<PAGE> 1
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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 MARCH 31, 1994
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 1-2700
EL PASO NATURAL GAS COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction 74-0608280
of Incorporation or Organization) (I.R.S. Employer Identification No.)
ONE PAUL KAYSER CENTER,
304 TEXAS AVENUE, EL PASO, TEXAS 79901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (915) 541-2600
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.
CLASS OUTSTANDING
---------------------------------------------------------------------------
Common Stock, par value $3.00 per share,
as of April 30, 1994 36,909,195 shares
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<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EL PASO NATURAL GAS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER
-----------------------
1994 1993
-------- --------
<S> <C> <C>
Operating revenues.................................................... $221,945 $210,912
-------- --------
Operating charges
Operation and maintenance........................................... 69,840 73,738
Natural gas and liquids............................................. 62,960 50,544
Depreciation and amortization....................................... 16,229 14,257
Litigation special charge........................................... 15,062 --
Taxes, other than income taxes...................................... 10,057 9,189
-------- --------
174,148 147,728
-------- --------
Operating income...................................................... 47,797 63,184
-------- --------
Other (income) and income deductions
Interest and debt expense........................................... 19,715 16,669
Allowance for funds used during construction........................ (374) (1,446)
Other -- net........................................................ (6,250) (1,877)
-------- --------
13,091 13,346
-------- --------
Income before income taxes............................................ 34,706 49,838
Income taxes.......................................................... 13,591 18,998
-------- --------
Net income............................................................ $ 21,115 $ 30,840
-------- --------
-------- --------
Earnings per common share............................................. $ .57 $ .83
-------- --------
-------- --------
Average common shares outstanding..................................... 36,892 37,177
-------- --------
-------- --------
Dividends declared per common share................................... $ 0.3025 $ 0.2750
-------- --------
-------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
1
<PAGE> 3
EL PASO NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
---------- ------------
<S> <C> <C>
Current assets
Cash and temporary cash investments.............................. $ 31,233 $ --
Accounts and notes receivable, net............................... 121,669 133,437
Materials and supplies inventory................................. 34,281 34,665
Take-or-pay buy-outs, buy-downs and prepayments, net............. 36,000 34,019
Other regulatory assets.......................................... 12,000 12,000
Deferred income tax benefit...................................... 44,726 44,141
Costs recoverable through insurance.............................. 23,834 23,260
Other............................................................ 16,290 22,490
---------- ------------
Total current assets..................................... 320,033 304,012
---------- ------------
Property, plant and equipment, net................................. 1,754,650 1,765,486
Take-or-pay buy-outs, buy-downs and prepayments, net............... 38,909 48,106
Other regulatory assets............................................ 67,479 62,249
Other.............................................................. 92,522 89,810
---------- ------------
1,953,560 1,965,651
---------- ------------
Total assets............................................. $2,273,593 $2,269,663
---------- ------------
---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................................. $ 200,282 $ 217,279
Commercial paper................................................. 6,800 1,300
Take-or-pay financing liability.................................. 40,162 40,125
Accrual for regulatory issues.................................... 46,474 29,867
Current maturities of long-term debt............................. 6,495 6,184
Other............................................................ 56,089 61,709
---------- ------------
Total current liabilities................................ 356,302 356,464
---------- ------------
Long-term debt, less current maturities............................ 792,495 795,783
Deferred income taxes, less current portion........................ 308,265 298,080
Take-or-pay financing liability, less current portion.............. 27,938 40,383
Deferred credits................................................... 35,459 25,540
Other liabilities.................................................. 34,293 45,865
---------- ------------
1,198,450 1,205,651
---------- ------------
Commitments and contingent liabilities (See Notes 3, 4 and 5)
Stockholders' equity
Common stock, par value $3 per share; authorized 100,000 shares;
issued 37,350 shares.......................................... 112,051 112,051
Additional paid-in capital....................................... 455,496 455,496
Retained earnings................................................ 167,115 157,506
Less: Treasury stock (at cost) 442 shares and 486 shares......... 15,821 17,505
---------- ------------
Total stockholders' equity............................... 718,841 707,548
---------- ------------
Total liabilities and stockholders' equity............... $2,273,593 $2,269,663
---------- ------------
---------- ------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 4
EL PASO NATURAL GAS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER
-------------------------
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income....................................................... $ 21,115 $ 30,840
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization................................. 16,229 14,257
Deferred income taxes......................................... 9,869 8,998
Net take-or-pay recoveries.................................... 7,216 17,035
Other working capital changes
Accounts and notes receivable............................... 10,843 21,648
Materials and supplies inventory............................ 384 4,629
Other current assets........................................ 5,295 14,556
Costs recoverable through insurance......................... (574) (4,829)
Accounts payable............................................ 7,383 (57,897)
Accrual for regulatory issues............................... (789) 11,808
Other current liabilities................................... (5,667) (12,480)
Other......................................................... (4,199) (254)
-------- --------
Net cash provided by operating activities................ 67,105 48,311
-------- --------
Cash flows from investing activities
Capital expenditures............................................. (15,610) (13,929)
Proceeds from property dispositions.............................. 1,504 753
Other............................................................ (2,271) (2,483)
-------- --------
Net cash used in investing activities.................... (16,377) (15,659)
-------- --------
Cash flows from financing activities
Proceeds from reissuance of treasury stock....................... 1,117 2,602
Long-term debt retirements....................................... (3,010) --
Net commercial paper borrowings.................................. 5,500 --
Repayment of volumetric take-or-pay receivable................... (12,408) (10,012)
Dividends paid................................................... (10,135) (9,166)
Other............................................................ (559) 2,964
-------- --------
Net cash used in financing activities.................... (19,495) (13,612)
-------- --------
Increase in cash and temporary cash investments.................... 31,233 19,040
Cash and temporary cash investments
Beginning of period...................................... -- 48,638
-------- --------
End of period............................................ $ 31,233 $ 67,678
-------- --------
-------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 5
EL PASO NATURAL GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The 1993 Annual Report on Form 10-K for El Paso Natural Gas Company and
subsidiaries includes a summary of significant accounting policies and should be
read in conjunction with this Form 10-Q. As used herein, "Company" refers to El
Paso Natural Gas Company and its subsidiaries and "EPG" refers to El Paso
Natural Gas Company, unless the context otherwise requires. The financial
statements for the periods presented are unaudited, condensed and do not contain
all of the information required by generally accepted accounting principles to
be included in a full set of financial statements. In the opinion of management,
all material adjustments necessary to present fairly the results of operations
for such periods have been included. All such adjustments are of a normal
recurring nature. Results of operations for any interim period are not
necessarily indicative of the results of operations for the entire year.
Financial statements for previous periods include certain reclassifications
which were made to conform to current presentation. Such reclassifications have
no effect on reported net income or stockholders' equity.
2. ACQUISITION
On June 1, 1993, the Company acquired from a wholly owned subsidiary of
Enron Corp., that subsidiary's 50 percent interest in Mojave Pipeline Company
("MPC"), a general partnership, for approximately $40 million in cash,
representing the approximate book value of the investment. The acquisition,
which was funded by internally generated cash flow, gives the Company 100
percent ownership of MPC. The acquisition was accounted for using the purchase
method.
The Company's Consolidated Statement of Income for the first quarter of
1994 includes the operating results of MPC. The income effect of the Company's
previously owned 50 percent equity interest in MPC for the first quarter of 1993
is included in other-net in the Consolidated Statement of Income.
The following pro forma summary presents the consolidated results of
operations of the Company as if the acquisition had occurred as of January 1,
1993. This pro forma result has been prepared for comparative purposes only and
does not purport to be indicative of what may have resulted had the acquisition
occurred as of that date or of results which may occur in the future.
<TABLE>
<CAPTION>
FIRST QUARTER 1993
-------------------------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNT)
<S> <C>
Operating revenues.............................................. $ 220,847
Net income...................................................... 31,486
Earnings per common share....................................... 0.85
</TABLE>
3. RATES AND REGULATORY MATTERS
General Rate Filings and Other
On January 14, 1994, EPG filed an application with the Federal Energy
Regulatory Commission ("FERC") seeking an order which would terminate, effective
January 1, 1996, certificates applicable to certain gathering and production
area facilities owned by EPG on the basis that such facilities are not subject
to FERC jurisdiction.
EPG intends, effective January 1, 1996, to transfer all of its
nonjurisdictional gathering and production area facilities to a wholly owned
subsidiary of EPG. Such facilities are used for gathering and other
nonjurisdictional functions and are an inherent part of EPG's current gathering
operations. The facilities to be transferred consist of approximately 6,700
miles of various sized pipelines, compressors with a combined horsepower of
40,600 and various treating and processing plants. These nonjurisdictional
facilities, together
4
<PAGE> 6
EL PASO NATURAL GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with the facilities included in the January 14, 1994 FERC application,
constitute substantially all of EPG's gathering and production area facilities.
Several producers and other shippers filed protests and requests for a
formal hearing of the January 14, 1994 FERC application. The primary issues
focus on the extent of competition in EPG's producing basins and the proper
functionalization of its facilities. In response to the producer and shipper
protests, EPG made a filing on March 15, 1994 asserting that the protests raise
issues already settled under EPG's 1993 settlement agreement.
EPG's 1993 settlement agreement provided, in part, for the accelerated
recovery of a substantial portion of EPG's investment in its underground storage
facility. The amount to be recovered was approximately $56.7 million plus
interest accruing beginning February 1, 1993 at the FERC allowed rate, which
approximates the prime rate. On March 25, 1994, EPG received a final FERC letter
order approving the $56.7 million of underground storage facility costs. This is
being recovered by a demand charge mechanism over the period from October 1,
1993 through December 31, 1996. The amount recovered through March 31, 1994 was
$23 million. The outstanding balance at March 31, 1994 and December 31, 1993 was
$33 million and $37 million, respectively, of which $12 million is reflected in
the current portion of other regulatory assets for both periods and $21 million
and $25 million, respectively, is included in other regulatory assets in the
Consolidated Balance Sheet.
MPC filed a service and rate design restructuring plan on November 3, 1992,
in compliance with FERC's industry-wide restructuring directives. On March 2,
1993, FERC issued an order essentially approving MPC's compliance filing,
subject to changes, which were made in an amended restructuring plan on March
29, 1993. Several of MPC's customers filed protests and requests for rehearing
of the March 2, 1993 FERC order. The rehearing requests were denied, and FERC
approved the amended restructuring plan on July 9, 1993, with an effective date
of August 1, 1993. On October 15, 1993, FERC issued an order which denied
requests for rehearing of the July 9, 1993 order. Several of MPC's customers
have filed petitions with the United States Court of Appeals for review of the
March 2, 1993, July 9, 1993 and October 15, 1993 orders. These petitions are
currently pending.
The primary issues on appeal pertain to FERC's requirement that MPC's rates
for firm transportation service be based upon Straight Fixed Variable ("SFV")
rate design rather than Modified Fixed Variable ("MFV") rate design. The
application of SFV rates requires MPC's existing firm shippers to pay a higher
proportion of their total transportation rate in the reservation component of
the rate. Such shippers have contended that FERC's application of SFV rate
design to MPC unlawfully abrogates the rate provisions of MPC's service
agreements and constitutes an unlawful rate increase. Management believes the
United States Court of Appeals will uphold SFV rates as applied to MPC.
Take-or-Pay Settlements
EPG has made buy-out and buy-down payments and recoupable prepayments to
resolve past and future take-or-pay exposure, to terminate and reform gas
purchase contracts, to amend pricing and take provisions of gas purchase
contracts and to settle related litigation. EPG is collecting its buy-out and
buy-down costs under FERC cost recovery procedures. Under FERC procedures,
take-or-pay cost recovery filings may be challenged by pipeline customers on
prudence and certain other grounds. FERC has approved orders, subject to
rehearing, resolving all but one of the outstanding issues regarding EPG's
take-or-pay proceedings. The remaining issue involves the claim of several
customers that EPG has sought to recover an excessive amount for the value of
certain production properties which were transferred to a producer as part of a
1989 take-or-pay settlement. On March 8, 1993, an initial decision from the
presiding Administrative Law Judge ("ALJ") was rendered which, if adopted
without changes by FERC, would require EPG to refund to or forgo collection from
its customers of up to $30 million, plus interest. Exceptions to this initial
decision were filed with FERC by both parties on April 7, 1993. On April 27,
1993, briefs opposing exceptions were filed by the same parties as well as by
FERC staff. EPG has established reserves for this issue, and management does not
believe that
5
<PAGE> 7
EL PASO NATURAL GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the ultimate outcome will have a materially adverse effect on the Company's
financial condition or results of operations.
4. LEGAL PROCEEDINGS
In El Paso Natural Gas Company and Meridian Oil Gathering Inc. v. Amoco
Production Company, filed in Delaware Chancery Court on May 8, 1991, Amoco
Production Company ("Amoco") alleged breaches by EPG and a then affiliated
company, Meridian Oil Gathering Inc. ("MOGI"), of certain gas purchase,
gathering and transportation agreements pertaining to natural gas produced by
Amoco in the San Juan Basin. Amoco alleged breach of "favored nations"
contractual provisions regarding services to be performed by EPG, including
those relating to transportation capacity and rates, and has sought a court
order requiring specific performance by EPG and MOGI with respect to future
transportation services and an award of monetary damages of an undetermined
amount for alleged past breaches of contract. On March 4, 1992, the Court issued
a Memorandum Opinion which, among other things, denied Amoco's motion for
partial summary judgment and concluded that the Amoco contracts at issue do not
contain the general "favored nations" rights claimed by Amoco. The Court further
concluded that EPG's and MOGI's motions for summary judgment, seeking dismissal
of Amoco's counterclaim against MOGI, should be granted. Conoco Inc. ("Conoco")
asserted claims similar to Amoco's original claims, involving lesser quantities
of gas, in a separate Delaware Chancery Court proceeding filed on December 30,
1991, Conoco Inc. v. El Paso Natural Gas Company. In August 1992, the Amoco and
Conoco cases were consolidated, MOGI was dismissed as a party, and Amoco and
Conoco filed amended pleadings to restate their claims in light of the court's
March 4, 1992 ruling. EPG and Conoco concluded a settlement agreement which
resulted in dismissal of the Conoco claims. Trial of the Amoco claims concluded
on July 15, 1993 and post-trial briefing and oral arguments concluded in early
November, 1993. On March 29, 1994, the Court rendered a decision in favor of
Amoco. As a result of the Court's decision, EPG may be required to refund to
Amoco amounts which at March 31, 1994 were approximately $15 million, plus
interest of $4 million. In connection with the Amoco decision, EPG recorded a
litigation special charge of approximately $19 million in the first quarter of
1994. Additional briefs have been requested to determine the actual amount of
refunds to which Amoco may be entitled. EPG intends to appeal the Court's
decision. Management does not expect the outcome of this matter to have a
materially adverse effect on the Company's financial condition or future results
of operations.
EPG and FERC Enforcement Section, Office of the General Counsel
("Enforcement"), have entered into a settlement agreement resolving all issues
in Enforcement's investigation of EPG's installation of certain delivery taps.
Enforcement asserted that EPG commenced installation of the delivery taps prior
to receiving clearances from the appropriate State Historic Preservation Office
and the United States Fish and Wildlife Service. Under the settlement agreement,
EPG has agreed to pay total civil penalties of $160,000. The settlement
agreement is currently pending FERC approval.
The Company is a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of business.
While the outcome of such lawsuits or other proceedings against the Company
cannot be predicted with certainty, management does not expect these matters to
have a materially adverse effect on the Company's financial condition.
6
<PAGE> 8
EL PASO NATURAL GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ENVIRONMENTAL
Accruals for environmental compliance costs are established when
environmental assessments and/or remediation are probable and when costs can be
reasonably estimated. As of March 31, 1994, EPG had a reserve of $38 million for
the following environmental contingencies with income statement impact:
1 -- EPG has been conducting remediation of polychlorinated biphenyl
("PCB") contamination at its facilities. The majority of the required PCB
remediation has been completed. Future PCB remediation costs are estimated
to range between $8 million and $11 million over the next five years.
2 -- EPG executed an Administrative Order on Consent with the United States
Environmental Protection Agency ("EPA") on June 25, 1993 to conduct a
Remedial Investigation/Feasibility Study ("RI/FS") for a Burlington
Industries, Inc. ("BI") site located in Statesville, North Carolina, that
has been identified for cleanup. BI and EPG have entered into an agreement
to jointly fund the RI/FS for the site. EPG's share of the potential
remediation costs is estimated to be between $17 million and $20 million
over a 30 year period.
3 -- On November 2, 1993, in accordance with an EPA order, EPG and Atlantic
Richfield Company ("ARCO") submitted work plans for remediation of the
subsurface at the Prewitt Refinery in McKinley County, New Mexico. EPG and
ARCO have a cost sharing agreement to each pay one-half of any remediation
costs at this site. EPG's share of the remediation costs is estimated to be
between $10 million and $20 million over a 30 year period.
4 -- EPG is involved in other environmental assessment and remediation
activities which include two additional Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA") sites (Fountain
Inn, South Carolina and Odessa, Texas) and one state Superfund site
(Etowah, Tennessee). The amount reserved as of March 31, 1994 will cover
these and other small environmental assessments and other remediation
projects.
EPG also has potential expenditures, of a capital nature, for the following
environmental projects:
1 -- EPG has analyzed the Clean Air Act Amendments of 1990 ("CAAA"), and
believes that these rules will impact the Company's operations primarily in
the following areas: (i) potential required reductions in the emissions of
nitrogen oxides ("NOx") in non-attainment areas; (ii) the requirement for
air emissions permitting of existing facilities; and (iii) enhanced
monitoring of air emissions. The Company anticipates capitalizing the
equipment costs associated with complying with CAAA and estimates that
approximately $5 million to $27 million will be spent during the 1995
through 1997 time frame. However, EPA's proposed enhanced monitoring rules,
when finalized, could potentially impose greater costs to the Company.
2 -- EPG has been conducting remediation of mercury contamination at
certain facilities and is replacing mercury containing meters with dry flow
devices. The remaining remediation costs are estimated to be between $8
million and $12 million, most of which will be incurred over the next two
years. EPG will close and retire about 5,400 earthen siphon/dehydration
pits in the San Juan Basin as recently required by certain environmental
regulations. EPG estimates costs of approximately $17 million to $25
million to retire these pits over the next two years. The mercury
remediation and pit closure costs, which are associated with the retirement
of equipment, will be recorded as adjustments to accumulated depreciation,
as permitted by regulatory accounting.
On December 21, 1993, EPA issued EPG a Notice of Liability for the Colorado
School of Mines Research Institute ("CSMRI") site in Golden, Colorado. Because
EPA has not yet determined the volume of hazardous substances sent to the site
by all parties, there is no way to estimate EPG's potential share of remediation
costs. However, based on the volumes EPA presently lists as contributed by EPG
and other
7
<PAGE> 9
EL PASO NATURAL GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
potentially responsible parties, it appears that EPG is not a significant
contributor and its potential share of remediation costs would be minor.
The State of Tennessee has asserted a claim that EPG is a liable party
under state environmental laws for clean up costs associated with a site in
Elizabethton, Tennessee. The State and EPA are in the preliminary stages of
investigating the nature and extent of contamination, as well as identifying
other potentially responsible parties. Since testing is in the initial stages,
EPG is unable to estimate its potential share of any remediation costs.
It is possible that new information or future developments could require
the Company to reassess its potential exposure related to environmental matters.
As such information or developments occur, related accrual amounts will be
adjusted accordingly.
6. POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 112, which requires companies to account for
benefits to former or inactive employees after employment but before retirement
(referred to in SFAS 112 as "postemployment benefits"). The Company recorded a
liability of approximately $8 million in postemployment benefit costs in the
first quarter of 1994. Management expects to fully recover these costs through
rates and has recorded a regulatory asset equal to the liability.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1994 and December 31, 1993
consisted of the following:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Property, plant and equipment, at cost...................... $2,872,078 $2,873,301
Less accumulated depreciation............................... 1,220,493 1,212,233
---------- ----------
1,651,585 1,661,068
Additional acquisition cost assigned to utility plant,
net of accumulated amortization........................... 103,065 104,418
---------- ----------
Property, plant and equipment, net................ $1,754,650 $1,765,486
---------- ----------
---------- ----------
</TABLE>
8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES
<TABLE>
<CAPTION>
FIRST QUARTER
----------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash Payments (Refunds)
Interest.................................................... $30,431 $27,659
Income taxes................................................ (3,346) 343
</TABLE>
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities was $67 million for the quarter
ended March 31, 1994 compared with $48 million for the same period of 1993. The
increase from the previous period was primarily due to the timing of working
capital receipts and disbursements.
Acquisition
On June 1, 1993, the Company acquired from a wholly owned subsidiary of
Enron Corp., that subsidiary's 50 percent interest in MPC, a general
partnership, for approximately $40 million in cash, representing the approximate
book value of the investment. The acquisition, which was funded by internally
generated cash flow, gives the Company 100 percent ownership of MPC. The
acquisition was accounted for using the purchase method.
The Company's Consolidated Statement of Income for the first quarter of
1994 includes the operating results of MPC. The income effect of the Company's
previously owned 50 percent equity interest in MPC for the first quarter of 1993
is included in other-net in the Consolidated Statement of Income.
The following pro forma summary presents the consolidated results of
operations of the Company as if the acquisition had occurred as of January 1,
1993. This pro forma result has been prepared for comparative purposes only and
does not purport to be indicative of what may have resulted had the acquisition
occurred as of that date or of results which may occur in the future.
<TABLE>
<CAPTION>
FIRST QUARTER 1993
------------------------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNT)
<S> <C>
Operating revenues................................................ $220,847
Net income........................................................ 31,486
Earnings per common share......................................... 0.85
</TABLE>
Rates and Regulatory Matters
On January 14, 1994, EPG filed an application with FERC seeking an order
which would terminate, effective January 1, 1996, certificates applicable to
certain gathering and production area facilities owned by EPG on the basis that
such facilities are not subject to FERC jurisdiction.
EPG intends, effective January 1, 1996, to transfer all of its
nonjurisdictional gathering and production area facilities to a wholly owned
subsidiary of EPG. Such facilities are used for gathering and other
nonjurisdictional functions and are an inherent part of EPG's current gathering
operations. The facilities to be transferred consist of approximately 6,700
miles of various sized pipelines, compressors with a combined horsepower of
40,600 and various treating and processing plants. These nonjurisdictional
facilities, together with the facilities included in the January 14, 1994 FERC
application, constitute substantially all of EPG's gathering and production area
facilities.
Several producers and other shippers filed protests and requests for a
formal hearing of the January 14, 1994 FERC application. The primary issues
focus on the extent of competition in EPG's producing basins and the proper
functionalization of its facilities. In response to the producer and shipper
protests, EPG made a filing on March 15, 1994 asserting that the protests raise
issues already settled under EPG's 1993 settlement agreement.
EPG's 1993 settlement agreement provided, in part, for the accelerated
recovery of a substantial portion of EPG's investment in its underground storage
facility. The amount to be recovered was approximately $56.7 million plus
interest accruing beginning February 1, 1993 at the FERC allowed rate, which
approximates the prime rate. On March 25, 1994, EPG received a final FERC letter
order approving the $56.7 million of underground storage facility costs. This is
being recovered by a demand charge mechanism over the period from October 1,
1993 through December 31, 1996. The amount recovered through March 31, 1994 was
$23 million. The outstanding balance at March 31, 1994 and December 31, 1993 was
$33 million and $37 million, respectively, of which $12 million is reflected in
the current portion of other regulatory assets for
9
<PAGE> 11
both periods and $21 million and $25 million, respectively, is included in other
regulatory assets in the Consolidated Balance Sheet.
MPC filed a service and rate design restructuring plan on November 3, 1992,
in compliance with FERC's industry-wide restructuring directives. On March 2,
1993, FERC issued an order essentially approving MPC's compliance filing,
subject to changes, which were made in an amended restructuring plan on March
29, 1993. Several of MPC's customers filed protests and requests for rehearing
of the March 2, 1993 FERC order. The rehearing requests were denied, and FERC
approved the amended restructuring plan on July 9, 1993, with an effective date
of August 1, 1993. On October 15, 1993, FERC issued an order which denied
requests for rehearing of the July 9, 1993 order. Several of MPC's customers
have filed petitions with the United States Court of Appeals for review of the
March 2, 1993, July 9, 1993 and October 15, 1993 orders. These petitions are
currently pending.
The primary issues on appeal pertain to FERC's requirement that MPC's rates
for firm transportation service be based upon SFV rate design rather than MFV
rate design. The application of SFV rates requires MPC's existing firm shippers
to pay a higher proportion of their total transportation rate in the reservation
component of the rate. Such shippers have contended that FERC's application of
SFV rate design to MPC unlawfully abrogates the rate provisions of MPC's service
agreements and constitutes an unlawful rate increase. Management believes the
United States Court of Appeals will uphold SFV rates as applied to MPC.
Take-or-Pay Settlements
EPG has made buy-out and buy-down payments and recoupable prepayments to
resolve past and future take-or-pay exposure, to terminate and reform gas
purchase contracts, to amend pricing and take provisions of gas purchase
contracts and to settle related litigation. EPG is collecting its buy-out and
buy-down costs under FERC cost recovery procedures. Under FERC procedures,
take-or-pay cost recovery filings may be challenged by pipeline customers on
prudence and certain other grounds. FERC has approved orders, subject to
rehearing, resolving all but one of the outstanding issues regarding EPG's
take-or-pay proceedings. The remaining issue involves the claim of several
customers that EPG has sought to recover an excessive amount for the value of
certain production properties which were transferred to a producer as part of a
1989 take-or-pay settlement. On March 8, 1993, an initial decision from the
presiding ALJ was rendered which, if adopted without changes by FERC, would
require EPG to refund to or forgo collection from its customers of up to $30
million, plus interest. Exceptions to this initial decision were filed with FERC
by both parties on April 7, 1993. On April 27, 1993, briefs opposing exceptions
were filed by the same parties as well as by FERC staff. EPG has established
reserves for this issue, and management does not believe that the ultimate
outcome will have a materially adverse effect on the Company's financial
condition or results of operations.
Financing Transactions
EPG established a $300 million revolving credit facility with a group of
banks which expires in March 1996. As of March 31, 1994, there were no
borrowings outstanding under this facility. Approximately $7 million and $1
million of commercial paper was outstanding as of March 31, 1994 and December
31, 1993, respectively.
Environmental
Accruals for environmental compliance costs are established when
environmental assessments and/or remediation are probable, and when costs can be
reasonably estimated. As of March 31, 1994, EPG had a reserve of $38 million for
the following environmental contingencies with income statement impact:
1 -- EPG has been conducting remediation of PCB contamination at its
facilities. The majority of the required PCB remediation has been
completed. Future PCB remediation costs are estimated to range between $8
million and $11 million over the next five years.
2 -- EPG executed an Administrative Order on Consent with EPA on June 25,
1993 to conduct a RI/FS for a BI site located in Statesville, North
Carolina, that has been identified for cleanup. BI and EPG have entered
into an agreement to jointly fund the RI/FS for the site. EPG's share of
the potential remediation costs is estimated to be between $17 million and
$20 million over a 30 year period.
10
<PAGE> 12
3 -- On November 2, 1993, in accordance with an EPA order, EPG and ARCO
submitted work plans for remediation of the subsurface at the Prewitt
Refinery in McKinley County, New Mexico. EPG and ARCO have a cost sharing
agreement to each pay one-half of any remediation costs at this site. EPG's
share of the remediation costs is estimated to be between $10 million and
$20 million over a 30 year period.
4 -- EPG is involved in other environmental assessment and remediation
activities which include two additional CERCLA sites (Fountain Inn, South
Carolina and Odessa, Texas) and one state Superfund site (Etowah,
Tennessee). The amount reserved as of March 31, 1994 will cover these and
other small environmental assessments and other remediation projects.
EPG also has potential expenditures, of a capital nature, for the following
environmental projects:
1 -- EPG has analyzed CAAA, and believes that these rules will impact the
Company's operations primarily in the following areas: (i) potential
required reductions in the emissions of NOx in non-attainment areas; (ii)
the requirement for air emissions permitting of existing facilities; and
(iii) enhanced monitoring of air emissions. The Company anticipates
capitalizing the equipment costs associated with complying with CAAA and
estimates that approximately $5 million to $27 million will be spent during
the 1995 through 1997 time frame. However, EPA's proposed enhanced
monitoring rules, when finalized, could potentially impose greater costs to
the Company.
2 -- EPG has been conducting remediation of mercury contamination at
certain facilities and is replacing mercury containing meters with dry flow
devices. The remaining remediation costs are estimated to be between $8
million and $12 million, most of which will be incurred over the next two
years. EPG will close and retire about 5,400 earthen siphon/dehydration
pits in the San Juan Basin as recently required by certain environmental
regulations. EPG estimates costs of approximately $17 million to $25
million to retire these pits over the next two years. The mercury
remediation and pit closure costs, which are associated with the retirement
of equipment, will be recorded as adjustments to accumulated depreciation,
as permitted by regulatory accounting.
On December 21, 1993, EPA issued EPG a Notice of Liability for the CSMRI
site in Golden, Colorado. Because EPA has not yet determined the volume of
hazardous substances sent to the site by all parties, there is no way to
estimate EPG's potential share of remediation costs. However, based on the
volumes EPA presently lists as contributed by EPG and other potentially
responsible parties, it appears that EPG is not a significant contributor and
its potential share of remediation costs would be minor.
The State of Tennessee has asserted a claim that EPG is a liable party
under state environmental laws for clean up costs associated with a site in
Elizabethton, Tennessee. The State and EPA are in the preliminary stages of
investigating the nature and extent of contamination, as well as identifying
other potentially responsible parties. Since testing is in the initial stages,
EPG is unable to estimate its potential share of any remediation costs.
It is possible that new information or future developments could require
the Company to reassess its potential exposure related to environmental matters.
As such information or developments occur, related accrual amounts will be
adjusted accordingly.
Other
On April 28, 1994, EPG and Meridian Oil Inc. ("Meridian") entered into an
agreement dedicating certain Meridian reserves in the San Juan Basin to EPG
gathering and production area facilities located in northwestern New Mexico. In
addition, EPG and Meridian have entered into various long-term firm
transportation contracts. The agreement also provides for EPG to construct and
operate a new natural gas liquids extraction plant.
In January 1993, EPG experienced flood damage to its pipeline system in the
Gila, Arizona area due to heavy rain. Since that time, EPG has been incurring
costs for repairs and expects to be reimbursed through its property insurance
policies once all repairs have been completed.
11
<PAGE> 13
DIVIDENDS
On October 12, 1993, EPG's Board of Directors (the "Board") declared a
quarterly dividend of $0.2750 per share on EPG's common stock. That dividend
total of $10 million was paid on January 4, 1994. On January 14, 1994, the Board
declared a quarterly dividend of $0.3025 per share on EPG's common stock. That
dividend total of $11 million was paid on April 4, 1994. On April 15, 1994, the
Board declared a quarterly dividend of $0.3025 per share on EPG's common stock,
payable on July 1, 1994, to the shareholders of record as of June 10, 1994.
CAPITAL EXPENDITURES
The Company's planned capital expenditures for 1994 of $210 million are
primarily for maintenance of business, system expansion and system enhancement.
Capital expenditures for the quarter ended March 31, 1994 were $16 million
compared to $14 million for the same period of 1993.
On July 7, 1992, EPG filed an application with FERC, which was amended on
November 27, 1992, to expand the delivery capacity of its system in the vicinity
of Yuma, Arizona and, through an extension of its system south to San Luis Rio
Colorado, Sonora, Mexico, to serve northern Mexican markets. The proposed
expansion would provide shippers the opportunity to deliver natural gas to
Mexican markets in northern Baja California via new pipeline capacity of 348
million cubic feet per day ("MMcf/d"). This project is expected to cost
approximately $71 million and will be financed through internally generated
funds or through short-term borrowings. On November 29, 1993, FERC issued an
order which approved the siting, construction and operation of facilities
necessary for a border crossing facility in Yuma, Arizona which would connect
the proposed extension with pipeline facilities in Mexico. The order also made a
preliminary determination on environmental issues. FERC is deferring action on
the remainder of the July 7, 1992 filing until EPG demonstrates that it has
long-term executed contracts or binding precedent agreements for a substantial
amount of the firm capacity of the proposed facilities.
EPG is a member of a five-company consortium that plans to build the
proposed Samalayuca II Power Plant near Ciudad Juarez, Mexico. On December 17,
1992, an award for construction was granted to the consortium by the Comision
Federal de Electricidad, the Mexican government-owned utility. On March 16,
1993, EPG filed an application with FERC to expand its system in order to
provide natural gas service to the proposed Samalayuca II Power Plant and to an
existing power plant in the same location. The proposed expansion would provide
an additional 300 MMcf/d of capacity at a cost of approximately $57 million and
will be financed through internally generated funds or through short-term
borrowings. In the November 29, 1993 order, FERC also approved the proposed
border crossing facility south of Clint, Texas which would connect EPG's
facilities with facilities in Mexico. FERC is deferring action on the remainder
of the March 16, 1993 filing until EPG demonstrates that it has long-term
executed contracts or binding precedent agreements for a substantial amount of
the firm capacity of the proposed facilities.
On December 29, 1993, Pacific Gas & Electric Company ("PG&E"), the
California Public Utilities Commission ("CPUC") and Southern California Gas
Company jointly filed a motion with FERC seeking clarification or rehearing of
the November 29, 1993 FERC order for both the Yuma, Arizona and the Samalayuca
II Power Plant projects discussed above.
On April 1, 1994, EPG filed an application with FERC for a certificate of
public convenience and necessity to build a 98 mile pipeline to parallel and
loop its existing Havasu Crossover Line. The proposed pipeline would allow for
the transfer of 468 MMcf/d of San Juan basin gas to EPG's south system and would
enhance EPG's overall system flexibility to meet market demands. The project is
expected to cost approximately $62 million and will be financed through
internally generated funds or through short-term borrowings.
To accommodate increased volumes and to provide markets with enhanced
access to San Juan Basin supplies, EPG plans to file an application with FERC to
expand its existing system in the San Juan Basin by approximately 250 MMcf/d at
a cost of approximately $25 million.
On March 17, 1993, MPC filed an application, which was amended on November
8, 1993 and April 18, 1994, for a certificate of public convenience and
necessity to build and operate a 475 MMcf/d expansion of its existing system.
The proposed expansion will extend from MPC's existing east lateral, located
near
12
<PAGE> 14
Bakersfield, California, approximately 352 miles northward to the vicinity of
Sacramento and the East Bay area near San Francisco. The expansion will also
include 56 miles of looping of the existing pipeline along with 207 miles of
laterals. The estimated cost of the entire system is $467 million which is
expected to be funded primarily through project financing. MPC expects to
receive its FERC certificate in 1994 and put the expansion into service in
January 1996.
On December 16, 1993, FERC held a public conference to examine a
jurisdictional question raised by CPUC and PG&E regarding MPC's system
expansion. The primary issue was whether FERC or CPUC should have jurisdiction
over the proposed expansion. Written comments were filed by interested parties
on January 10, 1994. On February 15, 1994, FERC issued an order determining that
it has exclusive jurisdiction over MPC and its proposed system expansion
project. On March 17, 1994, CPUC, PG&E and other parties filed for rehearing or
clarification of FERC's February 15, 1994 order.
RESULTS OF OPERATIONS
First Quarter 1994 Compared to First Quarter 1993
Operating revenues for the quarter ended March 31, 1994 were $11 million
higher than for the same period of 1993. The consolidation of MPC contributed
$10 million to the increase in revenues. Also contributing to the increase was
$10 million in lower accruals for regulatory issues. Higher sales rates and
production area rates increased revenues by $5 million and $3 million,
respectively. Lower transportation rates and transportation volumes partially
offset the increase in operating revenues by $10 million and $5 million,
respectively.
Operating charges were $26 million higher for the quarter ended March 31,
1994 than for the same period of 1993. The increase in operating charges was due
to a $15 million special charge for litigation in connection with the Amoco
decision. Higher average cost of gas also contributed to the increase. The
decrease in operation and maintenance expense was due primarily to lower
employee benefit costs and a decrease in Gas Research Institute expense.
EPG's throughput for the quarter ended March 31, 1994 was 313 billion cubic
feet ("Bcf") compared to 364 Bcf for the same period of 1993. The decrease was
due primarily to lower California deliveries that resulted from higher storage
withdrawals and increased competition for the California market. The decrease
was partially offset by increased throughput to the East-of-California and
off-system markets.
Interest and debt expense for the quarter ended March 31, 1994 was $3
million higher than for the same period of 1993 due primarily to the
consolidation of MPC.
Other-net was $4 million higher for the quarter ended March 31, 1994 than
for the same period of 1993. Contributing to the higher income was $14 million
related to the recovery of EPG's investment in its underground storage facility.
The amount of EPG's underground storage facility costs was approved in the March
25, 1994 FERC letter order. The increase was offset by interest expense related
to the special charge for litigation in connection with the Amoco decision of
approximately $4 million and a reduction in partnership earnings due to the
consolidation of MPC.
OTHER
Effective January 1, 1994, the Company adopted SFAS No. 112, which requires
companies to account for benefits to former or inactive employees after
employment but before retirement (referred to in SFAS 112 as "postemployment
benefits"). The Company recorded a liability of approximately $8 million in
postemployment benefit costs in the first quarter of 1994. Management expects to
fully recover these costs through rates and has recorded a regulatory asset
equal to the liability.
13
<PAGE> 15
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Notes 3, 4 and 5 of Notes to Consolidated Financial Statements.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on March 17, 1994.
Proposals presented for a stockholder vote included the election of seven
directors and the ratification of the appointment of the Company's independent
certified public accountants for the fiscal year 1994. Each of the seven
incumbent directors nominated by the Company were elected with the following
voting results:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
Byron Allumbaugh............................................ 30,965,098 164,531
Luino Dell'Osso, Jr......................................... 30,969,618 160,011
Eugenio Garza Laguera....................................... 30,932,322 197,307
James F. Gibbons............................................ 30,960,397 169,232
Ben F. Love................................................. 30,947,107 182,522
Kenneth L. Smalley.......................................... 30,954,064 175,565
William A. Wise............................................. 30,969,868 159,761
</TABLE>
The appointment of Coopers & Lybrand as the Company's independent certified
public accountants for the fiscal year 1994 was ratified with the following
voting results:
For: 30,952,382
Against: 68,421
Abstain: 108,826
There were no broker non-votes for either proposal.
ITEM 5. OTHER INFORMATION
Continuous Odd-Lot Stock Sales Program
EPG has made available a Continuous Odd-Lot Stock Sales Program (the
"Program") in which shareholders of EPG owning beneficially fewer than 100
shares of EPG's common stock (the "Odd-lot Holders") are offered a convenient
method of disposing their shares without incurring the customary brokerage costs
associated with the sale of an odd-lot. Only Odd-lot Holders are eligible to
participate in the Program. The Program is strictly voluntary and no Odd-lot
Holder is obligated to sell pursuant to the Program. A brochure and related
materials describing the Program were sent to Odd-lot Holders in February 1994.
The Program currently does not have a termination date, but EPG may suspend the
Program at any time. Inquiries regarding the Program should be directed to The
First National Bank of Boston, the agent for the Program, at 1-800-442-2001.
14
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
<TABLE>
<S> <C>
10.F.1* -- Replacement of $30,000,000 Note dated September 30, 1991, executed by
Mojave Pipeline Company and payable to Banque Indosuez with a
$30,000,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Bank of Scotland.
11 -- Computation of Earnings Per Common Share
</TABLE>
B. Reports on Form 8-K
On March 31, 1994, the Company filed a Current Report on Form 8-K,
dated March 31, 1994, regarding the decision rendered by the Delaware
Chancery Court in the matter of El Paso Natural Gas Company v. Amoco
Production Company.
15
<PAGE> 17
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 NATURAL GAS COMPANY
(Registrant)
Date: May 2, 1994 /s/ H. BRENT AUSTIN
H. Brent Austin
Senior Vice President and
Chief Financial Officer
Date: May 2, 1994 /s/ THOMAS E. RICKS
Thomas E. Ricks
Vice President, Controller and
Chief Accounting Officer
<PAGE> 18
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------- -------
10.F.1* Replacement of $30,000,000 Note dated September 30, 1991, executed
by Mojave Pipeline Company and payable to Banque Indosuez with a
$30,000,000 Note dated September 30, 1991, executed by Mojave
Pipeline Company and payable to Bank of Scotland.
11 Computation of Earnings Per Common Share.
<PAGE> 1
NOTE
$30,000,000 September 30, 1991
FOR VALUE RECEIVED, MOJAVE PIPELINE COMPANY, a Texas general partnership
(the "Borrower"), hereby promises to pay to the order of BANK OF SCOTLAND (the
"Bank") in lawful money of the United States of America in immediately
available funds, at the Payment Office of the Administrative Agent (as such
terms are defined in the Credit Agreement, as defined below, and all other
capitalized terms used but not defined herein shall also have the meaning
ascribed thereto in the Credit Agreement) for the account of the Bank, the
principal sum of Thirty Million and No/100 Dollars ($30,000,000) or, if less
than such principal sum, the aggregate unpaid principal amount of all Loans
made by the Bank to the Borrower, pursuant to the Credit Agreement (including,
without limitation, Construction Loans, Re-Advance Loans and Interconnect Cost
Loans); on the dates and in the amounts determined in accordance with the
Credit Agreement; provided, however, that the entire unpaid principal amount of
all Loans made by the Bank shall be due and payable in full on the Final
Repayment Date.
The Borrower promises also to pay interest on the unpaid principal amount
of each Loan in like money at the Payment Office of the Administrative Agent
from the date such Loan is made until paid, at the rates and on the dates
provided in the Credit Agreement, and subject to the limitations set forth in
Section 12.17 of the Credit Agreement (to the extent same is applicable to this
Note).
At the option of the Bank, all Loans made by the Bank pursuant to the
Credit Agreement and all payments of the principal amount of such Loans shall
be recorded by the Bank on a Schedule annexed hereto, to which the Bank may add
additional pages (but the failure to record or any error in recording any such
payments or amounts shall not affect the obligations of the Borrower hereunder
or under the Credit Agreement to repay the principal amount of such Loans,
together with all interest accrued thereon). The Borrower agrees promptly to
confirm in writing the accuracy of such Schedule if the Bank so requests from
time to time (or to specify any errors thereon).
This Note is one of the Notes issued pursuant to the Credit Agreement (as
may be from time to time modified, amended or supplemented, the "Credit
Agreement") dated as of September 30, 1991 among the Borrower, Deutsche Bank
AG, New York Branch and Swiss Bank Corporation, New York Branch, individually
and as agents for the Banks named therein, and all of the terms and provisions
of the Credit Agreement are incorporated herein by this reference. This Note is
secured by and entitled to the benefits of the Credit Documents. As provided in
the Credit Agreement, this Note is subject to voluntary and mandatory
prepayment, in whole or in part.
<PAGE> 2
If an Event of Default shall occur and be continuing, then the principal
of and accrued interest on this Note may be declared to be immediately due and
payable in the manner and with the effect provided in the Credit Agreement.
The Borrower hereby waives presentment, demand, protest, notice (including
notice of non-payment, notice of protest, notice of intent to accelerate and
notice of acceleration of maturity), bringing of suit and diligence in taking
any action to collect amounts owing hereunder or in proceedings against any of
the rights and properties securing payment hereof. The Borrower additionally
waives any right it may have to require the Bank to proceed against any other
party or to proceed against any collateral given to secure payment of this
Note. The Borrower agrees that the time for payments under this Note may be
extended from time to time without notice and the Borrower consents to the
acceptance of further security or the release of any existing security for this
Note, all without in any way affecting its liability under or with respect to
this Note. No extension of the time for payment of this Note or any installment
hereof shall affect the liability of the Borrower, even though the Borrower is
not a party to the agreement effecting such extension.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW
OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW, AS MORE FULLY DESCRIBED IN THE CREDIT AGREEMENT.
MOJAVE PIPELINE COMPANY
By: El Paso Mojave Pipeline Co.,
a general partner
By: /s/ H. Brent Austin
Name: H. Brent Austin
Title: Vice President and Treasurer
By: EPNG Mojave, Inc.,
a general partner
By: /s/ H. Brent Austin
Name: H. Brent Austin
Title: Vice President and Treasurer
<PAGE> 1
EL PASO NATURAL GAS COMPANY
EARNINGS PER COMMON SHARE
FORM 10-Q, EXHIBIT 11
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------------
1994 1993
----------- -----------
<S> <C> <C>
Income available for common stock dividends..................... $21,115,000 $30,840,000
Fully diluted average common shares outstanding................. 37,364,214 37,613,054
Fully diluted earnings per common share......................... $ 0.5651 $ 0.8199
</TABLE>
Outstanding stock options of EPG are common stock equivalents but are
excluded from primary earnings per common share due to immateriality. See
following calculation:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------------
1994 1993
----------- -----------
<S> <C> <C>
Total primary earnings per common share......................... $ 0.5723 $ 0.8295
Fully diluted earnings per common share (includes stock
options)...................................................... $ 0.5651 $ 0.8199
Percent dilution................................................ 1.2581% 1.1573%
</TABLE>
