income (loss) before extraordinary gain and
cumulative effect of accounting change................. 299 304 (103)
Extraordinary gain, net of income taxes................... 89 89 --
Cumulative effect of accounting change, net of income
taxes.................................................. -- -- (13)
----- ----- ------
Adjusted net income (loss).................................. $ 388 $ 393 $ (116)
===== ===== ======
Average common shares outstanding........................... 229 229 226
Effect of dilutive securities
Restricted stock.......................................... -- -- --
Stock options............................................. -- 3 --
Trust preferred securities................................ -- 8 --
----- ----- ------
Average common shares outstanding........................... 229 240 226
===== ===== ======
Earnings per common share
Adjusted income (loss) before extraordinary gain and
cumulative effect of accounting change................. $1.30 $1.27 $(0.45)
Extraordinary gain, net of income taxes................... 0.39 0.37 --
Cumulative effect of accounting change, net of income
taxes.................................................. -- -- (0.06)
----- ----- ------
Net income (loss)......................................... $1.69 $1.64 $(0.51)
===== ===== ======
</TABLE>
---------------
(1) The addition of potential average common shares outstanding for 1999 would
have reduced the loss per share. Therefore, the diluted loss per share has
not been presented for 1999.
5. PROPERTY, PLANT, AND EQUIPMENT
Our property, plant, and equipment consisted of the following at June 30,
2000 and December 31, 1999:
<TABLE>
<CAPTION>
2000 1999
------- -------
(IN MILLIONS)
<S> <C> <C>
Property, plant, and equipment, at cost
Natural Gas Transmission.................................. $ 7,972 $ 8,121
Merchant Energy........................................... 243 200
International............................................. 314 316
Field Services............................................ 1,243 1,220
Production................................................ 5,651 5,415
Corporate and other....................................... 205 196
------- -------
15,628 15,468
Less accumulated depreciation............................... 7,599 7,656
------- -------
8,029 7,812
Additional acquisition cost assigned to utility plant, net
of accumulated amortization............................... 2,455 2,449
------- -------
Total property, plant, and equipment, net................... $10,484 $10,261
======= =======
</TABLE>
6
<PAGE> 8
6. COMMITMENTS AND CONTINGENCIES
Rates and Regulatory Matters
Each of our pipeline systems has contracts covering a portion of their firm
transportation capacity with various terms of maturity, and each operates in
different markets and regions with different competitive and regulatory
pressures which can impact their ability to renegotiate and renew existing
contracts, or enter into new long-term firm transportation commitments. By
November 2000, contracts representing 20 percent of Tennessee Gas Pipeline
Company's (TGP) firm transportation capacity will expire. In March 2000,
Southern Natural Gas Company (SNG) extended its firm transportation and storage
contracts until 2005 or later, substantially all of which were at the maximum
tariff rates allowed under its settlement. El Paso Natural Gas Company (EPNG)
has 27 percent of its capacity subscribed under shorter-term contracts. On each
of our pipeline systems, we are aggressively pursuing the renegotiation and
renewal of expiring contracts, and the sale of excess capacity under firm
transportation arrangements. However, we are uncertain if future contracts will
be on terms as favorable to us as those that currently exist. Also, customers
and other groups may dispute new and renewed contracts. As a result, we cannot
be sure that regulators or other jurisdictional bodies will not intercede in our
re-contracting process and alter the ultimate outcome of our efforts.
All of EPNG's customers who were parties to its rate case settlement
participate in risk sharing provisions under the settlement. As of June 30,
2000, EPNG had unearned risk sharing revenues of $112 million and had $47
million remaining to be collected from customers under this provision. If
revenue from remarketing its relinquished capacity to customers exceeds certain
dollar levels specified in the risk sharing agreement, EPNG may be obligated to
refund a portion of the excess to customers. Under this provision, EPNG refunded
$15 million for 1999 revenues to customers and has reserved $6 million against
2000 revenues. The risk sharing provisions of the rate settlement extend through
2003, at which time EPNG will be at risk for all unsubscribed, excess capacity
on its system.
While we cannot predict with certainty the final outcome or timing of the
resolution of rates and regulatory matters, the outcome of our current
re-contracting and capacity subscription efforts, or the outcome of ongoing
industry trends and initiatives, we believe the ultimate resolution of these
issues will not have a material adverse effect on our financial position,
results of operations, or cash flows.
Legal Proceedings
In November 1993, TransAmerican Natural Gas Corporation filed a complaint
in a Texas state court against us which sought approximately $7.5 billion in
actual and punitive damages related to our 1990 settlement agreement with
TransAmerican and others. TransAmerican's complaint advanced ten causes of
action. Some of the causes of action were previously dismissed. Trial on the
remaining claims began on
May 1, 2000. During the trial commencement, all claims against all defendants
were settled. The settlement had no material adverse effect on our financial
position, results of operations, or cash flows.
In April 1996, a former employee of TransAmerican filed a related case in
Harris County, Texas, Vickroy E. Stone v. Godwin & Carlton, P.C., et al.,
seeking other damages in unspecified amounts related to litigation consulting
work allegedly performed for various entities, including EPNG, in cases
involving TransAmerican. In June 1998, the court granted our motion for summary
judgment and dismissed all claims in the Stone litigation. In May 2000, the
Texas Court of Appeals in Houston, Texas, upheld the trial court's rulings,
except for one claim relating to failure to pay Stone a bonus. Both EPNG and
Stone have filed motions for rehearing with the court of appeals. Based on
information available at this time, we believe that the claims asserted against
us in this case have no factual or legal basis.
In February 1998, the United States and the State of Texas filed in a U.S.
District Court a Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) cost recovery action against fourteen companies,
including certain of our current and former affiliated companies, relating to
the Sikes Disposal Pits Superfund Site located in Harris County, Texas. The suit
claims that the United States and the State of Texas have spent over $125
million in remediating Sikes, and seeks to recover that amount plus interest
from the defendants to the suit. Although an investigation relating to Sikes is
in the preliminary
7
<PAGE> 9
stages, we believe that the amount of material, if any, disposed at Sikes by our
former affiliates was small, possibly de minimis. However, the plaintiffs have
alleged that the defendants are each jointly and severally liable for the entire
remediation costs and have also sought a declaration of liability for future
response costs such as groundwater monitoring.
TGP is a party in proceedings involving federal and state authorities
regarding the past use of a lubricant containing polychlorinated biphenyls
(PCBs) in its starting air systems. TGP has executed a consent order with the
EPA governing the remediation of some compressor stations and is working with
the EPA and the relevant states regarding those remediation activities. TGP is
also working with the Pennsylvania and New York environmental agencies regarding
remediation and post-remediation activities at the Pennsylvania and New York
stations.
In November 1988, the Kentucky environmental agency filed a complaint in a
Kentucky state court alleging that TGP discharged pollutants into the waters of
the state and disposed of PCBs without a permit. The agency sought an injunction
against future discharges, an order to remediate or remove PCBs, and a civil
penalty. TGP entered into agreed orders with the agency to resolve many of the
issues raised in the original allegations, has received water discharge permits
from the agency for its Kentucky compressor stations, and continues to work to
resolve the remaining issues. The relevant Kentucky compressor stations are
scheduled to be characterized and remediated under the consent order with the
EPA.
A number of our subsidiaries are named defendants in actions brought by
Jack Grynberg on behalf of the U.S. Government under the False Claims Act.
Generally, these complaints allege an industry-wide conspiracy to under report
the heating value as well as the volumes of the natural gas produced from
federal and Native American lands, which deprived the U.S. Government of
royalties. We have also been named defendants in a similar class action suit,
Quinque Operating Company v. Gas Pipelines. This complaint alleges that the
defendants mismeasured natural gas volumes and heating content of natural gas on
non-federal and non-Native American lands. The Quinque complaint was transferred
to the same court handling the Grynberg complaint. We believe both complaints
are without merit.
In 1999, our production company was sued in Clint Miller, et. al. v. Sonat
Exploration Company, et. al., as a result of the blowout of a well in Bienville,
Louisiana which caused the deaths of seven individuals and injuries to four
others. The plaintiffs sought in excess of $5 billion in compensatory and
punitive damages against us and our co-defendants. We reached a settlement with
the principal claimants in May 2000. However, two estate claims remain with no
trial date currently set. Following the settlement, there are now actions
pending and negotiations underway for recovery of settlement amounts from other
defendants, non-operating working interest owners, and insurance carriers. At
this time, we believe it is probable that we will recover the amounts funded
under these settlements.
We are also a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of our
business.
While the outcome of the matters discussed above cannot be predicted with
certainty, we do not expect the ultimate resolution of these matters to have a
material adverse effect on our financial position, results of operations, or
cash flows.
Environmental
We are subject to extensive federal, state, and local laws and regulations
governing environmental quality and pollution control. These laws and
regulations require us to remove or remedy the effect on the environment of the
disposal or release of specified substances at current and former operating
sites. As of June 30, 2000, we had reserved $235 million for expected
environmental costs.
In addition, we expect to make capital expenditures of approximately $3
million in 2000 and a total of $120 million for the years 2001 through 2007 for
environmental matters primarily relating to compliance with air regulations and
control of water discharges. Some of our subsidiaries have been designated, have
received notice that they could be designated, or have been asked for
information to determine whether they could be designated as a potentially
responsible party with respect to 30 active sites under CERCLA.
8
<PAGE> 10
It is possible that new information or future developments could require us
to reassess our potential exposure related to environmental matters. We may
incur significant costs and liabilities in order to comply with existing
environmental laws and regulations. It is also possible that other developments,
such as increasingly strict environmental laws and regulations, and claims for
damages to property, employees, other persons and the environment resulting from
our current or past operations, could result in substantial costs and
liabilities in the future. As this information becomes available, or other
relevant developments occur, we will adjust our accrual amounts accordingly.
While there are still uncertainties relating to the ultimate costs we may incur,
based upon our evaluation and experience to date, we believe the recorded
reserves are adequate.
7. DEBT AND OTHER CREDIT FACILITIES
Since the beginning of 2000, we:
- established, borrowed and repaid $250 million under a non-committed line
of credit;
- redeemed the Hattiesburg Gas Storage Company's 8.12% Secured Guaranteed
Notes due 2005 in an aggregate principal amount of $36 million;
- formed the El Paso Energy Capital Trust IV, a Delaware statutory business
trust, and issued variable rate preferred securities, as described in
Note 11;
- established a $1 billion commercial paper program for El Paso Energy as
an addition to TGP's and EPNG's current programs;
- redeemed DeepTech's 12% Notes Due 2000, in an aggregate principal amount
of $82 million; and
- received funds, which were used to pay down short-term borrowings and for
other corporate purposes, from Chaparral Investors as described in Note
9.
In August 2000, we replaced our $1,250 million and our $750 million
revolving credit facilities with a $2 billion 364-day renewable revolving credit
and competitive advance facility and a $1 billion 3-year revolving credit and
competitive advance facility. EPNG and TGP are also designated borrowers under
these new facilities. The interest rate for these facilities varies and would
have been LIBOR plus 50 basis points on June 30, 2000. The available credit
under these facilities is expected to be used for general corporate purposes
including, but not limited to, supporting our commercial paper programs.
At June 30, 2000, our weighted average interest rate on short-term
borrowings was 7.1% and at December 31, 1999, it was 6.6%. We had the following
short-term borrowings, including current maturities of long-term debt at June
30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
2000 1999
---- ------
(IN MILLIONS)
<S> <C> <C>
Commercial paper............................................ $418 $1,217
Other credit facilities..................................... -- 35
Current maturities of long-term debt........................ 314 92
---- ------
$732 $1,344
==== ======
</TABLE>
9
<PAGE> 11
8. SEGMENT INFORMATION
We segregate our business activities into five distinct operating segments:
- Natural Gas Transmission;
- Merchant Energy;
- International;
- Field Services; and
- Production.
These segments are strategic business units that provide a variety of
energy products and services. They are managed separately, as each business unit
requires different technology and marketing strategies. We measure segment
performance using earnings before interest and taxes (EBIT). At the beginning of
2000, we transferred EnCap Investments L.L.C. from the Field Services segment to
the Merchant Energy segment. All periods presented have been restated for this
change.
<TABLE>
<CAPTION>
AS OF AND FOR THE QUARTER ENDED JUNE 30, 2000
------------------------------------------------------------------------------------
NATURAL
GAS MERCHANT FIELD
TRANSMISSION ENERGY INTERNATIONAL SERVICES PRODUCTION OTHER(A) TOTAL
------------ -------- ------------- -------- ---------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from external
customers.................. $ 345 $3,642 $ 26 $ 141 $ 69 $ 4 $ 4,227
Intersegment revenues........ 41 7 -- 16 62 (126) --
Operating income (loss)...... 177 141 (5) 24 52 (69) 320
EBIT......................... 190 152 12 30 52 (74) 362
Segment assets............... 8,750 5,156 1,521 1,503 1,582 823 19,335
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE QUARTER ENDED JUNE 30, 1999
------------------------------------------------------------------------------------
NATURAL
GAS MERCHANT FIELD
TRANSMISSION ENERGY INTERNATIONAL SERVICES PRODUCTION OTHER(A) TOTAL
------------ -------- ------------- -------- ---------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from external
customers.................. $ 388 $2,075 $ 12 $ 95 $ 34 $ (7) $ 2,597
Intersegment revenues........ 16 5 -- 19 84 (124) --
Operating income (loss)...... 209 1 (4) 12 39 (140) 117
EBIT......................... 217 6 16 35 40 (133) 181
Segment assets............... 8,678 2,072 1,195 1,465 1,230 589 15,229
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------------------------------------------
NATURAL
GAS MERCHANT FIELD
TRANSMISSION ENERGY INTERNATIONAL SERVICES PRODUCTION OTHER(A) TOTAL
------------ -------- ------------- -------- ---------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from external
customers.................. $ 740 $6,169 $ 55 $ 260 $ 107 $ 2 $ 7,333
Intersegment revenues........ 66 16 -- 33 161 (276) --
Operating income (loss)...... 393 193 (7) 43 107 (77) 652
EBIT......................... 414 202 45 55 107 (71) 752
Segment assets............... 8,750 5,156 1,521 1,503 1,582 823 19,335
</TABLE>
---------------
(a) Includes corporate, eliminations, and other non-operating segment
activities.
10
<PAGE> 12
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------------------------------------------------------
NATURAL
GAS MERCHANT FIELD
TRANSMISSION ENERGY INTERNATIONAL SERVICES PRODUCTION OTHER(A) TOTAL
------------ -------- ------------- -------- ---------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from external
customers................. $ 799 $3,825 $ 29 $ 175 $ 53 $ (6) $ 4,875
Intersegment revenues....... 32 8 -- 38 157 (235) --
Operating income (loss)..... 419 9 (19) 22 (311) (156) (36)
EBIT........................ 444 13 19 51 (310) (140) 77
Segment assets.............. 8,678 2,072 1,195 1,465 1,230 589 15,229
</TABLE>
---------------
(a) Includes corporate, eliminations, and other non-operating segment
activities.
9. INVESTMENT IN UNCONSOLIDATED AFFILIATES
We hold investments in various affiliates which we account for using the
equity method of accounting. Summarized financial information for our
proportionate share of these investments is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
QUARTER ENDED ENDED
JUNE 30, JUNE 30,
------------- -----------
2000 1999 2000 1999
----- ----- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Operating results data
Revenues and other income.............................. $284 $264 $488 $444
Costs and expenses..................................... 228 215 426 367
Income from continuing operations...................... 56 49 62 77
Net income............................................. 34 26 38 49
</TABLE>
East Asia Power
At December 31, 1999, we held a 92 percent ownership interest in East Asia
Power Resources Corporation. In March 2000, we converted our investment into a
50/50 joint venture with a third party. In the transaction, we received $85
million, net of transaction costs, and recognized a $20 million benefit. At the
time of the conversion, our investment in East Asia Power was $131 million. East
Asia Power owns and operates seven power generation facilities in the
Philippines and one plant in China, with a total generating capacity of 412
megawatts. Electric power generated by the facilities is supplied to a
diversified base of customers, including National Power Corporation, the
Philippine state-owned utility, private distribution companies and industrial
users.
Chaparral Investors
During the first quarter of 2000, Chaparral completed its acquisitions of
several domestic non-utility generation assets including equity interests in
eleven natural gas-fired combined generation facilities in California, two
natural gas-fired electric generation plants located in Dartmouth, Massachusetts
and Pawtucket, Rhode Island, and all the outstanding shares of Bonneville
Pacific Corporation, which owns a 50 percent interest in a power generation
facility. Chaparral also acquired several operating companies which provide the
services required to operate and maintain these newly acquired facilities and a
natural gas service company which provides fuel procurement services to eight of
Chaparral's natural gas-fired combined generation facilities in California.
Chaparral acquired these assets from us in exchange for notes payable in the
amount of $385 million. In March 2000, Chaparral's third-party investor
increased its overall investment in Chaparral by $1,027 million. The proceeds
were used by Chaparral to repay $647 million of notes from us, to make a $278
million contribution to an overfund trust as provided in the Chaparral
agreement, to invest in a note with us, and to fund transaction costs. Also, in
March 2000, we issued mandatorily convertible preferred stock to a share trust
we control. Upon the occurrence of certain negative events, the trustee of the
trust may
11
<PAGE> 13
be required to remarket our preferred stock on terms that are designed to
generate $1 billion to distribute to the third party investor.
Under our management agreement with Chaparral, we earn a performance-based
management fee. We are also reimbursed for expenses we incur on behalf of
Chaparral. For 2000, our management fee related to Chaparral has been fixed at
$100 million. This fee includes an $80 million performance-based component and a
$20 million reimbursement for costs we will incur on behalf of Chaparral. We
will recognize this fee ratably throughout the year as we provide management
services.
10. MINORITY INTEREST
In May 2000, we formed Clydesdale Associates, L.P., a limited partnership,
and several other separate legal entities to generate funds to invest in capital
projects and other assets. We contributed $55 million into this structure and a
third-party investor contributed $250 million. The third-party investor is
entitled to an adjustable preferred return derived from the net income of the
partnership. Clydesdale used the proceeds to invest in a note receivable with
us. The third-party's contributions are collateralized by production properties,
rental income from real estate assets, and notes receivable from us. We have the
option to acquire the third-party's interest in the structure at any time prior
to May 2005. If we do not exercise this option, or if the terms of the agreement
are not extended, the note receivable will mature and a portion of the proceeds
will be used to redeem the third-party investor's interest in the structure. The
assets, liabilities and operations of the partnership and the other entities
involved in this transaction are included in our consolidated financial
statements. The third-party investor's interest is included as minority interest
in our balance sheets and their preferred return is included in minority
interest in our statements of income.
11. COMPANY-OBLIGATED PREFERRED SECURITIES
In May 2000, we increased our company-obligated preferred securities by
forming El Paso Energy Capital Trust IV which issued $300 million of preferred
securities to a third party investor. These preferred securities pay cash
distributions at a floating rate equal to the three-month LIBOR plus 75 basis
points. As of June 30, 2000, the floating rate was 7.58%. These preferred
securities must be redeemed by Trust IV no later than November 30, 2003.
Proceeds from the sale of the securities were used by Trust IV to purchase a
series of our floating rate senior debentures whose yield and maturity terms
mirror those of the preferred securities issued by Trust IV. The sole assets of
Trust IV are these floating rate senior debentures. We guarantee the obligations
of Trust IV related to its preferred securities. At the time Trust IV issued the
preferred securities, we also agreed to issue $300 million of equity securities,
including but not limited to, our common stock in one or more public offerings
prior to May 31, 2003.
12. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, to establish accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. This pronouncement requires us
to classify derivatives as either assets or liabilities on the balance sheet,
with a corresponding offset to income or other comprehensive income, and measure
those instruments at fair value. If certain conditions are met, we may
specifically designate a derivative as a hedge of:
- the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment;
- the exposure to variable cash flows of a forecasted transaction; or
- the foreign currency exposure of a net investment in a foreign operation,
an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
The accounting for the changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation.
12
<PAGE> 14
SFAS No. 137, Deferral of the Effective Date of SFAS 133, amended the
standard in June 1999 to defer the effective date. Consequently, SFAS No. 133
will be effective for us January 1, 2001.
In June 2000, the Financial Accounting Standards Board issued SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities,
which also amended SFAS No. 133. The amendment:
- expands the normal purchases and sales exception;
- redefines specific risks that can be designated as hedges;
- allows recognition of foreign-currency-denominated assets and liabilities
as hedged items; and
- permits intercompany derivatives to be designated as hedging instruments
for foreign currency risk if the hedge is offset by an unrelated third
party on a net basis (netting risks is permitted only for foreign
currency transactions).
We are currently evaluating the effects these pronouncements will have on our
financial position, results of operations, or cash flows.
Staff Accounting Bulletin No. 101
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements,
to provide guidance for revenue recognition issues and disclosure requirements.
SAB No. 101 offers guidelines, examples, and explanations for uncertain matters
relating to the recognition of revenue and will be effective for us in the
fourth quarter of 2000. We do not believe the adoption of SAB No. 101 will have
a material impact on our financial position, results of operations, or cash
flows.
13
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
The information contained in Item 2 updates, and you should read it in
conjunction with, information disclosed in Part II, Items 7, 7A, and 8, in our
Annual Report on Form 10-K for the year ended December 31, 1999, in addition to
the financial statements and notes presented in Item 1 of this Quarterly Report
on Form 10-Q.
RECENT DEVELOPMENTS
MERGER WITH THE COASTAL CORPORATION
In January 2000, we entered into a definitive agreement to merge with
Coastal. In the merger, we will convert each share of Coastal's common stock and
Class A common stock on a tax-free basis into 1.23 shares of our common stock.
We will exchange Coastal's outstanding convertible preferred stock for our
common stock on the same basis as if we had converted the preferred stock into
Coastal's common stock immediately prior to the merger. At June 30, 2000, the
total value of the transaction was approximately $18 billion, including $6
billion of assumed debt and preferred equity. We will account for the
transaction as a pooling of interests, and expect it to close in the fourth
quarter of 2000. On May 5, 2000, Coastal's stockholders approved and adopted the
merger agreement and our stockholders approved the issuance of shares of common
stock in connection with the merger. On July 26, 2000, the Federal Energy
Regulatory Commission (FERC) approved our proposed merger. The merger will be
completed only if a number of conditions are met or waived, including:
- no law or court order prohibits the transaction;
- all relevant waiting periods under federal antitrust laws applicable to
the merger expire or terminate;
- all other regulatory approvals are received without conditions that would
have a material adverse effect on the financial condition, results of
operations, or cash flows of the post-merger combined businesses;
- the independent public accountants of both companies concur that the
merger will qualify for pooling of interests accounting treatment; and
- attorneys for both companies issue opinions that the merger is expected
to be tax-free.
Coastal is a diversified energy holding company. It is engaged, through its
subsidiaries and joint ventures, in natural gas transmission, storage,
gathering, processing and marketing; natural gas and oil exploration and
production; and petroleum refining, marketing and distribution. It owns
interests in approximately 18,000 miles of natural gas pipelines extending
across the midwestern and the Rocky Mountain areas of the United States and has
proved reserves of 3.6 Tcfe.
---------------
(1) As generally used in the energy industry and in this document, the following
terms have the following meanings:
<TABLE>
<S> <C> <C> <C> <C> <C>
Bbl = barrel MMBtu = million British thermal units
BBtu/d = billion British thermal units per day Mcf = thousand cubic feet
Bcf/d = billion cubic feet per day MMcf/d = million cubic feet per day
MBbls = thousand barrels Tcfe = trillion cubic feet of gas equivalents
</TABLE>
When we refer to natural gas and oil in "equivalents," we are doing so to
compare quantities of oil with quantities of natural gas or to express these
different commodities in a common unit. In calculating equivalents, we use a
generally recognized standard in which one Bbl is equal to approximately six
Mcf.
14
<PAGE> 16
PURCHASE OF TEXAS MIDSTREAM OPERATIONS
In January 2000, we entered into an agreement to purchase the natural gas
and natural gas liquids businesses of PG&E Gas Transmission, Texas Corporation,
and PG&E Gas Transmission Teco, Inc. The value of the transaction is
approximately $840 million, including assumed debt of $561 million. The
acquisition is expected to close during the third quarter of 2000 and is subject
to the receipt of certain required governmental approvals and third party
consents. We will account for the transaction as a purchase and
will include the acquired operations in our Field Services segment upon
completion of the transaction. Some of these acquired operations are candidates
for acquisition by El Paso Energy Partners, a
master-limited partnership of which we are the general partner.
We will acquire assets consisting of 8,500 miles of intrastate natural gas
transmission pipelines that transport approximately 2.8 Bcf/d in the South Texas
area, nine natural gas processing plants that currently process 1.5 Bcf/d, and a
7.2 Bcf natural gas storage field. The transaction also includes significant
natural gas liquids pipelines and fractionation facilities.
RESULTS OF OPERATIONS
For the quarter ended June 30, 2000, our net income was $134 million versus
$38 million for 1999. Substantial growth in the earnings of our Merchant Energy
segment and continued strong performance in our other non-regulated segments
were the primary reasons for the increase. Partially offsetting this increase
were higher interest and debt expense and income taxes in the second quarter of
2000. EBIT was $362 million for the second quarter 2000, versus $181 million for
1999, with our non-regulated business units comprising approximately 68 percent
of our 2000 total.
For the six months ended June 30, 2000, our net income was $388 million
versus a net loss of $116 million for 1999. Stronger performance in all of our
non-regulated business units and a gain on the sales of our East Tennessee and
Sea Robin pipeline systems in compliance with the FTC order related to our 1999
merger with Sonat contributed to the increase. The variance was further impacted
by a first quarter 1999 ceiling test write-down under the full cost accounting
method in our Production segment and merger costs related to Sonat in the second
quarter of 1999. These increases were offset by higher interest and debt expense
and income taxes during 2000. EBIT was $752 million for the six months ended
June 30, 2000 versus $77 million for 1999, with our non-regulated business units
comprising approximately 54 percent of our 2000 total.
During the third quarter of 2000, we anticipate completing our acquisition
of PG&E's Texas mid-stream operations. These operations are expected to have a
positive impact on our overall results for the remainder of 2000. However, any
delays in closing this acquisition will reduce its potentially positive impacts.
In the fourth quarter of 2000, we also anticipate completing our merger with
Coastal. We anticipate incurring significant transaction costs as these mergers
are completed. A substantial amount of our expected merger-related costs should
be reflected in the remaining quarters of 2000 and, to a lesser extent, into the
early part of 2001. A more detailed analysis of our segment results and
non-operating expenses is discussed below.
15
<PAGE> 17
SEGMENT RESULTS
Our June 30, 1999, financial information includes the combined historical
results of El Paso and Sonat to reflect our October 1999 merger with Sonat,
which was accounted for as a pooling of interests. At the beginning of 2000, we
transferred EnCap from the Field Services segment to the Merchant Energy
segment. All periods presented have been restated for these changes.
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
EARNINGS BEFORE INTEREST EXPENSE AND INCOME TAXES
Natural Gas Transmission............................ $ 190 $ 217 $ 414 $ 444
Merchant Energy..................................... 152 6 202 13
International....................................... 12 16 45 19
Field Services...................................... 30 35 55 51
Production.......................................... 52 40 107 (310)
------- ------- ------- -------
Segment total..................................... 436 314 823 217
Corporate, net...................................... (74) (133) (71) (140)
------- ------- ------- -------
Consolidated EBIT................................. $ 362 $ 181 $ 752 $ 77
======= ======= ======= =======
</TABLE>
NATURAL GAS TRANSMISSION
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
(IN MILLIONS, EXCEPT VOLUME AMOUNTS)
<S> <C> <C> <C> <C>
Operating revenues.................................. $ 386 $ 404 $ 806 $ 831
Operating expenses.................................. (209) (195) (413) (412)
Other income........................................ 13 8 21 25
------- ------- ------- -------
EBIT.............................................. $ 190 $ 217 $ 414 $ 444
======= ======= ======= =======
Throughput volumes (BBtu/d)
TGP............................................... 4,216 4,790 4,866 5,175
EPNG.............................................. 4,000 3,939 3,967 3,938
SNG............................................... 2,037 2,524 2,425 2,767
Equity investments (our share).................... 1,011 1,163 1,199 988
------- ------- ------- -------
Total throughput.......................... 11,264 12,416 12,457 12,868
======= ======= ======= =======
</TABLE>
Second Quarter 2000 Compared to Second Quarter 1999
Operating revenues for the quarter ended June 30, 2000, were $18 million
lower than 1999. The decrease was due to the impact from the sales of our East
Tennessee Pipeline and Sea Robin systems in the first quarter of 2000. Also
contributing to the decrease was the favorable resolution of regulatory issues
in 1999 on the TGP system, lower rates on the SNG system following its 2000 rate
case settlement, and the elimination in the first quarter of 2000 of the minimum
bill on our Elba Island facility which is undergoing reactivation. These
decreases were partially offset by higher revenues from transportation and other
services provided on each of our systems and revenues from our acquisition of
Crystal Gas Storage, Inc. in January 2000.
Operating expenses for the quarter ended June 30, 2000, were $14 million
higher than 1999. The increase was due to the favorable resolution of our
customer imbalance mechanism in 1999 on the TGP system as well as unfavorable
producer and other settlements in the second quarter of 2000 on the EPNG system.
The increase was partially offset by lower shared services allocations following
our merger with Sonat, lower
16
<PAGE> 18
expenses due to the sale of our East Tennessee Pipeline and Sea Robin systems in
March 2000, and lower system operating costs.
Other income for the quarter ended June 30, 2000, was $5 million higher
than 1999 due to increased equity earnings resulting from lower debt related
costs on Citrus in 2000.
Six Months Ended 2000 Compared to Six Months Ended 1999
Operating revenues for the six months ended June 30, 2000, were $25 million
lower than 1999. The decrease was due to the impact from the sales of our East
Tennessee Pipeline and Sea Robin systems in the first quarter of 2000 as well as
the favorable resolution of regulatory issues in 1999 on the TGP system. Also
contributing to the decrease were lower rates on the SNG system following its
2000 rate case settlement, lower revenues from relinquished capacity on the EPNG
system, and the elimination of our Elba Island facility minimum bill. These
decreases were partially offset by higher revenues from transportation and other
services provided on each of our systems and revenues from the acquisition of
Crystal Gas Storage, Inc. in January 2000.
Operating expenses for the six months ended June 30, 2000, were $1 million
higher than 1999. The increase was due to the favorable resolution of our
customer imbalance mechanism in 1999 on the TGP system as well as unfavorable
producer and other settlements in the second quarter of 2000 on the EPNG system.
The increase was partially offset by lower shared services allocations following
our merger with Sonat, lower expenses due to the sale of our East Tennessee
Pipeline and Sea Robin systems in March 2000, lower system operating costs, and
the favorable impact of FERC's order authorizing reactivation of SNG's Elba
Island facility in the first quarter of 2000.
Other income for the six months ended June 30, 2000, was $4 million lower
than 1999. The decrease was due to the favorable settlement of a regulatory
issue in 1999, the elimination of an asset for the future recovery of costs
established for the Elba Island facility, and lower allowance for funds used
during construction. The decrease was partially offset by an increase in
earnings on our equity investments resulting from lower debt related costs on
Citrus in 2000.
In July 2000, we announced our intent to sell the natural gas storage
businesses of Crystal Gas Storage, Inc. to El Paso Energy Partners. We expect to
complete the transaction in the third quarter of 2000 and do not expect to
recognize a material gain or loss from this transaction.
MERCHANT ENERGY
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- ----------------
2000 1999 2000 1999
---- ---- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Power margin.................................... $ 58 $ 2 $ 90 $ 16
Natural gas margin.............................. 102 23 138 45
Petroleum margin and other revenue.............. 4 4 9 3
---- ---- ---- ----
Total gross margin and other
revenue............................. 164 29 237 64
Operating expenses.............................. (23) (28) (44) (55)
Other........................................... 11 5 9 4
---- ---- ---- ----
EBIT.......................................... $152 $ 6 $202 $ 13
==== ==== ==== ====
</TABLE>
Second Quarter 2000 Compared to Second Quarter 1999
Total gross margin and other revenue for the quarter ended June 30, 2000,
was $135 million higher than 1999. During the second quarter of 2000, record
natural gas prices, higher power prices, and extreme price volatility of power
and natural gas all contributed to higher power and natural gas margins. Our
power margins were also higher as a result of asset management fees earned from
our Chaparral project, which began
17
<PAGE> 19
operations during the latter part of 1999. Offsetting these increases were lower
margins from long-term natural gas transactions closed during the second quarter
of 2000.
Our margins during the second quarter of 2000 were significantly impacted
by price volatility in the energy markets. Such periods of higher price
volatility provide market opportunities that can enhance trading portfolio
values and improve operating results. For the remainder of 2000, we anticipate
that commodity prices will continue to be volatile, although not necessarily at
the same levels as we experienced in the second quarter. Our margins are also
impacted by asset management fees and cost reimbursements from our Chaparral
project. These fees should continue through the remainder of 2000. Chaparral
project asset management fees for 2001 will be established later this year.
Operating expenses for the quarter ended June 30, 2000, were $5 million
lower than 1999. The decrease was due to reimbursement in 2000 of general and
administrative costs relating to our Chaparral project.
Other income for the quarter ended June 30, 2000, was $6 million higher
than 1999 due to an increase in equity earnings from power projects.
Six Months Ended 2000 Compared to Six Months Ended 1999
Total gross margin and other revenue for the six months ended June 30,
2000, was $173 million higher than 1999. Our power margin increased due to
volatility in power prices as well as management fees from our Chaparral project
which began operations during the latter part of 1999. Our natural gas margin
increased due to extreme volatility in prices, partially offset by lower margins
from long-term natural gas transactions in 2000. Our petroleum margin increased
as a result of resuming our petroleum trading activity following the Sonat
merger. Our other revenue increased due to the acquisition of EnCap in March
1999.
Operating expenses for the six months ended June 30, 2000, were $11 million
lower than 1999. The decrease was due to the reimbursement in 2000 of general
and administrative costs relating to our Chaparral project.
Other income for the six months ended June 30, 2000, was $5 million higher
than 1999 due to an increase in equity earnings from power projects.
18
<PAGE> 20
INTERNATIONAL
<TABLE>
<CAPTION>
SIX MONTHS
QUARTER ENDED ENDED
JUNE 30, JUNE 30,
------------- -----------
2000 1999 2000 1999
----- ----- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Operating revenues....................................... $ 26 $ 12 $ 55 $ 29
Operating expenses....................................... (31) (16) (62) (48)
Other income............................................. 17 20 52 38
---- ---- ---- ----
EBIT................................................... $ 12 $ 16 $ 45 $ 19
==== ==== ==== ====
</TABLE>
Second Quarter 2000 Compared to Second Quarter 1999
Operating revenues for the quarter ended June 30, 2000, were $14 million
higher than 1999. The increase was due to higher revenues from the Rio Negro
project consolidated in August 1999 coupled with higher revenues on the Manaus
power project. Both projects contributed positively to EBIT during the period.
Operating expenses for the quarter ended June 30, 2000, were $15 million
higher than 1999. The increase was primarily due to higher project development
and general and administrative costs and, to a lesser extent, costs from
consolidating the Rio Negro and Manaus projects during 1999.
Other income for the quarter ended June 30, 2000, was $3 million lower than
1999. The decrease was due to lower earnings relating to our investment in East
Asia Power partially offset by a partial settlement received from our Indonesian
project in 2000.
Six Months Ended 2000 Compared to Six Months Ended 1999
Operating revenues for the six months ended June 30, 2000, were $26 million
higher than 1999. The increase was due to higher revenues from the Rio Negro
project consolidated in August 1999 coupled with higher revenues on the Manaus
power project. Both projects contributed positively to EBIT during the period.
Operating expenses for the six months ended June 30, 2000, were $14 million
higher than 1999. The increase was primarily due to higher project development
and general and administrative costs and, to a lesser extent, costs from
consolidating the Rio Negro and Manaus projects during 1999.
Other income for the six months ended June 30, 2000, was $14 million higher
than 1999. The increase was due to the benefit realized on our East Asia Power
joint venture in March 2000, a partial settlement received from our Indonesian
project in May 2000, and equity swap gains recognized on our CAPSA project.
These increases were partially offset by lower equity earnings relating to our
investment in East Asia Power.
19
<PAGE> 21
FIELD SERVICES
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -------------------
2000 1999 2000 1999
------- ------- -------- --------
(IN MILLIONS, EXCEPT VOLUME AMOUNTS)
<S> <C> <C> <C> <C>
Gathering and treating margin.............................. $ 43 $ 39 $ 89 $ 80
Processing margin.......................................... 18 12 32 21
------ ------ ------ ------
Total gross margin............................... 61 51 121 101
Operating expenses......................................... (37) (39) (78) (79)
Other income............................................... 6 23 12 29
------ ------ ------ ------
EBIT..................................................... $ 30 $ 35 $ 55 $ 51
====== ====== ====== ======
Throughput volumes (Bbtu/d)
Gathering and treating................................... 2,946 3,327 2,994 3,176
====== ====== ====== ======
Processing............................................... 1,118 1,131 1,055 1,032
====== ====== ====== ======
Throughput rates ($/MMBtu)
Gathering and treating................................... $ 0.16 $ 0.13 $ 0.16 $ 0.14
====== ====== ====== ======
Processing margins....................................... $ 0.18 $ 0.11 $ 0.17 $ 0.12
====== ====== ====== ======
</TABLE>
Second Quarter 2000 Compared to Second Quarter 1999
Total gross margin for the quarter ended June 30, 2000, was $10 million
higher than 1999. Our gathering and treating margin increased due to an increase
in average gathering rates, which are substantially indexed to natural gas
prices, and higher condensate prices, offset by lower gathering and treating
volumes. Our processing margin increased due to higher liquids prices in 2000
and the acquisition, in April 2000, of an interest in the Indian Basin
processing assets.
Operating expenses for the quarter ended June 30, 2000, were $2 million
lower than 1999. The decrease was due to lower costs for labor and benefits,
contractors, and professional fees. This decrease was partially offset by higher
depreciation and amortization from assets transferred to Field Services from
EPNG pursuant to a FERC order.
Other income for the quarter ended June 30, 2000, was $17 million lower
than 1999. The decrease was due primarily to net gains on the sale of our
interest in Viosca Knoll in the second quarter of 1999 to El Paso Energy
Partners. This decrease was partially offset by additional earnings from equity
investments, primarily El Paso Energy Partners.
Six Months Ended 2000 Compared to Six Months Ended 1999
Total gross margin for the six months ended June 30, 2000, was $20 million
higher than 1999. Our gathering and treating margin increased due to an increase
in average gathering rates, which are substantially indexed to natural gas
prices, and higher condensate prices, offset by lower gathering and treating
volumes. Our processing margin increased due to higher liquids prices in 2000
and the acquisition of an interest in the Indian Basin processing assets.
Operating expenses for the six months ended June 30, 2000, were $1 million
lower than 1999 due to lower costs for labor and benefits, operating leases,
contractors, and professional fees, partially offset by higher depreciation and
amortization from assets transferred to Field Services from EPNG pursuant to a
FERC order.
Other income for the six months ended June 30, 2000, was $17 million lower
than 1999. The decrease was due primarily to net gains from the sale of our
interest in Viosca Knoll in the second quarter of 1999 partially offset by a
gain from the sale of a gathering facility in 2000.
20
<PAGE> 22
PRODUCTION
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
(IN MILLIONS, EXCEPT VOLUME AMOUNTS)
<S> <C> <C> <C> <C>
Natural gas............................................ $ 105 $ 94 $ 216 $ 171
Oil, condensate, and liquids........................... 25 20 51 35
Other.................................................. 1 4 1 4
------- ------- ------- -------
Total operating revenues..................... 131 118 268 210
Operating expenses..................................... (79) (79) (161) (521)
Other income........................................... -- 1 -- 1
------- ------- ------- -------
EBIT................................................. $ 52 $ 40 $ 107 $ (310)
======= ======= ======= =======
Volumes
Natural gas sales (MMcf)............................. 46,592 46,839 93,675 92,855
======= ======= ======= =======
Oil, condensate, and liquid sales (MBbls)............ 1,299 1,342 2,743 2,800
======= ======= ======= =======
Weighted average realized prices
Natural gas ($/Mcf).................................. $ 2.26 $ 2.02 $ 2.31 $ 1.84
======= ======= ======= =======
Oil, condensate, and liquids ($/Bbl)................. $ 19.21 $ 14.85 $ 18.47 $ 12.59
======= ======= ======= =======
</TABLE>
Second Quarter 2000 Compared to Second Quarter 1999
Operating revenues for the quarter ended June 30, 2000, were $13 million
higher than 1999. The increase was due to higher realized prices for natural gas
and oil, condensate and liquids.
Operating expenses for the quarter ended June 30, 2000, were unchanged
compared to 1999. The operating expenses reflected efficiencies arising from our
1999 merger with Sonat offset by higher depletion during the quarter.
Six Months Ended 2000 Compared to Six Months Ended 1999
Operating revenues for the six months ended June 30, 2000, were $58 million
higher than 1999. The increase was due to higher realized prices for natural gas
and oil, condensate and liquids.
Operating expenses for the quarter ended June 30, 2000, were $360 million
lower than 1999. The decrease was due to full cost ceiling test charges incurred
in the first quarter of 1999 and efficiencies realized from our 1999 merger with
Sonat.
CORPORATE, NET
Second Quarter 2000 Compared to Second Quarter 1999
Corporate expenses, net for the quarter ended June 30, 2000, were $59
million lower than 1999. The decrease was primarily due to higher costs incurred
in the second quarter of 1999 relating to our merger with Sonat, partially
offset by costs incurred in the second quarter of 2000 relating to our pending
merger with Coastal. These merger costs include ongoing retention, severance and
termination costs and direct transaction fees.
Six Months Ended 2000 Compared to Six Months Ended 1999
Corporate expenses, net for the six months ended June 30, 2000, were $69
million lower than 1999. The decrease was primarily due to the receipt of
interest income from our interest in the Chaparral project as well as higher
costs incurred in the second quarter of 1999 relating to our merger with Sonat,
partially offset by costs incurred in the second quarter of 2000 relating to our
pending merger with Coastal.
21
<PAGE> 23
We expect to incur additional merger-related costs throughout the remainder
of 2000 and into 2001 as a result of our pending merger with Coastal.
INTEREST AND DEBT EXPENSE
Interest and debt expense for the quarter and six months ended June 30,
2000, was $17 million and $38 million higher than 1999 primarily due to higher
average borrowings for ongoing capital projects, investment programs, and
operating requirements. We anticipate interest and debt expense will continue to
exceed last year's levels throughout the remainder of 2000.
MINORITY INTEREST
Minority interest expense for the quarter and six months ended June 30,
2000, was $23 million and $41 million higher than 1999 due to the formation of
Sabine River Investors, L.L.C. in June 1999 and the formation of Clydesdale
Associates, L.P. in May 2000.
INCOME TAX EXPENSE (BENEFIT)
Income tax expense for the quarter and six months ended June 30, 2000, was
$68 million and $142 million, resulting in an effective tax rate of 33%, and
31%, respectively. The effective tax rates were lower than the statutory rate of
35% due to foreign income not subject to U.S. tax, exclusions for a portion of
earnings from unconsolidated equity investees for which a dividend received
deduction is anticipated, and the utilization of a deferred credit related to
loss carryforwards. This decrease was offset by foreign income subject to
foreign tax rates different than U.S. tax rates and state income taxes.
Income tax expense for the quarter ended June 30, 1999, was $23 million,
resulting in an effective tax rate of 34%. Income tax benefit for the six months
ended June 30, 1999, was $52 million, resulting in an effective tax rate of 36%.
For the quarter ended June 30, 1999, the effective tax rate was lower than the
statutory rate of 35%, and the six months ended June 30, 1999, effective tax
rate was higher than the statutory rate of 35% due to foreign income not subject
to U.S. tax and exclusions for a portion of earnings from unconsolidated equity
investees for which a dividend received deduction is anticipated. These effects
were partially offset by foreign income subject to foreign tax rates different
than U.S. tax rates and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
CASH FROM OPERATING ACTIVITIES
Net cash used in our operating activities was $177 million for the six
months ended June 30, 2000, compared to net cash provided of $257 million for
1999. The decrease was primarily attributable to cash payments for charges
related to the Sonat merger, higher interest and income tax payments in 2000,
increases in price risk management activities, and legal settlements.
CASH FROM INVESTING ACTIVITIES
Net cash used in our investing activities was $310 million for the six
months ended June 30, 2000. Our investing activities consisted of additions to
joint ventures and equity investments, including acquisitions of power
facilities for our Chaparral investment and the purchase of an additional 18.5%
interest in CAPSA. Other additions included the acquisition of Crystal Gas
Storage, Inc., the All American pipeline assets, an interest in the Indian Basin
gas processing assets, and expenditures for expansion and construction projects.
Investment activities also included proceeds from the sales of our East
Tennessee Pipeline system, Sea Robin Pipeline system, El Paso Intrastate-Alabama
pipeline system, our one-third interest in the Destin Pipeline system, the
proceeds from the conversion of our interest in East Asia Power, and the
repayment of a note receivable from Chaparral.
22
<PAGE> 24
We expect internally generated funds, commercial paper issuances, available
capacity under existing credit facilities, and the issuance of long-term debt,
trust securities, or equity to provide future funding for our capital
expenditures, acquisitions, and other investing expenditures.
CASH FROM FINANCING ACTIVITIES
Net cash provided by our financing activities was $71 million for the six
months ended June 30, 2000. Cash provided from our financing activities included
the issuance of preferred securities of El Paso Energy Capital Trust IV, an
interest in Clydesdale Associates, L.P., and notes related to Chaparral. During
2000, we used cash to repay short-term borrowings, pay dividends, and retire
long-term debt.
In August 2000, we replaced our $1,250 million and our $750 million
revolving credit facilities with a $2 billion 364-day renewable revolving credit
and competitive advance facility and a $1 billion 3-year revolving credit and
competitive advance facility. EPNG and TGP are also designated borrowers under
these new facilities. The interest rate for these facilities varies and would
have been LIBOR plus 50 basis points on June 30, 2000. The available credit
under these facilities is expected to be used for general corporate purposes
including, but not limited to, supporting our commercial paper programs.
In May 2000, we established a $1 billion commercial paper program. This
program, together with our existing TGP and EPNG commercial paper programs, is
supported by our revolving credit facilities.
We expect internally generated funds, commercial paper issuances, available
capacity under existing credit facilities, and the issuance of long-term debt,
trust securities or equity to provide future funding for our long-term debt
retirements, payments of dividends, and other financing expenditures.
The following table reflects quarterly dividends declared and paid on our
common stock:
<TABLE>
<CAPTION>
AMOUNT PER
DECLARATION DATE COMMON SHARE PAYMENT DATE TOTAL AMOUNT
---------------- ------------ ------------ -------------
(IN MILLIONS)
<S> <C> <C> <C>
October 20, 1999........................ $0.200 January 11, 2000 $46
January 17, 2000........................ $0.206 April 3, 2000 $47
April 27, 2000.......................... $0.206 July 3, 2000 $49
</TABLE>
In July 2000, we declared a quarterly dividend of $0.206 per share on our
common stock, payable on October 2, 2000, to stockholders of record on September
1, 2000. Also during the six months ended June 30, 2000, we paid dividends of
$12 million on the 8 1/4% cumulative preferred stock, Series A of our
subsidiary, El Paso Tennessee Pipeline Co.
COMMITMENTS AND CONTINGENCIES
See Note 6, which is incorporated herein by reference.
OTHER
As part of our ongoing strategy, we may consider assets we acquire or
intend to acquire, as well as assets we own, as candidates for acquisition by El
Paso Energy Partners. Any of these transactions would be subject to the approval
of El Paso Energy Partners' unitholders or board of directors, and, as
necessary, appropriate regulatory bodies, as well as subject to a fairness
opinion of a third party on the price to be paid by the partnership.
Since the beginning of 2000, we sold our El Paso Intrastate-Alabama
pipeline system and announced our intent to sell the natural gas storage
businesses of Crystal Gas Storage, Inc. to El Paso Energy Partners. The total
sales price of these transactions is $197 million.
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
See Note 12, which is incorporated herein by reference.
23
<PAGE> 25
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
We have made statements in this document that constitute forward-looking
statements, as that term is defined in the Private Securities Litigation Reform
Act of 1995. These statements are subject to risks and uncertainties.
Forward-looking statements include information concerning possible or assumed
future results of operations. These statements may relate to information or
assumptions about:
- earnings per share;
- capital and other expenditures;
- dividends;
- financing plans;
- capital structure;
- cash flow;
- pending legal proceedings and claims, including environmental matters;
- future economic performance;
- operating income;
- cost savings;
- management's plans; and
- goals and objectives for future operations.
Important factors that could cause actual results to differ materially from
estimates or projections contained in forward-looking statements include, among
others, the following:
- the ability to successfully integrate PG&E's Texas midstream and
Coastal's operations;
- the increasing competition within our industry;
- the timing and extent of changes in commodity prices for natural gas and
power;
- the uncertainties associated with customer contract expirations on our
pipeline systems;
- the potential contingent liabilities and tax liabilities related to our
acquisitions;
- the political and economic risks associated with current and future
operations in foreign countries; and
- the conditions of equity and other capital markets.
These risk factors are more fully described in our other filings with the
Securities and Exchange Commission, including our Annual Report on Form 10-K for
the year ended December 31, 1999.
24
<PAGE> 26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information updates, and you should read it in conjunction with,
information disclosed in Part II, Item 7A in our Annual Report on Form 10-K for
the year ended December 31, 1999, in addition to the information presented in
Items 1 and 2 of this Quarterly Report on Form 10-Q.
Assuming a confidence level of 95 percent and a one-day holding period, our
estimated potential one-day unfavorable impact on EBIT, as measured by Value at
Risk (VAR) calculations, related to contracts held for trading purposes was
approximately $3 million at December 31, 1999, and approximately $15 million at
June 30, 2000. During the quarter ended June 30, 2000, our highest VAR was
approximately $15 million, our lowest VAR was approximately $3 million, and our
average VAR was approximately $8 million. During the six months ended June 30,
2000, our highest VAR was approximately $15 million, our lowest VAR was
approximately $2 million, and our average VAR was approximately $5 million. The
average value is calculated from the month end values for the first six months
during 2000. The high and low valuations represent the highest and lowest month
end values during 2000. Our VAR is directly impacted by higher volatility in
natural gas and power prices.
In May 2000, we exercised our right to terminate our CAPSA Equity Swap
Agreement prior to its maturity. We recorded an additional investment of
approximately $127 million for the counterparty's 18.5 percent interest in
CAPSA's common stock secured under the swap agreement.
25
<PAGE> 27
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Financial Information, Note 6, which is incorporated herein by
reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
We held our annual meeting of stockholders on April 28, 2000. Proposals
presented for a stockholders' vote included the election of twelve directors and
the ratification of the appointment of PricewaterhouseCoopers LLP as independent
certified public accountants for the fiscal year 2000.
Each of the twelve incumbent directors nominated by El Paso Energy was
elected with the following voting results:
<TABLE>
<CAPTION>
FOR WITHHELD
----------- ---------
<S> <C> <C>
Byron Allumbaugh............................................ 202,262,463 1,533,148
Juan Carlos Braniff......................................... 202,293,935 1,501,676
James F. Gibbons............................................ 202,296,098 1,499,513
Ronald L. Kuehn, Jr. ....................................... 201,611,957 2,183,654
Ben F. Love................................................. 202,194,344 1,601,268
Max L. Lukens............................................... 202,249,848 1,545,764
Kenneth L. Smalley.......................................... 202,269,340 1,552,590
Adrian M. Tocklin........................................... 202,243,021 1,526,271
Malcolm Wallop.............................................. 202,299,265 1,496,346
William A. Wise............................................. 202,264,725 1,530,886
Joe B. Wyatt................................................ 202,177,013 1,618,598
Selim K. Zilkha............................................. 201,728,967 2,066,645
</TABLE>
There were no broker non-votes for the election of directors.
The appointment of PricewaterhouseCoopers LLP as the Company's independent
certified public accountants for the fiscal year 2000 was ratified with the
following voting results:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ------- -------
<S> <C> <C> <C>
Ratification of the appointment of
PricewaterhouseCoopers LLP......................... 202,145,849 899,863 749,899
</TABLE>
There were no broker non-votes for the ratification of
PricewaterhouseCoopers LLP.
We held a special meeting of stockholders on May 5, 2000. The proposal
presented for a stockholder vote was to approve the issuance of shares of our
common stock to stockholders and optionholders of Coastal in connection with the
proposed merger with Coastal. The proposal was approved with the following
voting results:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------------- ------------ ------------
<S> <C> <C> <C>
Approval of the issuance of shares of
our common stock to stockholders and
optionholders of Coastal in
connection with the proposed merger
with Coastal......................... 177,132,491 617,272 876,335
</TABLE>
There were no broker non-votes on the proposal.
26
<PAGE> 28
ITEM 5. OTHER INFORMATION
None.
ITEM. 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Each exhibit identified below is filed as a part of this report. Exhibits
not incorporated by reference to a prior filing are designated by an asterisk;
all exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.A -- Restated Certificate of Incorporation of El Paso Energy
Corporation, as filed with the Delaware Secretary of
State on March 23, 2000 (Exhibit 3.A of El Paso Energy
Corporation's Form 8-K filed March 31, 2000).
4.A -- Certificate of Designation, Preferences and Rights of
Series B Mandatorily Convertible Single Reset Preferred
Stock of El Paso Energy Corporation, as filed with the
Delaware Secretary of State on March 27, 2000 (Exhibit
4.A of El Paso Energy Corporation's Form 8-K filed March
31, 2000).
*10.H.1 -- Amendment No. 1 to El Paso Energy Corporation's Amended
and Restated Supplemental Benefits Plan
*10.J.1 -- Amendment No. 1 to El Paso Energy Corporation's Amended
and Restated Deferred Compensation Plan
*10.K.1 -- Termination of the Executive Award Plan of Sonat Inc.
*27 -- Financial Data Schedule
</TABLE>
Undertaking
The undersigned hereby undertakes, pursuant to Regulation S-K, Item
601(b), paragraph (4)(iii), to furnish to the U.S. Securities and Exchange
Commission, upon request, all constituent instruments defining the rights
of holders of long-term debt of El Paso Energy Corporation and its
consolidated subsidiaries not filed herewith for the reason that the total
amount of securities authorized under any of such instruments does not
exceed 10 percent of the total consolidated assets of El Paso Energy
Corporation and its consolidated subsidiaries.
b. Reports on Form 8-K
We filed a current report on Form 8-K, dated May 19, 2000, updating pro
forma financial statements relating to the proposed merger with The Coastal
Corporation.
We filed a current report on Form 8-K, dated July 28, 2000, announcing that
we received approval from FERC on our anticipated merger with Coastal.
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EL PASO ENERGY CORPORATION
Date: August 9, 2000 /s/ H. BRENT AUSTIN
------------------------------------
H. Brent Austin
Executive Vice President and
Chief Financial Officer
Date: August 9, 2000 /s/ JEFFREY I. BEASON
------------------------------------
Jeffrey I. Beason
Senior Vice President and Controller
(Chief Accounting Officer)
28
<PAGE> 30
INDEX TO EXHIBITS
Each exhibit identified below is filed as a part of this report. Exhibits
not incorporated by reference to a prior filing are designated by an asterisk;
all exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.A -- Restated Certificate of Incorporation of El Paso Energy
Corporation, as filed with the Delaware Secretary of
State on March 23, 2000 (Exhibit 3.A of El Paso Energy
Corporation's Form 8-K filed March 31, 2000).
4.A -- Certificate of Designation, Preferences and Rights of
Series B Mandatorily Convertible Single Reset Preferred
Stock of El Paso Energy Corporation, as filed with the
Delaware Secretary of State on March 27, 2000 (Exhibit
4.A of El Paso Energy Corporation's Form 8-K filed March
31, 2000).
*10.H.1 -- Amendment No. 1 to El Paso Energy Corporation's Amended
and Restated Supplemental Benefits Plan
*10.J.1 -- Amendment No. 1 to El Paso Energy Corporation's Amended
and Restated Deferred Compensation Plan
*10.K.1 -- Termination of the Executive Award Plan of Sonat Inc.
*27 -- Financial Data Schedule
</TABLE>
